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Document hosted at http://www.jdsupra.com/post/documentViewer.aspx?fid=66b4980c-884b-42f0-9cc5-df142597212c MORRISON I FOERSTER Legal Updates & News Legal Updates Contemporaneous Notice of Credit Card Default Interest Rate Increase Not Required, Says Ninth Circuit Circuit Related Practices: Practices: April 2008 Financial Services Law • Financial Services Law Robert S. Stern, Angela L. Padilla by Robert S. Stern, Angela L. Padilla Financial Services Litigation • Financial Services Litigation Litigation • Litigation N.A.’s On February 22, 2008, the Ninth Circuit rejected a challenge to Chase Bank USA, N.A.'s default practices. Evans v. Specifically, the court held interest rate practices. Evans v. Chase Bank USA, N.A., No. 06-1522. Specifically, the court held Chase’s that because Chase's Cardmember Agreement set forth the circumstances constituting default and (“TILA”) the maximum default interest rate, the Truth in Lending Act ("TILA") did not require additional notice default interest rate increase. The court after a cardmember’s default and before the default interest rate increase. The court further held cardmember's that Chase’s contractually authorized practice of applying the default interest rate on the first day of Chase's violate TILA. the billing cycle in which the default occurred did not violate TILA. Plaintiffs filed the putative class action in the United States District Court for the Northern District of California, asserting that Chase’s default notice practices and the timing of the default interest rate Chase's an illegal increase violated Section 226.9(c) of Regulation Z (12 C.F.R. § 226.9(c)), constituted an illegal penalty, were unconscionable, constituted a breach of contract and of the implied covenant of good Delaware consumer protection statutes. faith and fair dealing, and violated California and Delaware consumer protection statutes. Section 226.9(c) requires banks to provide notice of changes to terms that must be disclosed in the advance or before the efective date of the change, initial customer agreement either 15 days in advance or before the effective date of the change, the change. depending on the nature of the change. Chase's motion to dismiss with prejudice. On The district court granted Chase’s motion to dismiss with prejudice. On the TILA claim, the district court noted that the Official Staff Commentary to Section 226.9(c) created an exception to the notice “set requirement for changes that were "set forth initially” and held that Chase’s default interest rate initially" Chase's fell within this exception because the specific changes - the circumstances constituting practices fell within this exception because the specific changes — the circumstances constituting and the maximum default interest rate - were plaintifs' Cardmember default and the maximum default interest rate — were set forth in the plaintiffs’ Cardmember The district court further held that none of the other causes of action stated Agreements. The district court further held that none of the other causes of action stated a claim practices were authorized by plaintifs' Cardmember Agreements because the challenged practices were authorized by plaintiffs’ Cardmember Agreements and Delaware banking law. law. Circuit afirmed the court’s The decision cites the Federal The Ninth Circuit affirmed the district court's decision. The decision cites the Federal Reserve Board’s Board’s interpretation of the current version of Section 226.9(c) in the Board's pending Proposed Board's Rules, which would add a new provision requiring the notice plaintiffs sought in this suit. The court would add a new provision requiring the notice plaintiffs sought in this suit. also held that any claim that state laws required additional notice is preempted by the National Bank regulations. Act and OCC regulations. Plaintiffs’ counsel in Evans filed additional suits against Chase and several other national banks and Plaintiffs' Each of these cases was dismissed with prejudice, with several thrifts, asserting similar claims. Each of these cases was dismissed with prejudice, with several Although the Ninth Circuit’s Memorandum is not binding precedent, currently on appeal. Although the Ninth Circuit's Memorandum is not binding precedent, it may be Rule 36-3(b). cited to courts in the Ninth Circuit under Circuit Rule 36-3(b). 0 1996-2008 Morrison & Foerster LLP. AU rights reserved.
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