Debit Indebted

Next year, Bank of America (among others) will begin charging debit card customers a $5 monthly fee.

Banks are making the change because revenue from lucrative interchange fees paid by merchants (a.k.a “swipe fees”) is being cut in half by a new rule issued by the Federal Reserve Board that takes effect Oct. 1st. So, instead of an average of 44¢ per transaction, banks will only be earning 24¢. Bank of America estimates that it will lose $2 billion annually because of the change. So, what’s a poor bank to do? Well, they’ll negate their losses by shifting their costs onto consumers, of course.

Even beyond avoiding the aggravating new monthly fee, using a credit card has distinct advantages.

Federal laws protect credit card users from fraud much better. The Fair Credit Billing Act ensures that you bear no liability for fraudulent purchases, damaged goods, and products that were never delivered. And you generally have 60-90 days to report fraudulent or erroneous charges to the bank.

credit card mouse trapThe Electronic Transfer Act does provide debit card users some protection during a dispute or error but only if you catch and act upon the issue quickly. If you notify your bank within 2 days of a questionable charge, your liability is limited to $50. However, between 2 – 6 days your liability could increase to $500. Beyond 6 days, you may have no coverage. And to dispute a debit card transaction, you may be required to prove that the card has never been used online on an unsecured network.

And remember that with a credit card dispute, you’re questioning fraudulent or erroneous transactions before you’ve paid the bill. With a debit card, the money has already been withdrawn, so recovery is going to be much more difficult.

Given that debit cards are directly linked to your bank account, a thief who obtains or clones your debit card along with its PIN may be able to clean out your bank account, and you’d have little or no recourse.

By the way, many banks claim that their debit cards can also be used as a credit card. While it’s true that these transactions may take slightly longer to post to your checking account, they’re still a debit transaction. So, using your debit card in this manner does not afford you the same protections or deferred payment opportunity as a “real” dedicated credit card.

The biggest disadvantage of using a credit card over a debit card is self-control. You have to make sure that you’ve saved enough money to cover your purchases when the credit card bill arrives in order to avoid finance charges. Since the money is not being taken out of your bank account immediately as you make purchases, there’s a high risk of overspending and accumulating interest-bearing debt, according to this website. But with a little self-discipline you can actually avoid the finance charges and earn money on your purchases.

So, do you use debit cards? And if so, will these needless new fees affect your debit card usage?

Netflix: A Story of Greed, Apathy & Karma

As longtime Netflix subscribers, we were really miffed to learn earlier this Summer that they’d be dramatically increasing their rates. While we previously paid $9.99 per month for one DVD at a time plus unlimited streaming, the same combination would, effective September 1, 2011, cost $15.98 per month.
greedy businessman
Note that this new pricing included no additional features—in fact, they’ll have less to offer since Starz Entertainment has terminated its deal as a content partner. Netflix claimed the increases were necessary to continue to grow & improve their service. Maybe. After all, the streaming service was initially a freebie but had grown significantly, so the need to shore up the infrastructure could be legit. But the company’s unapologetic, cavalier attitude struck a sour note and many customers were understandably angered, threatening to cancel their subscriptions entirely. Given the company’s withering stock value since—especially plummeting since Sept. 1st—a lot of those rightfully disgruntled customers have followed through with their threats. (In fact, we did too!)

Today, subscribers were treated to a personal message from Reed Hastings, co-founder and CEO of Netflix, with as backhanded an apology as you may have ever heard. He feigned remorse for how they handled the rate hike but still did nothing to earn back customer trust or instill faith in his leadership. He explains that the company is rebranding the DVD mailing portion of their service as “Qwikster” while retaining the “Netflix” brand for streaming only. This divisive maneuver is sure to aggravate customers who’ll have to bounce back & forth between the two sites, never knowing which movies will be available for streaming vs. delivered. Beyond that, this just seems like a feeble effort to distance the now-disgraced Netflix brand name from the price hike debacle. It’s a desperate move by short-sighted, greedy, leaders whose faulty management and slap-in-the-face customer service have just cost them the keys to the kingdom.

Netflix is embedded in TVs, DVD & Blu-ray players, videogame consoles, and well… just about everything but your toaster yet rather than continue to gradually build on the captive audience within that already-installed base, they spurned their loyal fans, got greedy and blew a phenomenal, once-in-a-lifetime market lead. Especially given how flippant the company’s management has been about all of this, it’ll be nothing short of a miracle if they ever fully recover. This is pure, swift consumer karma in action. Make room on the loser’s bench, TiVo & Palm!

Were you a Netflix subscriber before the price increase? Did you stick with ’em or jump ship?

Be sure to check out Seinfeld’s Jason Alexander put a hilarious spin on this situation: