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Friday, April 07, 2006 

Why I Don't Want Signature Debit Cards

I see more and more people using their debit cards and just singing the receipts instead of using their PIN number, in 2003 ( most recent year for which I could find the accurate data) US consumers spent over $82 billion using their MasterCard signature-debit cards and I'm sure it must have grown since then. There is nothing wrong in using debit card for purchases, if you believe this as a way to "curb" your spending habits. But there is a reason why banks are putting Visa and MasterCard logo on them and asking us to sign the receipts instead of entering the PIN number. They are charging high fees to merchants/stores for these signed transactions. You can say how does it matter if bank gets the money or stores keeps that in their pocket. Since such transactions costs more to the stores they increase the prices and it end up affecting our pockets. If instead of signing your receipt you entered your PIN the store will avoid these fees. They may decide to pass on some of these savings to the customers, but I really doubt any bank would do that. When was the last time a bank voluntarily reduced your interest rates on a credit card since you have been paying such obscenely high interest rates months after months.

I always ask for ATM/Debit cards without the Visa/MasterCard logo though every now and then banks try to sneak in the card with little logo on the side. Couple of times they even mailed me debit cards with logo saying they have "updated the card design". Other then what I said above a non-logo card gives me some peace of mind. If I loose it, without a PIN number I don't think anyone can use the card. I know that on a debit card my liability under federal law is limited to $50, but only if I notify the issuer within two business days of discovering the card's loss or theft. It could jump to $500 if I don't realize it for a few days. And even this cap is lifted if I wait more than 60 days from the time my bank statement was mailed, so why should I take risk for banks to make the profit.

Note: There are a number of reasons I prefer using credit cards for my payments, I'll need another post to list all of them but some of them can be found here.

There is a retailing chain in Houston that actually gives you a big (~3%, I think) for using cash or debit. Use credit cards, and you pay full price. The reason (I have assumed) are the merchant fees paid to the credit card companies.

This is the same reason a car dealer won't let you pay for a car with a credit card and the same reason why there are more credit card bonus programs than debit card bonus programs: more money to support the "free" stuff. Interestingly, those airline miles are being paid for by the merchant you bought the item from.

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