Shopping through an Internet browser and paying online is quick and simple for most savvy consumers. But is it really safe to share your debit or credit card number online? And how is a sale official if you didn't actually sign anything? This article covers the legal and practical issues surrounding online payments when purchasing goods or services, including the different ways you can pay online and laws governing e-commerce transactions.
See FindLaw's Identity Theft and Online Safety subsections for related articles and resources. See How Do I Shop Safely Online? and Problems with Online Shopping to learn more about security issues related to online purchases.
One of the first things you should do before entering any kind of payment information is to determine whether or not your connection is secure. Secure connections are verified by a third party, add a layer of encryption, and generally provide protection against eavesdropping. This may be indicated by a couple of different icons:
If you do not have a secure connection, information sent to the server may not be encrypted (or only partially) and may be intercepted by a third party much more easily.
A debit card is used like a checkbook and is usually limited to the amount of cash available in your bank account. On the other hand, a credit card is a form of revolving credit limited by the terms of your cardholder agreement. But for the sake of online (and offline) purchases, both debit and credit cards are used pretty much the same way by consumers, just processed differently on the back-end. Additionally, credit and debit card transactions processed through major credit card companies are protected by frequently updated authentication and security measures.
While credit card purchases are charged to the credit card issuer (the bank offering the credit), which then sends you a bill plus any applicable interest charges and fees, debit card purchases are taken directly from your checking account. This has important implications when you are paying online.
In accordance with the Truth in Lending Act, you are only liable for fraudulent credit card charges up to $50. Also, you are not liable for any debts after reporting that your card has been lost or stolen. And if your card is stolen, cash is not deducted from your bank account.
Debit cards do not come with the fraud and theft safeguards provided by credit cards, while unauthorized use results in funds being withdrawn from your bank account until the matter is resolved (if at all). In short, using debit cards for online transactions carries more risk and is not advised.
The Electronic Fund Transfer Act regulates the use of debit cards, but does not provide nearly the same level of protection as provided for credit cards. For example, your liability for unauthorized debits is limited to $50 only if you report your card missing or stolen within two days of discovering it is lost, but you could be responsible for as much as $500 in fraudulent debits if you wait longer to take action but within 60 days of your last statement being mailed. Wait even longer, and you may be responsible for each fraudulent purchase (unless you are able to locate and file a lawsuit against the perpetrator).
While most banks offer what are called "zero-liability" debit cards, meaning some of your funds may be protected (each bank has its own terms), the banks issuing these types of debit cards -- unlike credit card issuers -- typically do not assist you with such disputes.
Credit cards are by far the most common method for paying online, but not the only one. Some banks and third-party providers offer the ability to pay bills online, using encryption and vigorous authentication procedures to restrict unauthorized access to your account.
Additionally, many online purchases may be made through PayPal, a division of eBay that offers a payment option similar to that which is provided by credit card companies. Also, some transactions (mostly business-to-business) offer electronic funds transfer, or EFTs, the online transfer of funds from one account to another. Still other options include so-called digital wallets; prepaid shopping services; and third-party providers that aggregate online purchases into a single monthly bill.
Since technology, security concerns, and consumer behavior all change so rapidly, online payment options tend to evolve and change frequently.
Is it possible to "sign" a purchase agreement over the Internet? Legally speaking, yes, even though it is not done the same way we might sign a credit card receipt. Rules regulating and enforcing electronic signatures via telegraph were first enacted in 1869 by the New Hampshire Supreme Court. Generally, courts throughout the country have agreed that enforceable electronic signatures may include the following:
Therefore, an electronic signature that adheres to federal and/or state laws carries the same legal weight as a "wet ink" signature on a paper contract or receipt.
Paying online may be convenient and efficient, but make sure you understand its inherent risks and ways to minimize these risks through best practices. Talk to a consumer protection lawyer if you have additional questions.