Court Opinion

ID: 9615293
Source: CourtListenerOpinion
Date Created: 2023-08-22 04:33:43.559373+00
Date Added: 2024-06-11T18:03:44.775589
License: Public Domain

CUDAHY, Circuit Judge,
dissenting:
Before addressing the myriad arguments made by the majority, I think it would be helpful to put matters in context — view the “big picture.” The claims made by Mr. McCoy have been raised in many other forums, usually by the same attorneys who represent him here. See Evans v. Chase Bank USA, N.A., 267 Fed.Appx. 692 (9th Cir. Feb. 22, 2008); Swanson v. Bank of Am., 566 F.Supp.2d 821 (N.D.Ill.2008); Williams v. Wash. Mut. Bank, 2008 WL 115097 (E.D.Cal. Jan. 11, 2008); Augustine v. FIA Card Servs., N.A., 485 F.Supp.2d 1172 (E.D.Cal.2007); Penner v. Chase Bank USA, N.A, 2006 WL 2192435 (W.D.Wash. Aug. 1, 2006); Evans v. Chase Manhattan Bank USA, N.A., 2006 WL 213740 (N.D.Cal. Jan. 27, 2006). In all of those cases the result was the opposite of the one reached here. In one case the court did at first indicate that it was inclined to rule in favor of the plaintiffs but reversed course when it was made aware of the Advance Notice of Proposed Rulemaking (ANPR) issued by the expert agency, the Federal Reserve Board (FRB or the Board), which quite clearly showed that the Board disagreed with their interpretation. Shaner v. Chase Bank USA, N.A., 570 F.Supp.2d 195, 199-200 (D.Mass.2008) (citing 69 Fed.Reg. 70925-01, 70931-32 (Dec. 8, 2004)). The majority concedes, as it must given the unanimity of results on the other side, that the regulation is ambiguous. But the majority then departs from those holdings, and from established Supreme Court precedent, by refusing to defer to the Board’s interpretation in the face of that ambiguity, and by suggesting, somewhat misleadingly, that the Board’s interpretation is less than clear.
The provision of Regulation Z at issue here provides that “Whenever any term required to be disclosed under § 226.6 is changed or the required minimum periodic payment is increased, the creditor shall mail or deliver written notice of the change to each consumer who may be affected.” 12 C.F.R. § 226.9(c)(1) (emphasis added). This refers back to Section 226.6(a)(2), which says, “[t]he creditor shall disclose to the consumer ... each of the following items, to the extent applicable: ... each periodic rate that may be used to compute the finance charge ... and the corresponding annual percentage rate.” 12 C.F.R. § 226.6(a)(2) (emphasis added). So the question becomes the following: did Section 226.9(c)(1) require Chase to provide contemporaneous notice to McCoy of an increase in his interest rate due to his default when that increase was an implementation of the existing terms of his agreement with Chase?1 The majority *973says that although the regulation is ambiguous, the FRB’s Official Staff Commentary to § 226.9(c)(1) makes the answer a clear “yes.” The majority feels no need to give any deference to the Board’s views expressed in its ANPRs, which lead to the opposite conclusion and which are reinforced by every other court that has considered the question. See stipra.
The Supreme Court has instructed us to give respect and deference to the Board when interpreting the Truth in Lending Act, 15 U.S.C. § 1601 et seq. (“TILA”). Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 565-69, 100 S.Ct. 790, 63 L.Ed.2d 22 (1980) (“Unless demonstrably irrational, Federal Reserve Board staff opinions construing the Act or Regulation should be dispositive.... ”); see also Anderson Bros. Ford v. Valencia, 452 U.S. 205, 212-13, 217, 101 S.Ct. 2266, 68 L.Ed.2d 783 (1981). I would find that the Supreme Court requires deference to Board interpretations found in ANPRs. This required deference, of course, reflects universally applicable Supreme Court jurisprudence in keying statutory and regulatory interpretation on deference to the views of the responsible executive agencies. See, e.g., Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-45, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984).
On December 19, 2008, as the majority notes, the Board issued a final rule amending Section 226.9 to require 45 days’ notice for rate increases because of defaults, irrespective of whether the possibility of those increases was disclosed in a cardmember agreement. This new rule becomes effective in 2010. Truth in Lending, 74 Fed. Reg. 5244-01 (Jan. 29, 2009) (to be codified at 12 C.F.R. pt. 226). It comes after at least two ANPRs, 69 Fed.Reg. 70925-01, 70931-32 (Dec. 8, 2004); 72 Fed.Reg. 32948-01, 33009 (June 14, 2007), both of which recognized that requiring additional notice in these circumstances is a change from what is currently required. The 2007 ANPR explains:
Advance notice is not required in all cases. For example, if an interest rate or other finance charge increases due to a consumer’s default or delinquency, notice is required, but need not be given in advance. See current § 226.9(c)(1); comment 9(c)(l)-3. Furthermore, no change-in-terms notice is required if the specific change is set forth initially by the creditor in the account-opening disclosures. See current comment 9(c)-l. *974For example, some account agreements permit the card issuer to increase the periodic rate if the consumer makes a late payment. Because the circumstances of the increase are specified in advance in the account agreement, the creditor currently need not provide a change-in-terms notice; under current § 226.7(d) the new rate will appear on the periodic statement for the cycle in which the increase occurs.
72 Fed.Reg. 33009 (emphasis added).2
The majority says that the relevance of the Board’s statements is limited and we need not defer to them because they are not official comments, but merely “incidental descriptions of current law contained in an ANPR.” Despite the majority’s assertion to the contrary, its position conflicts starkly with that of the Supreme Court, which in Anderson Bros. Ford gave significant weight to a nearly identical publication. See id., 452 U.S. at 212-13, 217, 101 S.Ct. 2266 (calling a proposed official staff interpretation “persuasive authority” and concluding that “we cannot agree that the staffs views expressed in the proposed ruling are wholly without significance”). In Anderson Bros. Ford, the Board published for comment an Official Staff Interpretation that was directly contrary to the view taken by three out of four courts of appeals. The Board said that while a “technical reading” of Regulation Z might support the three courts of appeals, it was the Board’s opinion that the disclosure was not the type of thing “meant to be” required by Regulation Z (and was therefore not in fact required). Id. at 212-13, 101 S.Ct. 2266. The Court said that the Board’s interpretation did not conclusively establish the meaning of the words used in TILA, but that “absent some obvious repugnance to the statute, the Board’s regulation implementing this legislation should be accepted by the courts, as should the Board’s interpretation of its own regulation.” Id. at 219, 101 S.Ct. 2266. The Court strongly implied that this was so even if the text of the provision at issue suggested a contrary result, saying,
Unaided by an administrative construction of the TILA and Regulation Z, a court could easily conclude, based on the language of the statute and of Regulation Z, that the interest in unearned insurance premiums acquired by the creditor in this case should be characterized as a “security interest” that must be disclosed. But, in light of the proposed official staff interpretation of Regulation Z [and the legislative history of TILA and related statutes], it is evident that the Board [disagrees].
Id. at 222, 101 S.Ct. 2266 (emphasis added). The Court noted that it “has frequently relied on the principle that ‘a thing may be within the letter of the statute and yet not within the statute, because not within its spirit, nor within the intention of its makers.’ ” Id. at 222 n. 20, 101 S.Ct. 2266.3
*975An ANPR does not meaningfully differ from a “proposed official staff interpretation” for purposes of the deference we ought to accord it. The Supreme Court’s decision in Milhollin, 444 U.S. 555, 100 S.Ct. 790, 63 L.Ed.2d 22, also supports this view. Although, as the majority points out, Milhollin distinguishes between “official” and “unofficial” staff interpretations in specifying which of the FRB’s views may be relied on for a good-faith defense under 15 U.S.C. § 1640(f), Milhollin’s description of what makes an official interpretation “official” would apply equally to an ANPR: “[ojfficial interpretations are published in the Federal Register, and opportunity for public comment may be requested.” Milhollin, 444 U.S. at 567 n. 10, 100 S.Ct. 790. The same is true of ANPRs. See 72 Fed.Reg. 32948 (“The proposed revisions take into consideration comments from the public on an initial advance notice of proposed rulemaking (ANPR) published in December 2004 on a variety of issues relating to the format and content of open-end credit disclosures and the substantive protections provided under the regulation.”). Moreover, the Court in Milhollin did not restrict itself to consideration of “official interpretations.” It also considered FRB Public Information Letters and CCH Consumer Credit Guides in divining the agency’s views on the matter in question. See Milhollin, 444 U.S. at 563 & n. 8, 100 S.Ct. 790. Nothing in Milhollin suggests that similar deference would not be appropriate here. To the contrary, Mil-hollin emphasized that the “traditional acquiescence in administrative expertise is particularly apt under TILA, because the Federal Reserve Board has played a pivotal role in ‘setting [the statutory] machinery in motion.’ ” 444 U.S. at 566, 100 S.Ct. 790 (quoting Norwegian Nitrogen Products Co. v. United States, 288 U.S. 294, 315, 53 S.Ct. 350, 77 L.Ed. 796 (1933)). In short, Milhollin encourages more deference, not less, to the Board’s stated views.
The majority also marshals Auer v. Robbins, 519 U.S. 452, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997) in support of its argument that ANPRs deserve no deference, but Auer, too, cuts the other way. Auer accords “controlling” deference to an agency interpretation found in a legal brief. 519 U.S. at 461, 462, 117 S.Ct. 905. Briefs drafted in litigation necessarily carry less weight than proposed rules subject to notice and comment, yet the Auer Court deferred because there was “no reason to suspect that the interpretation does not reflect the agency’s fair and considered judgment on the matter in question.” Id. at 462, 117 S.Ct. 905. See also Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 417-18, 65 S.Ct. 1215, 89 L.Ed. 1700 (1945) (“Any doubts concerning this interpretation of [the regulation] are removed by reference to the administrative construction of [the rule],” including in bulletins issued with the regulation, the Administrator’s First Quarterly Report to Congress, and the Administrator’s statement that this position had uniformly been taken “in countless explanations and interpretations” given to those affected by the regulation.).
It follows that, even if we somehow owe less deference to statements of the Board contained in an ANPR than we would to an official comment, that does not mean we owe no deference at all, or less than controlling deference in the present case. See United States Freightways Corp. v. C.I.R., 270 F.3d 1137, 1141 (7th Cir.2001) (“[Deference to agency positions is not an all-or-nothing proposition; more informal agency statements and positions receive a more *976flexible respect ... ”). As a practical matter, the Board has made its opinion regarding the correct interpretation of its own regulation more than clear, and for the various reasons explained by the Supreme Court on many occasions, see, e.g., Milhollin, 444 U.S. at 565-69, 100 S.Ct. 790, we owe that opinion deference. Therefore, it is abundantly clear that the Supreme Court would not countenance disregard for the Board’s opinion regarding the correct interpretation of Regulation Z, even if that opinion appears in an ANPR rather than Official Staff Commentary.
The majority, however, provides its own analysis based on its own interpretation of the FRB’s Official Staff Commentary regarding Regulation Z, brushing aside the Board’s views found in ANPRs. The potentially relevant comments are Comment 1 to Section 226.9(c) and Comment 3 to Section 226.9(c)(1):
9(c) Change in Terms
1. Changes initially disclosed. No notice of a change in terms need be given if the specific change is set forth initially, such as: Rate increases under a properly disclosed variable-rate plan, a rate increase that occurs when an employee has been under a preferential rate agreement and terminates employment, or an increase that occurs when the consumer has been under an agreement to maintain a certain balance in a savings account in order to keep a particular rate and the account balance falls below the specified minimum. In contrast, notice must be given if the contract allows the creditor to increase the rate at its discretion but does not include specific terms for an increase (for example, when an increase may occur under the creditor’s contract reservation right to increase the periodic rate)....
9(c)(1) Written Notice Required
3. Timing-advance notice not required. Advance notice of 15 days is not necessary — that is, a notice of change in terms is required, but it may be mailed or delivered as late as the effective date of the change^ — in two circumstances:
1. If there is an increased periodic rate or any other finance charge attributable to the consumer’s delinquency or default....
12 C.F.R. § 226.9(c), cmt. 1; 12 C.F.R. § 226.9(c)(1), cmt. 3.
The majority concludes that “Comment 3’s specific reference to interest rate increases attributable to the consumer’s delinquency or default is directly on point and therefore governs.” But these two comments are not a ease of the specific versus the general or of one being an exception to the other. Instead, they are independent and each governs a distinct issue: Comment 1, whether a change-in-terms notice is required, and Comment 3, in cases where a change-in-terms notice is required, whether it must be issued 15 days in advance or not. Comment 3 does not purport to govern the question whether notice is required. Neither does it specifically govern default situations.4 Instead, it is entitled “Timing,” and it specifically governs timing issues. In contrast, as the majority generally recognizes, “Comment 1 ... describes the circumstances in which Regulation Z requires no notice of a change in terms.” Accord Swanson, 566 F.Supp.2d at 827 *977(“Comment 3 applies only to the timing of a notice of ‘change of terms.’ As discussed above, Defendants’ practice at issue here does not involve a ‘change of terms’ as contemplated by Section 226.9(c)(1).”).5 The majority does not recognize this distinction and therefore fails to account for the fact that, because Comment 3 assumes situations where notice is required and controls only timing, it does not address the question at issue here.
The majority says that even if Comment 1 applies, Chase did not satisfy its requirements and Comment 1 does not excuse Chase from providing contemporaneous notice of discretionary rate increases to account holders. The majority interprets Comment l’s use of the word “specific” (“No notice of a change in terms need be given if the specific change is set forth initially.... [N]otice must be given if the contract allows the creditor to increase the rate at its discretion but does not include specific terms for an increase ...,” 12 C.F.R. § 226.9(c), cmt. 1 (emphasis added)) to cover only circumstances in which the creditor has disclosed the exact change and the precise terms, so that additional notice would be redundant. I cannot interpret the comment so narrowly. It is certainly more than reasonable to find that Chase has satisfied it here.
In the Cardmember Agreement, Chase disclosed the three conditions that McCoy had to comply with in order to remain eligible for his Preferred rate. Violation of these conditions was necessary (even if not sufficient) for Chase to take away McCoy’s Preferred rate. The Agreement disclosed the maximum interest rate that could apply: the maximum Non-Preferred rate described in the Pricing Schedule. It also disclosed the time at which the new rate would become effective: it would “apply to existing as well as new balances and [would] be effective with the billing cycle ending on the review date.” Finally, Chase disclosed that it might take certain steps to investigate McCoy’s compliance with the required conditions, including obtaining credit reports on him from consumer credit bureaus. Semantic contortions aside, I believe that these statements set forth a specific change and disclosed the specific terms for that change. Accord Swanson, 566 F.Supp.2d at 825.6 Chase’s disclosure thus fulfills the obvious purposes of Comment 1.
The majority buttresses its conclusion to the contrary by reference to Comment l’s examples, saying that “[a]ll three examples pertain to rate increases that are spelled out in cardmember agreements and ascer*978tainable by the consumer without additional notice.” In contrast, it says, “the increase here occurs at Chase’s discretion and the most pertinent’ specific terms for an increase’ — the actual amount of the increase and whether it will occur — are not disclosed in advance.”
At the outset, the majority is wrong in assuming that the three examples do not involve any discretion on the creditor’s part regarding whether to apply an increase and if so, how much of one. For instance, when analyzing the third example, the majority reads much into the Board’s use of the phrase “an increase that occurs” instead of one that “may occur,” concluding that the Board thereby meant that the increase would be automatic and non-discretionary. The Board does not specify in any of the examples that the increase must be of a definite amount that is ascertainable by the consumer without additional notice. This might be a valid assumption with regard to the first example (the variable-rate plan), but such ascer-tainability is not an essential element of the second and third examples. Neither states one way or the other whether they involve a precise and automatic increase.
Further, I am not persuaded, as the majority is, that the Board had in mind a standard of complete redundancy when specifying examples of situations where additional notice would not be required. To the contrary, the Board specifically recognized that there may be situations in which the creditor retains some discretion (as long as “specific [‘]terms[’] for an increase” are disclosed, 12 C.F.R. § 226.9(c), cmt. 1) and additional notice is not required.7 If discretion is sometimes permissible, then precise rates certainly may not always be ascertainable by the consumer before the fact.
As a final matter, I would just note that the interpretation of Regulation Z shared by Chase and the Board seems to me to be consistent with the purpose of TILA. See Anderson Brothers, 452 U.S. at 219-20, 101 S.Ct. 2266 (“The purpose of the TILA is to promote the ‘informed use of credit’ by consumers.”) (quoting 15 U.S.C. § 1601), 222 (“The Board’s position is supported by the legislative history of both the TILA and the 1980 Act, and we hold that it is a permissible interpretation of the term ‘security interest’ as used in the TILA.”); 15 U.S.C. § 1604 (“The Board shall prescribe regulations to carry out the purposes of this subchapter.”). McCoy had all the information he needed in order to enjoy the informed use of his credit. He knew the conditions in which Chase could increase his interest rate and those conditions were under his control. He also knew the highest possible interest rate that could apply in the event of his default. I find it difficult to believe that McCoy, or any other cardmember, would have been better off had he known the precise formula that Chase uses to determine whether or how much to raise his interest rate. It seems extremely doubtful that in deciding whether to pay his bills on time, McCoy might have attempted to use that formula to determine what his chances were of keeping the same interest rate. Unlimited discretion to increase consumers’ interest rates is something that TILA was intended to protect them against. I do not believe that discretion to decline to increase a consumer’s rate all the way up to the permissible maximum, such as Chase had in this case, poses a similar danger. There is nothing irrational or oppressive in allowing a creditor a degree of discretion in dispensing mercy.
*979Because I would find that McCoy has not stated a claim for a violation of TILA, I would not reach his state law claims.
For all of these reasons, I respectfully dissent.

. The relevant portions of McCoy’s Cardmem-ber Agreement were the following:
CHANGE IN TERMS NOTICE
We are making certain changes to the terms of your Account as described below....
The following are changes to the existing terms of your Account.
• Preferred Customer Pricing Eligibility.... The section will be revised to read as follows:
Preferred Customer Pricing Eligibility.... Your Account will be reviewed every month on your Statement Closing Date to determine its continued eligibility for the Preferred or Non-Preferred rates. On each monthly review, we may change your interest rate and impose a Non-Preferred rate up to the maximum Non-Preferred rate described in the Pricing Schedule for each occurrence when you *973do not meet the conditions described below to be eligible for Preferred [rates]. Any changes in pricing as a result of the monthly reviews for Preferred or Non-Preferred rates will apply to existing as well as new balances and will be effective with the billing cycle ending on the review date.
To keep Preferred rates, the following conditions must be met as of the review date:
*you have made at least the required minimum payments when due on your Account and on all other loans or accounts with us and your other creditors; and
* the credit limit on your Account has not been exceeded; and
* any payment on your Account has not been returned unpaid.
If you do not meet all of these conditions ... your Account may lose its Preferred rates....
We may obtain consumer reports from credit bureaus on you at any time in the future. We may use the reports and their contents, as well as information about your Account including its payment history and level of utilization over the life of your Account, and your other relationships with us and our affiliates to review your Account including for the purposes of determining its eligibility for Preferred rates and of establishing the Non-Preferred rate that may apply to your Account.
Appellant's Excerpts of Record, Tab 14, at Chase 00026.

. The distinction between “change-in-terms” notice and "advance notice" suggested by McCoy in his reply and by the majority is a weak attempt to escape the direct and explicit statements by the Board that contradict their position. Additionally, I disagree with the majority’s interpretation of the Board's statement in its December 2008 "Supplementary Information" regarding what is "currently the case" as recognizing that contemporaneous notice is currently required by existing law. A near-verbatim statement appeared in the 2007 ANPR. 72 Fed.Reg. 33012. Elsewhere in that ANPR, as has already been discussed, the Board explicitly rejected the majority’s view that Official Staff Commentary requires contemporaneous notice in a case like this one. I would not interpret a repetition of any portion of the 2007 ANPR as a sudden change of the Board’s opinion.

. Cf. Milhollin, 444 U.S. at 560, 100 S.Ct. 790 ("At the threshold ... interpretation of TILA and Regulation Z demands an examination of their express language; absent a clear expression, it becomes necessary to consider the implicit character of the statutory scheme. For the reasons following, we conclude that *975the issue [here] is not governed by clear expression in the statute or regulation, and that it is appropriate to defer to the Federal Reserve Board and staff in determining what resolution of that issue is implied by the truth-in-lending enactments.'').

. In fact, the third example of Comment 1 is arguably a default situation: when the consumer has been under an agreement to maintain a certain balance in a savings account in order to keep a particular rate and the account balance falls below the specified minimum.

. There are no doubt many instances where, unlike here, a creditor changes a consumer’s interest rate upon his default and is required to provide a change-in-terms notice. There, Comment 3 would apply to determine the timing of the requisite change-in-terms notice. Here, however, we need not consider the issue of proper timing under Comment 3 because Chase is exempted from the requirement of additional notice by Comment 1.

. The fact that Chase did not disclose the precise factors it might use to determine not to exercise its discretion to impose the maximum increase should not offend Comment 1. The Board has indicated that contemporaneous notice is not required when a creditor decides to reduce interest rates. See 12 C.F.R. § 226.9(c)(2). A creditor’s decision to decline to impose the maximum increase has the same effect on a consumer as deciding to reduce interest rates, and a similar rationale would apply to justify the position that the creditor need not disclose in advance the exact circumstances in which it would decide not to impose the maximum increase. The majority says this argument proves too much because it would apply equally to an example in which Comment 1 specifically requires notice ("when an increase may occur under the creditor's contract reservation right to increase the periodic rate”). I disagree that this argument would apply equally to that example because in that example, there does not appear to be a specified maximum rate.

. For example, as here, where there is a warning of the range and potential extent of an increase.