Why Debit Cards are DangerousMost idividuals with a bank account posess a debit card; their ATM card bears a MasterCard or Visa logo, and can serve double duty as a "check card" also called a debit card. Unlike a credit card, the cost of purchases made with a bank account linked debit card is debited directly from the checking account balance. These cards can be used for "debit" transactions, by entering a PIN at the point of sale, but more often they are used for "credit" transactions where a PIN is not required, even though the transaction ultimately results in a debit from the customer's account.
Banks encourage their customers to use these cards for "credit" transactions, since the bank collects a percentage of the purchase in transaction fees. Merchant's end up paying lower fees, typically, when the card is used in debit mode, when a PIN is entered.
For consumers, debit cards have have very few advantages over credit cards, and many disadvantages. This articles discusses some of the dangers of using debit cards:
The problem arises for merchants that authorize your card befoe they know the actual amount of purchase, such as hotels that add to the authorization amount for expected incidental charges, car rental companies that add for extra time or in some cases as a deposit, and restaraunts which add for an anticpated tip. These extra amounts emain as holds on your account for several days and they may result in overdrafts, or returned checks.
While there have been recent changes to consumer credit cards laws that limit require eplicit acceptance of overdraft protection, and their associated fees, dropping of overdraft protection does not prevent the problems associated with returned checks due to these additional holds, and in fact it could make the problem worse (at least in terms of the number of such returned items in those cases where an overdraft would not have existed except for the extra held amount that was not actually added to the purchase and which would thus never appear during settlement).