A credit card allows its holder access to a line of credit. When the person uses the card to make a purchase, he is essentially taking out a loan against the credit line offered to him by the company that issued the card. The person is legally obligated to pay this loan back and may face a lawsuit if he fails to do so.
Credit Cards
When a person takes out a credit card, he will always be required to sign a contract before the card is issued to him by the company. This contract details the obligations of both the cardholder and the credit card company. It includes both how much money the person can borrow using the card and when he is to pay back the money he borrows, including any interest and penalties that might apply.
Penalty and Interest
Most credit card contracts include clauses that allow them to charge penalties for the late payment of the balance charged against the line of credit. The contract may also include additional penalties, such as for taking out more money against the line of credit than the contract allows. Most cards also carry rates of interest that are applied to balances that are carried for a certain period of time.
Lawsuits
When a credit card company is owed money by a cardholder and the cardholder refuses to pay, the credit card company can generally sue the cardholder for a breach of contract, as he is breaching the payment terms of the credit card contract. The credit card company is allowed to sue for all of the money allowed it under the contract, including interest and penalties.
Considerations
While a credit card company is allowed to sue for all interest and penalties allowed for under the contract, it cannot arbitrarily charge the person more money in interest and penalties than is called for under the contract. For example, a credit card company cannot sue a person for more money than the contract allows for because the company spent money attempting to collect on the debt or because time has elapsed since the money was due.
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