The Target Fiasco and Beyond

Target

We have all been in a situation where literally every single dollar you have budgeted counts. So when the news broke of a security breach going all the back to October 2013 for anyone who utilized a debit card for a purchases at Target (NYSE:TGT), it sent waves of panic throughout the country.   This panic was well founded.  Although initial reports indicated that 70 million shoppers had been impacted, as of January 13, 2014 that number ballooned to 110 million individuals.

Latest reports indicate that the hackers simply compromised the magnetic readers by uploading a malware program into the main server.  This revelation brings to light the gap between advances in technology and the inability of merchants or companies to keep up with the rapidly changing technology landscape.  The majority of European countries abandoned magnetic based debit cards years ago and now rely on microchip implanted cards for transactions.

But back to the story.  There is a reason that Target has done the minimum in terms of trying to address the fiasco by offering free access to credit reports.  When it comes to debit card transactions, your rights as a consumer are extremely limited and Targets liability as a company is negligible.

“Simply don’t use debit cards at all at a retailer.” Paul Stephens, Director of Policy and Advocacy for the Privacy Rights Clearinghouse advises.   He points out that consumer protections aren’t as strong for debit card transactions.   This sentiment is echoed by the U.S. PIRG, The Federation of State Public Interest Research Groups.  They note that debit cards don’t carry the same legal protection as credit cards.  Furthermore, federal law limits your liability on a debit card to $50, but only if you notify your financial institution within two business days of discovery of the theft.  For the over 110 million Target shoppers that were notified 30 days or even 60 days after the fraudulent activity, their options are few.

Will That Be Debit or Credit?

Many hesitate for a second each time they are asked this question when making a purchase.  The bottom line?  Stephens clarifies, “If the card has a Visa, MasterCard, American Express or Discover logo on it or was issued by your bank at the end of the day, the purchase is run as a debit transaction.”  He advises consumers instead to consider utilizing ATM cards instead.

ATM cards are the old fashioned version of a debit card.  On the surface it seems like an ATM card doesn’t offer the convenience of the debit cards so many are used to.  They aren’t attached to any credit card company, you can’t use them for online purchases, and you can’t use them to pay for anything over the phone or through the mail.  So, why ATM cards?   With an ATM card, a PIN is always for a transaction.  If you lose an ATM card, the unauthorized party simply can’t make a purchase without a PIN.  Unfortunately, as we have all seen this is not the case with a debit card.  This one crucial difference makes utilizing an ATM card an attractive alternative.

Until merchants and retailers update the technology attached to debit cards and consumer protection laws evolve to adapt to the current environment, we can expect to see security breaches more often and on possibly a much larger scale.

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