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McCoy v. Chase Manhattan Bank, N.A.: A Case About Consumer Rights

Is the fine print enough?

Must a credit-card issuer formally notify cardholders before it can ratchet up interest rates for late payments or defaults — even if such a policy appears in the fine print of its cardholder agreement?

James McCoy and the other plaintiffs in the McCoy v. Chase Manhattan Bank, N.A., class action argue that the bank violated the Truth in Lending Act by

· increasing interest rates retroactively to the start of a payment cycle following a cardholder’s default and

· failing to specify in its cardholder agreement when rates would go up and by how much.

What’s at stake. More than two-thirds of older Americans who have filed for bankruptcy cite credit cards as the reason, according to a recent study by John Potlow, a professor of law at the University of Michigan.

Where AARP stands. AARP, recognizing that more than three-quarters of Americans age 50 and over have at least one credit card, has aggressively sought to improve the rights of consumers who do business with credit-card companies.

How the Court Ruled

In a unanimous decision issued on Jan. 24, the Court ruled in favor of Chase Manhattan. The Court's opinion (PDF) held that when Chase issued the card and raised the rate and McCoy filed his lawsuit, the bank was not required to provide cardholders with advance notice of increases allowed by the fine print in its credit agreements.

McCoy filed his suit in 2006, before the Federal Reserve Board established new rules in 2009 that require credit card companies to give 45 days notice for increases triggered by delinquency or default.

Writing for the Court, Justice Sonia Sotomayor acknowledged that while the regulation in place at the time was ambiguous, the Court was obligated to defer to the Federal Reserve Board's interpretation of the rule, which favored Chase Manhattan. The bank had argued that the rate increase at issue did not change a term in the credit agreement but merely implemented one.

"This interpretation, though not commanded by the text of the regulation, is reasonable," the Court held in its opinion.

Next: A question about calculating living expenses during bankruptcy.

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