Executives at Security National Bank in Sioux City, Iowa, say they believe they have found a way to minimize the bank's exposure to debit card fraud: lower transaction limits.
More and more of its customers are reporting that their debit card numbers have been stolen, and it is up to the bank to cover any fraudulent charges.
So in July, Security National will lower the daily maximum amount customers can place on their debit cards from $1,000 to $500, said David Holub, a senior vice president at the $594 million-asset bank.
Mr. Holub explained that most fraud artists use stolen debit card numbers to conduct transactions typically ranging from $600 to $900 each time, and the hope is that the lower limit will stymie their efforts.
"This shouldn't have much of an impact on the vast majority of our customers, since the average debit card transaction is about $35," he said. "On the other hand, it should help minimize our liability and our losses."
Mr. Holub would not say how much the bank has spent to cover charges involving debit card theft, but he said the amount has increased over the last three months.
Security National originally had a daily limit of $2,500 on debit card transactions but lowered the limit to $1,000 in 2005 because of rising fraudulent charges.
Management lowered it again, because customers were reporting an increase in thefts of debit cards relating to a number of recent data breaches, including the theft of more than 45 million credit card and debit card numbers from TJX Cos. Inc. in Framingham, Mass., the parent of such discount retailers as T.J. Maxx and Marshalls.
"Now, all of a sudden, we don't know how or why people are having purchases on their cards in locations like Texas and Mexico," Mr. Holub said. "Debit card fraud is "just going to get worse, not better."
More and more banks and credit unions are putting restrictions on customer debit card transactions to curb fraud losses, experts say.
In 2005 the $25 million-asset KUE Federal Credit Union in Lexington, Ky., lowered its daily limit from $2,500 to $500 on point of sale transactions where no personal identification number is required. (Transactions requiring PINs continued to have a $250 daily limit.)
The credit union lowered the limit because of increased fraudulent activity on members' cards, a spokeswoman said. At that time KUE also banned debit card withdrawals from automated teller machines outside the United States.
West Georgia National Bank in Carrollton has always had a $1,000 daily limit on debit purchases, but in 2005 it began to block overseas transactions, unless customers request permission beforehand, said Kay Moon, the security officer at the bank and its parent, WGNB Corp. The bank instituted the block because it increasingly had to cover fraudulent transactions in countries like Russia and Nigeria, Ms. Moon said.
According to Jim Stickley, chief technology officer of the consulting firm TraceSecurity Inc. in Baton Rouge, "banks are ultimately going to end up footing the bill" from debit card fraud, "and lower limits should really help keep their overall costs down, which in turn, should help lower costs for customers as well."
Gwenn Bezard, a research director at the Aite Group LLC in Boston, however, said restrictions on debit card purchases can be "quite annoying."
"The reason why people carry plastic is for the convenience, but if you start putting limits on the cards, it just decreases their convenience," Mr. Bezard said. "I think it's the institutions' responsibility to find ways to mitigate fraud without having to create additional burdens for the end users."
But Gail Hillebrand, a senior lawyer in the San Francisco office of Consumers Union of Yonkers, N.Y., contends that most customers will appreciate the spending limits. "While customers have a legal right to get paid back" when fraudulent incidents occur, "nothing can make up for the hassle they're going to experience while the money is missing," Ms. Hillebrand said. "As long as the customer knows about the limit and can change it if they need to, it's a good idea for banks to have it as a default."
Mr. Holub said Security National will grant customers planning vacations or special expenditures temporary limit increases, as West Georgia does.
