7th Circuit Holds Minor Not Bound by Credit Card Arbitration Provision

The Seventh Circuit Court of Appeals recently held that a minor child who had used her mother’s credit card once did not directly benefit from the cardholder agreement, and so could not be bound by the mandatory arbitration clause found therein.

The Seventh Circuit’s decision in A.D. v. Credit One Bank reversed the district court’s decision that a minor’s use of a parent’s credit card bound the minor to the arbitration clause found in the cardholder agreement under a “direct benefits estoppel” theory.

In that case, the mother of the Plaintiff had used her daughter’s cell phone to call the credit card company to gain access to the credit account, and the credit card company pulled the minor’s cell phone number using an automated process and associated it with the account.  When the mother fell behind on her payments, the company started calling the minor in an attempt to collect her mother’s debt.  The minor sued under the Telephone Consumer Protection Act.  The company filed a motion to compel arbitration under the cardholder agreement it had entered with the mother, citing a single instance the minor had used the card to pick up pre-ordered smoothies to show that the minor had benefitted from the cardholder agreement and therefore should be bound by the arbitration clause.  The minor filed an interlocutory appeal to challenge the district court’s order granting the motion to compel arbitration.

On appeal, the Seventh Circuit held that the minor was not bound by the arbitration clause because she was not an authorized user on the credit card account, and that principles of equity under Nevada law did not compel the application of the arbitration agreement either.  The minor did not directly benefit from the cardholder agreement when making the single purchase because she was following her mother’s directions and the cardholder agreement allowed the mother, not the minor, to purchase the smoothies.  As such, there was no direct benefit to establish any equitable grounds to hold the minor accountable to the arbitration clause in the cardholder agreement.