The Arizona State Senate clarified an existing law that seemed to be causing confusion as to how long banks and credit card issuers have to pursue debt collection on defaulted accounts. The state Senate says that credit card issuers have six years to pursue people who default on their credit cards. This may give debtors a longer period to negotiate a settlement with the bank. There is some doubt among legislators, however, if this bill will help creditors or debtors, or anyone at all.

Clearing up confusion

Different kinds of debt have different statutes of limitations for collection, and judges disagreed over which statute should apply. Some judges said that credit cards were contracts between the issuer and the consumer. Other judges, however, interpreted this type of debt as a revolving line of credit. If the case was filed after three years of trying to collect, whether or not the case was thrown out for being too old depended on the judge.

A possible benefit for consumers is that with a clear six-year timeframe, a consumer in trouble has plenty of time to work out a repayment deal with the card issuer.

Benefits to Issuers

The argument goes back and forth as to whether a longer period benefits the issuers of the cards. A six-year limit means more time to collect interest and a bigger payday for the issuer — if the issuer manages to collect the debt before selling it off. But some say that whether the issuer has three or six years does not really make a difference. An issuer will either file the paperwork to collect on the debt or not, whether it has three or six years to get it done.

Disadvantages to Both

In reality, most credit card issuers are not even the ones that try to collect on the debt for the entire period allowed. They sell this bad debt to collection agencies for pennies on the dollar, clearing the debt from its books altogether. The debt collectors take over the right to try and collect on the debt for the same six-year time period, which means that the law doesn’t end up benefiting either the credit card issuers or consumers.

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