The Internet has taken its place next to the telephone and television as an important part of people’s lives. Every day, more consumers are using the Internet for financial activities like investing, banking, and shopping. How do they do it? Most use charge, credit or debit cards to pay for their online purchases. Increasingly, however, new payment methods are becoming more common.
New Ways to Pay
Although credit and charge cards are the most common ways to pay for purchases online, debit cards – which authorize merchants to electronically debit your bank account – are being used as well. Your debit card may be your automated teller machine (ATM) card and may require you to use a personal identification number (PIN). It may be a card that requires only some form of signature or other identification; or it may have a combination of these features. While using a debit card is similar to using a credit card, there is one important difference: when you use a debit card, the money for the purchase is transferred almost immediately from your bank account to the merchant’s account.
One of the hallmarks of the online world is change. So it’s no wonder that a number of electronic payment systems – sometimes referred to as “electronic money” – are under development for simplifying purchases online. For example, “stored-value” cards allow consumers to transfer cash value to the card. Some stored value cards work offline (say, to buy a candy bar at a vending machine); others work online (to buy an item from a web site); or they may have both features. Some stored value cards contain computer chips that make them “smart” cards: They can act like a credit card as well as a debit card, and can also contain stored value.
Some new Internet-based payment systems would allow value to be transmitted through computers. Consumers can use them to make “micropayments” – extremely small payments – for an item like a sheet of music. When consumers use electronic money to make a purchase, they decrease the balance on their card or computer by the amount of the purchase. Some cards can be “reloaded” with additional value, say, at a cash machine; other cards are “disposable” – you can throw them away after you use them.
When you make purchases online, make sure your transactions are secure, your personal information is protected, and your fraud sensors are sharpened. Although you can’t control fraud or deception on the Internet, you can take steps to recognize it, avoid it, and report it. Here’s how:
- Use a secure browser – software that encrypts or scrambles the purchase information you send over the Internet – to guard the security of your online transactions. Most computers come with a secure browser already installed. You also can download some browsers for free over the Internet.
- Keep records of your online transactions. Read your e-mail – merchants may send you important information about your purchases.
- Be prompt about reviewing your monthly bank and credit card statements for any billing errors or unauthorized purchases. Notify your credit card issuer or bank immediately if your credit card or checkbook is lost or stolen.
- Keep your personal information private. Don’t disclose your personal information – your address, telephone number, Social Security number, or e-mail address – unless you know who’s collecting the information, why they’re collecting it, and how they’ll use it.
- Give payment information only to businesses you know and trust, and only in appropriate places like order forms.
- Never give your password to anyone online, even your Internet service provider.
- Do not download files sent to you by strangers or click on hyperlinks from people you don’t know. Opening a file could expose your system to a computer virus.
Correct Problems & Errors Immediately
It is important to check your credit account and bank account statements regularly. The statements could contain mistakes that might damage your credit status or reflect improper charges or transfers. If you find an error or discrepancy, notify the financial institution and contest the error immediately. While it may be helpful to notify the company by e-mail or telephone to quickly report a problem, you also should send a written notice by mail to ensure your federal rights are protected. Send written notices by certified mail, return receipt requested, and keep a copy of your letter for your own files.
The Fair Credit Billing Act (FCBA) and Electronic Fund Transfer Act (EFTA) establish procedures for resolving mistakes on credit account and bank account statements, respectively, including:
- credit charges or electronic fund transfers that you – or anyone you have authorized to use your account – have not made;
- credit charges or electronic fund transfers that are incorrectly identified or show the wrong amount or date; computation or similar errors;
- a failure to properly reflect payments or credits, or electronic fund transfers;
- not mailing or delivering credit billing statements to your current address, as long as that address was received by the creditor in writing at least 20 days before the billing period ended;
- credit charges or electronic fund transfers for which you request an explanation or documentation, because of a possible error.
For credit: The FCBA generally applies to “open end” credit accounts – that is, credit cards, revolving charge accounts (such as department store accounts), and overdraft checking accounts. It does not apply to loans or credit sales that are paid according to a fixed schedule until the entire amount is paid back, such as an automobile loan.
Under the FCBA, your liability for lost or stolen credit cards is limited to $50, and you have the right to dispute charges on your bill. To do so, you must send a letter explaining the disputed item to the creditor at the address on the statement for billing error notices. Your letter must include you name, account number, a statement that you believe the bill contains a billing error and the dollar amount involved, and the reasons you believe there is a mistake. The letter must reach the creditor within 60 days after the first bill containing the disputed item was mailed to you.
The creditor must acknowledge your dispute in writing within 30 days after it is received, unless the problem is resolved within that period. The creditor must conduct an investigation and either correct the mistake or explain why the bill is believed to be correct, within two billing cycles (but not more than 90 days), unless the creditor provides a permanent credit instead. You may withhold payment of the amount in dispute and any related finance charges – and the creditor may not take any action to collect that amount – during the dispute.
For debit: The EFTA applies to electronic fund transfers – transactions involving automated teller machines (ATMs), debit cards and other point-of-sale debit transactions, and other electronic banking transactions that can result in the withdrawal of cash from your bank account.
Under the EFTA, if there is a mistake or unauthorized withdrawal from your bank account through the use of a debit card (an electronic fund transfer), you must notify your financial institution of the problem or error within 60 days after the statement containing the problem or error was sent. For retail purchases, your financial institution has up to 20 business days to investigate after receiving notice of the error. The financial institution must tell you the results of its investigation within three business days of completing the investigation. The error must be corrected within one business day after determining the error has occurred. If the institution needs more time, it may take up to 90 days to complete the investigation – but only if it returns the money in dispute to your account within 20 business days after receiving notice of the error.
If someone uses your debit card without your permission, you can lose from $50 to $500, depending on when you report the loss or theft. But if you do not report an unauthorized transfer or withdrawal within 60 days after your statement is sent to you, you risk unlimited loss. Some financial institutions voluntarily cap your liability at $50, regardless of when you report the loss or theft. Ask your financial institution about its liability limits.
For stored-value: The FCBA and the EFTA may not cover stored-value cards or transactions involving them, so you may not be covered for loss or misuse of the card. However, you may want to use stored-value cards for micropayments and other purchases online, because they can be convenient and – in some cases – offer anonymity. Before you buy a stored-value card or other form of electronic money, ask the issuer for written information about the product’s features. Find out the card’s dollar limit, whether it is reloadable or disposable, if there is an expiration date, and any fees to use, reload, or redeem (return it for a refund) the product. At the same time, ask about your rights and responsibilities: does the issuer offer any protection in the case of a lost, stolen, misused, or malfunctioning card; and who do you call if you have a question or problem with the card.