Consumer Protections in Using a Credit Card

Consumer Protections in Using a Credit Card

July 23, 2020         Written By Tracy Farnsworth

Credit cards gain a negative stigma due to high APRs and fees. Media and the government have both tackled credit card companies as being greedy. You’ve probably heard stories of bank bailouts, executive bonuses, and high levels of revenues and start to question why you’d trust an industry that seems to focus on raking in the cash.

Behind all of the fees and APRs are some advantages that never get the attention they should. Credit cards offer purchase protection and insurance plans that debit cards simply cannot and do not match.

By 2017, the number of debit card users compared to credit card users had increased to more than half. While credit card users still remained ahead at 48% of all online purchases, debit cards were up to 28%. If you add in P2P payments or peer to peer payments, it’s clear that credit cards are not as favored as they once were. Just 10 years earlier, Javelin Strategy & Research reported that 87% of consumers were using credit cards. If you’re using a debit card exclusively, you could be putting yourself at risk for a great financial loss.

If you’re one of the thousands that are switching to debit cards or an in-app system, you need to weigh the pros and cons. There are times when a credit card is still a smarter choice. On large ticket purchases or travel, rely on credit cards for the best protection.

Where Do I Start?

One area to start with is the protection against fraudulent purchases. If someone steals your credit or debit card number, your bank or credit union will probably hold you responsible for a certain amount. As your debit card may be linked to your checking account and sometimes has overdraft protection that also draws from your savings, you could find all of the money you had saved up disappears. You might eventually get some of it back, but you’ll be without that money while the fraud team investigates. There are zero-liability debit cards, but laws favor credit card holders if there is a fraudulent activity. With debit cards, federal laws offer these protections:

  • $0 liability if the fraudulent purchase occurs after you reported the lost or stolen card
  • $50 liability if the fraudulent purchase occurs within two days of you reporting the lost or stolen card
  • $500 liability if the fraudulent purchase occurs between 3 and 60 days of you reporting the lost or stolen card or getting a statement with the fraudulent purchase
  • Total liability if the fraudulent purchase occurs more than 60 days after the statement with the fraudulent purchase’s are made

If you’re not checking your statements often and miss that a fraudulent purchase was made and find your account drained more than 60 days later, you could lose every penny.

With a credit card, you are not liable for fraudulent use of your credit card if the liability is more than $50 and/or you didn’t notify the credit card company that your card was lost or stolen. If you constantly check your credit card account’s activity, you’re well protected. Many credit card companies have $0 liability plans in place, which further protects you. But you MUST handle the transactions at one time, meaning if you pay $400 cash on a downpayment for a trip then pay the rest of the balance on your card, you will NOT be eligible for purchase protection.

With either card, if there is a fraudulent purchase, the burden of proof is on you. You need to keep receipts and keep track of any travel you’ve done. If you live in New England and haven’t traveled, but purchases were made in India, you can easily prove there’s no way you made the purchase.

Protections and Insurances Gained When You Use a Credit Card

In addition to the financial aspect, there are other benefits a credit card offers that debit cards don’t. Here are the protections you gain when you use a credit card.

Baggage Delays

When you’re traveling, some credit card companies offer protection against baggage delays. If the airline or other carrier hasn’t produced your bags within 18 hours of your arrival, the credit card company will reimburse the cost of essential replacement items. This is in case the airline, bus, or train doesn’t provide any money to pay for a change of clothes and items you need for personal care and hygiene.

Car Rental – Loss Damage Insurance:

When you rent a car, check with your credit card company about car rental insurance coverage. Many issuers provide some car rental protection if anything happens to the car. That protects you from needing to pay for the car rental agency’s expensive insurance coverage. Rules can vary from one area company to another. You’ll find details over what your card issuer covers in your Cardmember Agreement. To be covered, the cardholder must be the primary renter and use the credit card to pay for the car. You also must decline the car rental agency’s collision damage waiver when you pick up your car. The credit card’s loss damage insurance kicks in after your auto insurance policy offers any coverage they have for rental cars.

There are exclusions. If something of yours is stolen from the rental car, your credit card issuer’s policy is not going to help. If you allow someone not listed as an authorized driver to drive the car, that’s not covered. Reckless driving, tire blowouts not related to theft or vandalism, and driving under the influence are also not covered.

Emergency Medical Transportation/Doctor Referrals

You’re away from home and have a medical emergency. Your health insurance policy may have doctor referrals and medical transportation protection. If it doesn’t call your credit card company to see if they do. In addition to emergency medical transportation and referrals, the company may have plans to help get the deceased home. You still have to pay the medical bills, but it can help make a stressful situation a little easier to handle.

Emergency Ticket Replacement

If you lose your travel ticket, you may need a replacement ticket delivered to your hotel or house rental. Certain credit card companies offer this service. The cost of the ticket is charged to that card.

Extended Warranty Protection

See if your credit card company offers extended warranty protection. With this protection, the manufacturer’s warranty is extended by the credit card issuer. It will give you a longer period for getting free repairs if the item you purchased with that credit card stops working. Usually, the extended warranty increases protection by a year.

To qualify, the original warranty cannot be more than three years. Make a claim by contacting the extended warranty administrator at your credit card company and submitting a copy of the original warranty, receipt, and credit card statement that shows the item was paid for with the credit card.

Hotel/Motel Burglary

You’re on vacation and return to your room to find that someone broke in and stole your personal items. If the card you paid with has hotel/motel burglary protection, it provides financial protection against the theft.

Lost Luggage

An airline will have a lost luggage policy, but it may not be enough. With a credit card that offers lost luggage, you may find protection on damaged, lost, or stolen bags is better on both checked and carry-on baggage. This policy also may offer some protection for electronic items and jewelry.

Price Protection

Say you’ve purchased a new computer at a local store and two days later, that exact same computer is $200 less elsewhere. With price protection through your credit card company, you get that price difference refunded if you request it within a specified period of time. Many companies that offer price protection do set refund limits. To get the refund, you need to submit evidence of the lower price with a claim form that’s submitted to the price protection administrator.

There are exclusions for price protection, too. It doesn’t usually cover purchases made online, purchases that are only cheaper due to a coupon or refund offer, and items purchased through liquidation, “close out,” or “going out of business” sales. Purchases made for travel, such as airline tickets and hotel bookings, are also not protected.

Purchase Protection

Purchase protection is the most valuable perk a credit card can offer. You paid $400 for a brand new TV and dropped it as you’re carrying it into the house. It’s shattered and the store won’t offer a refund since you caused the damage. Some credit cards offer purchase protection for items that are stolen or accidentally damaged. You could be offered a refund or the chance to have the item repaired or replaced.

Note that there are often limits in place. Those limits might be per occurrence or per year.

Roadside Assistance/Roadside Dispatch

If you don’t have roadside assistance through your auto insurance policy, see if your credit card company offers it. If you run into problems on the road, you might be able to get discounted rates on tire changes, gas deliveries, towing, and jump-starts through the credit card company’s roadside assistance policy. Roadside dispatch services also help if you lock your keys inside your car and don’t have a spare.

Travel Insurance

Check with your credit card issuer to see if they offer any common carrier travel insurance. If there’s a flight or train accident, they may have insurance coverage providing you paid for that travel using that credit card.

Trip Cancellation, Trip Delay, and Trip Interruption

Pay for your vacation using your credit card and get trip cancellation and trip interruption coverage. If you’ve used any discount, such as frequent flier miles or credit card rewards, you have to have used the credit card to pay for the rest of the travel costs. There is likely going to be a maximum limit per year, and you may have to pay an additional fee to get this coverage.

If your trip is delayed by more than 12 hours due to weather or airport closure, you might find yourself stuck. If you’ve paid using a qualifying credit card, you might find your accommodations and meals are reimbursed when you file the claim.

There are some exclusions. If the trip is canceled or interrupted due to a pre-existing condition, a non-emergency medical treatment or surgery, pregnancy/childbirth that’s not the result of complications, or participation in non-contact sports.

Any time you apply for a new credit card, look to see if the bank or financial institution offers pre-qualification. If you pre-qualify, the credit card issuer does a soft check of your credit report. When you apply for real, the card issuer does a hard check.

Why does this matter? Soft pulls of your credit do not count against you. They do not appear on your credit report. Hard pulls do. Too many reduce your credit score. When you apply for real, you want to have narrowed your list to your top two choices that say you’re pre-approved. Apply to your favorite credit card first and see if you’re approved. If not, you can go to your second choice. Research credit cards online and find the best credit card terms for your needs.

Sources:
https://www.tsys.com/Assets/TSYS/downloads/rs_2017-us-consumer-payment-study.pdf
https://www.consumer.ftc.gov/articles/0213-lost-or-stolen-credit-atm-and-debit-cards

The information contained within this article was accurate as of July 23, 2020. For up-to-date information on any of the terms, cards or offers mentioned above, visit the issuer's website. Many of the offers on this article are from our affiliate partners, and LowCards.com may be compensated if you take action with any of our affiliate partners.

Review LowCards.com Editor’s Top Cards!

2020 Top Credit Cards by Category
Featured Fair Credit Card
Reflex Mastercard® Credit Card
EDITOR RATING
Featured Fair Credit Card
Reflex Mastercard® Credit Card

Applying for this card will securely direct you to the issuer's website.

Top Features: All credit types welcome to apply!

Featured Low Interest Card
ABOC Platinum Rewards Mastercard®
EDITOR RATING
Featured Low Interest Card
ABOC Platinum Rewards Mastercard®

Applying for this card will securely direct you to the issuer's website.

Top Features: No annual fee; $150 statement credit after spending $1,200 in first 90 days; 0% on Purchases for 12 months

Featured Bad Credit Card
First Digital NextGen Mastercard® Credit Card
EDITOR RATING
Featured Bad Credit Card
First Digital NextGen Mastercard® Credit Card

Applying for this card will securely direct you to the issuer's website.

Top Features: Reports to all three credit bureaus, perfect credit not required for approval

Petal® Visa® Credit Card
EDITOR RATING
Petal® Visa® Credit Card

Applying for this card will securely direct you to the issuer's website.

Top Features: No fees whatsoever. No late fee, international fee, annual fee, or any-other-kind-of-fee, fee


tracy

About Tracy Farnsworth

Tracy Farnsworth went straight from a business track in high school to a full-time job in mortgage banking in Burlington, Vermont. After having children, she built a freelance career in content writing and took online classes as time allowed. She completed Social Media Marketing and Digital Marketing certificate programs with Ireland's online Shaw Academy and completed several courses in SEO and analytics. In her free time, she's the “mom” to a very clingy rat terrier, and the pair walk at least a mile every day. She's also a novice baker who is trying to master the art of sourdough bread.