Opinion ID: 3054391
Heading Depth: 3
Heading Rank: 1

Heading: Hauk’s TILA Claim

Text: [1] Congress enacted TILA “to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.” 15 U.S.C. § 1601. To effectuate TILA’s purpose, a court must construe “the Act’s provisions liberally in favor of the consumer” and require absolute compliance by creditors. In re Ferrell, 539 F.3d 1186, 1189 (9th Cir. 2008); see also Jackson v. Grant, 890 F.2d 118, 120 (9th Cir. 1989) (“Even technical or minor violations of the TILA impose liability on the creditor.”). TILA entrusts the Federal Reserve Board with implementation of the Act, and the agency has imposed “even more precise” disclosure requirements via Regulation Z. Virachack v. Univ. Ford, 410 F.3d 579, 581 (9th Cir. 2005); see also Household Credit Servs., Inc. v. Pfennig, 541 U.S. 232, 238 (2004) (“Congress has expressly delegated to the Board the authority to prescribe regulations containing ‘such classifications, differentiations, or other provisions’ as, in the judgment of the Board, ‘are necessary or proper to effectuate the purHAUK v. JP MORGAN CHASE BANK 829 poses of [TILA], to prevent circumvention or evasion thereof, or to facilitate compliance therewith.’ ” (quoting 15 U.S.C. § 1604(a))) (alteration in original). Courts must defer to the decisions of the Federal Reserve Board and cannot apply “[t]he concept of ‘meaningful disclosure’ that animates TILA . . . in the abstract.” Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 568 (1980); see also Anderson Bros. Ford v. Valencia, 452 U.S. 205, 219 (1981) (“[A]bsent some obvious repugnance to the statute, . . . [Regulation Z] should be accepted by the courts, as should the Board’s interpretation of its own regulation.”). [2] Hauk’s account with Chase provided him with the use of open-ended credit, rendering the disclosures in Subpart B of Regulation Z controlling. See 12 C.F.R. § 226.2(a)(20).2 Because the BTO constituted a “credit device,” subdivision 226.9(b)(2) mandated the applicable disclosures in subsection 226.6(a). See Official Staff Comm., 12 C.F.R. § 226, Supp. I, § 226.9(b) cmt. 1. Specifically, subsection 226.6(a) required that the BTO disclose the applicable APR and any increased penalty rate that may apply “upon the occurrence of one or more specific events, such as a late payment.” Id. § 226.6(a)(2) cmt. 11. Regulation Z also required that Chase’s disclosures “reflect the terms of the legal obligation between the parties.” 12 C.F.R. § 226.5(c). Pursuant to subsection 226.5(c), a disclosure would have violated TILA if it inaccurately described the creditor’s or cardholder’s rights or obligations as they existed at the time the disclosure was made. DeMando v. Morris, 206 F.3d 1300, 1303 (9th Cir. 2000); see also Official Staff 2 Hauk also bases his TILA claim on sections 226.17 and 226.18 of Regulation Z, which are in Subpart C and apply only to closed-end credit transactions. See id. § 226.2(a)(10) (defining closed-end credit to exclude open-ended credit). Hauk’s reliance on section 226.5a is also misguided because that section applies only to “a solicitation or an application to open a credit or charge card account.” Id. § 226.5a(a). 830 HAUK v. JP MORGAN CHASE BANK Comm., 12 C.F.R. § 226, Supp. I, § 226.5(c) cmt. 1 (“The disclosures should reflect the credit terms to which the parties are legally bound at the time of giving the disclosures. The legal obligation is determined by applicable state or other law . . . [and] normally is presumed to be contained in the contract that evidences the agreement.”). [3] Here, while the BTO stated that Chase had sent Hauk “balance transfer checks with a low 4.99% Fixed APR,” it disclosed that Hauk may lose that rate upon the occurrence of certain events. Specifically, a footnote on the first page of the BTO stated, “This special rate applies only when you make your required minimum payments by the payment due date . . . and your Account is eligible for Preferred Customer Pricing as described in the Terms of Offer.” On the reverse side of the BTO, the Terms of Offer indicated that Hauk’s acceptance of the offer “will” result in the 4.99% APR until his balance is paid in full but expressly limited Hauk’s continued eligibility for that rate: Any promotional rate or regular Preferred Pricing purchase APR may change to your Non-Preferred APR if any minimum payment on any loan or account of yours with us or your other creditors was not made by the payment due date . . . . The CMA also disclosed that, as a condition to remaining eligible for Preferred rates, Hauk must “have made at least the required minimum payments when due” on his account and loans with Chase and his other creditors. By referencing any late payments in the past tense (“was not made” and “have made”), the BTO and CMA sufficiently disclosed that Hauk could lose the promotional 4.99% APR if he had made a late payment to any of his creditors. As both parties recognize, the CMA and BTO did not give Chase an unlimited right to impose a Non-Preferred APR based on any past late payment. If Chase had learned of a late HAUK v. JP MORGAN CHASE BANK 831 payment in a particular month and elected not to increase the cardholder’s APR because of it, Chase arguably would have waived its right to increase the cardholder’s APR in a subsequent month based on that same late payment.3 See Klein v. Am. Luggage Works, Inc., 158 A.2d 814, 818 (Del. 1960) (“Waiver is the voluntary relinquishment of a known right or conduct such as to warrant an inference to that effect. It implies knowledge of all material facts and of one’s rights, together with a willingness to refrain from enforcing those rights.”); accord AeroGlobal Capital Mgmt., L.L.C. v. Cirrus Indus., Inc., 871 A.2d 428, 444 (Del. 2005). Chase could not, however, be deemed to have waived its right to impose a Non-Preferred APR based on a late payment it discovered after it mailed the BTO, even if that late payment occurred before it mailed the BTO. See Klein, 158 A.2d at 818 (“It is obvious that one cannot waive that of which he had no knowledge at the time of the alleged waiver.”); see also AeroGlobal Capital Mgmt., L.L.C., 871 A.2d at 444 (“[T]he standards for proving waiver under Delaware law are ‘quite exacting.’ . . . The facts relied upon to prove waiver must be unequivocal.”) (citations omitted). [4] Nonetheless, while Chase may have breached the CMA if it knew of Hauk’s late payment before he accepted the BTO, the injury Hauk suffered neither resulted from any lack of TILA disclosures nor gave rise to a claim under TILA. Unlike Hauk’s state law claims, TILA is only a “disclosure statute” and “does not substantively regulate consumer credit 3 The CMA is governed by Delaware law and contemplates Chase’s waiver of its rights: [W]e may waive our rights, such as our right to enforce a NonPreferred rate on existing and new balances until paid in full or to enforce any minimum Non-Preferred rate. However, if we do waive any of our rights and there is another occurrence when you do not meet the conditions described above to be eligible for Preferred rates, we may again impose a Non-Preferred rate up to the Maximum Non-Preferred rate . . . . 832 HAUK v. JP MORGAN CHASE BANK but rather ‘requires disclosure of certain terms and conditions of credit before consummation of a consumer credit transaction.’ ” Rendler v. Corus Bank, 272 F.3d 992, 996 (7th Cir. 2001) (citation omitted); see also Grimes v. New Century Mortgage Corp., 340 F.3d 1007, 1011 (9th Cir. 2003) (McKeown, J., dissenting) (“The [plaintiffs] may indeed have been duped by an unethical loan officer. Whether they have a claim under [TILA] . . . is another matter. TILA focuses on disclosure and does not serve as an umbrella statute for consumer protection in real estate transactions. Rather, TILA is designed to foster the informed use of credit by ‘assur[ing] a meaningful disclosure of credit terms.’ ” (quoting 15 U.S.C. § 1601(a))) (third alteration in original); Szumny v. Am. Gen. Fin., 246 F.3d 1065, 1070 (7th Cir. 2001) (“ ‘A creditor’s substantive rights are still governed by state law; [TILA] merely classifies those rights for disclosure purposes.’ ”). The legislative history from Congress’s enactment and amendment of TILA is consistent with the language of the statute limiting its scope to disclosure. See S. Rep. No. 392, at 1 (1967) (“The basic purpose of the truth in lending bill is to provide a full disclosure of credit charges to the American consumer. The bill does not in any way regulate the credit industry . . . .”); H.R. Rep. No. 1040 (1967), as reprinted in 1968 U.S.C.C.A.N. 1962, 1963 (“Title I, the truth in lending and credit advertising title, [does not] regulate[ ] the credit industry . . . . It provides for full disclosure of credit charges, rather than regulation of the terms and conditions under which credit may be extended.”); S. Rep. 100-259, at 3 (1987), as reprinted in 1987 U.S.C.C.A.N. 3936, 3938 (“The Committee believes that early disclosure of relevant cost information, coupled with widespread publication of the costs of different cards, will help remedy the problem of enabling consumers to shop around for the best cards.”). [5] Consequently, while an inaccurate disclosure that itself breaches a credit agreement may also violate TILA, see Hubbard v. Fidelity Fed. Bank, 91 F.3d 75, 79 (9th Cir. 1996), the HAUK v. JP MORGAN CHASE BANK 833 breach of a credit agreement based on conduct independent of the disclosures does not necessarily give rise to a TILA claim. Hauk nonetheless argues that misleading disclosures can violate TILA and that Chase’s disclosures were misleading because the BTO offered him a promotional rate even though Chase knew of his past late payment and intended to impose the Non-Preferred APR after he accepted the offer. Indeed, the Third Circuit has held that a disclosure that is adequate when viewed in isolation could still be misleading, and thereby give rise to a TILA claim, if the creditor’s undisclosed intent was inconsistent with its disclosure. Rossman v. Fleet Bank (R.I.) Nat’l Ass’n, 280 F.3d 384, 399-400 (3d Cir. 2002); accord Clark v. Troy & Nichols, Inc., 864 F.2d 1261, 1266 (5th Cir. 1989) (Thornberry, J., dissenting). Specifically, the court concluded that, even though the creditor’s initial “no annual fee” disclosure was accurate in the “narrowest of senses,” the creditor’s alleged intent to impose an annual fee six months later rendered the initial disclosure misleading and gave rise to a TILA claim. Rossman, 280 F.3d at 400. The Third Circuit’s expansive reading of Regulation Z appears to have originated with its general premise that TILA prohibits “not only literal falsities, but also misleading statements.” Id. at 391 (citing Taylor v. Quality Hyundai, Inc., 150 F.3d 689, 692 (7th Cir. 1998); Smith v. Chapman, 614 F.2d 968, 977 (5th Cir. 1980)). While a misleading statement may violate TILA, Wilson v. Credithrift of Am., Inc., No. 3, 659 F.2d 122, 124 (9th Cir. 1981), our circuit has neither rejected nor adopted the blanket proposition that a misleading statement violates TILA. Instead of determining whether a particular disclosure is “misleading” in the abstract, our circuit has focused on subsection 226.5(c)’s requirement that disclosures “reflect the terms of the legal obligation between the parties” and the requirements in other relevant subsections of Regulation Z or TILA. The Third Circuit, in contrast, did not rely on a particular provision of TILA or Regulation Z to support its conclusion 834 HAUK v. JP MORGAN CHASE BANK that a disclosure could violate TILA based on a creditor’s undisclosed intent to act contrary to the disclosure. In holding that a lender’s intent may render a disclosure misleading, the court focused on the difficulty a cardholder would face upon receipt of a change-in-terms notice imposing a new annual fee if the cardholder had already accumulated a high balance and could not pay off the balance to avoid the fee. Rossman, 280 F.3d at 397-99. Congress, however, has already vested responsibility for determining whether Regulation Z should require additional disclosures to protect against such hardships exclusively with the Federal Reserve Board: The concept of “meaningful disclosure” that ani- mates TILA, cannot be applied in the abstract. Meaningful disclosure does not mean more disclo- sure. Rather, it describes a balance between “competing considerations of complete disclosure . . . and the need to avoid . . . [informational overload.]” And striking the appropriate balance is an empirical process that entails investigation into consumer psychology and that presupposes broad experience with credit practices. Administrative agencies are simply better suited than courts to engage in such a process. Ford Motor Credit Co., 444 U.S. at 568-69 (citations omitted) (alteration and omissions in original); accord Household Credit Servs., Inc. v. Pfennig, 541 U.S. 232, 243-44 (2004). [6] As the Supreme Court has emphasized, when neither Congress nor the Federal Reserve Board has elected to require a particular disclosure, such as a disclosure about a creditor’s intent, a court should not impose that disclosure requirement: [L]egislative silence is not always the result of a lack of prescience; it may instead betoken permission or, perhaps, considered abstention from regulation. In that event, judges are not accredited to supersede Congress or the appropriate agency by embellishing HAUK v. JP MORGAN CHASE BANK 835 upon the regulatory scheme. Accordingly, caution must temper judicial creativity in the face of legislative or regulatory silence. Ford Motor Credit Co., 444 U.S. at 565; see also id. at 562 (declining to “stretch [ ] provisions [of Regulation Z] beyond their obvious limits to construe them as a mandate for [a particular] disclosure”). Similar to the creditor’s undisclosed intent in Rossman, TILA did not require Chase to disclose its supposed intent to take an action at odds with the CMA. See Clark, 864 F.2d at 1264 (“[TILA] does not provide a cause of action when a lender engages in ‘bait and switch’ techniques. . . . The disclosures made by [defendant] were accurate with respect to the offered terms. The fact that [defendant] may not have intended to loan money under the stated terms does not make their disclosures with respect to the stated terms inaccurate.”). [7] We hold that a creditor’s undisclosed intent to act inconsistent with its disclosures is irrelevant in determining the sufficiency of those disclosures under sections 226.5, 226.6, and 226.9 of Regulation Z. Accordingly, because Chase’s disclosures complied with TILA and Regulation Z, the district court properly granted summary judgment against Hauk on his TILA claim.