Case of the Week: When Does a Lender’s Claim Accrue?

The Arizona Court of Appeals recently decided that a cardholder’s failure to make a minimum monthly payment does not trigger the statute of limitations for a claim for the unpaid balance. In Mertola v. Santos, the court stated that the claim only begins to accrue when the lender accelerates the payment or demands payment in full from the cardholder.

Albert and Arlene Santos first missed a payment on their credit card with Washington Mutual Bank in August of 2007. At that time the balance of their account was $14,642.07. From that point on, the Santoses only intermittently made payment on their credit card balance.

The bank assigned the debt to Mertola, LLC, who sued the Santoses in July 2014 for breach of contract. The Superior Court granted a motion for summary judgement to the Santoses finding the claim was barred by Arizona’s six-year statute of limitations. A.R.S. § 12-548(A)(2) provides that an action for credit card debt shall be brought within six years after the cause of action accrues.

When Does the Claim Accrue?

The Court of Appeals faced the question of when the action accrued. Generally, a cause of action accrues when one party has the right to sue the other party. The court reasoned that although the bank could sue the Santoses for breach of contract whenever a minimum monthly payment was missed, a suit for the full balance could not be brought until the Santoses failed to comply with a demand for payment of the balance or an acceleration of the debt.

Because the bank did not perform either of these actions to require the Santoses the pay off the entire balance, the action did not begin to accrue merely because the Santoses has missed their monthly payments. A credit card holder, like a borrower or purchaser on an installment debt, is not obligated to pay the balance of the account until acceleration of the debt.

The court also was not convinced by the Santoses argument that delaying the claim’s accrual will cause credit card companies to put off claims simply to allow interest to accrue. Instead, the court felt that this flexibility would give both the lender and the cardholder more opportunity to come to a resolution of the debt without requiring litigation.

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