Court Opinion

ID: 3064520
Source: CourtListenerOpinion
Date Created: 2015-10-14 22:25:17.36718+00
Date Added: 2024-06-11T11:49:40.338612
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

JAMES A. MCCOY, on behalf of              
himself and all others similarly
situated,                                        No. 06-56278
                 Plaintiff-Appellant,
                   v.                             D.C. No.
                                                CV-06-00107-JVS
CHASE MANHATTAN BANK, USA,                         OPINION
National Association,
              Defendant-Appellee.
                                          
         Appeal from the United States District Court
            for the Central District of California
          James V. Selna, District Judge, Presiding

                  Argued and Submitted
          November 21, 2008—Pasadena, California

                        Filed March 16, 2009

     Before: Richard D. Cudahy,* Harry Pregerson, and
           Michael Daly Hawkins, Circuit Judges.

                   Opinion by Judge Hawkins;
                    Dissent by Judge Cudahy

   *The Honorable Richard D. Cudahy, Senior United States Circuit Judge
for the Seventh Circuit, sitting by designation.

                                3325
3328         MCCOY v. CHASE MANHATTAN BANK

                        COUNSEL

Barry L. Kramer (authored briefs and presented argument),
Law Offices of Barry L. Kramer, Los Angeles, California, for
the plaintiff-appellant.

Robert S. Stern (authored brief) and Nancy R. Thomas (pre-
sented argument), Morrison & Foerster, LLP, Los Angeles,
California, for the defendant-appellee.
              MCCOY v. CHASE MANHATTAN BANK                3329
                          OPINION

HAWKINS, Circuit Judge:

   This case presents the question of whether the notice
requirements of the Truth in Lending Act (“TILA”), 15
U.S.C. §§ 1601-1615 and Regulation Z, 12 C.F.R. § 226, as
interpreted by the Federal Reserve Board’s Official Staff
Commentary, apply to discretionary interest rate increases
that occur because of consumer default. We hold that Regula-
tion Z requires a creditor to provide contemporaneous notice
of such rate increases.

   FACTUAL AND PROCEDURAL BACKGROUND

   James A. McCoy (“McCoy”) brought this action on behalf
of himself and others similarly situated against Chase Man-
hattan Bank, USA, N.A. (“Chase”), a national bank located in
Delaware. McCoy alleges that Chase increased his interest
rates retroactively to the beginning of his payment cycle after
his account was closed to new transactions as a result of a late
payment to Chase or another creditor. McCoy claims that the
rate increase violated TILA and Delaware law because Chase
gave no notice of the increase until the following periodic
statement, after it had already taken effect. The district court
dismissed McCoy’s complaint with prejudice, holding that
because Chase discloses the highest rate that could apply due
to McCoy’s default in its cardmember agreement with McCoy
(“Cardmember Agreement”), no notice was required.

   JURISDICTION AND STANDARD OF REVIEW

   We have appellate jurisdiction pursuant to 28 U.S.C.
§ 1291 and review dismissals for failure to state a claim de
novo. Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005).
3330          MCCOY v. CHASE MANHATTAN BANK
                       DISCUSSION

Federal TILA Claim

  [1] Congress enacted TILA to “assure a meaningful disclo-
sure of credit terms so that the consumer will be able to com-
pare more readily the various credit terms available to him
and avoid the uninformed use of credit, and to protect the con-
sumer against inaccurate and unfair credit billing and credit
card practices.” 15 U.S.C. § 1601(a). Regulation Z, adopted
by the Federal Reserve Board to implement TILA, addresses
when and how notice of changes in terms must be given:

    Written notice required. 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. The
    notice shall be mailed or delivered at least 15 days
    prior to the effective date of the change. The 15-day
    timing requirement does not apply if the change has
    been agreed to by the consumer, or if a periodic rate
    or other finance charge is increased because of the
    consumer’s delinquency or default; the notice shall
    be given, however, before the effective date of the
    change.

12 C.F.R. § 226.9(c)(1). Section 226.6 requires that a creditor
disclose inter alia “each periodic rate that may be used to
compute the finance charge.” 12 C.F.R. § 226.9(a)(2).

   The parties dispute the meaning of the phrase “any term
required to be disclosed under § 226.6.” Chase argues that the
phrase applies only to the contractual terms of Chase’s Card-
member Agreement. McCoy suggests the phrase also applies
to the list of specific “items” § 226.6(a)(2) requires be dis-
closed, which includes the interest rate that may be used.
              MCCOY v. CHASE MANHATTAN BANK                 3331
Although we find McCoy’s interpretation more natural, we
acknowledge that the text of Regulation Z is ambiguous.

  We defer to an agency interpretation of its own ambiguous
regulation provided it is not “plainly erroneous or inconsistent
with the regulation.” Auer v. Robbins, 519 U.S. 452, 461
(1997) (citing Robertson v. Methow Valley Citizens Council,
490 U.S. 332, 359 (1989)). We do not “permit the agency,
under the guise of interpreting a regulation, to create de facto
a new regulation.” Christensen v. Harris County, 529 U.S.
576, 588 (2000).

  Chase argues that the Federal Reserve Board (“FRB”)’s
Official Staff Commentary interprets Regulation Z to require
no notice in this case. We disagree.

   [2] Comment 3 is the most salient Official Staff Commen-
tary to § 226.9(c)(1) and, when describing the amount of
notice required for different kinds of changes, provides that “a
notice of change in terms is required, but may be mailed or
delivered as late as the effective date of the change . . . [i]f
there is an increased periodic rate or any other finance charge
attributable to the consumer’s delinquency or default.”
§ 226.9(c)(1), cmt. 3. The plain-meaning of Comment 3 is to
require notice when a cardholder’s interest rates increase
because of a default, but to specify that the notice may be
contemporaneous, rather than fifteen days in advance of the
change. Under Comment 3, McCoy has stated a claim.

   Chase argues that because Comment 3 repeats language
from Regulation Z, a different portion of the Official Staff
Commentary, Comment 1, should govern instead. Comment
3’s specific reference to interest rate increases attributable to
the consumer’s delinquency or default is directly on point and
therefore governs. Even if we decided that Comment 1,
despite preceding Comment 3, could somehow be interpreted
as an exception to it, we would still hold that Comment 1 does
3332           MCCOY v. CHASE MANHATTAN BANK
not dispel Chase’s obligation to notify its account holders of
discretionary rate increases.

   [3] Comment 1 to § 226.9(c)(1) describes the circum-
stances in which Regulation Z requires no notice of a change
in terms:

    “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 prop-
    erly disclosed variable-rate plan, a rate increase that
    occurs when an employee has been under a preferen-
    tial 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).

12 C.F.R. § 226.9(c), cmt. 1 (emphasis added).

   The effect of Comment 1, assuming arguendo it applies,
depends on how the phrase “specific” is defined. McCoy
argues that the “specific change is set forth initially” and the
“specific terms for an increase” are included in a contract
when the contract gives consumers the information they need
in order to know what interest rate they will be charged and
under what conditions. Chase argues that any agreement that
specifies the possibility of an interest rate increase if the card-
holder defaults and establishes any boundaries on the poten-
tial amount of the increase adequately “sets forth” a “specific
change.”
                MCCOY v. CHASE MANHATTAN BANK                       3333
   [4] McCoy’s reading of Comment 1’s use of the word “spe-
cific” is reinforced by the three examples Comment 1
includes of rate increases for which notice is not required. The
first example is “rate increases under a properly disclosed
variable-rate plan.” Id. Variable rate plans specify that the
interest rate will fluctuate in direct correspondence with an
externally determined variable rate such as, for example, the
Federal Prime rate. Providing additional notice of the interest
rate charged under a variable rate plan would be redundant
because variations in the interest rate are not discretionary,
and the method for computing the interest rate based on the
Federal Prime rate is fully specified in advance. Creditors in
that circumstance need not provide additional notice because
consumers can predict their precise interest rate according to
a formula.

   The second example in Comment 1 is “a rate increase that
occurs when an employee has been under a preferential rate
agreement and terminates employment.” Id. Again, the notice
of such a rate increase would be redundant because it “oc-
curs” whenever the employee terminates employment. Noth-
ing suggests the creditor possesses any discretion over
whether to increase the rates or by how much to do so once
the event triggering a higher rate occurs.

   The third example is “an increase that occurs when the con-
sumer has been under an agreement to maintain a certain bal-
ance in a savings account in order to keep a particular rate and
the account balance falls below the specified minimum.” Id.
Again, the use of the word “occurs” rather than the phrase
“may occur” suggests that additional notice would be redun-
dant because the increase is non-discretionary.1 All three
  1
   Although the dissent argues for an alternative view of these examples,
we do not believe it is reading too much into the Board’s description of
“an increase that occurs” when specified criteria are met to conclude that
the phrase refers to automatic increases. By declining to read the word
“may” into the Board’s language, we choose the more natural reading of
the examples, if not the only conceivable one.
3334          MCCOY v. CHASE MANHATTAN BANK
examples pertain to rate increases that are spelled out in card-
member agreements and ascertainable by the consumer with-
out additional notice.

   In contrast to these examples, 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. The Cardmem-
ber Agreement states that Chase “may” change McCoy’s
interest rate and impose a non-preferred rate “up to” the maxi-
mum rate described in the pricing schedule. The agreement
further states that McCoy’s account “may” lose its preferred
rates if he defaults. Although the agreement defines what con-
stitutes a “default” triggering Chase’s ability to exercise this
discretion, a default is only one of the conditions required for
an increase; it may be necessary, but apparently it is not suffi-
cient. Chase outlines several other criteria it “may” obtain and
use to review McCoy’s account “for the purposes of deter-
mining its eligibility for Preferred rates,” including McCoy’s
consumer credit reports, his payment history and level of utili-
zation over the life of his account, and his other relationships
with Chase and its affiliates.

   Chase does not disclose to McCoy how it may use this
information and provides McCoy with no basis for predicting
in advance what retroactive interest rate Chase will choose to
charge him if he defaults. Under the agreement, when McCoy
defaults, he will not know whether his rate will stay the same,
increase slightly, or rise to the maximum default rate until he
receives his next periodic statement listing the new rate.
Worse yet, this new rate would then apply retroactively.

   Chase argues that the terms for an increase are adequately
specified because the concept of a “default” is defined and
because consumers are aware of the maximum rate they might
pay in the “worst case scenario.” It further argues that the dis-
cretionary increase that may occur when a consumer defaults
can be reconceptualized as an automatic increase, followed by
                 MCCOY v. CHASE MANHATTAN BANK                         3335
a discretionary reduction in rates. The district court accepted
this line of reasoning, concluding that a “decision not to
increase a rate is analytically indistinct from a decision to
lower a rate.”

   [5] This argument proves too much because it would apply
equally to Comment 1’s example of when contemporaneous
notice is required. Comment 1 specifically explains that
notice must be given “when an increase may occur under the
creditor’s contract reservation right to increase the periodic
rate.” 12 C.F.R. § 226.9(c), cmt. 1. Like a “reservation right
to increase the periodic rate,” the contract provision authoriz-
ing Chase to increase a defaulted consumer’s interest rate up
to the maximum default rate at its discretion does not give the
cardholder sufficient information to know what rate will apply
and therefore requires the creditor to provide notice. Chase’s
“contract allows the creditor to increase the rate at its discre-
tion,” § 226.9(c), cmt. 1, and does not specify the relevant
terms, including the conditions that are necessary and suffi-
cient for an increase to occur and the actual amount of the
increase that will occur. Chase’s agreement not to increase the
interest rate higher than a preset, double-digit maximum does
not materially distinguish its Cardmember Agreement from a
contract reservation right to increase the periodic rate. An
interpretation of Comment 1 as eliminating Regulation Z’s
notice requirement even where consumers do not have suffi-
cient information to determine whether their interest rate will
be raised, or by how much, dilutes the meaning of the word
“specific” beyond recognition.

   [6] Chase argues that we must nevertheless interpret Regu-
lation Z to require no notice in this case because we must
defer to a now-superceded Advance Notice of Proposed Rule-
making,2 promulgated for public comment by the Federal
  2
    This 2007 ANPR has been superceded by a final rule amending Regu-
lation Z to require forty-five days’ notice for rate increases effective July
1, 2010. Truth in Lending, 74 Fed. Reg. 5244 (Jan. 29, 2009) (to be codi-
fied at 12 C.F.R. § 226.9(g)(1)).
3336            MCCOY v. CHASE MANHATTAN BANK
Reserve in 2007, which briefly characterizes existing law in
the process of explaining a proposal to amend Regulation Z
to increase the amount of notice for interest rate increases to
forty-five days in most cases. Truth in Lending, 72 Fed. Reg.
32948-01, 33009 (proposed June 14, 2007) (“2007 ANPR”).

   Consideration of the 2007 ANPR does not lead us to
change our interpretation of the FRB’s Official Staff Com-
mentary. Chase observes that the 2007 ANPR includes as an
example of when a “change-in-terms notice” is not required,
“some credit card account agreements [that] permit the card
issuer to increase the periodic rate if the consumer makes a
late payment,” noting that “[b]ecause 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. The effect of this language is
ambiguous, however, because the term “change-in-terms
notice” could, as Chase argues, refer to contemporaneous
notice required for changes in interest rates, but might instead
refer only to the fifteen days’ advance notice required for
changes in contractual terms.3

   The 2007 ANPR also contains language suggesting it “is
currently the case” that notice is required even if “the creditor
specifies the penalty rate and the specific events that may trig-
ger the penalty rate in the account-opening disclosures.” 72
Fed. Reg. 33012. The FRB reaffirmed this view in the “Sup-
plementary Information” published by the FRB along with the
final rule amending Regulation Z. In any case, FRB chose to
  3
   A slightly less terse, but substantively identical, provision in a 2004
ANPR suggests that the latter is more likely, stating that where the cir-
cumstances of an increase are specified in advance, “the creditor need not
provide a change-in-terms notice 15 days in advance of the increase; the
new rate will appear on the periodic statement for the cycle in which the
increase occurs.” Truth in Lending, 69 Fed. Reg. 70925-01, 70931-32
(proposed Dec. 8, 2004) (emphasis added).
                 MCCOY v. CHASE MANHATTAN BANK                          3337
remove the ambiguous language entirely when it issued a
Final Rule and Supplementary Information amending Regula-
tion Z in 2009. Truth in Lending, 74 Fed. Reg. 5244, 5350-03
(Jan. 29, 2009). Both the older ANPR and the recently
approved statement of the FRB’s views clearly state it “is cur-
rently the case” under Comments 1 and 3 that contemporane-
ous notice of default-based rate increases is required even
where the “creditor specifies the penalty rate and the specific
events that may trigger the penalty rate in the account-
opening disclosures.” Id.

   [7] Therefore, while language scattered throughout the
2007 ANPR offers some support for each view of the Official
Commentary, the ANPR does not clearly weigh in favor of
either interpretation of Regulation Z. This ambiguity is not
surprising because the primary purpose of the 2007 ANPR
(and the 2004 ANPR that preceded it) was to announce pro-
posed amendments to Regulation Z and solicit comment, not
to offer additional staff commentary on Regulation Z’s cur-
rent requirements.

   As the dissent notes, although no binding authority has
addressed this question,4 several district court opinions and
one unpublished memorandum disposition in this circuit have
accepted Chase’s view. See, e.g., Evans v. Chase Bank USA,
N.A., 267 Fed. Appx. 692, 693 (9th Cir. 2008) (unpublished
disposition); Swanson v. Bank of America, 566 F. Supp. 2d
4
     This case is not governed by Hauk v. JP Morgan Chase Bank United
States, 552 F.3d 1114 (9th Cir. 2009), which interpreted 12 C.F.R.
§ 226.6(a) to allow a promotional interest rate to be discontinued due to
a late payment made prior to undertaking a balance transfer agreement.
The plaintiff in Hauk did not appear to allege that the interest rate increase
violated TILA because it was a discretionary interest rate increase
undertaken without contemporaneous notice. Consequently, Hauk rested
its holding on the irrelevance under TILA of a creditor’s “undisclosed
intent to act inconsistent with its disclosures,” id. at *18, and did not
address whether § 226.9, as interpreted by Comment 1 or Comment 3,
requires contemporaneous notice for such increases.
3338             MCCOY v. CHASE MANHATTAN BANK
821 (N. D. Ill. 2008); Williams v. Wash. Mut. Bank, 2008 U.S.
Dist. LEXIS 5325 (E.D. Cal. Jan. 10, 2008); Shaner v. Chase
Bank, USA, N.A., 570 F. Supp. 2d 195, 200 (D. Mass. 2008);
Evans v. Chase Manhattan Bank USA, N.A., 2006 U.S. Dist.
LEXIS 5259 (N.D. Cal. Jan. 27, 2006). Most of these deci-
sions cite the district court’s analysis in Evans, which held
that Chase set out the “specific terms for an increase” because
“Chase gives the reasons for its rate changes.” Evans, 2006
U.S. Dist. LEXIS 5259, at *7-8. In Evans, the district court
apparently labored under the misconception that Comment 3
precedes Comment 1 and therefore did not apply where the
conditions specified in Comment 1 are met. See id., at *6 (cit-
ing Comment 3 and then asserting that “[t]he Commentary
goes on to state, however, that ‘[n]o notice of a change in
terms need be given if the specific change is set forth initial-
ly,’ ”) (quoting Comment 1). Possibly for the same reason,
most of these courts did not even discuss Comment 3 and
none attended to the 2007 ANPR’s internal ambiguities or
considered what kind of deference, if any, is owed to an agen-
cy’s characterizations of existing law when they are incidental
to the purpose of an agency publication.5 Our own consider-
  5
    The relevance of the 2007 ANPR was limited even before it was super-
ceded because we defer to the FRB’s Official Staff Commentary, not inci-
dental descriptions of current law contained in an ANPR. The FRB has
prescribed the Official Staff Commentary as “the vehicle by which the
staff of the [FRB] issues official staff interpretations of Regulation Z.” 12
C.F.R. Part 226, Supp. I, para. 1; see also Ford Motor Credit Co. v. Mil-
hollin, 444 U.S. 555, 566, 568 (1980) (distinguishing the deference owed
to Board and official staff interpretations from that owed to unofficial
interpretations). Although Chase may, at a later stage of litigation, assert
a statutory “good-faith” defense under 15 U.S.C. § 1640(f) for acting in
conformity with an FRB interpretation promulgated “under such proce-
dures as the Board may prescribe,” the defense is only available for
actions based on the Official Staff Commentary, not on such incidental
interpretations appearing in an ANPR, particularly one that was promul-
gated after this suit was filed and could not have been relied upon when
Chase acted.
  Auer, 519 U.S. at 462, would not require any greater showing of defer-
ence. In Auer, the court deferred to an interpretation of a rule contained
                 MCCOY v. CHASE MANHATTAN BANK                        3339
ation of the FRB’s Official Staff Commentary, unofficial
ANPRs, and the Supplementary Information accompanying
its recent amendment of Regulation Z leaves us firmly con-
vinced of the FRB’s intent to require contemporaneous notice
when rates are raised because of a consumer’s delinquency or
default, as McCoy alleges occurred in this case.

State Law Claims

   In his second, third, and fourth causes of action, McCoy
claims that Chase’s practice of retroactively raising interest
rates after a consumer defaults is unconscionable and that he
is therefore entitled to declaratory relief, reformation, and
damages for imposing an illegal penalty. The district court
correctly noted that these causes of action are foreclosed if
Delaware law specifically authorizes the practice because,
pursuant to the National Bank Act, 12 U.S.C. § 85, Delaware
law governs what interest Chase may charge and the method-
ology used to determine that interest rate.

   [8] We reverse the dismissal of these claims, however,
because the Delaware Banking Act authorizes rates of interest
that “vary in accordance with a schedule or formula.” 5 Del.
C. § 944. As the district court noted, a permissible schedule
or formula may include a provision for a change in the “rates

in an agency’s legal brief that was directed specifically to the “matter in
question.” Id. at 462; see also Anderson Bros. Ford v. Valencia, 452 U.S.
205, 213, 217 (1981) (characterizing a proposed ruling merely as “persua-
sive authority” not “wholly without significance,” even though it was
directly on the matter in question).
   Here, the 2007 ANPR’s tersely worded “interpretations” of existing law
are incidental to the purpose of the agency action, are stated in conclusory
fashion, are themselves ambiguous, and have now been superceded.
Therefore, unlike in Auer, we do have “reason to suspect that the interpre-
tation does not reflect the agency’s fair and considered judgment on the
matter in question.” Auer, 519 U.S. at 462. Consequently, we interpret the
FRB’s Official Staff Commentary directly.
3340          MCCOY v. CHASE MANHATTAN BANK
of interest applicable to all or any part of outstanding unpaid
indebtedness . . . contingent upon the happening of any event
or circumstance specified in the plan,” including a default. Id.
Section 944 therefore would clearly authorize a “schedule or
formula” that specified a higher interest rate that would auto-
matically apply in the event of default. However, the language
of § 944 does not appear to authorize rate increases that are
discretionary and vary according to criteria in addition to the
consumer’s default where those criteria are not specified in a
schedule or formula contained in the agreement.

   Absent binding Delaware court decisions construing the
terms “schedule,” “formula,” or “contingent upon” in § 944,
our task is to “predict how the highest state court would
decide the issue using intermediate appellate court decisions,
decisions from other jurisdictions, statutes, treatises, and
restatements as guidance.” Arizona Elec. Power Coop., Inc. v.
Berkeley, 59 F.3d 988, 991 (9th Cir. 1995) (quoting In re
Kirkland, 915 F.2d 1236, 1239 (9th Cir. 1990)). In this case,
however, only federal district courts have construed § 944 and
not one has adequately addressed the importance of the dis-
cretionary nature of the increases or whether such increases
are really “in accordance with a schedule or formula.” See,
e.g., Swanson v. Bank of Am., N.A., 566 F. Supp. 2d 821, 829
(N.D. Ill. 2008) (“By describing the events which cause the
rate increase to occur, Defendant has complied with Section
944.”); Evans v. Chase Manhattan Bank USA, N.A., 2006
U.S. Dist. LEXIS 5259, at *12 (N.D. Cal. Jan. 27, 2006) (con-
cluding an agreement complied with § 944 because it
described “what events will cause default rates to go into
effect”).

   [9] These interpretations of § 944 neglect to consider fully
whether rate increases truly are “contingent upon” a default
and in “accordance with a schedule or formula” where they
are discretionary and can result in a range of interest rates
depending on undisclosed criteria beyond the occurrence of a
default. A close analysis of the Cardmember Agreement
              MCCOY v. CHASE MANHATTAN BANK                 3341
reveals that it does not describe the specific events that “will
cause default rates to go into effect,” Evans, 2006 U.S. Dist.
LEXIS 5259, at *12 (emphasis added), but only those that
may do so. It also fails to disclose how much Chase will actu-
ally increase rates should it choose to do so. As a result, we
hold that the rate increases McCoy faced under the Cardmem-
ber Agreement were not authorized by § 944 because no
“schedule or formula” contained in the agreement revealed
whether the increases would occur or how large they would
actually be.

   [10] Having held that the contract provision authorizing
discretionary interest rate increases is not authorized by § 944,
we conclude that McCoy has made out a colorable claim that
the provision may also be “unconscionable” under Delaware
law and he should “be afforded a reasonable opportunity to
present evidence as to its commercial setting, purpose and
effect to aid the court in making its determination.” 6 Del. C.
§ 2-302; see also Evans, 2006 U.S. Dist. LEXIS 5259, at *12
(noting that absent authorization under § 944, “Plaintiffs’
unconscionability contention may have had some weight”).

   Any increased interest charge stemming from a default that
occurs retroactively functions as “damages paid in the event
of a breach,” not compensation for the increased risk of non-
collection, because McCoy would still owe that retroactively
imposed additional charge even if he paid Chase his entire
balance the moment after he defaulted. For these reasons, we
reverse the dismissal of McCoy’s second, third, and fourth
causes of action.

   [11] McCoy’s fifth cause of action alleges Chase commit-
ted consumer fraud by failing to provide notice of an increase
in interest. Delaware’s consumer fraud statute, 6 Del. C.
§ 2513(a), prohibits:

    The act, use or employment by any person of any
    deception, fraud, false pretense, false promise, mis-
3342            MCCOY v. CHASE MANHATTAN BANK
      representation, or the concealment, suppression, or
      omission of any material fact with intent that others
      rely upon such concealment, suppression or omis-
      sion, in connection with the sale, lease or advertise-
      ment of any merchandise, whether or not any person
      has in fact been misled, deceived or damaged
      thereby, is an unlawful practice.

This allegation fails to state a claim for consumer fraud under
§ 2513(a) because Chase openly and expressly notifies card-
holders of the actions it reserves the right to take in the event
of a default. Although Chase may have failed to fulfill its
obligations under federal and Delaware law, McCoy has not
alleged facts to support a finding that it concealed or misrep-
resented the possibility that it might raise rates without notice
when a consumer defaulted. We affirm the dismissal of
McCoy’s fifth claim for relief.

   [12] McCoy’s sixth and seventh causes of action allege
claims for breach of contract and tortious breach of the
implied covenant of good faith and fair dealing. The Card-
member Agreement states that Chase would “notify [McCoy]
of any change if required by applicable law.” Given the
requirements under TILA and Delaware law discussed above,
while McCoy clearly has stated a claim that Chase breached
this explicit contractual provision,6 he cannot state an implied
duty of good faith claim because “where the subject at issue
is expressly covered by the contract, or where the contract is
intentionally silent as to that subject, the implied duty to per-
form in good faith does not come into play.” Dave Greytak
Enters., Inc. v. Mazda Motors of Am., Inc., 622 A.2d 14, 23
  6
   Chase’s citation to the pre-existing legal duty doctrine is inapposite
because a contractual promise to comply with preexisting federal legal
obligation is enforceable, Island Ins. Co. v. Hawaiian Foliage & Land-
scape, Inc., 288 F.3d 1161, 1167 (9th Cir. 2002), provided the contract is
supported by independent consideration, Rossdeutscher v. Viacom, Inc.,
768 A.2d 8, 21 (Del. 2001).
              MCCOY v. CHASE MANHATTAN BANK                 3343
(Del. Ch. 1992). Consequently, we reverse the dismissal of
the sixth cause of action and affirm the dismissal of the sev-
enth.

                       CONCLUSION

   Under Regulation Z as interpreted by its Official Staff
Commentary, McCoy has stated a TILA claim if Chase failed
to give him notice of an interest rate increase “because of the
consumer’s delinquency or default” or if his contract with
Chase “allows the creditor to increase the rate at its discretion
but does not include the specific terms for an increase.” 12
C.F.R. § 226.9(c)(1); Id., cmt. 3; Id., cmt. 1. Having con-
cluded that McCoy has stated a claim under either standard,
we reverse and remand to the district court. We affirm the dis-
missal of McCoy’s fifth and seventh causes of action, but
reverse the dismissal of McCoy’s other state law claims.

  AFFIRMED IN PART AND REVERSED IN PART.
Costs on appeal to Appellant.

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
3344           MCCOY v. CHASE MANHATTAN BANK
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 con-
cedes, 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 interpre-
tation in the face of that ambiguity, and by suggesting, some-
what 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 appli-
cable: . . . 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 ques-
tion 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 says that although the
  1
    The relevant portions of McCoy’s Cardmember Agreement were the
following:
                 CHANGE IN TERMS NOTICE
                 MCCOY v. CHASE MANHATTAN BANK                        3345
regulation is ambiguous, the FRB’s Official Staff Commen-
tary to § 226.9(c)(1) makes the answer a clear “yes.” The

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 do 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 effec-
     tive 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 con-
     tents, 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.
3346          MCCOY v. CHASE MANHATTAN BANK
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 supra.

   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 (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 (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 regula-
tory interpretation on deference to the views of the responsi-
ble executive agencies. See, e.g., Chevron U.S.A. Inc. v.
Natural Resources Defense Council, Inc., 467 U.S. 837, 842-
45 (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 delin-
    quency, notice is required, but need not be given in
                 MCCOY v. CHASE MANHATTAN BANK                          3347
      advance. See current § 226.9(c)(1); comment
      9(c)(1)-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)-1. For 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 speci-
      fied in advance in the account agreement, the credi-
      tor 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 state-
ments 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 (calling a proposed official staff
interpretation “persuasive authority” and concluding that “we
cannot agree that the staff’s views expressed in the proposed
  2
    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 con-
tradict their position. Additionally, I disagree with the majority’s interpre-
tation 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 explic-
itly rejected the majority’s view that Official Staff Commentary requires
contemporaneous notice in a case like this one. I would not interpret a rep-
etition of any portion of the 2007 ANPR as a sudden change of the
Board’s opinion.
3348             MCCOY v. CHASE MANHATTAN BANK
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 disclo-
sure was not the type of thing “meant to be” required by Reg-
ulation Z (and was therefore not in fact required). Id. at 212-
13. The Court said that the Board’s interpretation did not con-
clusively 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. The Court strongly implied
that this was so even if the text of the provision at issue sug-
gested a contrary result, saying,

     Unaided by an administrative construction of the
     TILA and Regulation Z, a court could easily con-
     clude, 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 offi-
     cial staff interpretation of Regulation Z [and the leg-
     islative history of TILA and related statutes], it is
     evident that the Board [disagrees].

Id. at 222 (emphasis added). The Court noted that it “has fre-
quently 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.20.3
   3
     Cf. Milhollin, 444 U.S. at 560 (“At the threshold . . . interpretation of
TILA and Regulation Z demands an examination of their express lan-
guage; absent a clear expression, it becomes necessary to consider the
implicit character of the statutory scheme. For the reasons following, we
conclude that the 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.”).
              MCCOY v. CHASE MANHATTAN BANK                3349
   An 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, also supports this view. Although, as the major-
ity 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: “[o]fficial interpretations are published in the Federal
Register, and opportunity for public comment may be request-
ed.” Milhollin, 444 U.S. at 567 n.10. 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 Infor-
mation 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. Nothing in Milhollin suggests that sim-
ilar deference would not be appropriate here. To the contrary,
Milhollin 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 (quoting Norwegian Nitrogen Products Co. v. United
States, 288 U.S. 294, 315 (1933)). In short, Milhollin encour-
ages more deference, not less, to the Board’s stated views.

   The majority also marshals Auer v. Robbins, 519 U.S. 452
(1997) in support of its argument that ANPRs deserve no def-
erence, but Auer, too, cuts the other way. Auer accords “con-
trolling” deference to an agency interpretation found in a legal
brief. 519 U.S. at 461, 462. Briefs drafted in litigation neces-
sarily carry less weight than proposed rules subject to notice
3350          MCCOY v. CHASE MANHATTAN BANK
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. See also Bowles v. Seminole Rock &
Sand Co., 325 U.S. 410, 417-18 (1945) (“Any doubts con-
cerning this interpretation of [the regulation] are removed by
reference to the administrative construction of [the rule],”
including in bulletins issued with the regulation, the Adminis-
trator’s First Quarterly Report to Congress, and the Adminis-
trator’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 defer-
ence 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) (“[D]eference to agency positions
is not an all-or-nothing proposition; more informal agency
statements and positions receive a more flexible 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, we owe that opinion deference. Therefore, it
is abundantly clear that the Supreme Court would not counte-
nance 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):
              MCCOY v. CHASE MANHATTAN BANK                    3351
                    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 prop-
    erly disclosed variable-rate plan, a rate increase that
    occurs when an employee has been under a preferen-
    tial 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:

    •   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 refer-
ence to interest rate increases attributable to the consumer’s
delinquency or default is directly on point and therefore gov-
3352             MCCOY v. CHASE MANHATTAN BANK
erns.” But these two comments are not a case 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 specifi-
cally govern default situations.4 Instead, it is entitled “Tim-
ing,” 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
(“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 dis-
cretionary rate increases to account holders. The majority
interprets Comment 1’s use of the word “specific” (“No
  4
     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 bal-
ance in a savings account in order to keep a particular rate and the account
balance falls below the specified minimum.
   5
     There are no doubt many instances where, unlike here, a creditor
changes a consumer’s interest rate upon his default and is required to pro-
vide a change-in-terms notice. There, Comment 3 would apply to deter-
mine 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.
                 MCCOY v. CHASE MANHATTAN BANK                        3353
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 discre-
tion 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 satis-
fied 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 maxi-
mum interest rate that could apply: the maximum Non-
Preferred rate described in the Pricing Schedule. It also dis-
closed 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 cer-
tain 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.
  6
    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 contempora-
neous 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 decid-
ing to reduce interest rates, and a similar rationale would apply to justify
the position that the creditor need not disclose in advance the exact cir-
3354            MCCOY v. CHASE MANHATTAN BANK
   The majority buttresses its conclusion to the contrary by
reference to Comment 1’s examples, saying that “[a]ll three
examples pertain to rate increases that are spelled out in card-
member agreements and ascertainable by the consumer with-
out 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 ascertainability 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

cumstances 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.
                MCCOY v. CHASE MANHATTAN BANK                       3355
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 (“The purpose of the TILA is to
promote the ‘informed use of credit’ by consumers.”) (quot-
ing 15 U.S.C. § 1601), 222 (“The Board’s position is sup-
ported 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 consum-
ers’ interest rates is something that TILA was intended to pro-
tect 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.
  7
    For example, as here, where there is a warning of the range and poten-
tial extent of an increase.
3356          MCCOY v. CHASE MANHATTAN BANK
  Because 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.