Illinois State Appellate Court Upholds Dismissal of FDCPA and State Law Claims, Finds 4-Year UCC SOL Not Applicable to Credit Card Purchases

Editor's Note: This article was originally published on the Maurice Wutscher blog and is republished here with permission.

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The Appellate Court of Illinois Fifth District affirmed the dismissal of a borrower’s alleged putative class action alleging that the successor to a credit card issuer violated various state and federal laws when it filed suit to collect the debt past the four-year statute of limitations for the sale of goods under the Illinois version of the UCC (810 ILCS 5/2-725).

In so ruling, the Appellate Court held that the issuer properly filed suit within the five-year statute of limitations that applies to credit card agreements under 735 ILCS 5/13-205.  In addition, the Appellate Court ruled that advancing money to pay for merchandise constituted a loan governed by the five-year statute of limitations for credit cards.

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A copy of the opinion in Midland Funding LLC v. Schellenger is available here.

In 2012, a borrower defaulted on a credit card usable only to purchase goods at one retailer. In 2017, more than four years but less than five years after the default, the issuer filed sued against the borrower to collect the debt.

In response, the borrower filed a three-count class action counterclaim against the issuer alleging that the debt was time-barred because the four-year statute governing contracts for the sale of goods under section 2-725 of the UCC applied. Based on this claim the borrower alleged the issuer violated the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq., and the Illinois Collection Agency Act, 225 ILCS 425/1 et seq.

The issuer moved to dismiss arguing that it timely filed the complaint because the five-year statute of limitations contained in 735 ILCS 5/13-205 that governs credit card agreements controlled.

The trial court granted the motion to dismiss and this appeal followed.

The Appellate Court began its analysis by observing that Harris Trust & Savings Bank v. McCray, 21 Ill. App. 3d 605 (1974), addressed “whether a credit card issuer may commence an action based upon the holder’s failure to pay for the purchase of goods more than 4 years after the issuer’s cause of action accrued.”

The Harris Trust court determined that “money advanced to a merchant in payment for merchandise received by the defendant constitutes a loan” where the borrower “promised to repay the bank for money it paid to the merchant for her benefit.” The Appellate Court characterized this three-party transaction as a “tripartite relationship,” followed Harris Trust, and held that the five-year statute of limitation applied here.

The borrower urged the Appellate Court to follow a persuasive New Jersey case, Midland Funding LLC v. Thiel, 144 A.3d 72, 75 (N.J. Super. Ct. App. Div. 2016), which held the four-year statute of limitation governing the sale of goods applied to “claims arising from a retail customer’s use of a store-issued credit card or one issued by a financial institution on a store’s behalf when the use of which is restricted to making purchases from the issuing retailer.”  The Appellate Court declined this invitation because “on point” Illinois case law settled this issue.

The Appellate Court next examined the borrower’s argument that Citizen’s National Bank of Decatur v. Farmer, 77 Ill. App. 3d 56 (1979), demonstrates that the four-year statute of limitations applied.  The Appellate Court distinguished Citizen’s because, unlike this case, the plaintiff did not loan any money to a borrower.

The borrower also argued that the Appellate Court should follow Johnson v. Sears Roebuck & Co., 14 Ill. App. 3d 838 (1973), where “the court held that a store credit card was not subject to usury laws because the sale of goods on credit and allowing payments over time do not constitute a loan.”  The Appellate Court distinguished this case because it did not involve a fact pattern where a bank paid a merchant for goods that a borrower purchased and the borrower agreed to repay the bank for this loan.  Instead, it only concerned the relationship between a retail merchant and a purchaser.

Finally, the Appellate Court emphasized that the “type of credit card is immaterial.” It does not matter whether the credit card was issued for a general purpose or may only be used at one retailer.  Instead, the “determining factor” is the “tripartite relationship and a loan of money.”

Thus, the Appellate Court affirmed the trial court’s dismissal order.