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Good Question: How Do Credit And Debit Differ?

(WCCO) Instead of "cash or check?" the question most of us are hearing at the grocery store is "credit or debit?" But what is the difference between the two forms.

"People are pretty confused on how this works," said Minnesota Attorney General Lori Swanson, who is the chief law enforcer of all consumer protection issues.

"There is a difference between credit and debit, and those differences come with different legal rights," said Swanson.

The basics are not complicated. Credit transactions are small loans. Debit transactions are instant withdrawals from your bank account. Even though many debit cards carry the logo of Visa or MasterCard they are still debit cards.

They simply use the backend of the Visa and MasterCard computer system to process the transaction. Typically for the banks issuing a debit card, pressing the "credit" button at the store results in a higher transaction fee than the "debit" system would use.

"It doesn't matter much to consumers, it's more of an issue for merchants and creditors," said Swanson. "There's all kinds of fights and lawsuits between merchants and creditors, one versus the other over fees."

Credit cards typically come with greater consumer protections than debit cards provide, according to Swanson.

"Under a credit card you have up to 60 days to say that it's been lost or stolen. And if you do that you're only on the hook for up to $50," she explained.

However, Swanson said under a debit card, "You only have two days to report if it's been lost or stolen. If you report after two days and before 60 days, you are on the hook for up to $500."

Credit cards also generally have better protections against fraud.

"Under a credit card, you have up to 60 days after you get the product to dispute whether it was really what you bargained for," said Swanson. "Under a debit card, you don't have those rights."

However, you can dispute a billing error on a debit card.

Still, credit cards aren't for everyone.

"Well the downside of using a credit card is you are borrowing money," said Swanson. "I think that last year, the credit card industry collected $17 billion in fees: late fees, over-the-limit fees, all kinds of fees."

 

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