Standing in the grocery store checkout line, a customer often wonders, “Should I use my pin number or signature with this debit card?” Both are quicker than writing a check. And, if the purchase is less than $25, many merchants do not even require you to enter a pin number OR sign the pad. However, there can be big consequences as to which authorization you choose: your signature or your PIN.
When your personal identification number (PIN) is entered, the transaction becomes a pin debit payment. This transaction then goes through the financial network system. The money is immediately removed from your checking account. Many times PIN transactions give youunlimited liability (responsibility) for the payment. In other words, even if a thief has stolen your debit card and purchased with your PIN, the financial institution may not be required to reimburse you any amount.
This is because the financial network (bank, credit union) believes you are always the purchaser when using a PIN: “If someone is using a secure PIN, it must be the owner of the debit card.” When a thief purchases using your debit card and your PIN, the money is deducted from your checking account. It is very difficult to prove you did not use the card–because your secret PIN was used!
A PIN is first requested when you swipe your debit card. However, you have the option of pushing the “cancel” or “credit” button. A signature debit transactionoccurs when you pay for a product or service without entering your PIN into the pad. Instead, you may authorize payment of your purchase using your signature, just as you would a credit card purchase. Stores now pay a higher fee when customers pay using a signature debit.
By signing your name on the PIN pad, this transaction is routed a different way—to a card brand network. All the major cards (MasterCard, Amex, Visa, Discover) have a zeroliability clause, known as fraud protection, into the card contract. If someone steals your card and they charge something, you simply write an affidavit confirming it was not you and no money will be removed from your account.
If you have a rewards checking account, many banks won’t offer rewards for your purchases if you use a PIN. This is because banks charge merchants a higher fee to process signature debit payments. Signing your name when paying with a debit card may help you to earn rewards faster.
Using your signature also provides you with additional consumer protection and ease in getting a refund, if you later disagree with the transaction amount or later return the product.