06 Oct Why does my cell phone company offer a discount for debit card autopays?
Q. My wireless provider is offering a $10 per month per line discount if I switch my auto-pay source from my credit card to a debit card. For us, that’s a $60 savings every month. I know that merchants prefer to avoid credit card fees but there is no way they are paying the credit card company $60 in fees to process a charge of about $200. So what’s the catch? Is there any reason not to do it?
A. It’s certainly tempting to make a change that will save you $60 a month.
A total annual savings of $720 is no small potatoes.
Generally, most companies offer these incentives because they save on fees, said Karra Kingston, a bankruptcy attorney in Union City.
“Sometimes, they have different prices and depending on the lines, they make enough to encourage people to use their debit cards,” she said. “Debit cards allow businesses to get their money faster and people can’t file bankruptcy if they end up not being able to pay their credit card bills. “
Some people prefer to use their debit cards because they don’t have credit available to put other purchases on them and they don’t want to pay high interest rates for charging purchases on their credit cards, she said.
She said some merchants will charge lower fees when you pay with a debit card versus a credit card because they are getting their money faster.
The phone company would likely rather have you save some money and know that they can immediately get their payment versus waiting for someone to charge it on a card, she said.
Although physically, credit cards and debit cards look the same, they are very different, Kingston said.
“Debit cards allow you to take money out of your bank account, while credit cards allow you time to come up with the money to pay back the purchase,” she said. “The issue is that when you don’t pay your credit card payment, high interest and fees can accrue, while a debit card won’t accrue this interest because you are paying this with cash available from your account.”
Credit cards offer a bit more protection when it comes to making purchases, Kingston said, and it is generally a good idea to use a credit card because you can get cash rewards. Further, she said, credit cards also come with theft protection so if someone uses your credit card fraudulently, they will investigate and the charges can often be removed.
Debit cards and credit cards fall under different sets of laws when it comes to disputing charges, Kingston said.
“For credit cards, the Fair Billing Act comes to play. This act protects consumers from Being responsible for any fraudulent charges,” she said. “The Electronic Funds Act covers consumers who use debit cards. If someone fraudulently uses a debit card, this act will come into play.”
Under the Electronic Funds Act, consumers must act quickly to dispute these charges, Kingston said.
“Once the money is taken, it can take longer for the bank to put the money back. Moreover, if you wait too long to report it, it can take up to two weeks to get your money back,” she said.
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This story was originally published Oct. 6, 2022.
NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.