Consumer - Banking Questions
Banking Questions
Credit Cards
Protections against stolen cards
ATM Cards
Debit Cards
Stored-Value Cards
Loans
The Fine Print
Cosigning Loans
The high-tech, electronic world has made it possible for banks and other financial institutions to offer new products that look like and can be used for some of the same purposes as credit cards. However, these new cards don't come with all the same consumer protections that are in place for credit cards. What are all these products, how are they the same, how are they different and how should you best protect yourself as a smart consumer? These are the points covered below. What are your choices?
[Back to Top]Credit cards were introduced by oil companies and have been around the longest. The card is really a loan and extends you credit from VISA, MasterCard, or a retailer such as Sears or Penney's. The credit arrangement is regulated by federal law. Included in the regulations are protections in using the card and if the card is stolen or used without your permission.
Protections in credit card purchases
If the purchase was for more than $50, it took place in your state or within 100 miles of your home and you have made a good faith effort to resolve the problem with the seller, you have some recourse for getting a credit charge removed.
You need to send written notice of why you dispute a charge that has shown up on your monthly bill. It is better not to pay the disputed charge while in the process of the dispute. It is much harder to get the money back from the retailer if you pay initially. You need to send this written notice to the address provided on your monthly bill. This is usually a different address than where you send the payment. Keep a copy of your written dispute letter as proof, and send it by certified mail. The Credit Card Company will then investigate the charge and will inform you whether or not they are removing the charge from your account.
Sample language to use in your letter:
(Be sure to date the letter)
Dear Credit Card Company:
On [DATE OF SALE] I used my credit card to purchase [STATE WHAT PURCHASED] from [MERCHANT'S NAME] for [STATE AMOUNT]. This took place in [LOCATION].
A problem has developed from this sale. It is [DESCRIBE - defective goods, failure to deliver goods, work not done, etc.]. Although I have tried to resolve this problem with the seller, our disagreement has not been resolved to my satisfaction. Therefore, I am withholding payment for the amount of this transaction.
If you need more information, please feel free to contact me at the address below. [LIST YOUR NAME, ADDRESS and PHONE NUMBER].
Thank you for your assistance with this matter.
Sincerely,
[Your name]
Protections when your card is stolen or used without permission
If your credit card is lost or stolen, you are not responsible for unauthorized charges over the first $50. If you properly report the loss of the card to the credit card issuer before the first $50 is charged, you will not be responsible for even that amount. (Note: because of this federal protection, buying additional "insurance" on your credit cards usually ends up being a waste of money. The insurance premium can add up to more than the amount at risk - $50.)
The proper place to report the loss of a credit card is found in the credit card disclosures - keep that paperwork with your financial papers. Usually, the same information is in the fine print on the monthly billing. Also, quite often the number and address to report stolen cards is not the address to dispute a billing charge (see above). Report the loss as soon as possible by phone and follow up with a letter. Carefully review your subsequent bills for any unauthorized charges. While merchant acceptance of credit cards is widespread, credit card fraud is at new heights. Follow these oft-repeated cautions:
- Sign the back of your card,
- Be sure you know where it is at all times,
- Use care disposing of paper receipts,
- Be extremely cautious about giving out your credit card number and expiration date,
- Keep the company’s 800 number and your credit card number handy (but in a safe place) so that if your card is misplaced or stolen you will be able to promptly report it to take advantage of your protections under federal law,
- Be careful when letting anyone use your card.
ATM Cards
ATM cards are also known as "money cards." Sometimes they are called Debit Cards. They are the next oldest forms of electronic banking that most of us are familiar with using. These are the cards you use at the ATM (automatic teller machine) to withdraw cash, pay bills, or transfer funds from one account to another. Although ATM cards are the same size as a credit card, they do not offer you credit. In this case, the amount transferred or withdrawn as cash is immediately taken out of your account. Thus, you are not charged interest and you don't have to make a monthly payment on the account. ATM cards can be used at a growing number of locations besides your bank or financial institution. For example, grocery stores, gas stations, or another bank's ATM will accept a transaction using your ATM card. Usually, when you use your ATM card at the ATM of another bank, you are charged a transaction fee of a dollar or more. ATM cards are activated by a PIN (Personal Identification Number).
The consumer protections for ATM cards are not as extensive as for credit cards. Because the cards only work with the PIN, the $50 limit on your liability if someone else uses your PIN and card to withdraw funds is not available. The bank assumes that the transaction was authorized or else the card user wouldn’t know the PIN. For this reason, the best consumer protection with ATM cards is to never write the PIN on the card or card sleeve. Also, don't use a "universal" PIN like 0000 or 1111 or 1234. These are the first combinations a card thief tries.
Your financial institution must give you a regular statement of transactions made with your ATM card. Review this statement to ensure no surprises show up, and if they do, contact the institution as soon as possible. The biggest security concern with the use of ATM cards is at the ATM terminal. Be careful that no one looks over your shoulder as you key in account and identification numbers. Use common sense with respect to time of day and location in choosing a terminal.
Debit Cards
Debit cards are a newer variation on bank issued cards, sharing character traits with both credit cards and ATM cards. The major difference between an ATM and debit card is that more stores are wired to accept a payment from your debit card than your local ATM card. Debit cards are also known as electronic checking, because they most often replace old-fashioned paper check writing. Both VISA and MasterCard are heavily marketing debit cards: they use the names of Checkcard and Mastermoney, respectively. Since many merchants allow a customer to make the debit for an amount over what is owed, and thus receive cash back, a debit card offers a consumer substantial convenience as well as an opportunity to avoid ATM charges. The use of debit cards is really beginning to take off and any merchant that accepts major credit cards will also accept those companies’ debit cards.
Your protections for a lost or stolen debit card are greater than an ATM card, but not as strong as for credit cards. With lost debit cards, your $50 limit for unauthorized charges only applies for two days after you discover your card is missing. After that time you can be liable for up to $500; however as a matter of company policy both MasterCard and VISA limit your liability to $50 on debit cards they are affiliated with. Finally, if you don't report the card as missing within 60 days of the bank sending your statement, you can be held responsible for paying all the unauthorized charges.
Your protection for purchases of shoddy or non-delivered goods and services is also less under a debit card than with a credit card. You do not have a right to this protection, although your bank may negotiate with you or on your behalf with the seller.
Stored-Value Cards
Stored-value cards, sometimes called smart cards, are a credit card look-alike. Most of us first heard of smart cards through telephone company ads marketing them to families with students away from home. Smart cards carry the money value in them. You can buy an AT&T smart card for $5, send it to your granddaughter, who then can use it to talk to you for up to $5 worth of long distance tolls from a pay phone. Other uses for a smart card are purchasing gasoline, photocopying, etc. Stores frequently offer them to be used as gift certificates.
The best consumer protection with smart cards is to keep them in a secure place. If they are lost or stolen, you have no special protections. Further, smart cards are different than all other cards because there isn't any authorizing PIN or signature mechanism. With smart cards, therefore, possession is truly 100% of the law. Whoever has it can use it. For this reason it is risky to have large values put on a smart card.
When to use each
One of the smart consumer questions to ask is which is the better card for a particular transaction? Smart cards may be a better way to help a child or grandchild with an out of pocket expense. You can give your child $50 towards a phone bill, gas or clothing bill, without revealing the PIN access to all the money in your bank account, or giving authorization for your entire credit limit on your credit card.
Credit cards charge interest on any unpaid monthly balance, so sometimes you may want to use a debit card or ATM to make a purchase, and avoid the extra interest charge at the end of the month if the balance can't be completely paid. On the other hand, when you need to make a purchase that is more than you can afford in a single payment, the credit card, which offers payments over time, is the only card that offers this flexibility. Note: if you need to make a major purchase, a fixed loan may offer better terms than the revolving credit interest rate on a credit card.
Loans
Over the last twenty years, federal regulation has greatly improved a consumer's ability to make smart choices on loans. From Regulation Z, which requires lenders to tell you the total cost of the loan, the annual rate of interest, and what is being added on, to Regulation B, which prohibits lenders from discriminating against you because of your age or gender, there is information available to make shopping for the best deal much easier.
If you are having trouble getting approved for a loan, the Fair Credit Reporting Act also provides some protection. It requires the lender to give you a free copy of your credit report within 30 days if information in the report was used to deny you a loan. If this happens, you should check whether the report includes wrong information about you.
It is now possible for anyone to obtain a free copy of their credit report once a year. You can order your free credit report in 3 different ways: online at www.annualcreditreport.com, by calling 1-877-322-8228, or by filling out a form available by writing Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. Since there are 3 national credit reporting companies, Experian, Transunion and Equifax, it is possible to obtain a “fresh” report 3 times a year by simply directing the request to a different company each time.
The Fine Print
Despite the protections written into regulations, as a smart consumer you still need to examine the fine print and ask the tough questions in order to determine if this loan is the best for your circumstances. Ask yourself:
- What are you actually financing? Are there costs you would do better paying up front rather than paying interest on them for the life of the loan?
- Are there penalties for an early pay-off or refinancing?
- What other charges are you paying to get the loan from this lender and how do they compare to competitors?
- Is the interest rate variable or fixed?
- If the interest rate is variable, is there a limit on how high it can go? How often can it change? Can you afford the worst case scenario?
Cosigning Loans
It is not uncommon for a family member to ask a senior for help in buying a car, financing new appliances or securing a mortgage. You probably understand the risk to you if you directly hand over your savings to help with these purchases. Many seniors, however, are unaware that cosigning on a loan puts them at just as much financial risk. How is this so? It stems from the terms of the contract you sign on your relative's behalf. Even though both you and the bank intend that your son will make the monthly loan payments, if he misses a payment, the bank has the right to come to you for repayment. This is the legal significance of co-signing: the bank is not willing to make the size of loan on your relative's income and assets -- they need another person with income and assets to pledge to repay the full amount. Be careful: as long as you are agreeing to be responsible for the debt of another you ARE a cosigner even though the contract may not specifically refer to you as one. When you act as a cosigner you are "loaning" out your good credit.
In Michigan, cosigners have some protections if a loan goes into default. Before the lender can report adverse information on the bad loan to a credit reporting service, the cosigner must be given written notice (by first class mail) that the loan payment is overdue and the cosigner is going to be held responsible for the payment. The cosigner is also to get at least 30 days from this notice to bring the loan up to date. Before this law, seniors who cosigned loans discovered that their credit was ruined without even hearing from the lender, or they were given 24 hours to pay a substantial arrearage, without much chance of responding in the short time allowed.
Being a cosigner on a delinquent loan can have a negative impact on your credit rating. In the worst case, the lender can sue both loan cosigners for the unpaid balance and win. The lender then collects from whomever has the judgment amount. If you are the only cosigner who still has funds, the lender will collect the entire amount owed from you. It may be difficult to get the money back from the person you cosigned for.
As you can see, cosigning has many risks for the senior and her bank balance. Carefully weighing the pluses and minuses for you, against the benefit of helping your family or friend is all a part of advancing smartly.
