Chase Bank USA v. McCoy

PETITIONER: Chase Bank USA, N.A.
RESPONDENT: James A. McCoy, Individually and on Behalf of All Others Similarly Situated
LOCATION: U.S. Capitol Building

DOCKET NO.: 09-329
DECIDED BY: Roberts Court (2010-2016)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 562 US 195 (2011)
GRANTED: Jun 21, 2010
ARGUED: Dec 08, 2010
DECIDED: Jan 24, 2011

ADVOCATES:
Gregory A. Beck -
Joseph R. Palmore - Assistant to the Solicitor General, Department of Justice, for the United States as amicus curiae supporting the petitioner
Seth P. Waxman - for the petitioner

Facts of the case

A class of Chase Bank ("Chase") credit card holders sued Chase in a California federal district alleging the bank violated the Truth in Lending Act ("TILA"). The investors argued that Chase violated the act when it increased interest rates retroactively after the credit account was closed as a result of a late payment to the bank. The district court dismissed the complaint.

On appeal, the U.S. Court of Appeals for the Ninth Circuit reversed the district court, holding in part that Regulation Z of TILA required a creditor, like Chase, to provide contemporaneous notice of interest rate increases that occurred because of customer default. Here, Chase failed to provide such notice.

Question

When a creditor increases the periodic rate on a credit card account in response to cardholder default, but pursuant to a default rate term disclosed in the contract governing the account, does Regulation Z of TILA require the creditor to provide the cardholder with a change-in-terms notice?

Media for Chase Bank USA v. McCoy

Audio Transcription for Oral Argument - December 08, 2010 in Chase Bank USA v. McCoy

Audio Transcription for Opinion Announcement - January 24, 2011 in Chase Bank USA v. McCoy

Sonia Sotomayor:

Regulation Z, promulgated by the Federal Reserve Board pursuant to its authority under the Truth in Lending Act, requires issuers of credit cards to disclose certain information to cardholders.

The version of Regulation Z, applicable in this case, requires that insurers provide cardholders with an “initial disclosure statement”, specifying “each periodic rate” associated with the account.

The regulation also imposes “subsequent disclosure requirements” including giving to cardholders notice when any term required to be initially disclosed is changed.

The cardholder agreement between petitioner, Chase Bank and respondent James McCoy, authorized Chase to raise McCoy's interest rate up to a preset maximum, in the event that McCoy was delinquent or in default.

This case presents the question, whether Regulation Z required Chase to notify McCoy of an increase it imposed within the range specified in the agreement following such delinquency or default.

We conclude that it did not.

We find that the text of Regulation Z is ambiguous with respect to the key question, whether an interest rate increase instituted pursue -- pursuant to a previously disclosed contractual provision is a change in term requiring notice.

Because the regular -- regulatory text is unclear, we look to the Board's own interpretation of the regulation for guidance.

Under our precedent in Auer versus Robbins, we deferred to an agency's interpretation of its own regulations advanced in a legal brief, unless that interpretation is plainly erroneous or inconsistent with the regulation.

In its amicus brief to this Court, the Board states that in its view, the version of Regulation Z, applicable in this case, does not require notice.

The interest rate increase at issue did not change the term of the agreement.

It's simply implemented a term previously disclosed.

This interpretation is neither plainly erroneous nor inconsistent with the regulation, and we have no reason to suspect that it does not reflect the Board's fair and considered judgment on the matter.

Accordingly, this interpretation is authoritative under Auer and we need look no further.

The judgment of the Court of Appeals for the Ninth Circuit is reversed.