If you think your child would never use your credit card without
your knowledge, you may be in for a rude awakening. In fact,
thousands of parents have learned the hard way that for kids and
teens, charging a purchase is as easy as pressing a button.
When your own kids do the unauthorized purchasing, who pays? The
law's answer is clear: You're not liable for unauthorized
purchases. But when you layer on credit card companies' liability
policies, their understandable interest in getting paid, plus
parental bonds of love, things get murky. What does "authorized"
really mean? And if your little one charges $100 for "big bowls of
treats" in the Tap Pet Hotel game, do you really have to report
your kid to the cops before you can have their charges erased from
your credit card bill?
Those questions gained higher visibility January 2014 when the
Federal Trade Commission ordered Apple to pay out a minimum of
$32.5 million to
reimburse parents for unauthorized mobile app
made by their kids. "Whether you're doing business in the mobile
arena or the mall down the street, fundamental consumer protections
apply," said FTC Chairwoman Edith Ramirez in a statement. "You
cannot charge consumers for purchases they did not authorize."
The crux of the charges against Apple in a class action lawsuit
is that they failed to notify users that entering an iTunes
password allowed 15 minutes of access, leaving kids free to make
pricey in-game purchases without entering the password again. One
girl racked up $2,600 in charges playing the app Tap Pet Hotel;
other kids spent $500 in the apps Dragon Story and Tiny Zoo
Friends. In at least some cases, kids didn't even realize they were
spending real cash, not the imaginary currency of a digital world
-- and parents insisted that they shouldn't be held responsible for
purchases they didn't make and didn't know about. The settlement
also requires Apple to change its billing practices to require a
higher level of parental consent.
What you're responsible for
Of course, some kids are making purchases with their parents'
credit card that aren't inadvertent. Finding hard and fast numbers
about how often family identity theft occurs proves difficult,
"since this type of theft is often under-reported," says Becky
Frost, senior manager of consumer education with Experian's
ProtectMyID. But according to the FTC, more than 45,000 consumer
complaints about credit card fraud were filed in 2012, and it's
estimated that in 16 percent of those cases, the victims knew the
No matter how it occurs, learning that your child is behind a
surprise charge on your credit card bill is jarring.
The good news: Federal law protects you from liability for
unauthorized purchases. According to the
Truth in Lending Act
, you're only responsible for $50 of an unauthorized purchase made
with your credit card.
Even better, most card companies have
that add protections beyond federal law -- meaning they'll let you
off the hook for the entire amount. MasterCard clarifies that its
zero-liability policy applies to all unauthorized transactions,
whether made in a store, by telephone, or online, as long as your
account is in good standing and you "exercised reasonable care in
safeguarding your card from loss or theft." Visa's policy is
similar, stating that "Visa will always protect you from
unauthorized use," as long as you report fraudulent purchases to
your credit card company.
Defining unauthorized use
The challenge is that it's not entirely clear what constitutes
"unauthorized use." Federal law defines it as "the use of a credit
card by a person, other than the cardholder, who does not have
actual, implied, or apparent authority for such use, and from which
the cardholder receives no benefit."
However, some card companies, including Bank of America and
Capital One, specify that fraud protection applies only when credit
cards are lost or stolen.
Once you report an unauthorized charge, your credit card company
launches its own investigation and may ask you to provide the
police report number of your complaint with local law enforcement
officials. Sure, your kid used your credit card without your
permission. But did he really steal it?
Some parents feel like they have to say yes in order to get
fraud protection. In the United Kingdom, 48-year-old Doug Crossan
filed an official police complaint against his 13-year-old son,
Cameron, after the boy made $6,000 in charges on different digital
games, including Plants Vs. Zombies. "I am sure Cameron had no
intention to do it, but I had to have a crime reference number if
there was any chance of getting any credit card payments refunded,"
Crossan told a British newspaper.
Billy Pinilis, a New Jersey-based consumer fraud lawyer, says
that in the United States, the law doesn't distinguish between a
kid buying virtual coins in an app or pilfering your credit card
from your wallet to go on a shopping spree -- or for that matter, a
thief taking your wallet from your car. An unauthorized purchase is
an unauthorized purchase. That, says Pinilis, could have rendered
the Apple-FTC settlement moot. "You could make the argument that
[the FTC] didn't do anything for consumers. Consumers weren't
liable for these charges anyway. What the FTC did was benefit the
credit card issuers."
When you report an unauthorized purchase, he adds, "It's not an
accountholder's obligation to fill out any criminal reports or do
anything of the sort. All they have to do is make it clear that
they didn't authorize the charge."
But a credit card company that disputes its cardholder's version
of things may refuse to reimburse the money. In that situation,
Pinilis recommends seeking the counsel of a lawyer who specializes
in credit card fraud (you can find one through the National
Association of Consumer Advocates). If your card company doesn't
believe that your kid's charges were unauthorized, "it's incumbent
upon the credit card company to demonstrate that in court."
Bottom line, says Pinilis: "If you find yourself in the
unenviable position of being the victim of identity theft,
understand that you're not responsible for the charges and
understand that credit card companies are interested in getting
paid, not in educating you on what your rights are. You shouldn't
necessarily take as true what they're telling you."
Keeping kids from your cards: 4 tips
While legally you shouldn't have to pony up for your kids'
unauthorized purchases, morally is another matter. Financial
literacy expert Neale Godfrey, the chairman of Green Street
Commons, which produces apps that teach kids about money, believes
that the FTC-Apple settlement shouldn't have relieved parental
responsibility. "If you want to raise your own children to be
financially responsible, you need to take that responsibility and
By all accounts, preventing family identity theft, or even
inadvertent purchases, is simpler than crossing your fingers that
your card company's zero-liability policy kicks in fast. Here's how
to do it:
Protect your credit card information.
Invest in a safe or locked file cabinet to store all your credit
card statements and any other documents or receipts that could
include passwords or account numbers. If you're worried you can't
trust your teen, be careful where you put your wallet at home.
"An identity thief needs nothing more than a credit card account
number and expiration date to rack up huge charges on your credit
cards," points out Frost.
Lock down digital devices.
Password-protect your financial information online, including in
online shopping sites, and make sure you log out when you leave
your computer. Use your device's settings to apply parental
controls so that kids can't make an in-app purchase without your
password, then make sure your kids can't guess or stumble on your
password. A family rule that children have to use computers and
devices in public areas of the house allows you to monitor what
they're doing online.
Give your kids a real allowance.
To help kids understand the concept of money, let them earn an
allowance by performing chores, but forego digital banking. "You
give it to them in real money," recommends Godfrey. "You take
them to a real bank. And when you're in a real store they're
using real money. After they understand the concept of real, then
you can go electronic. If you start out with electronic, they
don't get that buying things online is real money."
Clarify your expectations.
Have a conversation with your children about your household money
rules, including what kids can and can't purchase, what you'll
pay for and what they're responsible for. Make it clear that your
children aren't allowed to use your credit card or buy something
online without permission, and set clear consequences for what
happens if they do -- including that they'll have to pay for what
they bought. Doing so not only prevents problems, it protects
you. "If you do that and they do use [your credit card], then you
clearly have not authorized the charge and you're not responsible
for the charge," says Pinilis.
5 key federal laws that protect credit card