Contemporaneous Notice of Credit Card Default Interest Rate Increase Not Required, Says Ninth Circuit


On February 22, 2008, the Ninth Circuit rejected a challenge to Chase Bank USA, N.A.’s default interest rate practices. Evans v. Chase Bank USA, N.A., No. 06-1522. Specifically, the court held that because Chase’s Cardmember Agreement set forth the circumstances constituting default and the maximum default interest rate, the Truth in Lending Act (“TILA”) did not require additional notice after a cardmember’s default and before the default interest rate increase. The court further held

that Chase’s contractually authorized practice of applying the default interest rate on the first day of 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 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 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 initial customer agreement either 15 days in advance or before the effective date of the change, depending on the nature of the change.

The district court granted Chase’s motion to dismiss with prejudice.

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