When is a store credit card not a credit card? When it's a debit card, a scenario that is showing signs of becoming more common. Two major retailers are quietly leading the latest salvo into retaining consumers who grow increasingly wary of debt, according to Candice Choi, Associated Press.
Target and Nordstrom offer branded debit cards as an alternative to traditional credit cards. The debit cards offer some perks credit card shoppers are used to, but with a few differences. Customers who use the Target branded debit card receive 5 percent off all purchases. At Nordstroms, its debit card users receive reward points which are redeemable for a store voucher.
Both store-branded debit cards can only be used at their respective stores or websites, and are limited by the balance in the holder's checking account. The funds are debited in the same way as an online payment for a mortgage or gas bill, which causes a lag in the time between the consumer's purchase and the time the charge is received by the bank, about two to three days, according to the AP story. This could cause overdrafts if cardholders don't take into account prior purchases still to be paid out.
Overdraft fees are hefty; banks generally charge $35. But Target also charges $20-$40 more for returned payments and Nordstrom charges $25. Standard debit card customers can opt out of overdraft programs which allow a purchase to be made when the checking account can't cover it, but retail debit cards don't offer that protection. Lost or stolen store debit cards are given the same protection, however, as standard debit cards; a $50 liability cap as long as the bank is notified within two days, or $500 if it is notified of the theft or loss within 60 days.
However, the debit trend is growing. Visa reports $1.137 trillion was charged to debit cards in one year, during which time credit card charges were $867 billion.