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Can a Credit Card Company Sue You?

Susan Weber
Know your rights and avoid legal action.
Know your rights and avoid legal action.

Can a credit card company sue you? Yes; however many credit card issuers may decide to avoid court by using other methods to retrieve the money you own them.

Credit is a Contract

When you apply for a credit card you are asking a credit card issuer to lend you money. By signing the application you are signing a contract in which you are agreeing to pay back any money you borrow by using the credit card as well as any interest charges and fees. Be sure to review the Terms and Conditions statement that is mailed with your credit card to read the details of your contractual relationship with your credit card issuer.

If you don't make the minimum monthly payment on your credit card you are breaking your contract with your card issuer. It is up to your card issuer what actions they will take to try and get the money from you that they are owed.

Credit Issuer Options

When a cardholder misses a few payments a card issuer will usually start a series of actions in an attempt to receive the money they are owed. The actions usually start with in-house collection activities and, depending on whether the debt is paid, the actions could then include legal actions or involvement by a debt collection agency.

In-house Collections

Your account is usually first turned over to an in-house collection group. These people work for the card issuer and are responsible for working with you to get the overdue credit card balance paid. Their actions may include:

  • Increasing your APR to the default interest rate which could be more than 30 percent
  • Freezing your available credit line to keep you from charging any additional debt on your credit card account
  • Contacting you to inquire about your plans to pay the outstanding debt
  • Asking about your willingness to set up an automatic bill pay option from your checking account. If you agree they may be willing to maintain your current interest rate and not increase your interest rate to the default rate.
  • Contacting any co-signers on the account to arrange for their assistance in paying the overdue balance

Legal Actions: Can a Credit Card Company Sue You?

Can a credit card company sue you if their in-house collectors have not been successful in getting you to pay your outstanding credit card balance? Yes; however, a credit card issuer usually wants to avoid the cost of going to court. It is very common for the Terms and Conditions of the credit card to include the understanding that an arbitrator will be used to resolve any disputes. An arbitrator is an individual who is specially-trained to review information from both the credit card issuer and the cardholder.If the cardholder insists they are not liable for the money, the card issuer may initiate a court action in which an arbitrator is assigned to make the decision about how much money, if any, is owed the card issuer. The decision made by the arbitrator is binding on both parties.

External Collection Agency

A card issuer might decide to close your account and turn the collection of the outstanding balance to a collection agency. Collection agencies make their money by collecting overdue debt from debtors such as credit cardholders. Federal law sets the rules for the process which must be used by a collection agency. For example:

  • Debtors must be notified officially of the amount they own and be given a chance to dispute the amount of the debt
  • Collection agents are not allowed harass debtors or to threaten actions they have no intention of taking

Your Responsibility

It is your responsibility to use credit responsively:

  • Read the Terms and Conditions of the cardholder agreement.
  • Only use the amount of credit that you can repay.
  • Pay at least the minimum payment each month before the closing date of the bill.
  • Dispute any charges that you feel are unfair or inaccurately billed on your credit card statement.
  • Protect your identity and take legal action if your identity is stolen.

Use credit responsibly and pay your bills on time. You will avoid the hassles of debt collection and potential legal actions.

Can a Credit Card Company Sue You?