Until the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act and signed on July 21, 2010 by Barack Obama, the benefits or “Pros” and “Cons” of carrying a “debit card,” were mostly positive. With more and more businesses refusing to accept checks, debit cards are the perfect answer. Businesses get instant confirmation of payment and avoid efforts to kite checks.
On the pro side: ease and speed of use, less need to carry cash, low transaction fees, some benefits of a credit card in disputing charges and a few benefits to the merchant were obvious. In addition, in some international areas they are accepted and some of the difficulties in exchange rate determinations are reduced. On the con side: some security issues, restrictions by banks in some states and pending increased fees when the new banking rules kick in and restricted use on the internet or hospitality area, are issues.
Unfortunately, a debit card’s benefits have taken a hit with the Dodd-Frank bill meaning the con side of using a debit card has just gotten more expensive and complicated.
Debit cards are similar to credit cards in the sense that a percentage of what is purchased is charged to the merchant. A merchant’s share of a specific purchase using a credit card can range up to five per cent depending on the amount of each individual purchase. The smaller the per-item price the higher the percentage a merchant must pay for credit card use.
Until the Dodd-Frank Bank bill, a debit card’s maximum fee per purchase to the merchant was a fixed 1.12 percent making the transaction simple and commensurate with real costs. Now, because of Dodd-Frank, the bank can only charge twelve cents per purchase. Because twelve cents isn’t enough to cover the transaction for the bank to make a profit, consumers will have to pick up difference because of congressional meddling under the guise of helping the consumer.
As Ronald Reagan used to say: “The scariest words in the English Language are: “We’re from the government and we’re here to help.” That’s exactly what has happened with the Dodd-Frank bill. Before its signature into law by Obama, debit cards were in the middle of totally replacing checks. They provide several advantages over hand written checks.
A Few Debit Card Benefits or Pros:
* Ease of use is probably the most beneficial advantage of debit cards. It takes just a swipe through the slot and the info is recorded to your checking account. No time consuming writing the amounts and payee on a check and signing it or sometimes having to rewrite a check because you miss-wrote something. You also don’t have to carry a check book.
* Now it’s only a signature in most cases and sometimes for very low purchase amounts that’s not even required.
* Costs are born primarily by the merchants who pass those extra costs along to the consumer in the form of commensurate slightly higher product or service costs. However, with debit cards, you don’t have to buy nearly as many checks saving you money or worrying about losing a checkbook.
* With a debit card, purchases are simply listed on the monthly bank statement and when the statement is balanced, the user just refers to the statement’s list just like a check.
* Frequently, debit cards can be used out of state when checks cannot, although some banks may restrict use of debit cards in some states or localities because of the high number of incidents of identity theft. It is best to review a bank’s restrictions to be sure where they usable.
* Debit cards can be used internationally in some instances, but again it is a bank by bank determination. But, if your bank does allow you to use debit cards internationally, it does help reduce exchange rate problems because those issues are dealt with automatically.
* There are also some safety considerations if you have previously had to carry large amounts of cash. A debit card can reduce that need usually which can be a safety or security issue.
* A debit card can be used to rent a car, but the car rental company will usually require some type of an immediate credit score validation to use it. Most hotels allow debit cards now with certain stipulations. Once again, it’s best to check both with your bank and a quick call to the hotel.
A Few Debit Card Use Warnings and Cons:
* The biggest negative in using a debit card is security. It is very easy to steal the number through various methods and create a duplicate debit card.
* Many banks have some “credit card” type protections but that depends on the individual bank. Your greatest protection is keeping your eye on your account for transaction anomalies.
* While some banks have monitoring methods for unusual activities using a debit card, be forewarned a thief can actually get your account number create a card and use it even while you are using your car.
* Although it is usually a small irritant, debit card listings on your statement do not come with a number, as do checks, which can be a problem when balancing the checkbook and you have a little difficulty finding an error.
Debit cards are exploding in use and more and more businesses are accepting them, even in the hospitality industry. Obviously, any type of financial transaction is subject to pros and cons. Keeping close track of your account is the best safety measure. However, even with that being said, debit cards are a great way to speed up purchases, reduce paper work, eliminate checks and are just all-around more convenient.
One last suggestion: We’ve all seen the proliferation of shows devoted to personal money management such as Suzie Orman, Dave Ramsey or Gail Vaz-Oxlade host of “Until Debt Do Us Part.” In every case, the excellent suggestions these advisers agree on is get rid of credit cards. In a way a debit card can fill that ease-of-use void that a credit card provides. But of course, it is not a charge card, which can force the user into more carefully monitoring of personal spending, which can be a very good thing.