Do people do enough debit card transactions to make this loophole worthwhile?
I avoid using my debit card as much as possible since the impact of theft is much worse for me as a consumer. I experience fraudulent credit card charges every few years, but it's not real money gone from my account.
I'd be much more annoyed if it was.
With cash back and points incentives, withholding the non trivial value of the insurance of which you speak, the only rational reason to not use a credit card is bad credit. Now, for the merchant….
> The merchant just raises prices so you can pretend like your points are saving you money.
No, you are saving money, because while the merchant raises the price to account for it, everyone gets the higher price regardless how you pay. At least with a card you can get some of it back.
(With rare exceptions, some vendors do give a cash discount. In which case I always pay cash.)
The networks have a massive incentive to minimize fraud. That's not to say that they are wildly successful or anything, but I do know from first hand professional experience that card networks spend a lot of time, money, and research into detecting and preventing fraud.
- Payment networks drop accounts with a too-high fraud rate.
- They and similar businesses (e.g. Stripe) offer automated tools to deal with fraud… for a price.
Outcome: the incentive to minimize fraud, which is often a result of crap security from the payment network, is on merchants, who also get charged extra protection money to get payment networks to do stuff they ought to be doing in the first place.
Ultimately, that incentive is the legal system, which can legislate against allowing fraud and forcefully impose penalties for it. (And operating it is a socialized cost, such that your first sentence is still correct.)
Yes, because the merchants raise prices because people pay with credit cards (which take fees), you take back a little (though of course not all) of extra markup via points, assuming you use a 2% cashback card (at least) on your purchase (which assuredly many people don't).
Merchants don't automatically pass through all costs any more than they'd pass through all savings if all their customers moved to debit cards. It depends who has the pricing power.
Not really, because the "tax" applies to competitors as well. In an uncompetitive industry the merchant has pricing power and can just raise the price, true. But in a competitive industry, margins are thin and they have to raise the price or they go out of business, and so do their competitors, which is what allows them to.
There is nothing stopping stores from offering a discount if you pay in cash or debit. Businesses most often choose not to, so they must feel like they are getting somthing out of the deal.
As a small merchant I can tell you: cash sucks to deal with and it costs money too. I went to cashless years ago. The 2.x% I eat in processing is more than made up for in not having to deal with shrinkage (either due to theft or inaccuracy or counterfiet bills), security, having to count money and go to the bank regularly, etc.
It's probably different when you're at a much larger scale than I am, but even Wal-Mart (who I was employed by in my late teens) has all sorts of cash-handling procedures to mitigate the risk of money just walking away. Even a their scale, they spend 1% on CC processing, but by the time they added up all of the labor and expenses of cash handling,it might be comparable. And for a small business it's likely more.
And then there's the data collection which has value too.
People act like accepting cash is free, it is not.
Thanks, this is an interesting opinion to read! I went through a period where I asked most small/local businesses I happened to be shopping at whether they preferred cash or card, as I had both to hand. It was a small sample size, but the vast majority said they didn't care either way, and a handful said they preferred cash. I never experienced card-only or a card-preference. That did surprise me, as I expected at least some to feel as you do.
Humorously, there are laws against credit card surcharges but not against cash discounts.
Realistically, the price difference is probably not worth the hassle of needing two prices and card sales are probably affordable enough and common enough to not bother.
They basically said a surcharge for credit is effectively the same thing as a discount for cash, and because of freedom of speech, merchants are free to communicate the difference to their customers either way.
Gas stations do the cash discount for a particular reason - to get you inside the building where you might buy profitable convenience-store items, which you won't if you just stay at the pump. (Though yes, the differential might be less than the kickback from a card rewards program.)
somewhat true but the reality is far worse - points/rewards are mostly subsidised by the poorer folk who get caught paying the > 25% interest on their carried credit card balance.
you could just as well say that the mortgage interest payments the bank takes in are subsidizing credit card points, or HELOC origination fees, or account maintenance fees are subsidizing points. you could also say the bank's profits from trading securities, or their lucrative wealth managements services are subsidizing points. but none of that would be accurate. The banks have a range of services and some are big wins and some are marginal and some may even be losses, and of course the wins help balance out the losses, but unless you can show that points disappear if poor folks manage their credit better and pay more reasonable interest rates, it's not reasonable to frame points as being subsidized by the poor.
High-end rewards cards are quite profitable on their own, thanks to the annual fee, high volume of interchange fees, and the high probability of successful collection.
Low end cards aren’t expensive because they are subsidizing high-end cards; they are expensive because they need to cover the collection costs
Which means if you want to "pay less", you have to play the credit cards rewards game to its fullest. We don't get to set the prices, merchants do.
Some merchants offer cash discounts (or a credit card surcharge), and you can make use of that if you want to. Ultimately I use cards for the convenience, regardless.
more than some. pretty much every small biz in my town does so (around 3%). not to self: carry more cash. My B2B business charges a 3% surcharge for credit cards over ACH or checks.
Not really, I've tried numerous times after negotiating the sale price of a vehicle to pay for it on a credit card. They won't do it. What they will do is allow a fraction of the payment to be made on a credit card and the rest via a wire transfer
Yeah, same. As a matter of policy, I don't take incentives, commissions, kickbacks, etc, for anything. My dad was super into points-related financial games, so I get it, but I don't need to give the professional manipulators of the world any more headspace than they already have.
Credit card network operators brag that accepting their network means customers will spend more. If spend increases even 1.6%, you are on net spending more.
CC acceptance decreases "friction." Some part of it is unlinking paying with the feeling of depleting resources when you pull cash out of your purse or wallet. Maybe running low on $20 bills and having to go to an ATM makes you decide to put one item back on the shelf. Or one's bank account is nearing bottom. In younger generations the opposite ironically can happen. They feel digital numbers fully but cash is spent more freely.
A cash back reward is a reward for not behaving badly enough that your account gets closed (or the bank shuts down). If you want to get rid of all ability to consume things, you could stop working so you don't get paid.
Actually, I think points are more like a savings account than a consumption reward, since the best deals are on international flights you have to save up a lot of points for…
> I find it pretty damn rational to deliberately remove CONSUME MOAR incentives like points/miles/cash-back rewards from my life.
Can you explain why is it rational to willingly pay more for things when you could pay less?
I also wish we didn't have to play these games, but we don't get that choice. But we do have a choice to pay less (with a credit card) or pay more, so take the rational choice.
It’s rational because you see these gamification schemes as distractions that trick you into bending over to pick up pennies off the ground while the banks pick your pockets. The credit card system is ludicrous. The payments system is a natural monopoly, so it should be operated as a public utility (e.g. FedNow I guess) with much lower fees for all. No more points, but lower prices and simplicity for all (especially for merchants).
The debit card behavior is probably bank specific. I had fraudulent transactions on my debit card. The bank caught it after a few transactions, alerted me, and shutdown the card when I told them it wasn't me. I didn't get charged for any of the fraudulent transactions. I also had a restaurant charge my debit card for my bill and another customer's bill (honest mistake, not fraud). The restaurant wouldn't refund the transaction, so I disputed it with my bank, who reversed the transaction. The bank was fully set up to dispute debit card transactions from their website.
It’s bank specific but the major difference is that with credit cards you are protected by law whereas with debit cards it depends on the whims of your bank and the contract you signed with them
You call it whims, but I don't know of any bank that doesn't offer those protections. Generally the terms are that you have to report it w/i 30 or 60 days. Maybe some of the smaller credit unions?
but like the other poster, I've had people try to charge me for things that weren't mine and I've never had the problems people seem to imagine exist with debit cards.
At this point I've concluded it's a marketing scheme by the CC companies that has convinced large swathes of society that debit cards are dangerous.
Not only that, but I would argue the false sense of security of CC's makes it so people are less safe in their habits.
>You call it whims, but I don't know of any bank that doesn't offer those protections. Generally the terms are that you have to report it w/i 30 or 60 days. Maybe some of the smaller credit unions?
That's been my experience as well. Although my bank almost always declines debit card transactions if I'm more than 50 or so miles from home, making the use of credit cards much more useful when I travel.
Sure, but why deal with that uncertainty? The money is not in your account until the dispute process finishes.
With a credit card, the money never leaves your account in the first place, at least until the bill is due.
Regardless, I know I'm legally protected with any credit card I use. With a debit card, it depends on the bank's fine print as to how disputes are handled.
> The money is not in your account until the dispute process finishes.
That's not necessarily always the case.
I use a debit card for almost everything. I've been doing it this way for quite a long time now.
Both times I've filed a dispute over debit card transactions, my bank immediately put the disputed amount back into my account while they investigated the dispute.
It was inconvenient to deal with (as many things in life can be), but it was not particularly problematic.
> relying on a corporation like a bank to be nice is risky and a fragile stance (they can change ToS any instant).
Banks are a lot more tightly regulated that most other businesses, and (in my experience) don't generally have "we can change the ToS whenever we want, however we want" clauses in their customer agreements.
All the banks I've dealt with say they have to give you 30 days notice of any ToS changes, and with language like "if we reasonably consider that the change is favorable to you" (or similar).
If your bank has more leeway in changing its ToS on you, I would suggest having a look around at the terms other banks offer.
Banks have to hold up their end of the customer agreement (contract), and the terms of that agreement are enforced by contract law.
I've yet to see a bank's customer agreement wherein the contractually-defined protections for debit cards varied significantly from the legally-defined protections for credit cards. (I haven't made an exhaustive study of this, but I have read the fine print for every new bank account that I've considered.)
If you can find a customer agreement that is meaningfully different in this aspect, then: I'm all ears.
> Banks have to hold up their end of the customer agreement (contract), and the terms of that agreement are enforced by contract law.
Right, but they can change those unilaterally whenever they feel like it. Multiple times a year I'll get an updated terms of service document from this or that bank.
So you can point to a bank's a customer agreement that is meaningfully different in this aspect compared to federal requirements for credit cards, then?
Or maybe you're just spilling FUD?
Just because a thing can change, doesn't mean that it will. (It doesn't even mean that it has ever changed.)
However, I appreciate the CFPB link. Having worked in fintech I'm familiar with them.
The link does corroborate that debit card protections are weaker than credit card protections. They have with more aggressive reporting requirements (2 days) and higher potential liability ($500, or even as much as the full amount in some circumstances, though unlikely).
This document has a handy table that compares the protections side by side. As you can see, debit card protections are weaker. Scroll down to the table "Federal Protections for Unauthorized Transactions":
> They have with more aggressive reporting requirements (2 days)
between 2 days and 60. read it closer.
this is called backpedaling, as I predicted. we've now gone from "prove debit cards have federal protections!" to "but but but ... they're different!".
they're protected mr fintech family who had no idea.
But in the days between a fraudulent charge, and you reporting it, maybe you bounced a check...
There is a difference between your account balance being immediately depleted by fraud and your available credit being reduced.
> I also had a restaurant charge my debit card for my bill and another customer's bill (honest mistake, not fraud). The restaurant wouldn't refund the transaction,
I know this wasn't the point of your story, but refusing to refund the transaction takes it firmly from "honest mistake" into "fraud" territory in my book. Oops, I accidentally stole your money, my bad. No, I won't give it back. WTF?
I think perhaps you don't understand because you presumably have a reasonable amount of money and cashflow buffer. It's hard to appreciate how much of a trap credit cards are if you have very little money, or live truly paycheck to paycheck. Its so easy to accidentally run past your "$0" and be stuck in the world of 30%+ interest for a long time, spending multiples of the initial cost.
As such, debit cards are still very popular for people who need to control every dollar, which is a lot more people than you think. Often folk would rather a transaction be denied than to go into expensive debt - they've been burned, they've learned the hard way.
Some banks used to "helpfully" give you a spot loan when you ran below zero balance. Some banks still charge you overdraft fees. Most banks charge you absurd fees for basic debit features.
I see a lot of people using pre-paid credit cards. You can just roll into Walgreen's, flop cash on the counter, and "charge up" your card.
There are a lot of debit products out there. ButfFor the majority of traditional banks, if you turn off overdraft the account keeping fees for debit are far far less than the average carried CC interest bill.
Those pre paid credit cards come with their own substantial fees, and usually are without rewards or purchase protections.
> Those pre paid credit cards come with their own substantial fees, and usually are without rewards or purchase protections.
Having looked over a few the fees aren't any different than what you'd expect at a commercial bank like Wells Fargo. Many do come with rewards, often tied to the network of stores that issues them. Purchase protections aren't universal on standard cards.
> I’m not entirely sure what you’re getting at?
That debit cards aren't inherently safer than credit cards and this is reflected in the scope of available products.
I can tell you I make mid 6 figures and I still control every dollar.
But you're absolutely correct, people act as if CC's don't have the inherent risk of going into debt, not as bad but similar to a pay-day loan. People throw around the word privilege, but it applies here.
> I think perhaps you don't understand because you presumably have a reasonable amount of money and cashflow buffer.
Agreed.
> debit cards are still very popular for people who need to control every dollar,
But that's terrible advice. Debit cards will debit immediately from your account and you may know that banks are very creative in re-ordering transactions to inflict you maximum pain.
You have $1000 balance and on the same day issue payments for $10, $20, $30, $40, $50 and $999. If the bank processes those in the same order you get hit with one overdraft fee when the final $999 payment goes through.
But no, the bank will rearrange that to process $999 first, and hit you with five overdraft fees. So nice of them. I mean nice for them.
With a credit card the payments are buffered away from your balance and you can choose when to pay it.
>But that's terrible advice. Debit cards will debit immediately from your account and you may know that banks are very creative in re-ordering transactions to inflict you maximum pain.
>You have $1000 balance and on the same day issue payments for $10, $20, $30, $40, $50 and $999. If the bank processes those in the same order you get hit with one overdraft fee when the final $999 payment goes through.
>But no, the bank will rearrange that to process $999 first, and hit you with five overdraft fees. So nice of them. I mean nice for them.
According to[0/PDF] the Consumer Financial Protection Bureau (CFPB)[1], reordering transactions in that way is illegal.
Edit: I'd clarify that I am not claiming that this sort of transaction doesn't happen, but rather that it's not a new issue and happens often enough that the CFPB felt it important enough to publicly opine about its illegality several years ago.
Additional Edit: Added more context from parent comment to make their point (to which I certainly wasn't in disagreement) clearer. Apologies for any confusion.
> Debit cards will debit immediately from your account and you may know that banks are very creative in re-ordering transactions to inflict you maximum pain.
In the US that's been illegal since the late 90's, you need to update your information.
