Source: http://californiafinance.mwbllp.com/2014/04/fyi-us-sup-ct-upholds-former-reg-z-rule.html
Timestamp: 2017-06-24 22:21:39
Document Index: 499997605

Matched Legal Cases: ['§226', '§226', '§1637', '§226', '§226', '§226']

California Finance Litigation Blog: FYI: US Sup Ct Upholds Former Reg Z Rule on Credit Card Rate Increase Disclosures Following Default
The Supreme Court of the United States recently held that, under theversion of Regulation Z applicable at the time of the relevanttransactions, TILA did not require a credit card issuer to provide thecredit card holder with a change-in-terms notice before implementing aprovision in the cardholder agreement allowing the bank to raise the cardholder's interest rate, up to a pre-set maximum, following the cardholder's delinquency or default.
A copy of the opinion can be found at:http://www.supremecourt.gov/opinions/10pdf/09-329.pdf
As you may recall, in January 2009, the Board promulgated a final rule,scheduled to be effective July 1, 2010, which among other things includeda new provision, §226.9(g), which requires 45 days' advance notice ofincreases in rates due to cardholder delinquency or default, or as apenalty, including penalties for "events specified in the accountagreement, such as making a late payment . . . ."12 CFR§226.9(g)(1)(2010). In May 2009, Congress enacted the Credit CardAccountability Responsibility and Disclosure Act (Credit CARD Act). TheCredit CARD Act amended TILA, in relevant part, to require 45 days'advance notice of most increases in credit card annual percentage rates.15 U. S. C. §1637(i). Because the Credit CARD Act's notice requirementswith respect to interest-rate increases largely mirrored the requirementsin the new version of the new regulation, the Board changed the effectivedate of those requirements to August 20, 2009, to coincide with thestatutory schedule. The transactions giving rise to the dispute at issuein this case arose prior to enactment of the Credit CARD Act and thepromulgation of the new regulatory provisions.
The Supreme Court held that the Regulation Z rules were not clear onwhether a change to an interest rate that resulted from a previouslydisclosed provision in a contract would require disclosure. The U.S.Supreme Court deferred to the Federal Reserve, which in its amicus briefargued that the bank was not required to give the borrower notice underthe version of Regulation Z that was in effect at the time.
Plaintiff ("Debtor") was the holder of a card issued by creditor ChaseBank ("Chase"). The cardholder agreement between the parties provided, inrelevant part, that Debtor was eligible for "preferred rates," but that tokeep those rates Debtor had to meet certain conditions. If any conditionsin the credit agreement were not met, Chase reserved the right to "changeDebtor's interest rate and impose a non-preferred rate up to the maximumnon-preferred rate described in the pricing schedule" and to apply anychanges "to existing as well as new balances … effective with the billingcycle ending on the review date." Debtor brought suit against Chase,alleging that Chase violated Regulation Z because Chase increased Debtor'sinterest rate "due to his delinquency or default" and did not notifyDebtor of the increase until after it had taken effect.
The district court dismissed Debtor's complaint, "holding that because theincrease did not constitute a 'change in terms' as contemplated by§226.9(c), Chase was not required to notify him of the increase beforeimplementing it." The Ninth Circuit reversed, holding that "because thecredit agreement does not alert Debtor to the 'specific change' that willoccur if he defaults, Chase was obliged to give notice of that changeprior to its effective date." The First Circuit resolved the samequestion in favor of Chase, the Supreme Court resolved the circuit splitand reversed the decision of the Ninth Circuit.
At the time of the relevant dispute, Section 226.6 of Regulation Zrequired credit card issuers to provide debtors an "initial disclosurestatement" to include, among other things, "a disclosure of each periodicrate that may be used to compute the finance charge." In addition,Section 226.9(c) required that prior notice be given to the debtor"[w]henever any term required to be disclosed under 226.6 is changed orthe minimum periodic payment is increased."
Therefore, the question before the Supreme Court was "whether the Debtor'sinterest rate constitutes a change to a 'term required to be disclosedunder §226.6,' requiring a subsequent disclosure under §226.9(c)(1)." TheSupreme Court held that an interest-rate increase does not "constitute a'change in terms' under Regulation Z, when the change is made pursuant toa provision in the cardholder agreement allowing the issuer to increasethe rate, up to a state maximum, in the event of the cardholder'sdelinquency or default."
Rejecting one among many of Debtor's arguments against deference to theBoard, the Court further reasoned that "there is no reason to believe thatthe interpretation advanced by the Board is a 'post hoc rationalization'taken as a litigation position." In addition, the Board's "2004 notice ofrulemaking and the 2007 proposed amendments to Regulation Z make clearthat, prior to 2009, the Board's fair and considered judgment was that 'nochange-in-terms notice is required if the creditor specifies in advancethat the circumstances under which an increase…will occur,' and 'immediateapplication of penalty pricing upon the occurrence of events specified inthe contract' was permissible." Therefore, "it is clear that deference tothe interpretation in the Board's amicus brief is warranted."