If a Creditor Increases an Account Limit Without Request or Approval, Does the Debtor Become Responsible For Spending Beyond the Limit?

A Creditor Who Increases a Spending Limit Without Receiving a Request to Do So or Without the Express Consent of the Debtor May Become Unable to Successfully Sue the Debtor For Spending Beyond the Limit As Previously Approved.

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

Contract Document Lenders, such as credit card providers or businesses who extend credit on an account, may create significant credit risk exposures, including loss of right to collect excess sums, when credit limits are increased without receiving a request from the debtor or without receiving express approval of the debtor.

The Law

Despite that cases for unpaid balances on credit cards or other accounts are very commonly litigated, there are very few cases that review the issue of whether a debtor may be held legally liable for unpaid balances that arise from charges upon credit that were over and above an agreed credit limit that was increased without the request or the approval of the debtor. The rarity of cases on the issue, despite the likelihood that the issues arises frequently, suggests that many such cases are settled prior to a court trial; however, one such case was the matter of Bank of Montreal v. Gobran, 2015 CanLII 71782 wherein it was said:

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 per the points made within the Bank of Montreal case provided above, where a person enters into a contract and agrees to accept liability for a specified maximum amount of debt, such person is without liability for debt amounts beyond the specified maximum when such debts arose without knowledge, approval, or benefit.  With this said, the Bank of Montreal case is vague and leaves unanswered the question of whether there would be liability where the debt arose with knowledge, with benefit, and yet without express approval of the credit limit increase.  Despite this legal question being left unanswered, the judge did clearly show a moral disapproval of the practice.

“... 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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