Credit Card Debt Management

My local chapter of the Better Business Bureau is strongly encouraging participating businesses to start paying their employees with MasterCard’s Trust Card, an idea that is expected to quickly spread to other BBBs nationwide. So what’s the deal with these plastic cards that look no different from a credit or debit card? They’re hardly a new concept, but they are finally getting significant attention as companies seek to cut costs.

The concept of payroll trust cards (also offered by Visa and several banks) is essentially a way for a person to receive money from another, in real time, without the dangers of carrying cash. There are, however, other risks associated with carrying plastic, like consumer identity and liability protection. When used for employee payroll, the cards often bear the employee’s name, which make it much less risky in the area of identity theft and fraudulent card usage.

The cards enable employers to save a significant amount of money when it comes to payroll costs (total savings of about $114.4 million in 2003). Payroll trust cards are marketed primarily toward employees who don’t have bank account and ATM access, and employees who travel frequently and may miss paydays at the office. Of course, direct deposit is always an option, but many states prevent employers from mandating participation in direct deposit. The costs for employers to use direct deposit are comparable to the costs associated with Payroll trust cards, both significantly cheaper than the cost of writing checks. In the local news story covering the BBB’s initiative, employers tout payroll trust cards’ ability to help employees spend smarter (?) and become more financially independent (?) — not sure how they draw that conclusion.

Interestingly, Visa’s product, called the Spectrum card, is offered as a way for single parents to collect child support in the state of Alabama. The cards are nice because they work just like debit or credit cards at the ATM or at the cash register. Still, I’m a control freak who is leary of any purchase or ATM fees that might be associated (for instance, my bank charges 25 cents per debit transaction). I also have accounts at three different banks and wonder if dealing with a card might make it more of a hassle to manage the flow of my money. I suppose not, as long as the appropriate ATMs are conveniently located. Anyone who has ever dealt with those Visa gift cards knows what I’m talking about — to check your balance, allow about 20 minutes. Oh well, time will tell how these products fare in the marketplace.

Do you sign the back of your credit cards? There are varying schools of thought on this, the latest being a Small Life Blog post explaining why you should sign the back.

Apparently, a recent Money magazine article claimed that the practice of shopper identification verification by merchants is forbidden by Visa, MasterCard and Discover, and strongly forbidden by American Express. A credit card with a signature on the back is identification enough, the companies say. Therefore, while shoppers may hear a request to provide photo ID at the cash register, they are under no obligation to provide it and the merchant cannot retaliate by stopping the transaction.

This bit of information was verified by Small Life Blog with a quick check of the actual credit card companies’ web sites. What’s their rationale? Protection against identity theft: a cashier may get your credit card number, security code, and expiration date, but when you add in the address and zip code that appears on your driver’s license, they can do major damage.

It’s an interesting perspective, but what are the odds a merchant is going to be able to gather and memorize or write down all this information in the split second they see it? The print is so small on driver’s licenses that they probably can’t even see it anyway, or you can just hold it out for them and cover the address with your thumb. You might also use another form of identification, like a gym membership card.

Indeed, it seems to me like this is the least secure of all strategies. I subscribe more to the ideas expressed in the lifehacker blog — do not sign the back of your credit card, but instead write “Check Photo ID” in the little white space. The likelihood that a credit card thief could wind up with your credit card in their possession and try to use it fraudulently seems much greater than the likelihood that a merchant is going to record all your personal data off your credit card and photo ID. I only subscribe to this belief because I’ve seen it in action during a high school stint as a retail sales clerk, when a savvy cashier interrupted a credit card thief’s shopping spree. Frankly, I appreciate it when cashiers ask for my photo ID and have no problem with providing it. Though it may take a little more time to show your photo ID, it could really protect you long-term.

Virtual credit cards are certainly nothing new in the world of online shopping. After all, they’ve been around almost seven years, but they may not have received due attention in the past. Also known as substitute credit card numbers or controlled payment numbers, this technology offers online shoppers a free and highly effective layer of protection against identity theft.

According to the Sound Money Tips blog, MBNA, Citibank, Discover and Paypal all offer this free service to customers. All you have to do is sign up, download the software, and enter your credit card info (viewable only to the customer and the bank).

Some services limit spending to one merchant or venue only. Other services do not place restrictions on spending, but do generate a different “temporary number” with each online purchase. This temporary number is the only thing hackers can see, whether they eavesdrop at the point of purchase or hack into merchant records after the fact.

Many consumers have snubbed virtual credit cards because they are viewed as unnecessary in light of the fact that credit card companies generally do not hold customers liable for fraudulent purchases. However, the bigger picture is that online credit card fraud can turn into a bigger case of grand-scale identity theft, from which it takes a lot of time and money to recover. And who really wants to deal with that?