29 Mar 2012
Arizona Statute of Limitations on Credit Card Debt
Many people have been asking me recently about Credit Card debt and the statute of limitations on it. This the the amount of time that a bank can used the legal system and sue a customer to collect a debt. After this time they can only ask but not use the legal system. It is a complex issue here in Arizona because for many years it has always been Three years but recently things have changed the Arizona State Legislature created a bill, HB2412 to make it 6 years. It passed on April 11th 2011. But this bill was so short and so poorly written that it caused a huge amount of lawsuits and problems for the People of Arizona.
This is why… There is a Federal law that defines all credit cards as “Open Accounts”.
Open-ended Accounts: These are revolving lines of credit with varying balances. The best example is a credit card account. Please note: a credit card is ALWAYS an open account. This is established under the Truth-in-Lending Act:
TITLE 15 > CHAPTER 41 > SUBCHAPTER I > Part A > § 1602
§ 1602. Definitions and rules of construction(i) The term “open end credit plan” means a plan under which the creditor reasonably contemplates repeated transactions, which prescribes the terms of such transactions, and which provides for a finance charge which may be computed from time to time on the outstanding unpaid balance. A credit plan which is an open end credit plan within the meaning of the preceding sentence is an open end credit plan even if credit information is verified from time to time.
And there is STILL on the books this ARS which defines all Open accounts as having a 3 years Statute of Limitations.
ARS 12-543. Oral debt; stated or open account; relief on ground of fraud or mistake; three year limitation
There shall be commenced and prosecuted within three years after the cause of action accrues, and not afterward, the following actions:
1. For debt where the indebtedness is not evidenced by a contract in writing.
2. Upon stated or open accounts other than such mutual and current accounts as concern the trade of merchandise between merchant and merchant, their factors or agents, but no item of a stated or open account shall be barred so long as any item thereof has been incurred within three years immediately prior to the bringing of an action thereon.
3. For relief on the ground of fraud or mistake, which cause of action shall not be deemed to have accrued until the discovery by the aggrieved party of the facts constituting the fraud or mistake.
So if you take both of those together, it would seem that it is still 3 years. But with the bill passed in April 2011 they only edited ARS 12-548 to read…
ARS 12-548. Contract in writing for debt; six year limitation; choice of law
A. An action for debt shall be commenced and prosecuted within six years after the cause of action accrues, and not afterward, if the indebtedness is evidenced by or founded on either of the following:
1. A contract in writing that is executed in this state.
2. A credit card as defined in section 13-2101, paragraph 3, subdivision (a).
B. If there is a conflict between another jurisdiction and this state relating to the statute of limitations for a debt action as described in subsection A of this section, this section applies.
So the ARS now has conflict within it. There is also nothing in the bill to “Grandfather” credit card debt that was already out of SOL but now is back within it. So these questions, as most do, found their way to court and the Judges have decided to lean in the favor of the banks for the most part. So now people who have old debt are now being made to pay, which will result in more Arizona bankruptcies, and more money leaving our state. It would have been really nice if the above bill made things crystal clear by REMOVING the part in 12-543 about open accounts, but they did not.
IMHO I think that the limit on Credit card debt should be 3 years because if the bank can’t get their act together in 3 full years people should be free from the worry of the unknown so they can move on a rebuild this economy.
So now people can’t move on, and people are getting aggressive collectors calling them. And our legal system is filling up with cases that were previously long dead. This is a great example of a simple rule change that has huge unintended consequences.
As I have been getting into the ARS more and more I have noticed so many conflicts within it where two different things are said in two different ways in two different areas but they both affect the same thing and make it confusing for citizens, and a mess in a legal system. There is nothing that can be done to these messes with out an act of the Legislature. It is probably too late in 2012 to do anything about this but there is always 2013.