The First Circuit Court of Appeals has affirmed the District Court of Massachusetts dismissal of a putative class action raising claims under the Truth in Lending Act (TILA) and Massachusetts unfair or deceptive trade practices law. In Shaner v. Chase Bank USA, NA, the named plaintiff (Shaner) claimed that, as a result of her own default, Chase twice increased her annual percentage rate (APR) at the beginning of the billing cycles without notice prior to the first date the APR was applied. The notice was on Shaner’s billing statement, was consistent with Chase’s credit card agreement with Shaner, and stated that “[t]he new APR and promotional rate expiration reflected on this statement is a result of a late payment on your account.”
The district court granted Chase’s motion to dismiss, finding that, among other things, under the Federal Reserve Board’s Regulation Z, Chase was not required to provide advance notice of end-of-the-month adjustments that applied from the start of the month where the credit card agreement permitted the practice.
The First Circuit acknowledged the current split among federal circuit courts on the issue of whether notice is required for a rate increases under TILA and Regulation Z prior to the enactment of the Credit Card Accountability, Disclosure, and Responsibility Act (Credit CARD Act). In McCoy v. Chase Manhattan (2009), the Ninth Circuit held that the plaintiff had stated a claim under TILA. In Swanson v. Bank of America (2009, rehearing and rehearing en banc denied with opinion), the Seventh Circuit rejected a similar claim. These opinions both issued earlier this year within weeks of each other.
The First Circuit examined Section 226.9(c)(1) and (2) of Regulation Z which, pre-Credit CARD Act amendment, provided that 15 days notice was required for most changes to the terms of a credit card agreement. However:
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. . . . No notice under this section is required . . . when the change results from an agreement involving a court proceeding, or from the consumer’s default or delinquency (other than an increase in the periodic rate or finance charge).
12 C.F.R. § 226.9(c)(1), (2).
The First Circuit looked to the Board for guidance on Section 226.9(c). In its brief, the Board stated its “position that at the time of the transactions at issue in this case, Regulation Z did not require a change-in-terms notice to be provided when a creditor increased a rate to a figure at or below the maximum allowed by the contract in the event of default.” The First Circuit viewed the Board’s position as “controlling,” and held that Shaner’s TILA claim failed. The Court also rejected Shaner’s arguments that the increase in APR constituted an illegal penalty and was an impermissible retroactive adjustment in violation of Massachusetts’ unfair and deceptive trade practices law.