Chase Bank USA, N. A. v. McCoy

Background

A cardholder sued a bank after the bank raised his credit card interest rate following missed payments. The card agreement said he could get a “Preferred” rate but warned the bank could raise the rate to a stated “Non-Preferred” maximum if conditions like missed payments occurred. The cardholder alleged the bank applied the higher rate retroactively and mailed notice only after the change. The District Court dismissed the claim, the Ninth Circuit required advance notice, and another federal appeals court reached the opposite result, producing a split the Supreme Court reviewed.

Reasoning

The central question was whether an interest-rate increase imposed under a contract term already disclosed in the initial paperwork counts as a “change in terms” that needs advance notice under the version of Regulation Z then in effect. The Court found the regulation ambiguous on that point. It gave weight to the Federal Reserve Board’s written view—submitted as an amicus brief—that implementing a pre-disclosed default rate is not a new change in terms, and therefore need not trigger a prior change-in-terms notice. The Court explained that this deference was appropriate because the regulation did not clearly resolve the issue and the Board’s position reflected its considered judgment.

Real world impact

Under the older Regulation Z provisions at issue, banks could implement penalty rates set out in a card agreement without giving a pre-change notice. The opinion also notes that the Board and Congress later adopted rules requiring greater advance notice, so this decision applies primarily to accounts governed by the earlier rules.