Teen Fintech, Clickwrap, and the Infancy Doctrine 2.0

Teenagers open banking apps, tap "Agree," and bind themselves to arbitration clauses and class-action waivers. They authorize recurring charges before they can legally sign a lease. Contract law has protected minors through the infancy defense for centuries, allowing them to cancel contracts they enter. But in recent years, digital design has weakened that protection. Fintech platforms use clickwrap agreements, automatic renewals, and ratification rules that prevent minors from canceling their contracts. A sixteen-year-old opening a peer-to-peer payment app faces a forty-page terms-of-service document in a popup that disappears after one tap. When that teen tries to cancel the contract later, account closure is buried in settings, refund policies are unclear, and no one tells them about their legal rights.

This article argues that arbitration agreements and class-action waivers are unenforceable against minors. Minors lack capacity to contract, which is a formation defect under the infancy doctrine. Because it is a capacity issue, the Federal Arbitration Act does not preempt state laws protecting minors. The article proposes "disaffirmance-by-design," which builds cancellation rights directly into app interfaces. Recognizing capacity defects as formation problems outside the FAA's scope preserves judicial review for vulnerable parties while respecting Congress's mandate to enforce arbitration agreements made by competent adults.

I. Background

A. The Infancy Doctrine

Anglo-American contract law has treated minors as unable to bind themselves since the thirteenth century. [1] Minors, people below the age of eighteen, lack judgment to evaluate risks, understand long-term consequences, and resist manipulation. Unlike intoxication or mental incapacity, infancy works as a bright-line rule based on age. A minor can disaffirm any contract, canceling it retroactively and returning both parties to their starting positions.

Disaffirmance works one way. The minor does not need to show unfairness, bad faith, or harm. They announce their intent to cancel the contract, usually within a reasonable time after turning eighteen. The adult cannot disaffirm. Adults who contract with minors take the risk of dealing with legally incompetent persons.

Three rules limit disaffirmance power. First, the necessities exception makes minors responsible for contracts involving essential goods or services: food, shelter, medical care, and sometimes education. Second, restitution principles may require the minor to return benefits received. Third, ratification eliminates the right to disaffirm if the minor, after turning eighteen, confirms the contract through words or actions. [2]

B. Digital Consent

Fintech platforms use clickwrap agreements. A teen downloading a payment app sees a registration screen with a checkbox saying "I have read and agree to the Terms of Service and Privacy Policy." The terms run forty single-spaced pages in small type. They include choice-of-law provisions, indemnification clauses, intellectual property assignments, and mandatory arbitration with class-action waivers. Fewer than one percent of users read these documents. [3]

Auto-renewal worsens this. Many fintech platforms offer tiered services with monthly or annual fees. During signup, the app offers to "try premium free for thirty days" with automatic conversion to paid subscription unless canceled. Canceling requires navigating multiple hidden steps. Once a minor turns eighteen, continued use may count as ratification.

C. Arbitration in Consumer Contracts

Arbitration clauses in consumer fintech terms have three provisions: mandatory arbitration requiring disputes go through binding arbitration, class-action waivers prohibiting joining claims together, and delegation clauses assigning arbitrability questions to the arbitrator. In AT&T Mobility LLC v. Concepcion,4 the Supreme Court held that the FAA preempts state laws that disfavor arbitration. In Buckeye Check Cashing, Inc. v. Cardegna,5 the Court held that challenges to a contract's validity go to the arbitrator unless the challenge targets the arbitration clause itself.

II. Incapacity Makes Arbitration Agreements Unenforceable

A. Formation Defects vs. Other Contract Defenses

Capacity challenges differ from unconscionability or fraud defenses. An unconscionable contract is formed but unenforceable because of unfairness. A fraudulently induced contract comes from valid consent corrupted by lies. Incapacity means no contract was formed because a minor lacks legal ability to enter a binding agreement. This formation defect extends to every provision in the minor's agreement, including arbitration and class-action waivers.

In I.B. v. Facebook, Inc.,6 a minor plaintiff sought to cancel Facebook's terms, including an arbitration clause, based on California law codifying disaffirmance rights. Facebook argued that the delegation clause meant the arbitrator should decide capacity. The district court rejected this argument. If the minor lacked capacity to agree to arbitration, she also lacked capacity to agree to let the arbitrator decide. The court decided the capacity question and found the contract voidable.

This reasoning fits the FAA's savings clause. Incapacity is a defense "applicable to contracts generally," not a rule targeting arbitration. The capacity doctrine treats all contract obligations equally. It survives FAA preemption.

B. Why Incapacity Differs from Unconscionability

The Supreme Court has struck down state laws that burden arbitration. Concepcion invalidated California's Discover Bank rule, which said class-action waivers in consumer contracts were unconscionable when claims involve small amounts. Incapacity analysis avoids this preemption problem. A minor who disaffirms cancels all obligations under the contract: arbitration, payment, licenses, and waivers. The remedy does not single out arbitration. Incapacity does not rest on policy objections to arbitration's procedures or costs. It reflects a judgment about the minor's cognitive capacity that predates the FAA by centuries.

C. Necessities and Ratification

Two doctrines might narrow the infancy defense in fintech contexts. First, the necessities exception could apply to financial services contracts that provide essential payment infrastructure. But even if a basic payment account qualifies as a necessity, courts only enforce recovery for reasonable value of services provided, not the contract as written. Arbitration and class-action waivers go beyond what is necessary for financial access. A platform that insists on these terms cannot claim necessity as a defense.

Second, ratification after turning eighteen might bind the former minor who keeps using the app. Some courts have said continued use is enough.7 But this makes little sense digitally. The now-adult user did not negotiate or read the terms at seventeen and is unlikely to revisit them at eighteen. Fintech platforms should notify users when they turn eighteen that prior agreements can be canceled, that continued use means ratification, and that cancellation remains available for ninety days.

III. Disaffirmance-by-Design

A. One-Click Cancellation

If incapacity makes fintech contracts voidable, the remedy must include cancellation tools built into platforms. A court-enforced cancellation right only helps the minor with access to lawyers and money. Digital design that blocks cancellation forfeits the right.

Fintech platforms must provide an in-app tool accessible from account settings labeled "Cancel Account and Void Terms (Minor Users)." The process should take no more than three steps: (1) enter password or use biometric confirmation, (2) select "I am under 18 and want to cancel this agreement" or "I recently turned 18 and want to cancel agreements made when I was a minor," and (3) acknowledge that canceling will close the account and trigger refunds. The tool must stay accessible until the user's nineteenth birthday or one year after their last transaction, whichever is later.

B. Refunds and Returns

Classical disaffirmance law requires the minor to return benefits received, but only to the extent they still have them. In fintech, the platform must refund all fees paid by the minor: subscription charges, transaction fees, currency conversion markups, and interest. The minor must return unspent balances in digital wallets. If the minor spent the balance, they return what remains at cancellation. Where the minor received a cash-equivalent benefit like a promotional bonus, the platform may subtract that from refunds owed, but only if the benefit was unrestricted.

C. Data Deletion

A minor who agreed to data sharing should be able to cancel that consent retroactively. When canceling, the platform must delete or anonymize personal data collected during minority: transaction histories, location logs, biometric scans, device identifiers, and behavioral profiles. Platforms that cannot show compliance should face statutory damages calculated per day of noncompliance.

D. Parent Notification and Regulatory Reporting

Platforms should offer optional guardian notification during signup. If the minor provides a parent email address, the platform sends a summary of key terms in plain language, highlighting arbitration waivers, data practices, fee structures, and the cancellation right. State attorneys general and financial regulators should receive anonymized reports showing the number of minor users, cancellation requests, refund amounts, and data deletion actions.

IV. Conclusion

Children cannot bargain on equal terms with sophisticated businesses, yet digital interfaces turn cancellation into a complicated obstacle course. Fintech platforms exploit this, binding teenagers to arbitration waivers and class-action surrenders.

Incapacity is a formation defect, making arbitration agreements unenforceable without triggering FAA preemption. Disaffirmance-by-design builds the infancy doctrine into platform design, making the right to cancel accessible without litigation. Millions of teenagers use fintech platforms daily, generating transaction data that shapes credit scores, employment screening, and behavioral profiling. If those teens cannot cancel the terms under which their data is collected and their legal rights are waived, the infancy doctrine becomes useless in commerce. Disaffirmance-by-design preserves the doctrine's protective purpose while adapting its structure to clickwrap agreements, auto-renewal, and algorithmic data extraction.

Edited by Lola Castorina

Endnotes

[1] Victoria Slade, "The Infancy Defense in the Modern Contract Age: A Useful Vestige," 34 Seattle U L Rev 1 (2011).

[2] Id.

[3] Tim Sandle, "Report finds only 1 percent reads 'Terms & Conditions'," 29 Digital Journal (2020).

[4] AT&T Mobility LLC v Concepcion, 563 US 333 (2011).

[5] Buckeye Check Cashing, Inc. v Cardegna, 546 US 440 (2006).

[6] IB v Facebook, Inc., 905 F Supp 2d 989 (ND Cal 2012).

[7] AV ex rel. Vanderhye v iParadigms, LLC, 562 F3d 630 (4th Cir 2009).