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another question about sol


uglymouse1
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I do not wish to be a wet blanket -- and there are hundreds of people on this website who will disagree with me.

SOL in GA for a written agreement is 6 years. SOL for an open account is 4 years.

There is considerable debate whether a credit card is a written agreement or an open account.

The Truth in Lending Act seems to be the common catalyst for people’s belief that a credit card is an open account. The TILA does not mention "open accounts", and its applicability to such would to me be very questionable. What it does refer to is "open end" credit. An "open end" and an "open account" are not the same. Unfortunately, because of similar names and the word "open" being included in both, most people assume they mean the same thing; they don't. While credit cards are "open end" accounts, they are rarely considered "open accounts." However, some charge cards can be considered open accounts, but a "charge" card is different than a "credit" card.

There is little law on this subject and it is not entirely clear which statute of limitations should apply to a credit card debt. Most decisions in state court are not published and I have seen none appealed to Federal court where you can actually see some case law.

In my opinion, in situations in which the financing is provided by the merchant, then the “open account” statute of limitations should apply because the transaction is one for the sale of goods and the financing aspect is merely a portion of that arrangement. However, if a third party provides the financing (like a bank card), then the suit is one based on the written contract to provide credit.

More and more it seems that judges in a number of states are persuaded by the argument that a bank credit card is not the same as a store charge card. As a result, judges seem to be taking the view that credit cards are written agreements.

I am personally aware that judges in FL, OK and AZ are ruling that credit cards are written agreements. VA is the only state I am aware of where a judge has ruled a credit card to be an open account.

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Debt Guy -

I read the exact same verbage in an Illinois District Court decision (Hamid v. Unifund, et.al),2001, where the court drew the distinction between merchant provided credit and third party agreement to provide credit.

Is there a consensus as to the accuracy of this logic out there?

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Candidly, I am surprised that a hundred people have not stomped all over my posting. The only consensus I see is a lot of sincere but misguided folks on several message boards who think that open account and open end are the same thing.

They really do believe that the Federal Truth in Lending Act says that a credit card is an open account. I have read the TIL from beginning to end. The only reference to a credit card is in the definitions section where the term "open end credit" is defined and it uses "credit card" as an example of open end credit.

This is confusing and a product of several factors -- banking is evolutionary -- state laws establish the SOL for that state (not federal) -- and every state writes its own law using words and terms chosen by some staffer at the state capitol.

In most cases, the SOL laws were originally drafted 50 to 100 years ago and reflect the thinking of how credit works at that time. In almost every case this was before the invention of the "bank credit card". While some states have updated the language, most have not.

When I was a kid, my father would go to the neighborhood mom and pop grocery store, pick out what he needed and just sign the cash register receipt. On payday, he would pay what he could on the balance. This is a classic "open account" and, in my opinion, what was originally in the mind of the legal community 75 years ago. Open accounts at that time rarely had a written agreement -- only a ledger sheet maintained by the merchant.

In the 1920s a department store in Philadelphia (the name escapes me right now) issued the first "card" (paper, of course) to their high end clients to identify the customer and facilitate the purchase of merchandise on credit. In this case, the merchant was still just providing credit to facilitate the sale of goods and services -- the card was only identification. The nature of the relationship was still that of an open account. Only two parties were involved -- the merchant and the consumer.

In the 1950s Diners Club took the process to the next level. They issued a card to high end clients and basically said to merchants (mostly restaurants at first) that we promise to pay you if you will allow our customer the courtesy of "charging" their meal -- just send us (Diner's Club) the bill. In this context, the transaction became radically different -- you now have three parties involved -- the merchant -- the consumer -- and the lender. The contract between the lender and the consumer was highly formalized with a written agreement.

A couple of years later, Citibank invented MasterCharge (the predecessor to MasterCard) and Bank of America invented the BankAmericard (the predecessor to VISA). Now, we are in the business of banks extending credit directly to individuals and using a highly formalized written agreement (the cardholder agreement). These accounts came to be know as "open-end" accounts.

Open end is best understood when compared to its banking opposite -- closed end. A closed end account is your car loan -- $X per month for Y months at Z% -- it has a definite beginning and a definite end.

A open end account is subject to a complex set of rules but has no definite end. If your credit line is $5000, you draw down the line, repay it and draw it down again, and over and over. Always, subject to a minimum monthly payment requirement as a mathematical function of the balance and the interest rate.

Only those who do not understand the history and evolution of the credit card could think that an open account (like my father had at the grocery) and an open-end account (like a VISA card) are the same thing.

Like I said, I only know of one state where a judge has ruled a bank credit card was an open account. I try to follow this issue on various message boards and keep in contact with folks who are struggling with the difference in SOL. My experience is based on feedback from those individuals.

So, consensus? Not hardly - but it sure to me that the legal community is seeing bank cards as written agreements for purposes of the state SOL.

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From http://landru.i-link-2.net/monques/dereg80.html which sites the DEPOSITORY INSTITUTIONS DEREGULATION AND MONETARY CONTROL ACT OF 1980

OPEN END CREDIT PLAN

SEC. 604. Section 103(i) of the Truth in Lending Act (15 U.S.C. 1602(i)) is amended to read as follows:

“(i) The term ‘open end credit plan’ means a plan under which the creditor reasonably contemplates repeated transactions, which prescribes the terms of such transactions, and which provides for a finance charge which may be computed from time to time on the outstanding unpaid balance. A credit plan which is an open end credit plan within the meaning of the preceding sentence is an open end credit plan even if credit information is verified from time to time.”.

which clearly includes credit cards.

However..since SOL is a state by state statute...and state legistatures can't resist the urge to "new and improve" to the benefit of their owners, you do need to look at how this applies to whatever state you're in.

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Willing --

I think you are missing my point.

Your post is absolutely accurate. A credit card is indeed an 'OPEN-END" account.

However, what I am trying to explain is that 'OPEN-END' and 'OPEN ACCOUNT' are not the same thing. I know it is confusing because the word open is included in both terms.

A bank credit card is always an open-end account but seldom an open account.

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Sorry...I disagree...(which is why we have so many lawyers)...

A Bank credit card is almost always an "open account". A credit card issued by a department or "big box" store, even if it is backed by a major CC company, is seldom an "open account", although it may be if the consumer uses it at other than the designated store.

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It's charge cards v. credit cards. We've already discussed this and posted the case cites a while back.

Store charge cards (ie: the morphed mom and pop 'open credit' you mention) can fall under a different SOL than credit cards as "written contracts". THAT's the difference.

Show some examples where misusing "open end" and "open account" has proven detrimental to somebody in court and we'll start to worry.

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I'm looking for it too.

As much as I push members to use the search function, it's not the most user-friendly thing in the world - especially when your key words are "charge" and "cards". :roll:

I don't remember if the case was Ohio or Florida, but I kinda remember it being presented that a store charge card's SOL was a written contract. I also seem to remember a statute in Ohio exempting credit cards as a written contract, so I'm leaning toward Ohio as the source for the store charge card cite...

I'm also thinking gdouglaslee or ghacorp is the one who posted the info...

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This ruling contains some cites that might lead where you want to go.

2001 U.S. Dist. LEXIS 13918, *

MOHAMMED HAMID, on behalf of himself and all others similarly situated, Plaintiff, v. BLATT, HASENMILLER, LEIBSKER, MOORE & PELLETTIERI, and UNIFUND CCR PARTNERS, and UNIFUND CORP., Defendants.

No. 00 C 4511

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION

2001 U.S. Dist. LEXIS 13918

August 31, 2001, Decided

September 4, 2001, Docketed

DISPOSITION: [*1] The 12(B)(6) Motion to Dismiss brought by defendant Blatt, Hasenmiller, Leibsker, Moore & Pellettieri denied.

CASE SUMMARY

PROCEDURAL POSTURE: Defendant law firm filed a collection action on behalf of defendant client against plaintiff debtor for a default on a credit card account. Prior to suit, the law firm sent collection letters to the debtor which he tried to answer. At trial, the court granted the firm's motion to voluntarily dismiss but awarded costs to debtor, who later sued for violations of the Fair Debt Collection Practices Act (FDCPA). The law firm moved to dismiss.

OVERVIEW: The debtor alleged that the law firm violated the FDCPA by filing a suit that was barred by the statute of limitations, by seeking more interest than it was entitled to collect, and by attempting to collect attorneys fees. The law firm argued that the suit was not outside the limitations period and that in any event, the argument was made in good faith. The debtor argued that the four-year statute of limitations should apply because the predominant aspect of the interaction was a sale of goods, while the law firm argued that a ten-year statute applied because the financing was provided by a third party. The court held that disputed facts made the question close, thus the allegations were sufficient to survive dismissal. The law firm also argued that even if the four-year statute applied, it had not knowingly violated the FDCPA because the question was so close. The argument did not carry the day because as a law firm in the collection business, there was a possibility that it knew about the statutory distinctions, and the court could not decide that the law firm had not acted knowingly in the alleged violation of the FDCPA.

OUTCOME: The court denied the law firm's motion to dismiss.

CORE TERMS: statute of limitations, credit card, motion to dismiss, lawsuit, financing, question of law, third party, law firm, knowingly, written contract, collection, vendor

CORE CONCEPTS - Hide Concepts

Civil Procedure : Pleading & Practice : Defenses, Objections & Demurrers : Failure to State a Cause of Action

A motion to dismiss pursuant to Fed. R. Civ. P. 12(B)(6) does not test whether the plaintiff will prevail on the merits, but instead whether the plaintiff has properly stated a claim. In deciding a motion to dismiss, the court must assume all facts in the complaint to be true, construe the allegations liberally, and view the allegations in a light most favorable to the plaintiff. The court may dismiss a complaint for failure to state a claim under Rule 12(B)(6) only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.

Governments : Legislation : Limitation of Actions : Time Limitations

In Illinois, the statute of limitations on a debt which arises from a sale of goods is four years. 810 Ill. Comp. Stat. § 5/2-725. However, the statute of limitations for breach of a written contract is ten years. 735 Ill. Comp. Stat. § 5/13-206.

Banking Law : Bank Activities : Consumer Protection : Credit Card Agreements

Governments : Legislation : Limitation of Actions : Time Limitations

What statute of limitations should apply to a credit card debt is not entirely clear. In situations in which the financing is provided by the merchant, then the four year statute of limitations should apply because the transaction is one for the sale of goods and the financing aspect is merely a portion of that arrangement. However, if the financing is provided by a third party, then the suit is one based on the written contract to provide credit and the appropriate statute of limitations is ten years.

Banking Law : Bank Activities : Consumer Protection : Fair Debt Collection Practices

A violation of 15 U.S.C.S. § 1692e must be knowing and intentional.

COUNSEL: For MOHAMMED HAMID, plaintiff: James S. Shedden, Michael S. Hilicki, Beeler, Schad & Diamond, P.C., Chicago, IL. Christopher V. Langone, Joel D. Dabisch, Langone Law Firm, Chicago, IL. Lance A. Raphael, Chicago, IL.

For BLATT, HASENMILLER, LEIBSKER, MOORE & PELLETTIERI, defendant: Alan I. Ehrenberg, Scott C. Frost, Ehrenberg & Frost, P.C., Chicago, IL. Kathleen Elizabeth Weeks, Ehrenberg & Frost, P.C., Chicago, IL.

For UNIFUND CCR PARTNERS, UNIFUND CORPORATION, defendants: Scott C. Frost, Ehrenberg & Frost, P.C., Chicago, IL. William B Fecher, Statman, Harris & Bardach, LLC, Cincinnati, OH.

JUDGES: Wayne R. Andersen, United States District Judge.

OPINIONBY: Wayne R. Andersen

OPINION: MEMORANDUM, OPINION AND ORDER

This case is before the Court on the Fed.R.Civ.P. 12(B)(6) Motion to Dismiss brought by defendant Blatt, Hasenmiller, Leibsker, Moore & Pellettieri ("Blatt"). For the following reasons, the motion is denied.

BACKGROUND

This case stems from a case filed by Blatt in the Circuit Court of Cook County. Blatt was representing Unifund CCR Partners, also [*2] a defendant in the instant suit. In that case, Blatt filed a Complaint claiming that Hamid defaulted on $ 834.99 on a "Montgomery Wards account, account number 400707391." The Complaint stated that interest had been accruing at a rate of 1.80% per month and that $ 2,386.93 in interest was due plus a reasonable attorney's fee of $ 350. Therefore, the Complaint demanded $ 3,571.92 plus costs.

According to the instant First Amended Complaint Hamid received collection letters from Blatt demanding payment of an alleged debt. He called to inquire into the matter and never received a response. Months later he received another collection letter and was served with the Circuit Court Complaint. On the trial date, Blatt attempted to dismiss the case pursuant to agreement, but Hamid's counsel denied the existence of an agreement and the case was placed on the trial call. Blatt then moved to voluntarily dismiss the case without prejudice. The Circuit Court granted the motion, but awarded costs to Hamid.

Hamid filed the instant class action First Amended Complaint alleging violations of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. §§ 1692e, 1692e(2), 1692f [*3] and 1692f(1). In the First Amended Complaint, Hamid alleges that Blatt violated the FDCPA by filing a lawsuit asking for amounts that it should have known were not legally enforceable because the statute of limitations barred the lawsuit. Furthermore, Hamid alleges that Blatt violated the FDCPA by attempting to request more interest than it was entitled to collect, attempting to collect interest barred by the statute of limitations, and attempting to collect attorneys fees.

DISCUSSION

A motion to dismiss pursuant to Fed.R.Civ.P. 12(B)(6) does not test whether the plaintiff will prevail on the merits, but instead whether the plaintiff has properly stated a claim. Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974). In deciding a motion to dismiss, the court must assume all facts in the complaint to be true, construe the allegations liberally, and view the allegations in a light most favorable to the plaintiff. Caremark, Inc. v. Coram Healthcare Corp., 113 F.3d 645, 648 (7th Cir. 1997). The court may dismiss a complaint for failure to state a claim under Rule 12(B)(6) only if "it is clear that no relief could be granted [*4] under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 81 L. Ed. 2d 59, 104 S. Ct. 2229 (1984).

In the instant motion, Blatt seeks to dismiss Counts I and II against it because it argues that the filing of the lawsuit was not outside the statute of limitations or, alternatively, a good faith argument exists that the filing of the lawsuit was not outside the statute of limitations. In Illinois, the statute of limitations on a debt which arises from a sale of goods is four years. 810 ILCS 5/2-725. However, the statute of limitations for breach of a written contract is ten years. 735 ILCS 5/13-206.

There is little law on this subject and it is not entirely clear which statute of limitations should apply to a credit card debt. In situations in which the financing is provided by the merchant, then the four year statute of limitations should apply because the transaction is one for the sale of goods and the financing aspect is merely a portion of that arrangement. Citizen's Nat'l Bank of Decatur v. Farmer, 395 N.E.2d 1121, 1123, 77 Ill. App. 3d 56, 32 Ill. Dec. 740 (4th Dist. 1979). However, [*5] if the financing is provided by a third party, then the suit is one based on the written contract to provide credit and the appropriate statute of limitations is ten years. Harris Trust & Savings Bank v. McCray, 316 N.E.2d 209, 210-11, 21 Ill. App. 3d 605 (1st Dist. 1974).

In the instant case, plaintiff alleges that he obtained the credit card from Montgomery Ward and used it to finance purchases made from Montgomery Ward. Therefore, according to the pleadings, the four year statute of limitations should apply because the predominant aspect of the interaction is a sale of goods. Blatt asks us to take judicial notice of the fact that the credit card was issued by Montgomery Ward Credit Corporation, a separate and distinct corporation from the vendor Montgomery Ward. However, in the Complaint filed before the Circuit Court Blatt alleged that it was a "Montgomery Wards account." Furthermore, plaintiff alleges that the credit card was issued by Montgomery Ward. At the motion to dismiss stage, those allegations are sufficient because we can imagine a set of facts under which, even if the two corporations are distinct, the closeness of the two corporations means that the [*6] four year statute of limitations should apply.

Blatt further argues that, even if the statute of limitations is four years, it did not and could not have knowingly violated the FDCPA because the question of law is so close. A violation of 15 U.S.C. § 1692e must be knowing and intentional. Transamerica Financial Services v. Sykes, 171 F.3d 553, 555 note 2 (7th Cir. 1999)(citing Ducrest v. Alco Collections, Inc., 931 F. Supp. 459, 462 (M.D.La. 1996)). Defendant's argument is compelling, but does not carry the day. Defendant is a law firm. The precedent which forms the basis of this, admittedly close, distinction is over twenty years old. Furthermore, defendant is in the business of representing debt collectors. The possibility that defendant knew the difference between a credit card provided by a vendor and a credit card provided by a third party is not an impossible assumption given that defendant is a law firm. As a matter of law, we cannot decide that defendant could not have acted knowingly in the alleged violation of plaintiff's rights under the FDCPA because the question of law was close. Therefore, defendant's motion [*7] is denied.

CONCLUSION

The 12(B)(6) Motion to Dismiss brought by defendant Blatt, Hasenmiller, Leibsker, Moore & Pellettieri is denied.

It is so ordered.

Wayne R. Andersen

United States District Judge

Dated: August 31, 2001

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  • 2 weeks later...

OK -- I have read this twice. Key facts are"

The consumer had a credit card from Montgomery Wards and used it only to puchase goods and services from Montgomery Wards.

Plaintiff argued that Ohio's SOL for written agreements applied -- 10 years.

Defendant argued that the shorter "open account" SOL should apply since the only use of the card was to purchase good and services from Montgomery Wards.

This quote from the ruling seems to be exactly on point and consistent with what I posted to the OP days ago:

There is little law on this subject and it is not entirely clear which statute of limitations should apply to a credit card debt. In situations in which the financing is provided by the merchant, then the four year statute of limitations should apply because the transaction is one for the sale of goods and the financing aspect is merely a portion of that arrangement. Citizen's Nat'l Bank of Decatur v. Farmer, 395 N.E.2d 1121, 1123, 77 Ill. App. 3d 56, 32 Ill. Dec. 740 (4th Dist. 1979). However, [*5] if the financing is provided by a third party, then the suit is one based on the written contract to provide credit and the appropriate statute of limitations is ten years. Harris Trust & Savings Bank v. McCray, 316 N.E.2d 209, 210-11, 21 Ill. App. 3d 605 (1st Dist. 1974).

Unless I am missing something big here -- and correct me if I am because I really need to understand this --- a bank credit card is subject to the longer SOL for written agreements.

Correct?

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