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Authorized Use: After-The-Fact Limit of Exposure?

Posted: Mon Oct 17, 2005 7:53 pm
by David A. Szwak


Courts are split on whether a cardholder can "after the fact" limit his exposure for charges attributable to a card bearer, who has gone astray and begun to misuse the card. The use was initially "authorized" with actual authority granted. One court responded that the user of a credit card to whom the cardholder has voluntarily given permission to use the card has "apparent authority" to use the card even after actual authority ceases to exist. 15 U.S.C. 1602(o); Standard Oil Co. v. Steele, 489 N.E.2d 842, 22 Ohio Misc.2d 27 (1985); Selber Bros., Inc. v. Bryant, 406 So.2d 251 (La. App. 1981).

A cardholder who has granted any authority to use his card to a third person cannot after the fact limit the liability for charges beyond the scope of the authority. As to the credit issuer or retailer, the only issue is whether you allowed the use, regardless of the scope of such or after-the-fact misuse. Standard Oil Co. v. Steele, 489 N.E.2d 842, 22 Ohio Misc.2d 27 (1985); Selber Bros., Inc. v. Bryant, 406 So.2d 251 (La. App. 1981).

If the cardholder voluntarily permits use of his credit card then he is liable for all uses of that card, even though the user exceeded his instructions for use (misuse) and particular charges eventually made were not contemplated by the cardholder. Michigan Nat. Bank v. Olsen, 723 P.2d 438 (Wash. App. 1986); Tower World Airways, Inc. v. PHE Aviation Systems, Inc., 933 F.2d 174 (2d Cir. 1991), cert. denied, 112 S.Ct. 87, 116 L.Ed. 2d 59 (1991); Mastercard, Consumer Credit Division of First Wisconsin National Bank of Milwaukee v. Town of Newport, 396 N.W.2d 345 (Wis. App. 1986); David Szwak, "Credit Cards in America," John Marshall Journal of Computer & Information Law, John Marshall Law School Law Review, Chicago, Illinois, Vol. XIII, Issue 4, pp.573-584 (Summer, 1995); David Szwak, "Credit Cards, Credit Reports and Fraud: Enforcing Consumer Rights," The Colorado Lawyer, Colorado Bar Association, Vol.25, No.4, pp.23-28 (April, 1996).

Where the cardholder, under no compulsion by fraud, duress or otherwise, voluntarily permits the use of his credit card or account by another person, cardholder has authorized use of that card and account and is thereby liable for any charges resulting, even if the cardholder verbally told the other person not to charge over a certain limit. As to the creditor, once you give authority to the third person, regardless of the scope, you are liable under agency principles. Martin v. American Express, Inc., 361 So.2d 597 (Ala. Civ. App. 1978).