It seemed to Jamie like a great deal. She had a large purchase to make at Target (TGT), so she signed up for the Target Debit Card, which gave her a 5 percent discount.
"I was under the impression that the debit card worked like a debit card," Jamie writes in response to a recent Credit.com story "because it says it's a DEBIT card."
After she got the card, Jamie and her husband continued to use the card to buy smaller things. They never kept much money in the checking account to which the card was linked. Instead, they relied on each other to place sufficient money into the account to make purchases as they went along. They relied on their credit union's website, which in recent years "has become very efficient at real-time balance and funds availability."
And all along, they figured they had a stopgap, thinking that they would be barred from making a purchase if they didn't have enough money in the account. No money? No purchase. It all seemed very straightforward.
"Well, surprise, surprise, surprise," Jamie says.
Instead of happening automatically, one of their Target purchases had taken days to clear, just like a paper check might. When time came to make the next purchase, there wasn't enough money left in their account to cover it.
But unlike a typical debit card that hasn't been signed up for overdraft protection, the Target card let the transaction go through. That triggered an insufficient funds fee of $30. A fee that Jamie feels is unfair.
Some credit experts find a debit card that can be overdrawn does not meet consumer expectations.
"I don't think most consumers would assume that they would be able to overdraw their debit card," says Barry Paperno, Credit.com's credit scoring expert.
According to a Target spokeswoman, a returned payment fee may be charged if there are insufficient funds in a guest's checking account when a purchase is made with a Target Debit Card. This fee is disclosed in the Target Debit Card agreement given to guests when they apply for the card.
Jamie called Target to complain, saying that the federal laws protected her from such fees. Unfortunately, she may be incorrect, says Gerri Detweiler, Credit.com's consumer credit expert.
Since the Target debit card is not issued by a bank, it doesn't have to follow rules regarding overdrafts laid out by the Federal Reserve, says Detweiler. That means Target can extend short-term credit, in the form of covering overdraft purchases and charging a $30 fee each time.
"It is called a debit card, but it's more like writing a check," Detweiler says. "I think most consumers are so used to debit cards where it automatically hits your bank account, they aren't used to this lag. But just like when you write a check, you have to make sure you keep track of it, or it could end up bouncing."
So if you're considering getting a debit card from Target or another retailer, here are some tips to make sure you don't experience similar surprises:
- Read Everything. If the debit can be overdrawn or incur insufficient funds fees, that should be disclosed in the paperwork that comes with the card. Make sure you read all documentation carefully.
- If You're Not Sure, Ask. Sometimes the signup documents for financial products are complicated. If you're unsure, call the company. And since it is so complicated, and the people answering the call center phones may not be well versed in debit card intricacies, try calling two or three times to make sure you get the same answer from different people.
- Advocate for Yourself. Jamie did a great job getting mad, and getting rid of her credit union fees. Sometimes it takes that kind of doggedness to get things right
- Make Sure You're Right. It sounds like Jamie might have gone a little overboard, assuming that the people she spoke with were wrong, which led her to ignore the bill before it went into collections. If you really want to go to battle with a big retailer, make sure you have your facts straight beforehand
- Don't Ignore the Bill. Even if you're convinced you shouldn't have to pay it, it's still yours. If you don't pay it, it will hurt your credit score just as surely as any unpaid bill. Unless you get it in writing that the bill has been excised or rescinded, assume that you have to pay it.