When a stranger makes an unauthorized charge on your credit card, it’s easy to file a report against them and contact the police if needed. After all, they are probably just an unknown face in a different state or country.
But, when a family member steals your credit card information, that puts you in a tough spot. Not only could this hurt your credit, but it may also cause you to burn bridges with that person, depending on how the situation gets handled. To address this issue, you have to walk a fine line between getting your money back and rebuilding trust, particularly if you want to reconcile with them in the future.
Usually, you will not have to pay for unauthorized purchases made by your family members. However, you may not necessarily want to escalate the situation to the point where you have to press charges and take legal action against them. So, what can you do instead? Who should take responsibility?
- When you get approved for a credit card, the credit card company gives you a line of credit that you are ultimately responsible for as the account holder.
- While there are consumer protections in place for credit card holders, when a family member commits identity theft, that can fall under a gray area.
- If someone close to you uses your credit card without permission, you have a few options. You can either work things out with them privately or escalate the situation to the issuing bank or the authorities.
Understanding Credit Cards
When you apply for a new credit card and get approved, you are essentially taking out a line of credit with the credit card issuer. Under the terms and conditions, you are responsible for repaying debts on the account because it is under your name.
However, if you permit a friend or family member to use your credit card account, they can act as your proxy because you authorized them. In those situations, you will not have the option to dispute their charges and will need to pay their credit card debt.
Defining Authorized vs. Unauthorized Charges
An authorized user is anyone who has permission to use another person’s credit card. Most credit cards have the option to add people as authorized users. Once you add someone, such as your partner, child, or parent, you effectively give them full access to your card. Even if both parties verbally agree on restrictions or limitations, this promise does not mean you are off the hook if they treat your card as free money.
As the account holder, you will ultimately be held liable for paying off the balance on the card, not the authorized user. So, if you do end up adding a family member or friend, you may want to put a spending limit on their purchases on your online account.
On the other hand, an unauthorized credit card charge is any charge you did not make and cannot explain. The law defines unauthorized use as any credit card transactions made by people who do not have actual, implied, or apparent authority to use the card.
Unauthorized charges typically get discovered when people go over their credit card statements and find charges they do not recognize. For example, you might see a purchase from a random store thousands of miles away or notice repetitive purchases you have no recollection of. In those cases, you are likely a victim of identity theft as someone was using your credit cards without authorization.
The Gray Area Familiar Fraud
“Familiar fraud” falls under a gray area. This type of identity theft is relatively common in fact, it makes up 30% of all identity theft. When we think about it, this is natural as family members typically have easy access to all our financial information, especially if they live with us and know our credit card information or other personal identifiers.
For example, you may let your sibling borrow your card to buy a specific item, but they end up buying a bunch of things that you did not agree to purchase. While they purchased items you didn’t specifically approve, you gave them permission to use your card, which is equivalent to you taking responsibility for whatever they end up buying. So, you would likely need to hash things out with your sibling privately.
Or, your child may use your card without you knowing, which is not the same as lending your card to a friend or family member who overcharges your card. While you did not explicitly permit them, some lenders will not count this as an unauthorized charge because you are responsible for your child, not the financial institution.
In general, you should not let other people borrow your credit card because you risk scenarios in which you have to take responsibility for their actions regardless of how liberally they use your cards. But, it does not hurt to ask your lender if they can compromise and forgive the charges.
On the bright side, there are protections in place to keep consumers safe from identity thieves and fraud.
Under the Federal Law
Under the Fair Credit Billing Act, consumers have protections from unfair billing practices, including unauthorized charges. For example, if you report that your card was stolen or lost before any purchases get made, you are not responsible for them. Additionally, your total liability is limited to a maximum of $50 for unauthorized charges.
Zero Liability Policies
Major financial services companies will go even further with zero liability protections for all unauthorized charges. A zero liability policy for credit and debit cards is a way for companies to provide additional protection to their cardholders and assure them that fraudulent charges that get reported will be removed from their accounts and cardholders will not have to pay.
This additional layer of protection is one of the main benefits of using credit. From a lender’s perspective, consumers may otherwise refuse to use their services if they do not assure cardholders that they have fraud protections in place.
Handling Unauthorized Credit Card Charges
If a family member or someone close to you has made unauthorized charges, there are a few steps you can take to remedy the situation:
1. Ask That Person to Pay You Back
While this step may be awkward or uncomfortable, the first thing you should do is to ask for your money back. If they are willing to repay you, that would be the best-case scenario since you can immediately resolve the issue and will not need to dispute the charges. Instead, give them a warning and tell them to stop using your card.
If they cannot pay you back all at once, consider setting up a payment plan with them and potentially charging them interest. If your child made the unauthorized charges, consider assigning them chores or tell them to get a part-time job to pay you back.
2. Contact Your Credit Card Issuer
If your family member does not agree to pay you back, you can report the incident to your credit card issuers. Note, however, that credit card fraud comes with grave consequences. You will be throwing them under the bus and claiming that they committed fraud, which opens up the possibility of legal action against them. Depending on the prosecution, they can get charged with anything from a misdemeanor to a felony (aka jail time).
If you are 100% sure you want to take this route, you will need to file a dispute with your bank and any other parties impacted. When they receive your complaint, they will investigate the situation and issue you a refund if they agree that the charges were unauthorized.
This step may end the discussion and resolve the issue, but that is not guaranteed. If you are concerned that your family member still has access to your account, you may need to resort to contacting the authorities.
To dispute unauthorized charges, you will need to report the fraud to the card issuers. Depending on state law, you may only have a limited period to do this. First, you should write to your credit card company as soon as possible so that they can receive the complaint within 60 days after getting the first statement with the charges. After your card issuer receives your complaint, they have up to 30 days to acknowledge it and 90 days to resolve it.
While they look into the situation, they cannot report you as delinquent on the debt if you do not repay it. They are also not allowed to prompt you to pay for the disputed charges, nor can they close or restrict your account because you filed a complaint. However, you are still responsible for any authorized purchases.
In the meantime, you should contact all three credit bureaus and request that the fraudulent information get removed from your credit reports. Additionally, you should check with them to ensure your credit scores do not get impacted.
3. File a Police Report
If your family member refuses to work things out with you, it may be time to file a police report or an identity theft report with the Federal Trade Commission (FTC). Depending on what your card issuer says, this step may or may not be needed. There are cases where your bank will require you to take this step as part of the investigation process.
If the situation escalates to this point, it is ultimately up to you to decide what to do. While you may not want to report your family to the authorities, you could end up being liable for their charges if you decide not to. When that happens, you will need to repay the debt or risk your credit score getting impacted. In the meantime, you can also seek legal advice and get a better sense of the consequences of filing a police report.
Avoiding Credit Card Fraud and Unauthorized Use
Thanks to the Fair Credit Billing Act and zero liability policies, credit cards are very safe to use. But, there are some steps you can take to limit the chances of an identity thief stealing your account information.
When using your card, be aware of who is nearby and avoid exposing your account number, PIN, or security code. Never leave your credit cards or billing statements just lying around where other people can see them. If you have online or mobile banking, do not keep your credentials out in the open or save them on public devices. For example, I set up two-factor authentication for most of my financial accounts and change my passwords every few months.
If you plan on making someone an authorized user on your account, think carefully before doing so. The last thing you want is for them to go crazy on your account and rack up more debt than you can afford to pay off.
The Bottom Line
Always keep a close eye on your bank statements and verify the information. If you spot any fraudulent purchases, act fast to figure out what happened. If an unauthorized family member or friend used your card, your first reaction might be to resolve the issue privately. But, if needed, contact your credit card company or the police to help you.