Addressing an issue of first impression in Arizona, the Arizona Supreme Court recently held that the statute of limitations on a credit card debt subject to an optional acceleration clause commences "when the debtor first fails to make a full, agreed-to minimum monthly payment." The decision sets a clear date for accrual of the six-year statute of limitations on unpaid credit card accounts.

In Mertola, LLC v. Santos, Alberto and Arlene Santos (Santos) entered into a credit card contract with Washington Mutual Bank in 2007. They repeatedly made late minimum payments due under the credit card contract from August 2007 to January 2008. After that—but for one $50 payment in August 2008—Santos stopped making payments altogether. The bank charged off the account and Santos's debt was eventually acquired by Mertola, LLC.

Mertola brought suit for breach of the credit card contract in 2014, seeking recovery of the full outstanding balance. Santos moved for, and the trial court granted, summary judgment in their favor based on a six-year statute of limitations. Under Arizona law, actions for recovery of a debt founded on a credit card must be commenced and prosecuted within six years after the cause of action accrues. See A.R.S. § 12-548(A)(2).

The trial court held that the bank's, and Mertola's, cause of action accrued after the first missed Santos payment in February 2008. Mertola turned to the Arizona Court of Appeals, which reversed the trial court's decision, holding that the missed payments gave the creditor a cause of action to sue only for those missed payments—the cause of action to sue for collection of the outstanding balance did not accrue until Santos failed to comply with a demand for full payment or a notice that the lender was accelerating the debt.

The Arizona Supreme Court recognized the logic of the appellate court's decision, but overruled it, noting in paragraph 18 of the ruling: "[t]o hold that a cause of action on the debt does not accrue until the creditor exercises his right to accelerate would vest the creditor with unilateral power to extend the statutory limitation period and permit interest to continue to accrue, long after it is clear that no further payments will be made . . . ."

The court recognized that a debtor could cure a default if the creditor accepts a payment of arrearages bringing the account current under the credit-card contract—though Santos's August 2008 payment was insufficient to do this—and further noted that a debtor's cure voids the creditor's cause of action and a new six-year limitations period commences upon any further default.

The Arizona Supreme Court described its holding as a "bright-line rule" that sets a clear accrual date and allows creditors to wait to accelerate a debt for up to six years following a default. As such, any party contemplating initiation of collection efforts or filing suit for recovery of an unpaid credit card debt should make Mertola part of its analysis.

Ballard Spahr's Consumer Financial Services Group regularly advises clients on compliance with the Fair Debt Collection Practices Act (FDCPA) and state debt collection laws, and defends clients in FDCPA lawsuits and enforcement matters. The Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.


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