U.S. Supreme Court to consider credit card notification

Interest Rate

Notifications of increases in interest rates are at issue in front of the Supreme Court. Image: Flickr / epicharmus / CC-BY

The U.S. Supreme court has announced that it will consider a case involving credit cards. McCoy v. Chase Manhattan Bank, USA, will be heard by the Supreme Court during its next session, which begins in October. The case is a class-action suit that alleges credit card companies cannot retroactively increase the interest rate on a card without notification. Chase bank claims that because the increase is in the initial cardholder agreement, the rate increase did come with notification.

The case of the credit card holder

In McCoy v. Chase Manhattan Bank, James A. McCoy is claiming that Chase Manhattan violated the law when it raised his credit card interest rate. McCoy was late with his payment on the credit card, and Chase retroactively increased his interest rate on all transactions for the month. Though McCoy had agreed to this interest rate increase when signing the cardholder agreement, the bank did not notify him before the rate increase went into effect. McCoy claims that this modification was illegal under the new Truth in Lending Act.

The case of the credit card issuer

Chase Manhattan Bank, who appealed this case to the Supreme Court, claims the company complied with the Truth in Lending Act. The TILA does require that these short term lenders deliver written notice of changes in the interest rates on cards. Chase bank points to one provision that excepts items previously agreed to in the cardholder agreement. In short, the debate comes down to the “natural” interpretation of the Truth in Lending Act provision versus the ambiguity of the language in the law.

Late payments on credit cards

The initial event that led to the McCoy v. Chase Manhattan Bank case was, in the end, in response to a late payment on a credit card. The Truth in Lending Act aims to make the unsecured loan companies that offer credit cards more transparent in what they are charging consumers. Many Americans are relying on credit cards and short term loans to make ends meet. The agreements for these credit cards are often very extensive and difficult to understand. So what do you think: Should credit card companies be required to notify the card holders of every change they have already agreed to, or is the responsibility to read the agreement on the cardholder?