High Court: No Prior Notice Required Before Credit Card Rates Were Raised

High Court: No Prior Notice Required Before Credit Card Rates Were Raised

WASHINGTON, D.C. -- (Mealey's) The U.S. Supreme Court on Jan. 24 unanimously ruled that a credit card holder was not entitled to prior notice before his card issuer raised his annual percentage rate (APR) because it was not required to give notice under federal law (Chase Bank USA, N.A. v. James A. McCoy, et al., No. 09-329, U.S. Sup.).

The Supreme Court held that Chase Bank USA, N.A. did not violate the Truth in Lending Act (TILA) when it raised cardholder James A. McCoy's APR because under the terms of the Federal Reserve Board's amendment to its Regulation Z, no prior notice is required since the raise was due to McCoy's delinquent payment history and not a "change in terms."

Writing for the court, Justice Sonia Sotomayor cited the court's ruling in Auer v. Robbins (519 U.S. 452, 461 [1997]).  The court found that "[t]he Board has made clear in its amicus brief to this Court that, in its view, Chase was not required to give McCoy notice of the interest rate increase under the applicable version of Regulation Z.  This Court defers to an agency's interpretation of its own regulation, advanced in a legal brief, unless that interpretation is 'plainly erroneous or inconsistent with the regulation.'"

"As in Auer, there is no reason to believe that the Board's interpretation is a 'post hoc rationalization' taken as a litigation position, for the Board is not a party to this case.  And its interpretation is neither 'plainly erroneous' nor 'inconsistent with' the indeterminate text of Regulation Z.  Thus, there is no reason to suspect that the Board's position in its amicus brief reflects anything other than its fair and considered judgment as to what the regulation required at the time this dispute arose.  That Congress and the Board may currently hold a different view does not mean that deference is not warranted to the Board's understanding of what the applicable version of Regulation Z required.  Under Auer, therefore, it is clear that deference to the interpretation in the agency amicus brief is warranted," Justice Sotomayor said.

Justice Sotomayor also said that McCoy's argument that deference to the board's legal brief is inapposite "because the interpretation of Regulation Z in the Official Staff Commentary commands a different result" fails, explaining that "[w]hile Commentary promulgated by the Board as an interpretation of Regulation Z may warrant deference as a general matter, the Commentary explaining the requirements at issue in this case largely replicates the ambiguity present in the regulatory text, and therefore offers no reason to disregard the interpretation advanced in the Board's amicus brief."

McCoy sued Chase in the U.S. District Court for the Central District of California on behalf of himself and others similarly situated.  He alleges that Chase violated TILA "by raising the interest rates of members of the putative class, without providing advance notice of the increases, after class members made late payments to [Chase] or another creditor."

The District Court granted Chase's motion to dismiss, and McCoy appealed to the Ninth Circuit U.S. Court of Appeals, which reversed in a split opinion.  Chase then appealed to the Supreme Court, which invited acting U.S. Solicitor General Neal Kumar Katyal to express the view of the United States.

The Supreme Court heard oral argument in the action on Dec. 8.

Katyal filed an amicus brief on May 24, and the Supreme Court granted certiorari on June 21.  The American Bankers Association filed a brief as amicus curiae on behalf of Chase on Sept. 1.

[Editor's Note:  Full coverage will be in the January 2011 issue of the LexisNexis Financial Services Litigation Report.  In the meantime, the opinion is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #88-110125-036Z.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

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