Post-Delinquency Interest Litigation
On January 27, in a case handled by the Firm, a federal district judge in San Francisco dismissed a class action with prejudice against a credit card issuer seeking damages for its practice of increasing credit
card interest rates when the cardholder defaults on his or her credit card or on another line of credit. Plaintiffs had asserted
a cause of action for violations of the federal Truth in Lending Act as well as numerous state law claims.
Judge Conti held TILA does not require a change-in-terms notice when the bank increases plaintiff’s interest rate because
her cardmember agreement had already disclosed that the rate may increase if the cardmember defaults either on her own line
with the issuer or on a credit line with any other lender. Hence, in the language of the official commentary to TILA, the
change in terms had been "set forth initially," and it wasn’t necessary for the bank to give notice of the specific amount
of the interest rate increase when it was later imposed. (Evansv.Chase Manhattan Bank USA, N.A., No. C-05-3968 SC (N.D. Cal. 2006).)
For more information, please contact Bob Stern at rstern@mofo.com.
Have Regulators Figured Out What to Do with Prepaid Cards?
Regulators continue to struggle with whether certain laws should apply to prepaid cards, such as Regulation E, Regulation
DD, the Federal Deposit Insurance Act and Section 326 of the USA PATRIOT Act.
Recently, the Federal Reserve Board released an interim final rule subjecting payroll cards to Regulation E. Comments are
due on March 13, 2006. While the interim final rule specifically deals with payroll cards, the Board has indicated that it
will continue to monitor the development of other card products, such as gift cards and travel cards, and may reconsider Regulation
E coverage as these products develop.
In addition, there are reports that the Treasury is considering proposing rules that would subject prepaid cards to anti-money
laundering rules.
For more information, please contact Obrea Poindexter at opoindexter@mofo.com.
Can You Not Send a Periodic Statement?
As part of the Board’s interim final rule on payroll cards, the Board has proposed an alternative for delivering information
on paper banking periodic statements. This alternative could serve as the basis for future rulemakings involving other products,
such as debit cards and credit cards. Thus, it would be a good idea for the financial services industry to focus on this
alternative and provide feedback to the Board.
For more information, please contact Obrea Poindexter at opoindexter@mofo.com.
