Getting a Handle on Debit and Credit Cards
Credit and Debit Cards
Although they may look the same, all plastic cards do not work the same.
In fact, there are two very different kinds of cards in use today: credit
cards and debit cards.
As the names imply, credit cards allow the extension of credit and the
delay of payment while debit cards charge or debit your account at the
moment of the transaction.
Many credit cards work as follows: You charge goods or services and the
merchant who accepts your credit card sends the transaction information
to the card-issuing institution. The institution then bills you, usually
on a monthly basis. In many cases, payment may be made by the due date
with no interest assessed. If the total bill is not paid by the due date,
you often can pay off your debt in monthly payments that include finance
Debit cards, unlike credit cards, automatically withdraw funds from your
account at the time you make a transaction.
Debit cards are used most commonly at automated teller machines (ATMs)
and for purchasing goods directly in stores.
The machine-readable plastic card contains a magnetic strip indicating
your account number, bank number, and type of account. Debit card users
gain access to the issuing institution's computer by using a secret code,
their personal identification number (PIN). The PIN should only be known
to the card holder.
Avoiding Card Fraud
Although credit and debit card fraud can take many forms, the following
examples explain some situations to watch for.
Stolen Cards at the Office
Over the lunch hour when you leave your office for lunch, you could be
the target of a credit card thief. Credit card thieves often gain illegal
access to the offices of employees who are away in order to search unattended.
Most times, they leave the offices and immediately go on a shopping spree,
charge credit cards to their limits, and withdraw cash on debit cards.
Protect your credit cards as you would cash. Never write your PIN
number on your debit card. Instead, always commit your PIN number to memory.
Extra Copies of Charge Slips
When processing your credit card, a dishonest merchant may decide to
imprint a few extra copies of the charge slip. Later, the merchant can
submit these copies to the issuing institution for payment on phony charges.
Keep your eye on your credit card whenever it is in use. Watch clerks
process your credit payments. Open your credit card bills promptly each
month. Make sure that you made the listed purchases. Also, report any
charges that you did not make to the credit card company.
Discarded Charge Slips
Sometimes, people may collect copies of your discarded charge slips from
the wastebasket. Dishonest people could use the information from the copies
to order merchandise by mail and ship it to a phony address. In addition,
they could also sell the copies to counterfeiters who would take the account
numbers and use them to alter cards or make new ones.
After signing a credit card slip, ask for your receipt or duplicates.
After you have compared them to the charges listed on your monthly credit
card statement, tear them up and throw them away.
Unsigned Credit Cards
Stealing and using credit cards that have not been signed is another
potential fraud. In other words, credit card thieves could steal your
unsigned credit cards and then sign your name on the card in their handwriting.
By doing so, they take your name as an alias and they will never have
a problem writing and verifying their own signature.
Protect your credit cards. When you receive a new or replacement card,
sign the back of it as soon as it is activated. Always be sure to store
it in a safe place. Cut up expired cards before disposing of them.
Loss of Multiple Cards
While shopping, you can easily be targeted by pickpockets. If your purse
or wallet is stolen, you may lose all your credit cards at one time.
Separate your cards. Only carry those cards with you that you plan
to use. Also, check your cards from time to time and put aside those cards
you don't use very often.
Strange Requests for Your PIN Numbers
This form of fraud involves thieves who find creative ways to steal your
credit or debit cards when you don't know about it. For example, sometimes
people crawl behind rows in movie theaters and steal pocketbooks while
you are watching a movie. When you return home they call you, identify
themselves as bank security agents, and ask for your PIN numbers. If you
hesitate, they simply ask you to phone their supervisor and give you an
accomplice's phone number to call. By doing so, they are able to get your
PIN numbers and use the stolen debit cards to withdraw cash and make purchases.
Again, never reveal your PIN number to anyone. Also, never keep your
PIN number in your purse or wallet. Don't write your PIN on your card
either. Always try to memorize it.
Recognizing Counterfeit Cards
Legitimate cards follow standard specifications as to color, tint, quality,
and style. Stamped letters and numbers are spaced evenly and sized equally.
The signature panel is uniform in size and is almost impossible to scrape
Altered cards are made from actual cards. The original stamped data is
melted down or pressed out. Then, the card is re-stamped with legitimate
account numbers, names, and expiration dates, which have been illegally
obtained. On altered cards, the letters do not line up well and are usually
irregular in size. Some credit card companies help merchants identify
altered cards by making an authenticator machine available to merchants.
The machine authenticates or verifies certain information that is encoded
on the back stripe on the back of the card.
Counterfeiters make most counterfeit cards by silkscreening or painting
the card logo and issuing institution's name onto a blank piece of card
plastic. Because they are silkscreened, the cards don't look exactly like
the real thing. Real credit cards are printed. Also, the signature panel
on silkscreened cards may be glued or painted on and can be easily lifted
or chipped. This panel may also appear uneven in size or placement.
New technology is making it more difficult for criminals to use, alter,
or counterfeit credit and debit cards. Some of the innovations are already
These security features have been added to major credit cards:
- Holograph - a three-dimensional, laser produced optical device
that changes its color and image as the card is tilted.
- Fine-line printing - a repeated pattern of the card company
name positioned as background for the company logo.
- Ultra-violet ink - special ink that is visible only under
ultra-violet light, which will display the credit card company's logo.
"Smart Cards" may be the credit cards of the future. Each card has a
built-in computer microprocessor. Signatures have been replaced with personal
identification numbers and verification is handled only by computers.
Eventually these cards may provide information on investments, charge
accounts, and money market accounts. We may someday think of the credit
card as a pocket-sized computer memory bank.
Improved verification methods are also being developed and tested. These
include fingerprinting, retinal eye scanners, and computerized signature
On the Internet
While using the Internet, you can learn about any number of topics and
buy almost anything. Be aware, though, that Internet shopping, like traditional
shopping, may carry some risk. Software to protect you and your privacy
is often a part of most web sites. In fact, when ordering online, it would
be wise to check if you are on a secure server by looking for a security
symbol such as an unbroken key or padlock symbol at the bottom of your
Internet browser window. These symbols indicate that any information you
may send to the web site, including your credit card numbers, is encrypted
or put into computer code prior to transmission.
It is important to keep a personal list of your credit and debit card
numbers, the issuing banks, and their phone numbers so that you can contact
them in case of loss or theft.
If your credit card is lost or stolen, contact your bank or issuing institution
immediately. Your monthly statement should list the phone number of whom
You do not have to pay for any unauthorized charges made after you have
notified the issuing bank or institution. The most you will have to pay
for unauthorized charges is $50 on each account. But this can add up if
several cards are lost or stolen at the same time.
If you think that you did not make some or all of the purchases listed
on your statement, you can take action. The Fair Credit Billing Act, an
addition to the Truth-in-Lending law, requires prompt correction of billing
mistakes. Within 60 days after the bill was mailed, you must notify the
creditor in writing. You do not have to pay the amount in question while
you are waiting for an answer.
If your debit card is lost or stolen, notify the issuing bank or institution
immediately. According to the Electronic Funds Transfer Act, if notification
is given within two business days of discovery of the loss or theft, you
may only be liable for $50. If you do not notify them within the two-day
limit, you could lose up to $500. Finally, if notification is not given
within 60 days after receiving a statement showing unauthorized withdrawals,
you could be liable for everything.
What is the Law?
The Credit Card Fraud Act imposes prison sentences and stiff fines on
persons convicted of unauthorized or counterfeit use of credit cards and
debit cards. Also, the law makes it a federal crime to use any unauthorized
card, plate, code, or account number to obtain money, goods, or services.
The Secret Service is authorized to investigate violations under this
For More Information
This overview was based on materials originally
created by the Federal Reserve Bank of Philadelphia.