SUBSTANTIVE DEFENSES

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A. In credit card cases, is the defendant personally liable?
1. If two names appear on a monthly credit card statement and it is disputed
who is signatory and who is authorized user, bank cannot prevail without
proving who signed agreement. Banks often have poor records and cannot
prove this. Johnson v. MBNA America Bank, N.A., 1:05cv150, 2006
U.S.Dist. LEXIS 10533 (N.D.Ill. March 9, 2006).
2. 15 U.S.C. § 1643(b) applies to both original creditor and bad debt buyers and
requires them to show "authorized use" for charges.
B. Statute of limitations on credit cards: five years or ten years?
1. Dicta in a 1974 Illinois Appellate Court decision states that the limitations
period applicable to a bank credit card debt in Illinois is ten years, under
what is now 735 ILCS 5/13-206. Harris Trust & Savings Bank v. McCray,
21 Ill.App.3d 605, 316 N.E.2d 209 (1st Dist. 1974). See also, Citizen's
National Bank of Decatur v. Farmer, 77 Ill. App. 3d 56; 395 N.E.2d 1121 (4th
Dist. 1979).
2. The statement is dicta because the only issue before the Court was whether
the applicable period was the four-year period of the Uniform Commercial
Code or the ten-year period of what is now 735 ILCS 5/13-206. The Harris
Bank court specifically limited its ruling by stating: “[t]he only question
presented in this appeal is 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.” 21 Ill.App.3d at 606.
Neither party argued whether the credit card was based on a “contract in
writing” as required by 735 ILCS 5/13-206.
3. Given the manner in which credit cards were issued in 1974 – one generally
had to apply in writing and sign a receipt each time the card was used – there
probably was a contract in writing.

4. But much has changed in the intervening 30 years. Most importantly, the
banking industry has persuaded numerous state legislatures to enact statutes
authorizing them to change the terms of credit card agreements by simply
mailing a notice to the cardholder, with or without an opportunity to close the
account and “opt out.” These include the legislatures in Delaware and South
Dakota, where many credit card issuers are chartered in order to take
advantage of federal “exportation” law and the absence of interest rate
regulation in those states.

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5. Delaware statute, 5 Del. C. §952 (2005) provides:
§ 952. Amendment of agreement
(a) Unless the agreement governing a revolving credit plan otherwise
provides, a bank may at any time and from time to time amend such
agreement in any respect, whether or not the amendment or the subject
of the amendment was originally contemplated or addressed by the
parties or is integral to the relationship between the parties. Without
limiting the foregoing, such amendment may change terms by the
addition of new terms or by the deletion or modification of existing
terms, whether relating to plan benefits or features, the rate or rates of
periodic interest, the manner of calculating periodic interest or
outstanding unpaid indebtedness, variable schedules or formulas,
interest charges, fees, collateral requirements, methods for obtaining or
repaying extensions of credit, attorney's fees, plan termination, the
manner for amending the terms of the agreement, arbitration or other
alternative dispute resolution mechanisms, or other matters of any kind
whatsoever. Unless the agreement governing a revolving credit plan
otherwise expressly provides, any amendment may, on and after the date
upon which it becomes effective as to a particular borrower, apply to all
then outstanding unpaid indebtedness in the borrower's account under
the plan, including any such indebtedness that arose prior to the
effective date of the amendment. An agreement governing a revolving
credit plan may be amended pursuant to this section regardless of
whether the plan is active or inactive or whether additional borrowings
are available thereunder. Any amendment that does not increase the rate
or rates of periodic interest charged by a bank to a borrower under §
943 or § 944 of this title may become effective as determined by the
bank, subject to compliance by the bank with any applicable notice
requirements under the Truth in Lending Act (15 U.S.C. §§ 1601 et
seq.), and the regulations promulgated thereunder, as in effect from time
to time. Any notice of an amendment sent by the bank may be included
in the same envelope with a periodic statement or as part of the periodic
statement or in other materials sent to the borrower.

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(b)
(1) If an amendment increases the rate or rates of
periodic interest charged by a bank to a borrower under
§ 943 or § 944 of this title, the bank shall mail or deliver
to the borrower, at least 15 days before the effective date
of the amendment, a clear and conspicuous written notice
that shall describe the amendment and shall also set forth
the effective date thereof and any applicable information
required to be disclosed pursuant to the following
provisions of this section.
(2) Any amendment that increases the rate or rates of
periodic interest charged by a bank to a borrower under
§ 943 or § 944 of this title may become effective as to a
particular borrower if the borrower does not, within 15
days of the earlier of the mailing or delivery of the written
notice of the amendment (or such longer period as may be
established by the bank), furnish written notice to the
bank that the borrower does not agree to accept such
amendment. The notice from the bank shall set forth the
address to which a borrower may send notice of the
borrower's election not to accept the amendment and
shall include a statement that, absent the furnishing of
notice to the bank of nonacceptance within the referenced
15 day (or longer) time period, the amendment will
become effective and apply to such borrower. As a
condition to the effectiveness of any notice that a
borrower does not accept such amendment, the bank may
require the borrower to return to it all credit devices. If,
after 15 days from the mailing or delivery by the bank of
a notice of an amendment (or such longer period as may
have been established by the bank as referenced above),
a borrower uses a plan by making a purchase or obtaining
a loan, notwithstanding that the borrower has prior to
such use furnished the bank notice that the borrower does
not accept an amendment, the amendment may be
deemed by the bank to have been accepted and may
become effective as to the borrower as of the date that
such amendment would have become effective but for the
furnishing of notice by the borrower (or as of any later
date selected by the bank).
(3) Any amendment that increases the rate or rates of
periodic interest charged by a bank to a borrower under
§ 943 or §944 of this title may, in lieu of the procedure
referenced in paragraph (2) of this subsection, become
effective as to a particular borrower if the borrower uses
the plan after a date specified in the written notice of the
amendment that is at least 15 days after the mailing or
delivery of the notice (but that need not be the date the
amendment becomes effective) by making a purchase or
obtaining a loan; provided, that the notice from the bank
includes a statement that the described usage after the
referenced date will constitute the borrower's acceptance
of the amendment.
(4) Any borrower who furnishes timely notice electing
not to accept an amendment in accordance with the
procedures referenced in paragraph (2) of this subsection
and who does not subsequently use the plan, or who fails
to use such borrower's plan as referenced in paragraph
(3) of this subsection, shall be permitted to pay the
outstanding unpaid indebtedness in such borrower's
account under the plan in accordance with the rate or
rates of periodic interest charged by a bank to a borrower
under § 943 or § 944 of this title without giving effect to
the amendment; provided however, that the bank may
convert the borrower's account to a closed end credit
account as governed by subchapter III of this chapter, on
credit terms substantially similar to those set forth in the
then-existing agreement governing the borrower's plan.
(5) Notwithstanding the other provisions of this
subsection, no notice required by this subsection of an
amendment of an agreement governing a revolving credit
plan shall be required, and any amendment may become
effective as of any date agreed upon between a bank and
a borrower, with respect to any amendment that is agreed
upon between the bank and the borrower, either orally or
in writing.

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(c) For purposes of this section, the following are examples of
amendments that shall not be deemed to increase the rate or
rates of periodic interest charged by a bank to a borrower under
§ 943 or § 944 of this title:
(1) A decrease or increase in the required number or
amount of periodic installment payments;
(2) Any change to a plan that increases the rate or rates in
effect immediately prior to the change by less than 1/4 of
1 percentage point per annum; provided that a bank may
not make more than one such change in reliance on this
paragraph with respect to a plan within any 12-month
period;
(3) a. A change in the schedule or formula used under a
variable rate plan under § 944 of this title that varies the
determination date of the applicable rate, the time period
for which the applicable rate will apply or the effective
date of any variation of the rate, or any other similar
change, or
b. Any other change in the schedule or formula used
under a variable rate plan under § 944 of this title;
provided, that the initial interest rate that would result
from any such change under this paragraph (3), as
determined on the effective date of the change or, if notice
of the change is mailed or delivered to the borrower prior
to the effective date, as of any date within 60 days before
mailing or delivery of such notice, will not be an increase
from the rate in effect on such date under the existing
schedule or formula;
(4) A change from a variable rate plan to a fixed rate, or
from a fixed rate to a variable rate plan so long as the
initial rate that would result from such a change, as
determined on the effective date of the change, or if the
notice of the change is mailed or delivered to the borrower
prior to the effective date, as of any date within 60 days
before mailing or delivery of such notice, will not be an
increase from the rate in effect on such date under the
existing plan;
(5) A change from a daily periodic rate to a periodic rate
other than daily or from a periodic rate other than daily
to a daily periodic rate; and
(6) A change in the method of determining the
outstanding unpaid indebtedness upon which periodic
interest is calculated (including, without limitation, a
change with respect to the date by which or the time
period within which a new balance or any portion thereof
must be paid to avoid additional periodic interest).

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(d) The procedures for amendment by a bank of the terms of a
plan to which a borrower other than an individual borrower is a
party may, in lieu of the foregoing provisions of this section, be
as the agreement governing the plan may otherwise provide.

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6. South Dakota statute, S.D. Codified Laws § 54-11-10 (2005),
provides:
Change in terms -- Notice
Upon written notice, a credit card issuer may change the terms
of any credit card agreement, if such right of amendment has
been reserved. However, the following changes to the credit card
agreement, effective as to existing balances, do not become
binding on the parties if the card holder, within twenty-five days
of the effective date of the change, furnishes written notice to the
issuer, at the address designated by the issuer, that the card
holder does not agree to abide by such changes:
(1) Modifying the circumstances under which a finance
charge will be imposed;
(2) Altering the method used to calculate finance charges;
(3) Increasing finance charges, fees, and other costs; or
(4) Increasing the required minimum payment.
Any other change to the credit card agreement modifying the
manner in which the issuer and card holder resolve disputes
arising out of their relationship do not become binding on the
parties if the card holder, within twenty-five days of the effective
date of the change, furnishes written notice to the issuer, at the
address designated by the issuer, that the card holder does not
agree to abide by such changes.
Use of the card after the effective date of the change of terms is
deemed to be an acceptance of the new terms, even if the twentyfive-
day period has not expired. Unless otherwise required by 12
C.F.R. § 226, in effect on January 1, 2005, a written change of
terms notice is not required if the proposed change in terms has
been communicated by the issuer to the card holder and the card
holder agrees.

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7. Recognizing such enactments, Illinois courts now hold that
cardholder agreements are not contracts but “standing offers to
extend credit,” subject to “modification at will,” which are accepted
“each time the card is used according to the terms of the cardholder
agreement at the time of such use”. Garber v. Harris Trust & Savings
Bank, 104 Ill. App. 3d 675, 679, 432 N.E.2d 1309, 1311 (1st Dist.
1982); accord, Ragan v. AT&T Corp., 355 Ill.App.3d 1143, 1149,
824 N.E.2d 1183 (5th Dist. 2005); Reyes v. Equifax Credit Info.
Servs., 03 C 1377, 2003 U.S.Dist. LEXIS 22235 (N.D.Ill., Dec. 10,
2003); Frerichs v. Credential Servs. Int’l, 98 C 3684, 1999 U.S.Dist.
LEXIS 22811, *21 (N.D.Ill., Oct. 1, 1999). Other decisions likewise
hold that credit card agreements are terminable at will and that their
terms may be changed by sending a notice with a monthly statement
which is not rejected by the cardholder. Taylor v. First North
American National Bank, 325 F.Supp.2d 1304, 1313 (M.D.Ala.
2004); Battels v. Sears National Bank, 365 F.Supp.2d 1205, 1209
(M.D.Ala. 2005); Grasso v. First USA Bank, 713 A.2d 304 (Del.
Super. Ct. 1998); Edelist v. MBNA Am. Bank, 790 A.2d 1249 (Del.
Super. Ct. 2001); see Banc One Fin. Servs. v. Advanta Mtge. Corp.
USA, 00 C 8027, 2002 U.S.Dist. LEXIS 960 (N.D.Ill., Jan. 23, 2002).

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8. A necessary consequence of the notion that the terms of a credit card
agreement may be changed by mere notice is that a credit card
agreement subject to such alteration is not a “written contract” within
the meaning of 735 ILCS 5/13-206.
9. Section 13-206 requires that the writing be “complete,” in that it
identifies the parties, states the date of the agreement; contains the
signatures of the parties; and sets forth all terms of the parties’
agreement. Brown v. Goodman, 147 Ill.App.3d 935, 940, 498 N.E.2d
854 (1st Dist. 1986); Clark v. Western Union Telegraph Co., 141
Ill.App.3d 174, 176, 490 N.E.2d 36 (1st Dist. 1986); Weaver v.
Watson, 130 Ill. App. 3d 563, 567, 474 N.E.2d 759, 762 (5th Dist.
1984); Munsterman v. Illinois Agricultural Auditing Association, 106
Ill.App.3d 237, 238-39, 435 N.E.2d 923, 925 (3d Dist. 1982); Baird
& Warner, Inc. v. Addison Industrial Park, Inc., 70 Ill.App.3d 59, 73,
387 N.E.2d 831, 838 (1st Dist. 1979).
10. “The test for whether a contract is written under the statute of
limitations in Illinois is not whether the contract meets the
requirements of the Statute of Frauds, but whether all essential terms
of the contract, including the identity of the parties, are in writing and
can be ascertained from the written instrument itself.” Brown v.
Goodman, supra, 147 Ill. App. 3d at 940-41 (emphasis added).

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11. If any essential element of the contract is omitted from the writing,
“‘then the contract must be treated as oral for purposes of the statute
of limitations.’” Armstrong v. Guigler, 174 Ill. 2d 281, 288, 673
N.E.2d 290, 295 (1996); accord, Toth v. Mansell, 207 Ill. App. 3d
665, 669, 566 N.E.2d 730, 733 (1st Dist. 1990); Schmidt v. Niedert,
45 Ill. App. 3d 9, 13, 358 N.E.2d 1305 (1st Dist. 1976).
12. “Illinois courts give a strict interpretation to the meaning of a written
contract within the statute of limitations. For statute of limitation
purposes, a contract is considered to be written if all the essential
terms of the contract are in writing and are ascertainable from the
instrument itself.” Brown, 147 Ill. App. 3d at 939. If the agreement
necessitates resort to parol testimony to make it complete, the law is
that in applying the statute of limitations, it must be treated as an oral
contract. Toth, 207 Ill. App. 3d at 671.
13. “The law is clear in Illinois that to constitute a written contract under
the statute of limitations, the written instrument itself must
completely identify the parties to the contract.” Brown, 147 Ill. App.
3d at 940 (emphasis added); accord, Railway Passenger & Freight
Conductors’ Mutual Aid & Benefit Association v. Loomis, 142 Ill.
560, 32 N.E. 424 (1892); Munsterman, 106 Ill. App. 3d at 238-39;
Pratl v. Hawthorn-Mellody Farms Dairy, Inc., 53 Ill. App. 3d 344,
347, 368 N.E.2d 767, 770 (1st Dist. 1977); Matzer v. Florsheim Shoe
Co., 132 Ill. App. 2d 470, 472, 270 N.E.2d 75 (1st Dist. 1971);
Wielander v. Henich, 64 Ill. App. 2d 228, 231-32, 211 N.E.2d 775,
776 (1st Dist. 1965).
14. “[T]he issue is not whether the identity of [the parties] can be readily
ascertainable from subsequent writings, the issue is whether the
identity of [the parties] can be readily ascertained” from the alleged
written contract “so as to avoid the resort to parol evidence.” Brown,
147 Ill. App. 3d at 940.
15. If testimony is necessary to establish any of these elements, the
contract is treated as oral, and subject to the five-year statute.
Wielander v. Henich, 64 Ill.App.2d 228, 231, 211 N.E.2d 775, 776
(1st Dist. 1965); Armstrong, 174 Ill. 2d at 288. “In the parol evidence
cases, the dispositive question is whether evidence of oral
representation is necessary to establish the existence of a written
contract. If such evidence is required, then the contract is treated as
oral for purposes of the statute of limitations. In other words, where
a party is claiming a breach of written contract, but the existence of
that contract or one of its essential terms must be proven by parol
evidence, the contract is deemed oral and the five-year statute of
limitations applies.” Id.