The U.S. Supreme Court asked the U.S. government today for its view of a legal case against JPMorgan Chase that makes the top credit card issuer liable for hiking interest rates without written notice for customers who are late on their payments.
The ruling came despite assertions by Chase that it disclosed to the lead plaintiff in the case the conditions that would lead to the raising of interest rates, including violation of certain terms, in his card-member agreement.
At stake for credit card companies and customers is interpretation of federal law, and whether ”contemporaneous notice of such rate increases” is required – beyond what already may be stated in card-member contracts regarding rate increases, late payment or default penalties.
A federal judge in California had dismissed the lawsuit, but a federal appeals court last year reinstated the suit.
The lead plaintiff in the class-action lawsuit, James McCoy, accused Chase of violating the Truth in Lending Act by hiking interest rates “retroactively to the beginning of his payment cycle” after his account was closed for late payment to Chase or another creditor.
The appeals court said Chase could be liable if the card member contract does not spell out specific terms for an increase. It also said that a Federal Reserve Board regulation requires notice of discretionary rate increases triggered by cardholder’s default. The regulation was amended last year to require 45 days notice before higher interest rates are imposed.
The Supreme Court now wants U.S. Solicitor General Elena Kagan to file a brief on the federal government’s views of the case.
According to the ruling by the U.S. Court of Appeals for the Ninth Circuit that reinstated the case:
“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.”
Under credit card reform laws enacted last May and taking effect next month, credit card issuers must send customers a notice 45 days before they can increase interest rates, or change certain fees.
According to the Federal Reserve’s new rule approving most of the reform’s provisions, a credit card company does not have to send a 45-day advance notice if:
- The card has a variable interest rate tied to an index;
- The introductory rate expires and reverts to the previously disclosed “go-to” rate;
- The rate increases because the customer was in a workout agreement and didn’t make payments as agreed.
