Court of Appeals amends opinion that threatened to eliminate statute of limitations defense for debtors in credit card collection cases.
The Issue: The Ninth Circuit Court of Appeals held that that a bank’s lawsuit to collect on a credit card debt was not time-barred even though the applicable statute of limitations had run, because the cardholder had been absent from the state where the bank was headquartered. As originally published, the decision threatened to allow credit card companies and other issuers of debt to evade statutes of limitations in perpetuity.
Why It Matters: Indefinite tolling of the statute of limitations for debt collection could be devastating for many people facing economic hardship. Many alleged debtors are in fact victims of identity fraud. In such cases, statutes of limitations are often the final defense of such victims against endless harassment and threats. The absence of a limitations period is particularly toxic in the context of credit card debt collection where delay in debt collection can lead to piling on of finance charges and late fees, eventually totaling far more than the original debt. Finally, it would be patently unfair for the statute of limitations to run against credit card holders, but not against credit card issuers—precisely the sort of one-sided manipulation of the law that Public Good works to oppose.
Public Good’s Contribution: Public Good filed a brief in support of en banc review, requesting in the alternative that the court modify or withdraw its opinion. Typically, state law (including that of New Hampshire, which was at issue here), allows the limitations period for debt collection (and various other civil claims) to be tolled when the defendant is absent from the state. The problem giving rise to this case is that credit card companies issue cards to customers in all states, but their contracts typically stipulate that any legal disputes are to be governed by the home state of the credit card provider. As a result, the vast majority of the holders of credit cards issued by companies located in small states such as New Hampshire, or Delaware, where most credit card companies are legally based, are always absent from the relevant state, because they have no ties to that state. Thus, according to the reasoning of the debt collectors in this action, the cardholders could be sued at any time, no matter how stale the debt, because the statute of limitations had not expired. However, a cardholder wishing to sue the credit card company could not bring an action after the three-year limitations period had passed, because the company is never absent from the state in which it legally “resides.” Public Good pointed out that the decision in Avery appeared to give rise to just this consequence, arguing that such an interpretation was contrary to the intent of the law.
Amici joining Public Good: Public Good’s brief was filed on behalf of itself and four of the Bay Area’s leading providers of legal services: East Bay Community Law Center, Lawyers’ Committee for Civil Rights of the San Francisco Bay Area, Bay Area Legal Aid, and Legal Assistance to the Elderly.
Outcome: In explicit response to Public Good’s brief, the court of appeals panel modified its decision to spell out that it was not endorsing an interpretation of the law allowing indefinite tolling of limitations periods for credit card debt collection, but was deciding the case on the narrow ground of rejecting the specific argument offered by the debtor in the case.
561 F.3d 998 (9th Cir. 2009), amended, 568 F.3d 1018 (9th Cir. 2009), and cert. denied, 130 S.Ct. 554 (2009).