Stephen Lewis of Los Angeles was concerned when Bank of America sent him a Visa debit card to replace his old ATM card. The new card, which looks and works like a credit card but takes money directly out of the holder’s checking account, came unsolicited and with little explanation.

Lewis’ fear? That someone could clean out his checking account if his new card was lost or stolen. Debit cards work like credit cards and require no personal identification numbers when used in most retail outlets.

Under current federal laws, debit card holders can be held liable for the loss of up to all the money in their checking accounts if they fail to report a lost or stolen card within 60 days.

“The biggest concern I had was the liability,” said Lewis. “I didn’t really understand what it was all about, and I wasn’t too happy with what (BofA) did” in issuing the card, he said.

It was concerns of people like Lewis that led MasterCard International to adopt a flat $50 maximum liability charge for its growing legion of debit card users, whose cards are issued in partnership with their individual banks.

Those concerns also led Bank of America last week to announce a zero liability policy. Visa USA which issues the cards used by BofA customers is expected to make a similar announcement this week.

Should consumers be worried? Actually, the volume of debit card fraud nationwide is very small, leading some in the industry to believe that the recent announcements are more of a public relations move to allay the concerns of customers.

“Debit card fraud at this point is not a significant problem based on anecdotal information from our member banks,” said John Stafford, spokesman for the California Bankers Association. “But one concern raised by consumer groups has been the possibility of unlimited liability.”

Fraudulent use of debit cards accounted for only two in every 10,000 transactions for MasterCard debit cards in the first quarter of 1997, said company spokesman Doug Rozman.

In dollar terms, about 0.2 percent of the $10.1 billion in MasterCard debit card transactions for the year ended March 31 about $20 million was fraudulent in nature.

“It’s really a consumer confidence issue,” Rozman said of MasterCard’s $50 maximum liability announcement. “MasterCard holders have become used to a certain degree of security with their credit cards, and what we’ve done is give them the same degree of security with debit cards.”

BofA had similar motives in making its zero liability announcement last week, said spokesman Carry Walker.

“We did this for several reasons,” he said. “The fraud rate on debit cards is already extremely low (i.e. so the zero liability policy is not very costly to BofA). We also wanted to provide our customers with additional peace of mind and encourage additional use of what has proven to be a hugely popular product.”

Indeed, consumer confidence and peace of mind is what banks and card issuers are looking for to grow their debit card business, which is currently expanding exponentially.

The number of debit cards nationwide shot up to 65.5 million at the end of the first quarter this year from 25.2 million in 1994, according to Visa and MasterCard, the two companies that issue debit cards through member banks.

The dollar volume of debit card transactions has grown even faster during that time, more than tripling from $473.7 million in 1994 to $1.4 billion in 1996.

Most major financial institutions in L.A. now issue debit cards, including Bank of America, Wells Fargo Bank, Home Savings of America, Great Western Bank and Glendale Federal Bank. The cards also double as conventional ATM cards.

Both banks and credit card companies like the debit cards because they receive a fee from merchants for every transaction conducted on their cards.

In addition, debit cards, which draw from the cardholder’s checking account, are like paperless checks, allowing banks to cut down on their check processing costs, said Nandita Bakhshi, director of alternative delivery for Home Savings.

Banks pitch debit cards to customers as an easier alternative to checks but without the risk of incurring debt at high credit card interest rates.

Home Savings issued its first debit cards about four years ago, but it only began to strongly promote the product in January 1996, said Bakhshi. Since embarking on its marketing push, the number of Home Savings debit cards has shot up to 500,000 from only 50,000 a year and a half ago.

“We’ve done some customer focus groups and the customers absolutely love it,” Bakhshi said. “When we interviewed customers, it was just as popular among older people as college grads. It has universal appeal.”

Another aggressive issuer of debit cards in L.A. is Great Western Bank, now a subsidiary of Washington Mutual Inc. Great Western launched its debit card program six months ago and now has 900,000 cards in circulation, said Valerie White, manager of self-service banking.

White declined to state how big a problem fraud has been in its fledgling debit card program, except to say that the problem hasn’t been “large with respect to the size of our portfolio.”

Meanwhile, legislation now in Congress could make the recent spate of voluntary goodwill from BofA and MasterCard a moot point. The legislation would equalize liability rules for debit cards and credit cards, limiting maximum liability to $50 regardless of when a loss or theft is reported.