What Selecting "Credit" When You Run Your Debit Card Actually Does

Many consumers think selecting "credit" when they make a purchase on their debit card protects them, but the truth may surprise you.

Jan 22, 2014 at 9:30AM

It's easy to think a simple push of a button can help protect you as a consumer -- but the unfortunate reality is, it can't.

In the wake of the recent Target data breach scandal, with more than 70 million affected consumers, many people have begun to truly question how exactly they should be paying for everyday goods and services. There are a number of reasons you should never use your debit card, largely all stemming from the reality that debit cards provide fewer rights and protections to consumers.

As a result of countless factors, the thought of a credit card still makes many people uneasy, and it's easy to think that a simple solution is to just select "credit" after a purchase and think that the debit card has now become a credit card, with all the rights, protections, and benefits, but none of the potential drawbacks.

Unfortunately, there is one major problem, and what you select after that purchase has no impact on your rights as a consumer. And it is vital for all consumers to know that simply selecting "credit" on the PIN pad after a purchase doesn't transform a debit card into a credit card.

The truth of running debit as credit
The lines between debit and credit cards are blurry because you can run a debit card as a credit card. However, even though the transaction is logged as credit, as the Federal Deposit Insurance Corporation puts it, you are still "authorizing a debit (withdrawal) from your account, not a credit card transaction." 

By Lendingmemo

Source: Lending Memo.

In reality, one of the only differences between running a card as debit or credit is the time in which it takes the transaction to flow through to your account. When a PIN is entered, the money is immediately deducted -- or debited -- from the account, whereas if credit is selected, the payment goes through the credit card network and the payment is withdrawn within a few days.

I recently spoke with Jason Oxman, CEO of the Electronic Transactions Association. He said that selecting credit or debit simply affects "how the transaction is submitted to the network." In essence, the distinction between credit and debit at the point of sale has no bearing on what rights a consumer does or doesn't have. Instead it only changes the "rails" on which the money transfers from the consumer's account to the merchant's.

More fees to merchants
In fact, according to the Federal Reserve, even though on the surface they are seemingly the same, it actually costs merchants up to twice as much money in interchange fees -- what they pay for every transaction -- when a transaction is run as credit versus debit.

By Mediadigest

Source: Flickr/media.digest

While it can be an easy thing to assume, the reality is that running a debit card as a credit card has almost no bearing on the individual consumers apart from the longer period it takes for the transaction to be reflected in a bank account. The reality remains that the best way to protect oneself is to monitor transactions that are posted to an account and call the bank or credit card company immediately if something looks incorrect.

What happened at Target is indeed a difficult and troubling thing, but all consumers can learn how to better protect themselves moving forward and ensure they are not victim to large-scale, or even small-scale, fraud.

Your credit card may soon be completely worthless
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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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