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Why The Backlash Against Debit Cards Confuses And Perplexes Me

Why The Backlash Against Debit Cards Confuses And Perplexes Me

Photo by anachronist84 at deviantART

Photo by anachronist84 at deviantART

I don’t have to tell you that I’m not a typical personal finance blogger: I don’t recycle my toilet paper rolls, and I use dryer sheets exclusively in the manner in which God intended, viz. to scent and soften mine and my family’s clothing as it gently tumbles in my natural-gas-guzzling dryer. To add insult to injury, I gleefully wash my clothing with Tide in my full size laundry machine, and have never even once attempted to use coffee grounds to “stop the bleeding.” So, as you might imagine, it’s not strange for me to read something in a personal finance blog that confuses or perplexes me. This happens so often, in fact, that I have a folder in Google Reader devoted to “Personal Finance Blogs That Often Confuse Or Perplex Me.” Really. I do.

You thought I was just being hyperbolic, huh?

You thought I was just being hyperbolic, huh?

The thing is, neither Guzzo The Contrarian nor Frank Curmudgeon are in my “Personal Finance Blogs That Usually Confuse And/Or Perplex Me” folder in Google Reader. As a matter of fact, they are both in the Google Reader Folder called “Good Personal Finance Blogs,” and that is in spite of the fact that Guzzo uses a [praise Allah!] summary feed!

Summary feeds will be the death of me.

Summary feeds will be the death of me.

Yet both of them have featured posts about how they hate debit cards in recent memory, and this fact alone is causing me to question my whole life’s epistemology.

Guzzo says it’s because he assumes htis is a means of the bank making money of its customers, which, touche, but isn’t that what credit card companies do, too? I know that, in theory, if you use your credit card and pay off the balance in full each month, this will not happen (provided you don’t have an anuual fee), but you would only have to miss one deadline, or not have enough to pay one time, for this to not be true. The odds are, you’ll end up paying interest fees at some point if you use a credit card. That’s how they stay in business. There are people who haven’t yet, but I think the people who never have and never will are very few and far-between. Frank’s complaint is that there’s no good reason to use a debit card, because if you overdraft, the bank will just charge you a huge overdraft fee, rather than denying the charge, so it could potentially end up being a more costly endeavor than running up credit card debt. I will acknowledge that debit cards would be better all around if there were no such thing as these exorbitant overdraft practices that banks have developed, but that’s like saying you shouldn’t write checks because if they bounce, they will cost you money.

Guzzo cites a joint NYT/Frontline piece on how banks use debit cards as a means of getting you to pay overdraft charges. So you overspend on your debit card, and they cover the overdraft, and then charge you an exorbitant rate for the “service” of doing this. Banks are scumbags. That’s what they do. Besides, isn’t this a problem with the concept of overdraft protection and its associated charges or keeping accurate banking records, rather than a problem with debit cards in the abstract? If you are tracking your money carefully — and I have to assume that Guzzo is — then this kind of overdraft charge should not ever happen. It has never happened to me, and I’m not even very careful. I use cash for much of what I do, and I also keep a general idea of how much money is in my account so that this kind of thing doesn’t happen. People who are more organized than I am even write these kinds of things down — infact, isn’t that what people did back in the olden days when we wrote those things called checks? Do you have a problem with the concept of checks and overdraft protection, too?

Other than the overdraft charges — which I think consumers really have to accept responsibility for, anyway — I don’t see how we are paying money for debit cards, exactly? I don’t pay a fee for using a debit card. The only time I’ve seen a fee is when you go to some nickel and diming gas station like Arco, and they’ll charge you 40 cents for using your ATM card. And that’s pretty much cheaper than any finance fee you’re going to find at a credit card company, but they don’t let you use your credit card at Arco anyway. At least with a debit card, there is in theory a finite number attached to how much one can overspend. At some point, they’re going to stop taking your card. If I were to use a credit card, I could run a tab up into the high five digits before anyone cut me off, and this was true back when I was a *graduate student* in *English*, too. I’d much rather risk a few hundies in overdraft protection fees than five figures of debt at a high APR.

The thing is, Frank and Guzzo — god love ’em — are two of those annoying people who don’t understand why debt is so bad for some of us, because they were born with an ability to treat money responsibly. For them, it is far more likely that they might make an error about how much cash (exactly) is in their account at any given moment than it is to run up their credit card bills unnecessarily. I envy them. But the reason that people are using debit cards more and more is because of that balance system that is in place — overdraft fees are outrageous, but they are still better than dealing with massive credit card balances. Some of us just cannot take the risk.

Comments (4)

  1. Nov 4, 2009

    I guess it all boils down to the feature of debit cards that “there is in theory a finite number attached to how much one can overspend.” Having no personal experience with debit cards I can only go by what I read about on the web, and that has led me to believe that that particular feature doesn’t work all that well.

    I have no argument with the thesis that debit cards could be very useful for some people, provided they worked a little differently than they actually do.

  2. Nov 4, 2009

    Frank, you might be right. I don’t know what the debit card people are doing lately, but back in the day when I was running up debt and overdrafting checks, they would cut me off on overdrafts after about $200 or $250. So, maybe I’m working with an old school model of debit cards, I’m not sure, because I haven’t overdrafted recently. It might just be that they’ve done this, though I still wonder about an unlimited amount of overdrafts being allowed. I guess the rule should be, if you are prone to overspend, use cash only, all the time, for everything.

  3. weezy
    Nov 4, 2009

    My bank allows me to put a daily limit and/or single purchase amount limit on my debit card account, so that I can keep myself from reckless overspending (although it’s momentarily scary to have a large purchase turned down b/c I forgot that the item (viz., refrigerator I bought a few years ago) was over my self-imposed limit. It also protects you to some extent from theft if your card is stolen and password hacked.

  4. Nov 5, 2009

    My purse (beloved Louis Vuitton Speedy, sob!) was stolen in August. Oh, how I regret ever getting a debit card! My credit union quietly switched from ATM card to ATM/debit card with Visa logo a few years ago and i figured it was no big deal, right?

    Wrong! Debit cards have a much lower security threshold. The thieves repeatedly tried to use all my cards and they were most successful with debit cards.

    Then, the credit union made me come in and notarize statements that each individual charge was fraudulent. While the whole thing was under investigation, the amount stolen remained gone from my bank account. It was a paperwork nightmare and huge pain in the ass that made a bad situation much worse. It involved repeated trips to the bank and since we have a joint bank account, my husband (who commutes to work an hour away so is rarely in the same zipcode as me during business hours) had to be present each time for document signings on the multiple times I had to go in.

    Did I mention this whole thing was a HUGE pain in the ass? Nothing got past AmEx (GREAT security) and my Visa had three charges, two from gas stations and one from a fast food ATM. For those, Nordstrom Visa bent over backward being so great, so helpful, so sympathetic. Not so the credit union, who treated us with skepticism like we were trying to pull a fast one on them.

    I learned since then that I can get an ATM-only card without Visa/debit component and that’s what we got as replacements. Lesson learned.

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