The Truth in Lending Act

The Truth in Lending Act (“TILA”) was enacted by Congress to promote the informed use of consumer credit.  Pursuant to its authority under TILA, the Federal Reserve Board (the “Board”) promulgated Regulation Z, which requires credit card issuers to disclose certain information to cardholders.  In 2004, the Board issued an advance notice of its intent to consider revisions.  Among other things, this notice expressed the Board’s interpretation that Regulation Z didn’t require advance notice where interest rate increases were triggered on the basis of events specified in the credit agreement.  In 2009, however, the Board promulgated a revised final rule consistent with Congress’ amendments to TILA in the Credit Card Accountability, Responsibility and Disclosure Act of 2009.  As revised, TILA and Regulation Z require 45 days advance notice for most increases in annual percentage rates.  However, James McCoy’s case arose prior to these legal changes. 

James McCoy was the holder of a credit card issued by Chase Bank.  The cardholder agreement provided that McCoy was eligible for preferred interest rates, subject to his satisfaction of certain conditions, including making payments when due.  Upon failure to satisfy the conditions, Chase reserved the right to change McCoy’s interest rate up to a maximum non-preferred rate described in a pricing schedule. McCoy brought suit in the Superior Court of Orange County, California, on behalf of himself and others similarly situated, alleging that Chase had applied the interest increase retroactively in violation of Regulation Z.  Chase moved the action to the U.S. District Court for the Central District of California, which dismissed the case, holding that the increase did not constitute a “change in terms” as contemplated by §226.9(c) of Regulation Z.  The Ninth Circuit Court of Appeals reversed, holding that Regulation Z required notice of an interest rate increase prior to its effective date.  The Ninth Circuit concluded that the text was ambiguous, and relied on the Board’s official interpretation of Regulation Z.

In Chase v. McCoy (09-329), a unanimous Court held that, at the time of the transaction, Regulation Z did not require Chase to provide prior notification to McCoy because the interest rate increase was an implementation of an agreement term, rather than a change in terms.  Justice Sotomayor delivered the majority opinion, which relied substantially on the Board’s interpretation of Regulation Z provided in an amicus brief submitted to the Court.  Agreeing that the pre-2009 Regulation Z was unclear as to whether an interest rate increase pursuant to agreements like McCoy’s constituted a “change in terms” and triggered a notice requirement, the Court held that the Board’s interpretation was consistent with the regulatory text and dispositive of the case.  Consistent with its 2004 notice, the Board had argued that Regulation Z didn’t require notice where the increase occurred according to specifications in the credit agreement.  Because the pre-2009 Regulation Z had done more than merely restate the terms of TILA, deference to the Board’s interpretation of its own regulation was warranted, according to the Court.  The fact that the Board had subsequently changed its rules didn’t alter the retrospective validity of its interpretation.