Alert January 27, 2009

Federal Appeals Court Dismisses TILA Claim but Allows State Law Unfair Business Practices Claim on Theory That Intent to Act Inconsistently with TILA Disclosures Is Actionable

The Ninth Circuit held that a credit card issuer’s alleged intent to act inconsistently with its Truth in Lending Act disclosures does not state a claim under TILA, but does state a claim under California’s Unfair Competition Law and False Advertising Law. Plaintiff alleged that he was promised a preferred rate on a credit card balance transfer. He alleged that the bank’s disclosures and actions violated TILA and state law when the disclosures informed plaintiff that prior late payments would preclude his receiving the preferred rate, but where the bank was alleged to have known about plaintiff’s own late payments before extending the preferred rate offer. Disagreeing with the Third Circuit, the Court held that a creditor’s undisclosed intent to act inconsistently with its disclosures was irrelevant to the sufficiency of the disclosures and therefore not a basis for a TILA claim. The Court found that the same alleged undisclosed intent, however, could state a claim under the Unfair Competition Law and False Advertising Law and that the Unfair Competition Law’s safe harbor against liability for disclosures compliant with TILA does not extend to knowing disclosure violations. Click here for a copy of Hauk v. JP Morgan Chase Bank, N.A., No. 06-56846 (9th Cir. Jan. 23, 2009).