Signing vs. PIN On Debit Purchases

What’s the difference between signing a receipt during a debit-card transaction and punching in a personal identification number? Enough for The New York Times to devote four separate entries of its Bucks blog to the matter, a total of nearly 2,500 words.

The blog posts stemmed from an expansive story The Times’ Andrew Martin wrote on how Visa and MasterCard, the two dominant payment networks for credit and debit cards, are struggling over the payment methods. Long story short: Signatures are pushed more than PINs, even though signatures are costlier to merchants and more vulnerable to fraud.

In a post about protections in effect after an identity theft, The Times quoted David Robertson, publisher of the Nilson Report, who says there are additional protections put in place for signature transactions because there’s a much greater risk that a thief will use a legitimate signature for fraudulent purposes rather than access someone’s PIN.

Under federal law, consumers don’t have to pay more than $50 for a fraudulent debit-card transaction, if they notify their financial institutions within two business days. The cap is $500 when timely notice is not given.

Some transaction networks do offer “zero liability,” however, requiring the banks to reimburse cardholders fully. Both Visa and MasterCard offer zero-liability policies if the fraudulent purchase is made with a signature. But for PIN transactions, it can be a different story. Visa offers zero liability for PIN transactions processed over its PIN debit network, Interlink, but MasterCard doesn’t offer a similar policy.

In the post about security, the writers makes the case that a thief is just as likely to rip off a cardholder with a signed receipt as an entered PIN, although the post makes the latter scenario sound farfetched.

Michelle Jun, a staff lawyer with the Consumers Union, told the newspaper that anyone worried about fraud should use a credit card instead, because it carries more safeguards than debit cards.