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Making a return with debit card can be tough

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As long as you have your receipt, you may have a case under your state's unfair trade practices law. But pursuing that course could prove costly and time-consuming.

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Jones says that Visa considers all online debit card purchases signature based purchases and customers are protected under zero liability if the purchase was fraudulent or the customer was dissatisfied with the product.

Consumers must try to resolve the dispute with a merchant on their own before they contact their debit card issuer. "The merchant may want to make some other arrangement like a store credit or a gift certificate or some other thing," says Hogarth. "That isn't exactly putting money back in your account."

What kind of federal protections do you have with a debit card? Under the Electronic Fund Transfer Act, you have the right to dispute an error on your bank statement, and you have some protections if your debit card is lost or stolen.

It's not so bad if you act fast. Your liability is capped at $50 if you notify your bank within two days of finding out your debit card is missing. Wait more than two days and you could lose as much as $500.

Jones says, "Consumers should monitor their bank account on-line and immediately report any suspicious activity." If you discover an unauthorized charge on a bank statement, you may be on the hook for as much as $500, provided you contact your bank within 60 days.

If you wait longer than 60 days, you're stuck paying every cent of a thief's spending spree. You could lose everything in your checking and overdraft accounts.

However, if your debit card sports a Visa or MasterCard logo, you don't have to report fraudulent activity within two business days and you won't be held responsible for fraudulent transactions made over their networks. Of course, you should report missing or stolen cards immediately so you don't get stuck paying an imposter's charges.

Spend smart, simple
Because of more limited consumer protections, a debit card may be the best choice for smaller, routine purchases such as gas or groceries. Paying by debit card is quick and convenient, and you won't pay a penny of interest.

You also won't enjoy the float you have when you write a check or pay by credit card. With a debit card purchase, the money gets yanked out of your account almost immediately. So it's important to keep good records.

Forget to write a debit card purchase or two in your checkbook and you could end up paying some hefty account fees. If you decide to make a larger purchase on a debit card, it's best to do it at a store that lets you inspect the merchandise thoroughly before buying.

Credit cards are the best choice for purchases made on the Internet or by phone. Yet both Visa and MasterCard's zero liability policy cover in-store purchases, as well as purchases over the Internet. If you have a different card company, find out if they offer a zero liability policy. Make you sure you understand it before using your debit card.

"If you're ordering merchandise I would almost always encourage people to use the credit card because if something goes wrong you have more recourse," Hogarth says.

Bankrate editorial assistant Leslie Hunt contributed to this story.

Bankrate.com's corrections policy -- Updated: Nov. 27, 2006
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