The Arizona Court of Appeals recently dealt a blow to consumers when it issued a new decision on the statute of limitations as it applies to credit card debt.
The statute of limitations is the time period a credit card company has to file a collection lawsuit after a consumer falls behind on payments. If the creditor does not file a debt collection lawsuit before the statute of limitations expires they are barred from ever filing a lawsuit on that debt.
The statute of limitations on credit cards in Arizona is somewhat confusing and very creditor-friendly.
Credit cards are typically considered “open accounts” and Arizona law states that “open accounts” are subject to a three (3) year statute of limitation.1)A.R.S. 543(2).
However, the Arizona legislature changed the law and made credit card debt subject to a six (6) year statute of limitations.2)A.R.S. 548(A)(2)
The grey area has always been in determining when the statute of limitations starts – on what month does the clock start ticking on when the debt collector must file its lawsuit? The terms and conditions associated with most credit cards allow the credit card lender to file a lawsuit as soon as you stop making the payments. Arizona law is clear that the statute of limitations period begins when “one party is able to sue another.”3)Gust, Rosenfeld & Henderson v. Prudential Ins. Co. of Am., 182 Ariz. 586, 588 (1995).
So it would appear that in Arizona the statute of limitations would begin when the first payment is missed because most credit card companies have the right to sue you once you miss a payment.
Not so according to a recent court ruling.
Arizona Court of Appeals Rules on Credit Card Statute of Limitations
On March 2, 2017 the Arizona Court of Appeals answered the question of when the statute of limitations begins on credit card debt and in doing so dealt a serious blow to the consumer in Arizona.
The Court of Appeals ruled that “a credit card holder’s “failure to make minimum monthly payment credit-card payment does not trigger the statute of limitations” but the credit card lender must “accelerate the debt or otherwise demand payment in full.” 4)Mertola, LLC v. Santos, No.1 CA-CV 16-0168, March 2, 2017.
Based upon this ruling, merely missing a payment does not start the statute of limitations period, but the credit card lender must accelerate the debt (demand payment of the full balance owed) in order for the statute of limitations to begin.
Even more troubling, the court’s ruling stated that even if an account has been charged-off the statute would not begin to run if the lender has not notified the consumer that it was accelerating the debt and seeking the full balance. This is terrible news for consumers because it puts the creditor in control of when the statute of limitations period begins. Under this ruling a creditor could charge-off the debt but not notify the consumer that the full balance is due and then let the account sit for years and accrue interest and have no concern about the running of the statute of limitations.
It is easy to see that a creditor could sit on a debt for years – even beyond the 6 year statute of limitations, accelerate the debt, and then file a lawsuit.
Hopefully this unfortunate decision will be reconsidered by the Court of Appeals or reviewed by the Arizona Supreme Court.
But for now thousands of old debts have potentially been given an extension on life and consumers could be facing debts that should have died years ago.
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John Skiba, Esq.
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|3.||↑||Gust, Rosenfeld & Henderson v. Prudential Ins. Co. of Am., 182 Ariz. 586, 588 (1995).|
|4.||↑||Mertola, LLC v. Santos, No.1 CA-CV 16-0168, March 2, 2017.|