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Collection Actions: 3.7.3.2.4 Interaction of borrowing statute and law of state chosen in the contract

Another issue is whether a forum state’s borrowing statute applies when the credit agreement chooses the law of a particular state. As described at § 3.7.3.1, supra, courts generally use the shortest limitations period of either the contractually-chosen state or the forum state. Other courts keep the forum state’s limitations period and, in that case, the interaction with the borrowing statute is straightforward.

Collection Actions: 3.7.4.1 Generally

States typically establish several statutes of limitations, of varying lengths, that are applicable to different causes of action. These statutes of limitations are often found in the state’s code section governing courts and judicial proceedings for personal actions and in the state’s version of the Uniform Commercial Code (UCC).

Collection Actions: 3.7.4.2 State-by-State Listing of Limitations Periods for Breach of Contract

Every state has a limitations period for claims based on a written contract, but the time periods vary significantly from state to state. In some states it is only three, four, or five years, while six years is more common. A handful of states have limitations periods of eight or ten years. Statutes of limitations for a claim on a non-written contract are usually shorter than those for a written contract. In a number of states, though, the limitations period is the same for non-written and written contracts. Also listed are special limitations periods for collection of consumer debt.

Collection Actions: 3.7.5 The Statute of Limitations Cannot Be Extended by Contract

It would be unusual for a consumer credit agreement to lengthen a statute of limitations, and any such attempt should be unenforceable. The statute of limitations is the legislature’s attempt to achieve a balance between protecting the courts and defendants against stale claims and providing plaintiffs a reasonable period in which to bring an action. As such, the private parties cannot waive the courts’ interest in not hearing stale claims.

Collection Actions: 3.7.6.1 Generally

As described in § 3.7.4, supra, a state may have a number of different statutes of limitations of different lengths, such as for written contracts, non-written contracts, sales of goods, leases, dishonored checks, and promissory notes.434 It may require a careful reading of each of the state’s statutes of limitations to determine which applies.

Collection Actions: 3.7.6.2 Application of UCC “Sales” Limitations Period to Credit Sales, Store Credit Cards, and Utilities

The four-year limitations period under UCC Article 2 for the sale of goods overrides a state’s limitations period for a claim based upon a written contract, which is often longer than the four-year period of UCC Article 2.437 The same is the case even if the plaintiff seeks to bring the claim for account stated, open account, or quantum meruit.438

The official comment to U.C.C. § 2-725 states:

Collection Actions: 3.7.6.3.1 Overview

A number of possible limitations periods might apply to breach of contract claims concerning a bank-issued, general purpose credit card. Typically, a state limitations period will not specifically reference credit card debt, although Arizona’s legislation is an exception.451 In other states, courts must determine the applicable period.

Collection Actions: 3.7.6.3.3 Is a written credit card agreement a “contract in writing”?

Even if the collector is able to produce the agreement and brings an action for breach of the written contract, a credit card agreement may not qualify as a written agreement for purposes of a state statute of limitations.465 Credit card agreements are subject to change unilaterally, are generally not signed by either party, and there often is not a “complete writing,” but an initial writing plus a series of standard form amendments whose enforceability is contingent on the consumer’s continued use of the credit card.

Collection Actions: 3.7.7.1 Generally

The UCC Article 3 limitations period for suit on a dishonored check begins to run from the date of dishonor.474 The UCC Article 3 limitations period for promissory notes begins on the date of acceleration.475

Collection Actions: 3.7.7.2 Date Triggering Limitations Period for Credit Card Debt

The date triggering the limitations period on credit card debt depends on the collector’s cause of action. If the collector is bringing the claim on an account stated cause of action, there may be no proof of a contract. Instead, the claim is based on the consumer’s failure to pay on an amount demanded by a statement of account.

Collection Actions: 3.7.8.2.1 Military service

Federal law specifies that the period of a servicemember’s military service is not included in the computing any limitations period under federal or state law.505 The provision applies to the period in which the consumer is on active duty military service and applies to debts incurred before and during the period of active duty military service.

Collection Actions: 3.7.8.2.2 Bankruptcy

The U.S. Bankruptcy Code sets out rules for the tolling effect of the bankruptcy. The collection action’s limitation period extends to the later of two dates: the state limitations period with no tolling effect of the bankruptcy or thirty days after notice to the collector regarding expiration of the automatic stay.507

Collection Actions: 3.7.8.2.3 Time spent out of state

Other grounds for tolling the statute of limitations will be based on state law. A common ground for such tolling is if the consumer moves out of state for some of the period. The period of the absence is not counted in computing the limitations period.510 The burden will be on the collector to show the dates the consumer was absent from the state. If the collector cannot meet this burden, then the limitations period will not be tolled.

Collection Actions: 3.7.8.2.5 Tolling Related to COVID-19

A number of statutes of limitations were suspended because of the COVID-19 public health emergency starting at the end of March 2020. The suspensions are typically for about a month or, in some cases, the duration of the emergency.

Collection Actions: 3.7.8.3.2 Acknowledgment of the debt

The consumer’s acknowledgment of the obligation may revive the statute of limitations. States establish standards as to what type of acknowledgment is sufficient to revive the limitations period. An oral statement that the money is owed may not be enough.

Collection Actions: 5.2.7.2 Developing the Consumer’s Evidence

Any documentation beyond the consumer’s testimony will clearly strengthen the consumer’s claim that the debt has been settled or that the amount due has been modified. Try to obtain a copy of the canceled check to see if the consumer noted on the check “payment in full,” or the like, and look for other contemporaneous writings that may prove helpful. The consumer may also seek to discover from the creditor or collector any telephone recordings or other collector notations reflecting the settlement conversation.