If you fall behind on credit card payments, your state's laws give the credit card company a limited amount of time to sue you for the balance. This is called the statute of limitations (SOL). However, credit card companies are finding ways around state SOLs. One way they do this is adding fine print in the credit card agreement that gives them more time to sue you.
What Is the Statute of Limitations?
The SOL is a rule that sets a time limit for bringing a lawsuit. The length of time that a creditor has to sue you on an unpaid credit card balance varies from state to state. In some states, it's three years. In other states, it might be longer. It may also depend on whether you have a written credit card agreement with that creditor. To find out your state's statute of limitations, check out Nolo's 50-state chart: Statute of Limitations in All 50 States.
Normally, the clock starts ticking from the time you default on your agreement with the creditor. For example, if you defaulted, or stopped paying, on a credit card in September 2007 and you live in Ohio (which has a six year SOL for credit card agreements), then the creditor has until September 2013 to file a lawsuit against you.
Changing the Statute of Limitations Through "Choice of Law" Provisions
Some credit card companies have added language to their consumer credit agreements in an attempt to extend the statute of limitations. Creditors most often do this by using language that states something like “this agreement is governed by the laws of the State of _____.” This is legally called a “choice of law” or “governing law” provision. What that means is that no matter what state you live in, your rights and obligations—and the rights of the creditor—will be determined by the laws of the state that is identified in the credit card agreement.
When Credit Card Agreements Extend the SOL
In many instances, when a creditor has included a “choice of law” statement in your credit card agreement, it gives that creditor more time to sue. For example, if you live in California, the SOL is four years. However, if the creditor has opted for Ohio as its choice of law state, then the applicable statute of limitations follows Ohio law, and is six years. The credit card company may try to sue you for your debt beyond the four-year SOL. This may be perfectly legal.
When Credit Card Agreements Shorten the SOL
In some cases, a creditor may have shot itself in the foot by giving itself less time to sue you. For instance, if you live in Ohio but the creditor's choice of law state is New Hampshire, then it may have shortened the time period to sue you. This is because New Hampshire's SOL for a credit card debt is three years, as opposed to six years in Ohio.
Has the Creditor Violated the Fair Debt Collection Practices Act?
The FDCPA prohibits debt collectors and debt buyers from suing you for time-barred debts. And some state fair debt laws prohibit creditors from doing the same thing. This means that if a debt collector sues you for a credit card debt before the SOL in your state has expired, but after the SOL for the choice of law state has expired, it may have violated the FDCPA.
To learn more about FDCPA lawsuits and possible damages see Damages for FDCPA Violations.
The Nonresident Tolling Statute Exception
In some states, there might be an exception. If the choice of law state has a “nonresident tolling statute,” then the debt collector or debt buyer might still be able to sue you on a debt that would otherwise be time-barred by the law in the contract. This would come into play if the choice of law state had a shorter SOL than the SOL in your resident state.
Here's what happens. The nonresident tolling statute says that because you are not a resident of the choice of law state, the choice of law state's SOL is tolled or suspended. That means the collector can sue you in your home state, using your home state's longer SOL.
Finding the Statute of Limitations for Your Credit Card Agreements
Whether or not a creditor has sued you, it is a good idea for you to review all of the paperwork that you received on all of your credit card accounts. This includes any additional agreements, statements, disclosures or other documents that the credit card company has sent you since you started using the credit card. Credit card companies frequently update or send out new or amended credit card agreements that may legally bind you, especially if you use that credit card after receiving those documents. This may be true even if you didn't sign any papers.
Read the fine print of your account agreement very carefully to find out if the creditor has identified another state in the choice of law section. If it has, and you are worried about a lawsuit for delinquent debt, find out how long the credit card company has to sue you in it's designated choice of law state, and in your own state. Also be sure to research whether the choice of law state has a nonresident tolling statute that might apply to you. To learn how to find state laws, visit Nolo’s Legal Research Center. Or check with a local attorney.
If you are sued and it appears that the applicable SOL has already expired under the credit card agreement, you should raise this as a defense to the lawsuit. For more information, read Nolo's article Time-Barred Debts: When Collectors Cannot Sue You for Unpaid Debts.