Alert March 24, 2009

Ninth Circuit Rules that TILA Requires Creditors to Give Contemporaneous Notice of Discretionary Interest Rate Increases

The Ninth Circuit recently interpreted the Truth in Lending Act and Regulation Z to require creditors to provide contemporaneous notice of discretionary interest rate increases to consumers. Plaintiff alleged that the creditor violated TILA by increasing his interest rate retroactively to the beginning of his payment cycle after his account was closed following a late payment. The Court held that including disclosures of possible interest rate increases in the Cardmember Agreement is not sufficient to meet TILA’s disclosure requirements. Thus, the Court concluded, upon default or delinquency, a creditor must notify the consumer of an interest rate increase contemporaneously with the change in interest rate and may not retroactively apply the interest rate even if the creditor previously disclosed both the potential rate increase and the highest rate that could apply. Click here for McCoy v. Chase Manhattan Bank, USA, N.A., 9th Cir. No. 06-56278 (Mar. 16, 2009).