Japanese commerce is struggling to maintain its reputation for excellence. First, Toyota had to recall some of its models. Now, Sony has apologized for potentially exposing the details of 10 million credit cards to hackers who gained access to its PlayStation Network systems, according to a Los Angeles Times report.

Whether or not your details were held on the PlayStation Network database, you may well be feeling less secure about credit card use in general. But dont panic. Legal protections mean that your exposure to fraud is likely to be significantly smaller when you use a credit card than a debit or prepaid card.

Credit card offers best protection

A couple of weeks ago, Fox Business ran a story about the safest way to use new mobile commerce applications. The information it provided applies to all credit card use, including online, over the phone and in-store. It said:

Experts say purchases tied to credit cards offer the best protection against unauthorized uses and disputes with merchants over billing or defective products. When purchasing merchandise and services with credit cards, federal law (the Fair Credit Billing Act) protects card users from losses of more than $50.

And it went on to report that, although theyre not legally obliged to do so, payment networks (American Express, Discover, MasterCard and Visa) cover that $50 cap themselves, effectively reducing consumers exposure to zero. This echoes advice given in this credit card news blog (7 ways in which credit cards beat debit cards) on December 16, 2010.

Debit cards a poor second

By comparison with the protections that a credit card offers, debit cards come in a poor second. To start with, as The Christian Science Monitor pointed out on April 12, the law allows your bank to hold you responsible for the first $500 of losses that result from debit card fraud (remember, its $50 for credit cards) unless you report the problem within two working days. Its true that many banks claim they voluntarily cap your liability, but theres evidence that they dont always live up to their promises.

The other major problem with debit cards is that its your money thats at stake. If someone makes fraudulent charges to your credit card, the issuer has to sort it out. If he or she accesses your debit card and drains your checking account, its your cash thats disappeared. True, your bank should eventually reimburse you (possibly less that $500 cap), but how long could that take, and how would you cope in the meantime?

Some people try to insulate themselves from these losses by using prepaid cards online. However, these offer the worst legal protections of all. In fact, they offer none, and you could find yourself entirely at the mercy of the issuer if you have to try to claim for fraudulent use.

Credit cards best

Its understandable that consumers have in recent years been using their credit cards less. People were scared by the credit crunch, and saw credit card debtand high credit card ratesas evils to be avoided at all costs.

But this is a classic case of throwing out the baby with the bathwater. By all means avoid piling on credit card debt. But if you stop using your credit cards altogether you stand to lose the unrivalled and legally enforceable protections they provide.

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