Discovering that a collection agency has filed a claim against you for a credit card balance you never authorized can be stressful and confusing. You might wonder: How can I be sued for something I didn’t do? Fortunately, Ontario law provides several ways to defend yourself when a credit card debt results from fraud or identity theft. So, what can be done about it?
1. Understanding What the Claim Means
When a collection agency files a claim in Small Claims Court, it usually means that the original lender — often a bank or credit card company — sold or assigned the alleged credit card debt to that agency.
If the transactions were the result of fraud, or if the account was opened in your name without your consent, you can raise these facts as your defence.
2. Demand Proof of the Debt and the Assignment
Collection agencies often rely on limited or incomplete information. As such, you are entitled to defend yourself based on the lack of the following:
- Original credit agreement.
- Complete transaction history.
- Written assignment of the debt from the original creditor to the collection agency; and
- Proper notice that the debt was assigned to them.
Under section 53(1) of Ontario’s Conveyancing and Law of Property Act, a debt can only be assigned through an absolute written assignment signed by the original creditor, and the debtor must be notified in writing.
If you never received such notice, the collection agency may not have the legal right to sue you, and the Small Claims Court can dismiss the claim on that basis alone.
3. Establish That the Debt Was Caused by Fraud
Credit card fraud can take many forms: unauthorized purchases, cloned cards, or entirely new accounts opened without your knowledge. In any of these cases, you may not be legally responsible for the resulting balance as long as you took reasonable care to safeguard your information.
You can defend yourself by showing that you:
- Never authorized the account or specific transactions.
- Reported suspicious activity to the bank or card issuer promptly; and
- Cooperated in any investigation that followed.
4. Rely on Legal and Statutory Protections
Several laws in Canada protect you from liability for unauthorized credit card use. The most important are the Bank Act, the Consumer Protection Act, and the Mastercard and Visa zero-liability policies.
The Bank Act
Section 627.33(1) of the Bank Act limits your liability for unauthorized use of a credit card to $50, unless you were grossly negligent in protecting your card or personal information.
If you reported the fraud promptly and did not share your PIN or card details, this protection applies.
The Consumer Protection Act (Ontario)
Section 69 of Ontario’s Consumer Protection Act, together with section 58 of Regulation 17/05, provides that borrowers are not liable for any unauthorized charges made after giving notice of a lost, stolen, or misused card. The maximum liability before such notice is also $50.
Card Network Policies
Major credit card networks, including Mastercard and Visa, offer zero-liability policies for unauthorized transactions, whether made in stores, online, or by phone. These policies require issuers to reverse fraudulent charges once they confirm that you did not authorize them.
5. Identify Possible Negligence by the Bank or Card Issuer
If your card issuer was aware or should have been aware of the fraud but failed to stop the unauthorized transactions, they may have been negligent.
Financial institutions owe you a duty of care to act promptly. If they ignored your report or other signs of fraud and allowed further charges, they can be held responsible for those losses — not you.
6. How to Respond to the Claim
If you receive a court claim from a collection agency, you must respond promptly. Ignoring it may result in a default judgment against you, even if the debt is fraudulent.
Here’s what you should do:
- File a Defence: Submit a Statement of Defence within 20 days of receiving the claim.
- Gather Evidence: Collect all communications with the bank or card issuer — including fraud reports, emails, and transaction statements.
- Challenge the Debt Assignment: Request proof that the collection agency has the legal right to sue for the debt.
- Seek Legal Help: A licensed paralegal can help you draft your defence, prepare exhibits, and represent you in Small Claims Court.
7. Avoid Common Mistakes
Many consumers accidentally weaken their position by doing one of the following:
- Making partial payments — this can be interpreted as an admission of the debt.
- Ignoring court documents — which can lead to a default judgment.
- Failing to document communication — always keep records of calls, emails, and letters with the creditor or agency.
- Admitting liability without proof — do not accept responsibility until you see proper documentation.
8. Why Legal Representation Matters
Collection disputes involving credit card fraud often require technical legal arguments. For example, you may need to reference the Bank Act, the Consumer Protection Act, the Limitation Act or the principles of assignment under Ontario law.
A licensed paralegal can help you:
- Prepare a complete defence that raises all relevant legal and factual issues;
- Negotiate a withdrawal or settlement if appropriate; and
- Represent you at trial if the case proceeds.
9. Protecting Yourself in the Future
Even after resolving the dispute, it’s wise to strengthen your protection against future fraud. You can:
- Set up alerts for all transactions on your credit cards.
- Use strong, unique passwords for online banking.
- Regularly check your credit report with Equifax and TransUnion; and
- Report any unauthorized accounts to the financial institution and the police immediately.
The sooner you act, the easier it is to contain any potential damage and prevent future claims.
Conclusion
If a collection agency sues you for a credit card balance that resulted from fraud, you are not powerless. You can challenge the claim, demand proof, and rely on federal and provincial consumer protection laws. The burden of proof lies with the agency — they must show that the debt is legitimate.
(Note: This post provides general legal information and should not be construed as legal advice. Individuals facing litigation should consult with a qualified legal professional.)
