Banks attempt to prevent debit card fraud by flagging cards when it appears that someone other than the card owner may have attempted to conduct a transaction. Generally, merchants cannot process transactions conducted with flagged debit cards until the cardholder has made contact with the issuing bank. Not all situations involving flagged cards are actually connected to fraud, but federal laws require banks to err on the side of caution when faced with the possibility of fraud.
Red Flag Laws
Federal red flag laws require various types of businesses, including financial institutions, to develop written identity theft prevention programs. These programs must details of the kinds of actions and activities that are often indicative of fraudulent activity involving identity theft. Each business must develop procedures based around detecting these red flags and employees must follow certain steps when presented with instances of possible identity theft. Each firm must update these policies and procedures whenever technological developments or developing trends make changes necessary.
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You can use your debit card to make signature-based transactions as well as transactions that involve your personal identification number. If the signature on your card does not match the signature on your transaction receipt then bank employees may view that as a red flag. If you incorrectly enter your PIN number then bank employees may also view that as an indicator that someone else has gained access to your card. If you use your card in a foreign country or to make an unusually large purchase, then your bank may also view that activity as a red flag and evidence that your card number has fallen into the wrong hands.
If your debit card activity raises a red flag, then your bank normally places a freeze on your card. This freeze only prevents you from accessing money through your debit card and has no impact on your ability to write checks or conduct other types of transactions on your account. The freeze prevents fraudsters from accessing your account, and the fact that you can no longer use your card usually prompts you to contact your bank. Depending on your bank's red flag policy, you may have to call your bank or make an in-person visit to a branch. A bank employee establishes your identity and reviews the suspicious transactions with you. If fraud has not occurred then the bank releases the freeze, but if it has in fact occurred, you must file a fraud complaint.
If you lose your debit card and report the card as lost before a fraudster can use the card, you are not liable for any charges the fraudster makes. If you wait two days before you report a loss, you are liable for up to $50 of charges. If you wait more than two days to report a lost card, your liability increases to $500 for unauthorized transfers from your account. Red flag rules mean that your bank may prevent such charges from occurring even if you have yet to realize that you have lost your card. However, if a bank mistakenly freezes your card, you could face the inconvenience of having your debit card declined by merchants.
- Federal Trade Commission; Fighting Fraud With Red Flag Rules; Compliance
- Federal Trade Commission; Fighting Fraud With Red Flag Rules; FAQs
- Federal Trade Commission; Credit, ATM and Debit Cards: What to do if They're Lost or Stolen; June 2002
- Smart Money; Credit Card Security: Too Much of a Good Thing?; Anne Kadet; March 2011
- Federal Trade Commission: Fighting Back Against Identity Theft