Is Capital One Going to Come Knocking on Your Door?

There has been a lot of uproar about a clause in Capital One's cardholder agreement that implies that the company might send debt collectors to your home or place of employment. Is this legal, and more importantly is it a legitimate concern?

Feb 19, 2014 at 9:14AM

There has been a lot of buzz about Capital One's (NYSE:COF) new cardholder agreement, specifically a clause that grants the company the right to send representatives to your home or place of employment. The update to the contract includes language stating that the company can contact users regarding their cards in "any manner we choose," including a "personal visit" that could come "at your home and at your place of employment."

The reaction to this news has been varied but almost universally negative. Some people have claimed that this is a violation of laws up to and including the Fourth Amendment (claiming that it violates protection from unreasonable search and seizure), while others have commented that they would view any such visits as trespassing and respond accordingly.

Is showing up on your doorstep or at your workplace regarding an unpaid credit card debt a violation of the law? More importantly, is Capital One actually going to try it?

Is this legal?
The first big question about this new clause is whether Capital One actually has any legal right to send someone to your home or place of work at all. The answer appears to be "maybe." Most likely, it's a move that could be challenged legally and its final legality would be up to a court to decide.

On the subject of the Fourth Amendment, it likely wouldn't apply in this case. While the text of the amendment doesn't specify that it only applies to acts of law enforcement or government agencies (as the First Amendment does), much of the Bill of Rights does refer to protections from the government. Furthermore, other in-person collections are legal (such as repossessing a vehicle) and Capital One could make the argument that by agreeing to the new contract (by continuing to use its card) the user has given consent for the visit.

The biggest conflict with this policy would likely come from the Fair Debt Collection Practices Act. This is the law that prevents creditors and debt collectors from harassing debtors by calling at inconvenient times, threatening debtors with harm or legal action, sharing information about debts with family, friends, or employers, and taking other actions designed to shame or cause problems for consumers to try and force them to pay their debts. The law doesn't address in-person visits specifically, but the spirit of the law does imply that creditors are not able to purposefully impose on debtors in ways that could be embarrassing (which might include having a debt collector show up at your job).

The whole issue hinges on consent, which Capital One would argue was included in its contract if the issue went to court. It's possible that the court could actually end up siding with Capital One on that issue, too, since loopholes already allow creditors and other businesses to legally engage in practices such as caller ID spoofing that would otherwise be illegal.

Will Capital One actually do it?
While the question of legality is an important one, whether Capital One actually has any plans to make use of this clause is perhaps more important. Fortunately, the answer appears to be "no."

In a statement about the issue, Capital One said that "[the company] does not visit our cardholders, nor do we send debt collectors to their homes or work." That's good to know, but it might leave some wondering why that language was in the new user agreement if the company didn't plan to use it.

The answer to this is that Capital One isn't just a credit card company. It offers loans, bank accounts, investment services, business services, and other financial services. Loan contracts and some other financial services often include this type of language, especially loans for vehicles or other property that may be subject to repossession if payments aren't made according to the terms of the contract. The inclusion of the clause in the cardholder agreement for Capital One's credit card customers appears to simply be a result of the reusing of contract terms across multiple categories.

Given the uproar, Capital One is supposedly considering a change to its contract policy. In a statement, the company said "We're considering creating two separate agreements given this language doesn't apply to our general cardholder base."

Is it safe to use Capital One?
Whether cardholders want to risk having someone show up at their door regarding an unpaid bill is up to them. Some may not feel confident in Capital One's reassurances that it has no intention of following through with that clause in its cardholder contract, in which case they might feel better paying off or transferring their balances and cancelling their Capital One accounts. If you choose to do so, make sure that you read the cardholder agreements of any new cards that you select carefully; as this issue shows, there may be clauses waiting in the legalese that you aren't expecting.

The next step for you
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John Casteele has no position in any stocks mentioned, but does hold accounts with Capital One Financial. The Motley Fool owns shares of Capital One Financial. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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