In Part I of this post, I described how I was interested in the Target REDCard Debit Card, which offers 5% off on all purchases everyday*. It sounded attractive but I wondered about safety, given the fact that it would be tied to my checking account. In this second post, I look at what would happen if a Target REDCard Debit Card was lost or stolen and used fraudulently.
Next, I looked up the Electronic Funds Transfer Act (EFTA) which spells out liability limits when debit cards are lost and stolen. It appeared to me that Target REDcard debit cards would be covered by the EFTA, but I also checked with consumer finance attorney Justin Hosie of the Chambliss Law Firm, one of my go-to sources for questions about consumer credit regulations. He took the time to help me better understand how the EFTA works.
I still had some questions about how the process would work if my card were compromised, since the entity issuing the debit card (in this case, Target National Bank) is different than the one holding my account from which the funds would be transferred when a purchase was made. (By contrast, with a typical Visa or MasterCard debit card, the card issuing institution is also the one holding the underlying deposit account.) I was concerned that cardholders might be stuck between the bank and the card issuer, with each holding the other responsible.
So I decided to go to Target and apply for the card. It took only a few minutes to be approved and when I was, I was given a detailed card agreement. It’s long – about 18 pages – but it covers both Target Credit Cards and Target Debit Cards. I took the time to read through it and found a pretty clear explanation of how it works. (I am not sure I would have been motivated to read through the whole thing if it weren’t for this blog post, but it does provide a good example of why it is helpful to read the agreements you sign.)
Here’s an excerpt:
You will tell us that once if you believe your Card, Card number, or PIN has been lost or stolen. Telephoning us is the best way of keeping your possible losses down. You could lose all the money in your deposit account (plus your maximum overdraft line of credit) that can be accessed by the card. If you tell us within four business days after you learned of the loss or theft of your Card, Card number, or PIN, you can lose no more than $50 if someone used your card, card number or pin without your permission.
If you do not tell us within four business days after you learn of the loss or theft of your Card, Card number, or PIN, and we can prove that we could have stopped someone from using your Card, Card number, or PIN without your permission if you had told us, you could lose as much as $500.
It then goes on to detail the circumstances under which you could lose more than $500.
The language in the cardholder agreement mirrors the liability limits established by the EFTA, so it does appear that transactions made with the card are covered by that federal law.
Some advocacy groups like Privacy Rights Clearinghouse say that debit cards are too risky and urges consumers not to use them. However, because this card requires the use of a PIN, it seems to me it would offer a level of safety that signature-based debit cards don’t. I also couldn’t find any complaints online from consumers who had experienced a compromise of their Target REDcard Debit Card, or who had trouble resolving that kind of issue.
My Take On The Target REDcard Debit Card:
- A 5% across the board discount is a great deal. Even the most generous reward cards don’t offer 5% off every purchase every day.*
- A debit card can be a good option for someone who doesn’t want to sign up for another credit card, or for someone who can’t qualify for one.
However, the law that governs liability in the case of debit card fraud is not as strong as the law that covers liability in the case of credit card fraud. For that reason, be smart if you get this card. Don’t choose an easy PIN (not your address or phone number please!), don’t write it down in your purse or wallet (or store it in your cell phone), and review your bank statements frequently to identify any fraudulent transactions quickly. If you do spot problems, notify Target immediately.
- Make sure you have enough money in your account to cover the purchase amount so you don’t overdraft your checking account.
And finally, you’ll have to make sure you don’t use the discount as an excuse to overspend. Knowing how I shop at Target, that’s going to be my challenge.
*The discount does not apply to gift cards or prepaid cards, prescriptions, Target Clinic services, Target Mobile, and Target Optical Eye Exams.
Update – After receiving numerous questions about what Target does with the information it collects from purchases on these cards, I wrote a third article:
Image: Kevin Dooley, via Flickr.com