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When the Statute of Limitation is Shorter Than You Think Will Surprise You

By on November 15, 2016

Question:

Dear Steve,

Not a question, just a fyi about Ohio Supreme Court case from 2016, Taylor v. First Resolution Investment Corporation. SLIP OPINION NO. 2016-OHIO-3444.

This case has 5 important components for CC holders in Ohio:

1. The SOL of CC debt is NOT reset when a debtor makes an agreement to restart or even actually restarts payments. Clock on SOL starts at first missed payment due date.

2. SOL in Ohio for CC debt is 15 years for CC debt accrued before 2012.

3. SOL for CC debt accrued after 2012 is 8 years.

4. Despite #2 & #3, a CC debt for which there is no written contract (or for which CC co cannot produce a copy) the SOL is only 6 years.

5. If CC account payments are mailed to a state outside of Ohio, that CC debt can be considered as a debt governed by the SOL of the state where the payments are being sent. In most cases, that means the CC debtor will benefit by using a shorter SOL of the state outside of Ohio rather than Ohio’s 8 or 15 year SOL.

Just a couple general questions:

Why are so many cc companies like Citi, BOA, Chase, etc unable to produce written contracts on CC accounts from before the 2000’s?

Why did they not have the accounts agreement as a written agreement in the first place?

What do debt collection companies like Midland, Asset Acceptance, Encore etc do with accounts they purchase from CC co. they are unable to collect on and do not sue on?

Matt

Answer:

Dear Matt,

Thanks for sending the link to the opinion. I think my favorite part is “The sale of debt can provide grease for the wheels of commerce.” It’s true, those bad debts can be slippery bastards.

Regarding the documentation, it is true that debt buyers often purchased debt at lower prices when documentation was not provided. Less work for the seller meant a lower purchase price for the buyer. And even when that documentation existed with the original creditor, some of those debt buying contracts required the debt buyer to pay a fee if it was needed.

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It is my experience that before 2000 most of the credit card agreements were in writing and filed away. Who knows where most of those are now. It was also the very earliest days of online contracts and the media those were stored in may be lost as well.

As we proceeded through the 2000s things changed and storage became more electronic with scanned paper records and better retention of electronic agreements. Don’t forget, in the earliest days there was real concern an online agreement had no force of law. Times have changed.

There was a period of time before the high flying recession when banks got sloppy. Just look at the mortgage mess that was created when loan documents could not be connected to mortgages. The same thing happened with private student loans, and other forms of credit. Banks got sloppy and began selling fractionalized shares of contracts by passing on a spreadsheet of account information and not the original documents. Banks have mostly learned their lesson and that is happening less and less these days.

The court opinion is certainly a long read but for those of us debt wonks, it’s pretty interesting. Just set aside an hour to work through it. I did.

These issues decided are incredibly interesting but not universal across the states. The discussion and fine points of the statute of limitations (SOL) are a great example of why people should not simply rely on the SOL they might find on the internet but instead consult with a consumer attorney who is licensed in their state.

This case makes me sad that so many people just elect to get a default judgment and not fight these old debt lawsuits. I suspect the majority of people would not wind up with a judgment if they actually raised valid points and fought back. Creditors win the majority of these suits people people elect to not respond. When challenged, bad debt buyers will often fold.

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This is yet another example of why consumers should get help from an attorney licensed in their state. This case brought up several issues, like the default interest rate claimed, or the demand to recover attorney fees from the debtor. The opinion stated:

“an unsophisticated consumer reading the State Court Complaint could be left with the false impression that [the law firm that filed the complaint] was legally entitled to recover an award of attorneys’ fees in addition to the amount of the debt allegedly owed. This false impression, in turn, could subtly coerce the consumer to pay the debt out of the fear of incurring even greater liability.”

Debt collection companies like Encore have drastically altered their business practices following the action by the Consumer Financial Protection Bureau. Generally now once the debt buyers you mentioned run their course they no longer sell the bad debt on.

But while Encore got slapped for past actions, they have silently rolled out new consumer policies that are significantly helping people with old debt.

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About Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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