Credit Versus Debit Cards

They look a lot alike. Both may say VISA or MasterCard. They both function at the point of sale in similar fashion, but there are important differences under the hood.

First, the most obvious: a credit card spends your line of credit, or loan, and the Debit Card spends the cash in your checking account.

For those that tend to mismanage credit, a Debit Card seems like a reasonable choice because it quits working when you run out of money! However, the security differences between Credit Cards and Debit Cards change everything.

Use of a Credit Card is protected by several federal statues, like the Consumer Credit Protection Act (CCPA) passed in 1968 and the Fair Credit Reporting Act. These federal laws protect the consumer and limit your exposure to the financial impact of fraud. To be clear, you have some responsibility for in order to claim these protections, like timely reporting any fraud or theft incident. What’s important from a security perspective, is the use of Credit Cards is protected by federal law. Debit cards are not protected. Moreover, debit cards access your cash in your accounts, and not your credit line.

If your Debit Card is lost or stolen and used criminally, or you are a victim of fraud, your exposure is the entirety of your checking account and any overdraft protection you may have. Sure, some banks will eat the cost of fraud and make you whole, but let’s be clear: They don’t have to by law.

Therefore:

NEVER use your Debit Card for online shopping.

Our recommendation?

Use a virtual card service. Our preference is Privacy.com, https://www.privacy.com.

With this service, you protect your payments by shopping privately and securely. You can mask your identity to the merchant; you can block overcharging and unwanted subscriptions; you can set spend limits; pause, un-pause, and close cards any time. Each card created is unique and locked to one merchant, so if this merchant is compromised and someone else tries to bill your card, the transaction is declined.

By the way, this locked to one merchant thing works. Our mail order pharmacy changed their name slightly and our medication billing began failing. No problem, I created a new card, deleted the old card, and updated the pharmacy billing information.

With cards from Privacy.com, you can set maximum spend limits on virtual cards to prevent being overcharged, and these limits can be against Month, Year, Transaction, or Total. You can pause or cancel a card anytime without penalty.

The limits are a good feature, because the funding of Privacy.com’s virtual cards behaves like a debit card – in that card use is “auto-debited” from a checking account you link to your Privacy account. With these limits, you can ensure you are not over billed and have your checking account cleared out.

Case in Point

And this works, too: we had a card on file for our trash service. They raised their rates and we missed the memo. The new charge was declined, which sets off a string of emails from the trash service and Privacy. A quick investigation into the cause, and a simple change on the trash virtual card got us back on track.

Another Case in Point

Here is another reason why you should switch to virtual cards: Those pesky vendors that keep billing you and make canceling their service damn near impossible. Include Sirius XM in this list! But this example is Adobe. I fought through their miserable website to cancel my subscription and actually found where and how to cancel. The cancellation was successful, or so they said, and I would only be billed again if I logged back into their site. Well, that’s not true at all. Adobe tried billing my closed card almost one hundred times, each one failing: