Shoppers who sign up for the cards, which can be used only in the retailer’s stores, get the same perks as with the company’s in-house credit cards. At Target, customers get 5 percent off all purchases made with the debit card. Nordstrom debit cardholders earn two rewards points for every dollar spent; shoppers get a $20 store voucher that’s good for one year after they accumulate 2,000 points.
Store debit cards don’t tap directly into checking accounts in the same way as traditional debit cards. Instead, the cards simply trigger the type of transactions that are used for online or recurring payments, such as for mortgage or utility bills.
These transactions take longer to clear; Nordstrom and Target say transactions should appear within three days.
In 2009, consumers charged more to debit cards than to credit cards for the first time, according to Visa. That reflects a movement away from cash and checks. But in an uncertain economy, consumers also see debit cards as a way to manage money and keep debt under control.
Retailers have reason to prefer debit, as well.
A new regulation caps the fees merchants pay banks when customers use debit cards. Such fees are still unregulated for credit cards.
And many retailers have clamped down on issuing store credit cards after the rate of default spiked in the economic downturn.
As prudent as a store debit card seems to be, compared with a store credit card, there is a potential downside. Because the transactions on store debit cards take some time to process, there is a higher risk of overdrawing your account.
Customers may not be able to opt out of overdraft programs for such charges, either. Banks are required to obtain the consent of customers before enrolling them in overdraft protection programs for traditional debit transactions. But the rule does not apply to the delayed transactions store debit cards rely on. Overdraft fees at banks are typically $35.
And Target’s debit card has a return payment fee that ranges from $20 to $40. At Nordstrom, it’s $25.
As for loss or theft, store debit cards have the same protections as traditional debit cards. By law, any card that’s used to access a checking account caps liability at $50 as long as the card issuer is notified within two days, or $500 within 60 days.
