A Maryland appeals court has given new life to a nearly 5-year-old class action that accuses Chevy Chase Bank in McLean, Va., of charging its former credit card customers exorbitant interest rates.
Late last month the Maryland Court of Appeals overturned a lower court's decision and ruled that federal law does not preempt a contractual agreement between the cardholders and the $11.7 billion-asset thrift.
This means that cardholders can proceed with the lawsuit in which they claim that Chevy Chase violated consumer protection laws when it began charging interest above the 24% limit stated in a cardholder agreement, without properly notifying customers.
"They promised to do something and they did not do it, and federal law does not override that," said F. Paul Bland Jr., the cardholders' attorney.
The suit refers to a section in a cardholder agreement that said the "annual percentage rate will never exceed 24%." was in keeping with credit laws in Maryland. But when Chevy Chase moved its headquarters from Maryland to Virginia in 1996, it started charging rates as high as 27%.
The suit was filed in February 1999 - five months after Chevy Chase sold its credit card portfolio to First USA Inc. It won in the suit's first round, however, when the Circuit Court for Baltimore City agreed with the thrift's argument that as a federal thrift it can charge interest rates as high as is allowed in the state where it is headquartered. (Virginia has no caps on interest rates.)
In dismissing the case in November 2001 the court said that Office of Thrift Supervision regulations essentially preempted the language in the contract. The higher court's ruling on Sept. 23 revives the suit, which will again be argued in the Baltimore City court.
This is not the first time in this battle that the Court of Appeals has reversed a ruling by the lower court. In March 2001 it said that the cardholders could continue their lawsuit against Chevy Chase despite an arbitration clause in the agreement.
Alex Boyle, an executive vice president with Chevy Chase, said it still firmly believes that federal preemption applied to the state law cited in the cardholder agreement and that it is confident the thrift will win the case.
"Our position has merit in the lower court," Mr. Boyle said. "And I think we will prevail."
Mr. Bland, an attorney with trial lawyers for Public Justice, said he is hopeful that the cardholders will eventually win, since Chevy Chase's two best arguments have been turned down by Maryland's highest court.
"They have fired their golden and silver bullets and now they are running out of defenses," Mr. Bland said.
