Imagine this scenario--you give your teenager a credit card with explicit instructions that it's only to be used in an emergency. Unfortunately, your teen's idea of an emergency (a major sale at the mall!) and your idea of an emergency (running out of gas) are two completely different things. Before you know it, your teen has maxed out your credit card. Now what?
The good news is there are a number of different ways you can handle this without destroying your bank account or your credit score.
First of all, it's important to know the law regarding your credit card. The Fair Credit Billing and Truth in Lending Act protects you from unauthorized purchases, meaning you're not responsible for purchases you don't specifically authorize. This includes purchases made by family members.
Although the law tends to side with the consumer, it doesn't put you completely off the hook, depending on your card issuer. For example, Bank of America and Capital One do not cover unauthorized purchases unless your card has been reported lost or stolen. When you file a report with your credit card company over unauthorized charges, they conduct their own investigation. In some cases, they may ask for a police report, although you are not legally obligated or required to provide this information to validate your claim.
The card issuer may dispute the fraud claim and refuse to reimburse you altogether, forcing you to either take legal action or pay up. By law, an unauthorized purchase is an unauthorized purchase, whether by someone who stole your card or by your teen who racked up charges on apps. This was recently illustrated when Apple was forced to pay a $32.5 million settlement to reimburse parents for unauthorized charges of their kids' in-app purchases after initially refusing to do so.
If your teen has run amok with your credit card, here's what you can do:
While there are things you can do if your teen maxes out your card, the best step to take is prevention. Make sure your teen understands what the card may and may not be used for, and monitor use. This will help you avoid any unpleasant surprises when you open up your statements.