Defunct Credit Card Statute Places Supreme Court in Banks' Corner Against Consumers

The Supreme Court ruled today in Chase Bank v. McCoy in favor of Chase Bank’s right to impose retroactive interest rate increases without notice on consumer credit cards under an overturned law. The replaced statute, and the Federal Reserve’s bank-friendly interpretation of it, essentially dictated the unfavorable outcome.

The Truth in Lending Act required credit card companies to provide written notice prior to the effective date of an interest rate change, but allowed an exception where the fine print of the credit card agreement specified events that would trigger an increase, including failure to make a payment. In this case, Chase’s credit card agreement with the plaintiff gave the bank broad discretion to increase interest rates up to a maximum rate based on various factors, and when the plaintiff missed a payment, Chase Bank dramatically increased his rates, applying those rates retroactively to his existing balance. Chase defended plaintiffs’ class action lawsuit on the grounds that a regulation under the Truth in Lending Act, as it was interpreted at the time, allowed this practice.

The Court held that the Federal Reserve Board’s regulations implementing the Truth in Lending Act were too ambiguous to determine whether notice was required in this situation. Therefore, the Court deferred to the Federal Reserve’s position as to how it interpreted those regulations at the time the plaintiff’s complaint arose. Ironically, the Federal Reserve’s interpretation of the Truth in Lending Act began to change in consumers’ favor after Mr. McCoy's complaint, but this new interpretation was not applied retroactively, whereas Chase Bank is allowed under this decision to apply huge rate increases retroactively to consumer credit card balances.

In May 2009, Congress enacted the Credit Card Accountability Responsibility and Disclosure Act. The Act increases to 45 days the amount of time required for notice of interest rate increases. In addition, it explicitly applies to increases that result from delinquency, default, or “events specified in the account agreement, such as making a late payment…” The new Obama era statute protects consumers from sudden and retroactive rate increases hidden in fine print. Unfortunately, today’s Supreme Court decision provides no assistance to individuals who suffered large interest rate increases under the previous law.

Alliance for Justice presents “Forced Arbitration and the Roberts Court: How Hidden Clauses in Everyday Contracts Can Take Away Your Rights”

On November 10, 2010, Alliance for Justice hosted a panel in San Francisco to discuss the importance and potential ramifications of the U.S. Supreme Court case, AT&T Mobility v. Concepcion.

The panel comprised three distinguished attorneys who practice in the fields of consumer and employee rights: Arthur Bryant of Public Justice, Cliff Palefsky of McGuinn, Hillsman & Palefsky, and James Sturdevant, AFJ board member and Principal of The Sturdevant Law Firm.

This event was held just one day after the Supreme Court heard oral arguments in AT&T v. Concepcion, which may have the effect of severely restricting individuals’ ability to seek justice in the courts by use of class action law suits.

All three panel members emphasized the immensity of what is at stake in this case – the ability of large corporations to effectively shield themselves from liability for their wrongdoings and prevent everyday citizens from grouping together to address these wrongdoings in a class action lawsuit.

The panelists agreed that Tuesday’s oral arguments went better than they had anticipated, but that it is still quite unclear exactly how the Court will decide. Although the panelists expressed a reserved optimism that the Court would decide this case favorably, they maintained that regardless of the Court’s decision in this case, there are a number of other cases the Court will be decide on similarly pivotal issues concerning access to justice. Forced arbitration clauses and restrictions on class action suits are but two examples of ways in which large corporations are skewing justice in their favor.

The event was held in collaboration with National Employment Lawyers Association, The Employee Rights Advocacy Institute for Law & Policy, Public Justice, and the Bay Area Lawyers Chapter of the American Constitution Society.

For more information on the details of this case, AFJ has released this report, and AFJ President Nan Aron has written this article for Change.org.

Judge Sotomayor and Business and Consumer Law

Yesterday, Alliance for Justice released a report and hosted a telebriefing for the press on Judge Sonia Sotomayor’s business and consumer law record. Joining AFJ in the briefing were Prof. Eduardo Peñalver of Cornell University Law School and Hispanics for a Fair Judiciary, and National Consumers League Executive Director Sally Greenberg.

This report, the third in a series on Judge Sotomayor, examines her consumer and business law record, including labor and environmental law, bankruptcy, consumer protection and intellectual property among other issue areas. For those of you who are baseball fans, or simply curious about President Obama’s comments regarding Judge Sotomayor’s “saving baseball” you may find the section on labor law of interest.

The report examines the case Silverman v. Major League Baseball Player Relations Comm. Inc.; Judge Sotomayor ended the 1995 baseball strike by issuing an injunction against baseball owners - allowing the players to go back to work and the baseball season to begin.

“At the time the case was before Judge Sotomayor, the baseball strike was the longest work stoppage in professional sports history and had caused the cancellation of the 1994 World Series. Judge Sotomayor ruled against the owners because after negotiations between the players and owners became difficult, the owners tried to unilaterally change the terms of the collective bargaining agreement under which the players had been working. Judge Sotomayor held that this was an unfair labor practice and issued an injunction to protect the public interest, to maintain public confidence in the country’s labor laws, to avoid irreparable injury to the players, and to put the players and owners in the same bargaining position they were in before the strike.”

Sally Greenberg and Eduardo Peñalver also provided insights on the broader lessons that can be gleaned from Judge Sotomayor's record in this area of the law. "Judge Sotomayor wants people to have their day in court, rather than letting inconsequential technicalities prevent people from being heard," observed Greenberg. "She meets issues of first impression with caution and careful analysis. She's very much in the tradition of a careful, respectful common law judge, much like the justice she will be replacing, David Souter," Peñalver noted.

The current economic climate means issues relating to business, bankruptcy, and consumer protection are more important than ever. Judge Sotomayor has extensive experience in these areas of the law and, as the report notes, her legal writings show her ability to “recognize the impact her decision will have on the parties involved in a case, [while betraying] no preset notions or biases.” You can read the full report here.

Didn't Buy It? Still Have to Pay for It!

Wisniewski v. Rodale, Inc.
U.S. Court of Appeals, Third Circuit (December 13, 2007)

In a ruling that undermines consumer rights, Third Circuit Judge D. Brooks Smith, appointed by President George W. Bush, has said consumers have no right to sue if they are forced to pay for merchandise they did not order. The opinion left no recourse for petitioner David Wisniewski, who was forced to pay for unsolicited books he received in the mail. Wisniewski paid for the books after respondent Rodale, Inc., threatened to damage his credit rating if he did not pay for the books he hadn't ordered.

Judge Smith was joined in his opinion to deny Wisniewski the right to sue by Senior Judge Weis, a Nixon-appointed judge. Judge Sloviter, the only judge on the panel appointed by a Democratic President (Carter), provided in her dissent the only voice in support of consumers' rights.

Read the full case study at afj.org