(CN) – Chase Bank must clearly and conspicuously disclose the risk factors used to raise cardholders’ annual percentage rates, the 9th Circuit ruled on a 2-1 vote. The dissenting judge said the majority’s opinion, which otherwise backed the disclosures as adequate, would allow Chase to hike customers’ APR to 50 percent “if they dye their hair red.”
Cheryl and Walter Barrer filed a class action, claiming Chase violated the Truth in Lending Act by failing to disclose the criteria it used to “skyrocket” their APR from about 9 percent to more than 24 percent.
When the Barrers contacted the bank to find out why their rate had jumped, Chase cited “outstanding credit loan(s) on revolving accounts” that were “too high,” and “too many recently opened installment/revolving accounts.”
The Barrers said the bank’s failure to disclose these and other risk factors violated federal law.
The district court dismissed the case for failure to state a claim, but the federal appeals court in San Francisco reversed.
The plaintiffs stated a claim, Judge O’Scannlain ruled, because Chase failed to show that the credit agreement “made clear and conspicuous disclosure of the APRs that Chase was permitted to use.”
The judge defined “clear and conspicuous disclosures” as those “that a reasonable cardholder would notice and understand.”
“No particular kind of formatting is magical,” O’Scannlain wrote, “but, in this case, the document must have made it clear to a reasonable cardholder that Chase was permitted under the agreement to raise the APR not only for the events of default … but for any reason at all.”
Judge Graber dissented in part, saying Chase’s disclosures were not only unclear and inconspicuous, but also insufficient as a matter of law.
Graber disagreed with the majority’s conclusion that the disclosures, though unclear, were substantively adequate because Chase reserved the right to change the terms of the agreement.
“In other words, Chase can raise the Barrers’ APR for any reason, however bizarre or unexpected, without informing them that it intends to do so,” Graber explained. “For example, under the majority’s opinion, Chase has adequately disclosed that it had a preexisting plan to raise the Barrers’ APR to 50% if they dye their hair red.”