When an individual signs a credit card agreement he enters into a legally binding and enforceable contract with the credit card company. The terms and conditions of the contract are elaborated within the card agreement including repayment terms and the incidents that will give rise to a default or breach of the contract.
Breach of Contract
If the cardholder fails to remit payments pursuant to the terms of the credit card agreement, once the account is in default, the card company has the right to sue the debtor for breach of contract. The card company is entitled to damages in the amount of the remaining balance due plus any accrued interest and late charges assessed.
Attorney's Fees
Another common provision found in most credit card agreements is a clause which provides that the card company will be entitled to reimbursement from the debtor for reasonable attorney's fees it incurs in connection with the collection of the default balance. Most courts will uphold this provision. However, in order to insure that the fees assessed are indeed reasonable, prior to adding attorney's fees to any damages award, most jurisdictions require the attorney to file with the court an affidavit of attorney's fees which lists the amount of time spent and the hourly rate charged.
Assignment Rights
Most credit card agreements contain a clause which gives the credit card company the right to assign (sell) the contract. Many card companies at some stage in the collection process sell the delinquent balance to third party purchasers of bad debt. Legally, the purchaser of the bad debt (assignee) stands in the shoes of the original creditor (assignor) and acquires all of the rights and obligations under the terms of the original card agreement. Thus, if it so chooses, the assignee can file suit against the debtor for payment of the default balance. If contained in the original card agreement, the assignee is also entitled to recover attorney's fees and court costs it incurs in collecting the balance.
Venue for Suit
In the event of a default, a credit card company has every right to bring suit for breach of contract against the debtor. However, the card company cannot file suit in the state in which it is incorporated and thereby force the debtor to defend the action in an inconvenient forum. Under the provisions of the Fair Debt Collection Practices Act ("FDCPA"), any civil action filed by the credit card company against a consumer debtor must be brought within the judicial district in which the defendant/debtor resides.
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