By Jill Terry
Books aren’t the only items that shouldn’t be judged by their covers. Credit cards, too, often have more to them than is visible on their shiny plastic faces.
More and more banks are issuing ATM cards with Visa or MasterCard symbols on them. As a bank customer, you’re told that you may use the ATM card just like a credit card. So far, so good. But is this card a credit card?
Traditional Credit Cards
Credit cards earned their name because purchases were made on what was known as “time.” You were given possession of the merchandise because you promised that, in time, you would pay for it. If you buy a dress today and charge it on your MasterCard, you have until the due date on your billing statement to come up with a payment. And you only have to pay a fraction of the total amount you’ve charged (as long as you’re not averse to interest and finance charges), otherwise known as a minimum payment. This is known as revolving credit.
Creditors–the companies that issue the cards and collect your payments–report your payment history to credit bureaus. So, as you use credit cards, you build a credit history.
With most credit cards (American Express notwithstanding), you’re given a per-set limit. That limit is the highest dollar amount that your account can carry at any given point in time. It isn’t a daily limit, but rather an overall ceiling on how much total debt you are allowed to owe the creditor.
If your credit cards are stolen and used by someone without your permission or knowledge, credit laws (specifically Regulation Z, Truth-in-Lending) protect you from liability for anything over $50 that you didn’t charge.
ATM Credit Cards
If you make a purchase with your ATM credit card, the merchant is paid right away with funds from your checking account. You never receive a bill because you’ve paid for the merchandise at the time of purchase. The transaction you made is essentially a cash transaction.
So, why is there a Visa or MasterCard symbol on your card if it’s not a credit card? Because the transaction takes place within the Visa or MasterCard processing system. They supply the technology to facilitate the electronic movement of funds from one account (yours) to another (the merchant’s).
ATM credit card transactions have buyers and sellers but no creditors–which means that no credit reporting takes place. Consequently, the ATM credit card you use so frequently–in the belief that it’s helping to build your credit rating–is doing nothing of the sort.
You might also believe that the amount in your checking account determines your limit on any given day. Unfortunately, you’d be wrong here, too. Banks typically impose a daily limit on the amount available through your card and that limit is likely to be the same as your ATM withdrawal limit. (There are exceptions to this–ask your bank to explain how it determines your limit.)
Consider the case of a consumer who orders a computer online using her ATM credit card. The total cost is $2200. She is declined, despite the fact that she has more than $2200 deposited in her account, because the bank only permits $400 per day to be withdrawn from her account through her ATM card.
And finally, because ATM credit cards don’t meet the legal definition of revolving credit, you have no protection in the event that your card is lost or stolen. Until Congress passes banking legislation that’s responsive to the unique features of ATM credit cards, you should use and safeguard your card as if it were cash. If using credit online makes you uneasy, you might not want to use your ATM credit card–should hackers get hold of your account number, you have neither recourse nor legal protections. Until you close the account, a thief can withdraw the full amount of your daily limit (and account balance).
All things considered, if you’re willing to keep purchase amounts low and risk the having your card stolen or misused, ATM credit cards are a convenient way to live within your means without having to write or carry checks. Just don’t be fooled into thinking they’re credit cards.