FLYNN: Some new fine print in the debit card disclosures

Although my old debit card was working just fine, last week my bank sent me a new one.  This was an exciting event since my old card was merely gold and the new one is — platinum!  

As expected, my new card came with all of the disclosures required by the Electronic Fund Transfer Act. This includes an explanation of the process for disputing a billing error, my right to stop payment on a pre-authorized withdrawal, the bank’s policies concerning fees and charges that use of my card could generate (for example, a 3 percent foreign currency conversion fee…), and the rules governing my liability for unauthorized use of the card.

On the issue of unauthorized use, I was told (correctly) that the Electronic Fund Transfer Act limits my loss to $50 if I notify my bank within two business days after discovering that my card has been lost or stolen. If I miss the two-day deadline, I can lose up to $500 if my bank can prove that it could have prevented the unauthorized use if I had given it notice. If unauthorized use of my card shows up on my bank statement and I don’t notify my bank within 60 days after the statement is sent to me, I can lose everything wrongfully taken out of my account after the 60 days.

Fortunately, my bank, as a promotional device (and no doubt to avoid messy disputes with customers about unauthorized use) has put in place a policy that restores any money taken out of my account through the unauthorized use of my card as long as I give notice of the unauthorized use within 60 days of my first statement showing the unauthorized use. The disclosures I received reminded me, however, that a withdrawal from my account by a person I have authorized to use my card is not unauthorized if that person exceeds the authority I gave. So, if a trip to the grocery store to buy milk and eggs turns into a trip to the jewelry store to buy diamonds, too bad for me.

Another disclosure that came with my card, and that I hadn’t seen before, informed me that I cannot use my card for Internet gambling.

A disclosure I received that isn’t required by the Electronic Fund Transfer Act but that provides useful information told me the precise amounts of the daily activity limits placed on my card. There is both a daily limit on ATM withdrawals and a (somewhat higher) daily limit on purchases. With regard to the latter, I was told in a footnote that, if my daily purchases limit is greater than $99,999 and I want to make a purchase in an amount greater than $99,999, I may have to ask the merchant to process multiple transactions, none of which can exceed $99,999. (Unfortunately, this footnote has no application to my card.)

One topic the disclosures I received didn’t address is the risk of overdrafts associated with use of a debit card. Sometimes when you use a debit card (at, for example, a gas station or a hotel), a hold will be placed on your checking account in a larger amount than you anticipate. You can then overdraw your account and end up owing your bank an overdraft fee (or possibly multiple overdraft fees).  A regulatory fix for this problem is in the works, but isn’t yet in effect.

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Jim Flynn is a private attorney at Flynn Wright & Fredman LLC in Colorado Springs. The firm primarily represents clients in the real estate, financial services and small-business sectors. Reach him at jtflynn@fwflegal.com.