Credit or Debit? Unauthorized Use and Consumer Liability Under Federal Consumer Protection Legislation

Abstract

Although debit cards may closely resemble credit cards in appearance, consumer liability for unauthorized use is not similar and the payment transaction initiated through use is very different. In response to the increasing use of debit card products, consumer protection issues concerning liability for unauthorized use have been raised, new legislation has been introduced to Congress and an extremely lucrative debit card market has prospered. Sections I through IV of this comment provide an overview of the federal Truth in Lending Act and of the federal Electronic Fund Transfer Act in relation to consumer liability issues concerning the use of credit and debit cards. Section V briefly discusses self-regulatory industry efforts that are pertinent to unauthorized use. Section VI outlines proposed federal legislation, which, if enacted, may make a consumer's liability for the unauthorized use of a debit card similar to a consumer's liability for the unauthorized use of a credit card. Section VII contains a broad discussion of whether existing debit card law should be amended by Congress to provide consumers with liability protection similar to existing credit card law. This comment briefly concludes that the enactment of federal legislation further limiting a consumer's liability for unauthorized debit card transactions is unnecessary. Amending the liability framework applicable to debit cards will likely provide no additional protection to responsible consumers, and ultimately, it may encourage irresponsible account maintenance. Finally, adequate industry-initiated safeguards are in place. Therefore, consumers are already provided with sufficient protection against liability that may result from an unauthorized debit card transaction.