The Indiana Court of Appeals recently concluded that a consumer credit card debt arose from an unwritten contract or an “account” for the purposes of determining the applicable statute of limitations. See, Smither v. Asset Acceptance, LLC, 919 N.E.2d 1153 (Ind.Ct.App. 2010). Jason Smither (“Smither”) owed over $1,700 on a credit card issued by Provident Bank. On September 18, 2000, Provident Bank “charged off” Smither’s account and subsequently sold the account to Asset Acceptance, LLC (“Asset”). On May 30, 2006, Asset filed suit against Smither, seeking damages of $2,152.67, plus interest. The court concluded that the six-year limitation period for an “account” or unwritten contract as opposed to a written contract for the payment of money applied to the lawsuit brought by Asset to recover Smither’s debt.

The court noted that “[e]ssentially, when a consumer uses a bank issued credit card to make a purchase, the bank pays the merchant on behalf of the consumer, and that amount is treated as a loan by the bank to the consumer, with repayment contractually governed by the terms of the credit card agreement” and “[t]he issuance of a credit card and accompanying cardholder agreement ‘is a standing offer to extend credit that may be revoked at any time’ and ‘each time the credit card is used, a separate contract is formed between the cardholder and bank’.” Id. (internal citations omitted).

The court concluded that it would treat Smither’s debt as an open account debt for statute of limitations purposes. Therefore, the general rule that the statute of limitations for an action on an open account “commences from the date the account is due” governed. The statements in the record indicated that Smither last made payment on the account on February 9, 2000, and thereafter Provident Bank requested a minimum payment of $45.00 on the account due March 11, 2000. Smither never made that payment, nor any other, and made no additional charges to the account. The court concluded that regardless of whether it considered the statute of limitations to have begun running on the date of Smither’s last payment or the next payment due date thereafter, Asset’s lawsuit filed on May 30, 2006 was more than six years after both dates.

Asset contended that it was entitled to delay the running of the statute of limitations because the credit card agreement governing Smither’s account contained an option acceleration clause. However, the court rejected this argument and determined that Asset could not show that the “charge off” in September, 2001 equated to exercising an optional acceleration clause. The court stated that even if Provident Bank internally believed it was invoking the acceleration clause when it “charged off” Smither’s debt, it never took any affirmative action to notify Smither of that fact and such notification plainly is a requirement for invoking an optional acceleration clause. Furthermore, the final bill in the record submitted by Providen was sent in December, 2000, and requested a minimum payment of $670.00 on a total balance of $2,152.67. The Court held that this request was fatally inconsistent with Asset’s contention that Providen had already involved the optional acceleration clause in September, 2000.

Viewing Smither’s credit card account as an open account, Provident Bank and its successor, Asset, had at the very least six years from March 11, 2000 to file suit against Smither seeking collection of any part of the debt he incurred. The Complaint filed on May 30, 2006 was beyond the six-year statute of limitations and, therefore, was time barred.