Explaining the value of hard-earned money to minors and young adults is no easy feat. Impulsive by nature, some children (especially younger ones) expect parents to make their every wish come true. When this doesn’t happen, you might find yourself filing a complaint that lenders often hear—“My child used my credit card without permission.”
In this guide, you’ll see what to expect when contacting a lender with such an issue. You’ll also learn how to prevent it and instill more financial responsibility into your child.
Unauthorized Credit Card Use by Children—A Common Problem
If your child has used your card for unauthorized purchases, you’re not alone—a survey showed that 46% of parents have dealt with this problem at least once. While most purchases were small, the average highest dollar value reported by the affected parents was $534.
Many factors contribute to unauthorized transactions, mobile payments being the main issue. Parents often link online stores and app accounts to their credit cards, which enables children to make purchases without their knowledge.
The bank doesn’t know who made the purchase—all they see is that the card is in the parent’s name. Luckily, cardholders are covered by various protection mechanisms they can use to dispute unauthorized transactions.
Who Is Responsible for Unauthorized Credit Card Charges by Children?
The Fair Credit Billing Act (FCBA) protects consumers from unauthorized purchases, setting a $50 liability limit. If someone uses your card to make a purchase without your consent, you’re only responsible for the amounts up to this threshold. You can dispute the claim, in which case the creditor must investigate the problem.
During the investigation, you’re not obligated to repay the disputed amount, and your creditor can’t:
- Treat the non-payment as a delinquency (you still have to repay your other debts, though)
- Rush repayments of the disputed amount
- Restrict or close your account as a result of the complaint
- Discriminate or deny you a loan because of the FCBA action
Besides the FCBA, cardholders are protected by zero-liability policies offered by many creditors. In case of a qualifying fraudulent transaction, you’re not responsible for any amount (even the $50 set by the FCBA).
Despite these measures, you’re not always relieved from the responsibility for your child’s unauthorized purchases. In an interview for CNBC, Katie Ross from the American Consumer Credit Counseling explained that there’s a blurry line between fraudulent credit card activity and unauthorized charges you’ll need to repay. In her words:
“Some credit card companies define “unauthorized charges” as charges made after your card has been lost or stolen, meaning that if your kids make purchases on your card without your knowledge, you are still liable for the charges.”
With this in mind, disputes are handled on a case-by-case basis, so it’s hard to predict the outcome. This shouldn’t discourage you from filing them, as you should do everything in your power to mitigate the consequences of unauthorized credit card use.
What To Do When Your Child Uses Your Credit Card Without Permission
Source: Andrea Piacquadio
Your approach to dealing with unauthorized credit card use will vary according to the gravity of the situation, but there are three universal steps you might take:
- Contact the merchant for a refund
- Request a chargeback from the bank
- Contact the authorities if needed
Request a Refund From the Seller
Many apps and online services let you request a refund even if the purchase wasn’t unauthorized. They leave a short window (typically 24 to 48 hours) you can use to get a refund.
Most merchants have a defined process for such situations, so you can either read their policies or reach out for details. If the request is approved, the funds should be back in your account within a few days.
Contact Your Lender
If your child made a large purchase or the seller doesn’t offer refunds, you can request a chargeback through your bank. If the lender recognizes the transaction as unauthorized, they can forcibly request a refund in your name even if the seller declined it.
The main drawback is that chargebacks can be time-consuming and take up to 90 days. As mentioned, you’re not obligated to repay the disputed funds as long as the investigation is in progress, but there’s no guarantee you’ll get the money back unless the bank deems it appropriate.
Do You Call the Police When Your Child Uses Your Credit Card?
Involving the authorities may seem an extreme move, but it’s quite common in the dispute process. Some banks may request a police report confirming that the purchase was unauthorized, in which case you’d have to decide if you want to formally implicate your child.
Doing so would mean the purchase is treated as credit card fraud, which is a serious offense. It can even lead to jail time in some cases, so consider the consequences before going down this road.
How To Prevent Kids From Using Parents’ Credit Cards
Your credit card is your responsibility, so you must do everything in your power to safeguard it from everyone—including your child. Luckily, you can do this in a few simple steps:
- Restrict access to your card and connected devices
- Teach your child about the implications of unauthorized credit card use
- Help your child become financially responsible and independent
Limit Your Child’s Access to the Card
Having to hide your credit card from your child might feel uncomfortable, but it’s a necessary precaution you should take until they’ve proven themselves reliable.
Hiding the physical card is only one part of the equation—and it’s not even the main one. As mentioned, mobile purchases are far more common than full-on credit card theft, so your child shouldn’t have access to any devices connected to the card.
If you must give them your phone, remove all saved payment information and implement parental controls that will give your child access only to safe apps.
Emphasize the Gravity of Unauthorized Use
Source: Towfiqu barbhuiya
Children typically see credit cards as free money. Many don’t understand the costs and consequences of using one—all they know is that they’ve clicked a button, and they now have what they want.
Your child should understand that unauthorized use of your card is similar to stealing money from the bank since it’s the lender’s money they’ve used. Let them know that this is a crime they could be prosecuted for, which can affect their future. When they realize that there are tangible consequences of using your card without permission, your child will be less likely to do it.
Teach Your Child Financial Responsibility and Support Their Independence
When your child has independent access to financial products, they won’t be compelled to use yours. To introduce your child to the banking system, you can open a checking account with a debit card for them. Fund the account with a certain amount of money each month, and let your child know it’s all they get so they can learn how to manage their finances.
When your child is old enough, they can get their own credit card. While the legal age is 18 in most states, they might not get a credit card before turning 21 due to the limitations imposed by the CARD Act of 2009. Your child must demonstrate an independent ability to make payments or have a co-signer to get a card before this age.
This is why many parents decide to add children to their credit cards. Besides giving them access to the card, parents believe doing so will help their children build credit so they can get their own credit card sooner.
The are two major issues with this approach:
- Giving your child access to a credit card is out of the question if they have a history of unauthorized use, as you risk significant debt only you will be liable for. If you add your child to your credit card as an authorized user, you won’t be able to dispute any purchase they make as ‘unauthorized’—authorized users aren’t held responsible because you gave your consent
- Adding a child to your card isn’t the best way to help them build credit—as soon as you remove the child from your card, all credit history tied to it will get deleted from their report, so they’ll have to start from scratch
FreeKick—Safe Credit Building for Minors and Young Adults
FreeKick combines a Federal Deposit Insurance Corporation-insured (FDIC-insured) deposit account with additional services to help you build your child’s credit profile. You can get started in three quick steps:
|Create an Account||Sign up at FreeKick.bank and choose a plan based on a one-time deposit|
|Set It and Forget It||When you open the account, your child will automatically build a credit history for 12 months|
|Keep Growing||At the end of the 12-month period, you can renew the account for another cycle or cancel it and get your deposit back|
FreeKick offers a free plan with a one-time deposit and two plans with lower deposits and small annual fees:
- Free—one-time FDIC-insured deposit of $2,500
- $49/Yr—one-time FDIC-insured deposit of $1,750
- $99/Yr—one-time FDIC-insured deposit of $1,000
When you sign up, FreeKick will start building your child’s payment history and report it to the three major consumer credit bureaus—if your child is of legal age. If they’re a minor (typically 14–17), they can activate reporting when they become an adult.
Credit building happens without the need for ongoing action on your part, and you’ll give your child a significant advantage—they can save up to $200,000 throughout adulthood by building credit early on.
You can close the account at any time without penalties! Keep in mind that credit bureaus only accept credit reporting for legal adults, so if you close your account while your child is still a minor, no activity can ever be reported for the account.
Reducing the Risk of Identity Fraud Through Credit Profile Monitoring
Credit card fraud can take many forms besides unauthorized use. Minors are at risk of a much more severe crime—synthetic identity fraud. Their Social Security numbers (SSNs) are randomized and are not monitored, allowing fraudsters to combine them with fake information to create new identities and take out credit in children’s names.
Monitoring your child’s identity requires lots of effort and tools typically unavailable to an average family. To take this burden off your shoulders, FreeKick offers credit profile monitoring services that reduce the chances of identity fraud.
To support your child’s financial independence and keep their identity out of harm’s way, create a FreeKick account.
Featured image source: Liza Summer