December 18, 2004

Death by Debit Card

I like my debit card just as much as the next efficiency-minded money-guy, but let's face it:

There are times when a debit card just is not an appropriate method of payment.

I'll save us both a bit of verbage here and refer you to an article from MSN Money and Bankrate, entitled "Debit Cards Too Risky for Big Purchases." It's pretty good, if you haven't read it yet, and well worth a few minutes of your time. Author Lucy Lazarony pretty well covers the bases when it comes to deciding whether to use a debit or credit card in certain instances. I notice, however, that she left out one particular situation. Thanks to my particular job, this happens to be a situation I see on at least a weekly basis.

At least once or twice a day, someone from the F&I (finance and insurance) office at my dealership will come back to my desk and ask me to "run" a credit card for a customer. Sometimes it's a customer purchasing an extended warranty on a vehicle purchased earlier; sometimes it's a customer putting down $500 so our sales department will hold or acquire a certain vehicle for them; sometimes it is simply for the down payment on a vehicle they wish to purchase.

[Aside: I would like to think that someone using a credit card for the down payment on a vehicle is doing this simply to get mucho rewards points or airline miles or a new set of cast-iron silverware or something. But I have a sneaking suspicion it often goes more like this:

Finance Guy:   "Well, Mr. and Mrs. Smith, the agreed sales price for your new Wagon Queen Family Truckster is about $2,200 more than your bank will loan on it. How would you like to handle that discrepancy?"

Mr. Smith (whose bank accounts, like everyone else's, are mostly devoid of cash):   "Uh ... can I just put it on this credit card?"

Finance Guy:   "Certainly you can, Mr. Smith. Certain you can."

That, followed by the obligatory sinister laugh, of course.]

Anyway, every once in a while, when Mr. Finance Guy comes back to my desk to work one of these blockbuster deals, he's carrying not a credit card but a debit card. Sometimes the customer comes with him, but usually not.

"Hey," Finance Guy will say. "I need you to run this card for $3,500."

Which is where the party begins. Every bank and credit union, you see, has its own guidelines and limits for how much it will allow a member to charge to his/her debit card in any 24-hour period. For some banks, this daily limit is a mere $500. For others, it's $2500. In any case, the limit is there to serve as protection for the customer (and the bank) in the case of theft or fraud. And if you use a debit card and don't know what your bank's daily purchase limit is, then you ought to take a moment this coming week and find out. It could save you, at the least, some embarrassment the next time you're in line at Mel's Furniture and Lawn Tractor Emporium.

But it's not even a matter so simple as "Either the transaction goes through, or it doesn't." Not even close.

Let's say Customer X wants to pay a $3,500 down payment with his debit card. In his account, at this very moment, is just over $10,000. So account balance is not an issue. What is an issue, however, is the fact that Customer X's bank has an ironclad daily purchase limit of $2,500 on their debit cards. Customer X is blissfully unaware of this fact. All he knows is that there's plenty of coin in his checking account (for once) and goshdarnit, he really wants this new car.

Finance Guy brings Customer X's debit card to me. I swipe it through the machine and punch in the sale amount of $3,500. Seconds pass. The machine beeps its "bad" beep (friends, I know this beep so well) and across its screen reads the word DECLINED. In the immortal words of Scooby Doo:   Rut-roh.

What has happened here is not simply that Customer X will have to find another payment method. Oh no. Rather, while his bank has DECLINED the transaction posthaste, for some reason or other, it has likely also frozen his checking account / debit card from any further transactions for 24 or 48 hours. (I can only assume this is so that the Visa or Mastercard main computer system somewhere can affirm with the bank's computer system that the transaction did not, in fact, go through. And the Visa or Mastercard system will not know that until I batch out my credit-card machine at the end of the business day.)

I cannot tell you how many times the Customer X's of the world have called either myself or my finance department, ranting and raving about how their debit cards became temporarily useless to them after such a transaction (or lack of one) and so they weren't able to pay for their $200 worth of groceries at the checkout at Wal-Mart, and so on. I can only assure them that their card was not charged so much as a nickel, and that this often happens when debit cards are used for purchases larger then the financial institution allows, and blah blah blah. Somehow they're never happy with that. Ah well. I took the time to find out my credit union's rules long ago.

So here's the point:   Know your financial institution's rules regarding debit card usage and limits. It takes a simple phone call.

And you won't end up with checkout-line stress, a red face, and a dead piece of plastic in your hand.