Sens. Warner, Kirk propose enhanced consumer protections for debit cards

U.S. Sens. Mark Warner (D-Va.) and Mark Kirk (R-Ill.) introduced the Consumer Debit Card Protection Act of 2014 (CDCPA), designed to increase consumer protections and reduce liability caps when debit cardholders are hit by fraud.

Under federal law, personal liability for fraudulent charges on a credit card are capped at $50, but the same protection does not extend to holders of debit cards. Consumers can be on the hook for up to $500 or more in improper and fraudulent charges involving their debit cards. The bipartisan Warner/Kirk legislation would strengthen consumer protections for debit cardholders by capping liability at $50, the same as for credit cards.

The disparity in consumer protections was highlighted during a February hearing of a Senate Banking Committee subcommittee, led by Sens. Warner and Kirk, which investigated last year’s massive security breach involving credit and debit cards used by millions of customers at Target stores.  The overall number of debit card transactions surpassed credit cards in 2004, according to the Federal Reserve System, and the number of debit card transactions in 2012 was almost double the transactions with credit cards – 47 billion compared to about 26 billion. Industry experts have estimated U.S. consumers made $1.68 trillion worth of debit card transactions in 2012.

“Debit card use has just exploded in recent years, especially among young people, and consumer protections must keep pace,” Sen. Warner said.  “Debit cards are used in much the same way as credit cards, so it makes no sense for credit card fraud liability to be capped at $50 while debit cardholders can find themselves on the hook for $500 or more.”

“In light of the millions of consumers who have had their financial information stolen during one of the recent data breaches, Sen. Warner and I will continue to take data security and the importance of consumer protections very seriously,” Sen. Kirk said. “This legislation ensures that our federal statutes for debit card protections are on par with those of credit cards, and will help consumers keep their wallets safe.”

“For years, U.S. PIRG has warned that because debit cards have weaker protections, all plastic is not created equal. This proposal from Sens. Warner and Kirk simply says that debit card users should enjoy the same gold standard protections against fraud that credit card users have always had,” said Ed Mierzwinski, Consumer Program Director of U.S. PIRG.

Credit cards are governed by the Truth in Lending Act (“TILA”), while debit cards are covered by the Electronic Funds Transfer Act (“EFTA”).  Both laws limit a consumer’s liability for unauthorized transactions, but the limitations are different both in terms of the amount of the cap and the standards for applying the limitation.

The Warner/Kirk CDCPA would provide debit card holders with a number of the important protections available to credit card consumers.  In addition to changing the cap on liability, the CDCPA would shorten the time to re-credit a consumer’s account following a disputed debit card transaction.  Currently the EFTA provides that the re-crediting must occur within 10 business days after the financial institution receives notice of the dispute.  The CDCPA would shorten that time to seven business days for debit card transactions.