Does a Person Become Responsible For Spending Above a Credit Limit If the Credit Limit Was Increased Without Request or Approval?

When a Creditor Increases a Credit Limit Without the Request or Express Consent of the Debtor, the Creditor May Lose the Right to Pursue the Debtor For Sums Beyond the Previously Approved Limit.

Understanding the Collection Problems Arising From Increased Spending Limits As Provided Without Request or Approval

Contract Document A credit provider, whether such is a major credit card company or a small business running customer accounts, may unwittingly create collection rights issues, such as the loss of the right to sue for unpaid balances, by increasing credit limits without a request to do so or without the express approval of the debtor.

The Law

There appears as very few cases on the issue of whether a debtor may be liable for debts arising from sums extended on credit that are beyond an originally agreed credit limit where the creditor extended additional credit without the request ore approval of the debtor. The rarity of such cases suggests that most similar cases are likely settled without a court trial. With this said, the case of Bank of Montreal v. Gobran, 2015 CanLII 71782 provides guidance and explanation for how the law should apply to some circumstances whereas it was stated:

15.  The Small Claims Court sees many debt claims based on credit card accounts.  I have seen challenges to unsolicited credit limit increases pleaded by defendants in other cases but I am not aware of any such case having gone to trial.  Neither party was aware of any prior judicial decision dealing with this issue and so far as I am aware there is none.  Nor was I referred to any legislation which might affect this issue and I am aware of none.

16.  From my perspective as a deputy judge, the practice of some creditors, including major banks, of unilaterally increasing credit limits is a practice which leads in many cases to increased financial difficulty and unhappiness being imposed on those who can least afford it.  It can push people into bankruptcies or consumer proposals which might not otherwise be necessary.  Frankly it seems like giving people more of the proverbial rope to hang themselves with.  Large financial institutions must know the consequences of their practice, but they do it anyway.  In any event, regardless of the broader policy concerns, this court can only decide one case at a time based on the particular facts.

17.  I agree with the plaintiff that the distinction between a primary and secondary cardholder is in itself immaterial, all other things being equal.  The defendant and his ex-wife were jointly and severally liable on this account at the time it was opened.  But thereafter, all other things ceased to be equal.

18.  The contract between the plaintiff and the two cardholders was based on a credit limit of $5,000.  On the facts of this case, I find that the subsequent credit limit increases were not legally binding on the defendant.

19.  Both increases were imposed by the plaintiff unilaterally.  The defendant was not asked for consent and did not in fact consent to those significant amendments to the contract.

20.  The plaintiff submitted that the giving of notice of the increases was sufficient, and that the debtors’ consent was not required or at least that it should be inferred from the fact there was no timely objection to the increases.  I disagree.

21.  Negative-option marketing is an insidious practice, attempting to foist a manufactured form of consent on parties who do not in fact consent to the receipt of goods or services or liability to pay for them.  On a simple contract law analysis, acceptance of an offer is a necessary element of a legally binding agreement.

22.  But even assuming for the sake of argument that the plaintiff were entitled to implement a credit increase without prior consent and simply by giving notice, I find that such notice was not given to the defendant.  A single monthly statement was sent each month.  I accept his evidence that his ex-wife dealt with this account and he did not see any such statements as would have revealed the fact of the unilateral credit limit increases.  At common law, notice to one debtor is not notice to another debtor, nor is notice to one spouse notice to the other.  In this case the defendant co-debtor did not know about the credit increases until after the principal debtor and the creditor had allowed the account to go into default beyond the amount of those increases, shortly before the principal debtor absconded.

23.  Since Mr. Gobran did not know about the credit increases until after the fact, he could not have objected to them.  He did not have the negative option now suggested by the plaintiff.

24.  There is a general duty of good faith in the performance of contractual duties: Bhasin v. Hrynew, 2014 SCC 71 (CanLII), [2014] 3 S.C.R. 494.  I find the plaintiff’s position in this case is inconsistent with that duty.  The plaintiff made no attempt to obtain the defendant’s consent to these unsolicited credit limit increases, and it made no attempt to give notice of those increases to him specifically.  Instead it sent a single statement addressed to the two account holders, thereby running the risk that notice might not reach both of them.  In this case that risk materialized.

25.  Another aspect of this particular case is that the defendant in fact made no use of this account during any relevant timeframe.  Therefore it is not open to the creditor, as it might be in other cases where a cardholder challenges unilateral credit increases, to obtain a judgment on the alternative basis of unjust enrichment.  This defendant was not enriched by his ex-wife’s use of this credit card account.

26.  I find that the defendant is not liable for this account beyond the admitted amount of $5,000.

As explained in Bank of Montreal above, in a situation where a person commits to a credit contract by agreeing to accept legal liability up to a maximum sum, such a person is without legal liability sums charged beyond the agreed maximum sum if the excess sum arose without the knowledge or approval of the person or a benefit to the person.  Although addressing such a specific situation, the Bank of Montreal case fails to answer the question of whether legal liability would arise if there was knowledge or benefit that occurred despite an express approval of a credit limit increase. Interestingly, and despite addressing only a narrow legal issue and leaving the broad legal issue unanswered, a moral condemnation of the practice was strongly stated by the judge.

“... the practice of some creditors, including major banks, of unilaterally increasing credit limits is a practice which leads in many cases to increased financial difficulty and unhappiness ...”
~ Deputy Judge Winny
Bank of Montreal v. Gobran,
2015 CanLII 71782

Summary Comment

Where a person contracts to accept liability for debt to a limited amount and the credit provider later extends credit beyond the limited amount previously agreed to, the creditor may be unable to collect the amount of debt incurred beyond the expressly approved credit limit.  Factors for review include whether the person knew of the limit increase, whether the person knew of the spending above the agreed limit, and whether the person benefitted from the spending above the agreed limit.

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