JPMorgan Chase & Co.’s Chase Bank USA unit does not have to battle a slew of class-action lawsuits alleging it improperly increased credit cardholders’ interest rates, the U.S. Supreme Court ruled Jan. 24.
Chase did not violate a Federal Reserve Board rule when it raised a customer’s credit card interest rate for delinquency or default without providing written notification, the court ruled, resolving a class-action case that began in 2006.
In a unanimous opinion written by Justice Sonia Sotomayor, the court said Chase’s cardholder agreement stipulated the bank could increase lead plaintiff James A. McCoy’s interest rates in the event of a default, consistent with the Fed’s interpretation of Regulation Z of the U.S. Truth in Lending Act at the time of the transactions.
The Fed informed the court that, until 2009, Reg Z did not require Chase to provide McCoy with a change-in-terms notice before raising his interest rate, Sotomayer wrote, noting that the court “defers to an agency’s interpretation of its own regulation, advanced in a legal brief, unless that interpretation is ‘plainly erroneous or inconsistent with the regulation.’”
Because the interpretation the Fed presented in its brief is consistent with the regulatory text, “we need look no further in deciding this case,” Sotomayor wrote.
The Fed in July 2009 implemented a new rule requiring lenders to notify customers at least 45 days in advance of any change in interest rates.
Certain appeals courts had decided against Chase, which led to the filing of several class-action cases in California against Chase and other banks.
The Supreme Court’s ruling this week puts an end to those cases, Gregory Taylor, vice president and associate general counsel at the American Bankers Association, tells PaymentsSource in an e-mail.
“The decision today in McCoy clears up a split in the circuit courts over the proper interpretation of Reg Z,” Taylor wrote. “Today’s decision should close the door on any pending class-action litigation over this issue.”
A Chase spokesperson said the bank had no comment on the ruling.
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