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In a ruling that is sure to make banks nationwide sit up and take notice, a federal appeals court has revived a consumer class action suit that accuses Fleet Bank of misleading customers by promising a “fixed” low interest rate on its credit cards and then raising the rate just one year later. In Roberts v. Fleet Bank, a unanimous three-judge panel of the 3rd U.S. Circuit Court of Appeals found that “Fleet’s solicitation materials could cause a reasonable consumer to be confused” about how long the low rate would last. The decision revives a claim under the Truth in Lending Act that was dismissed in June 2001 by Senior U.S. District Judge John P. Fullam. But Fleet also scored a significant victory because the court upheld the dismissal of a claim under the Rhode Island Unfair Trade Practices and Consumer Protection Act, finding that such a law does not apply to “activities and businesses which are subject to monitoring by state or federal regulatory bodies or officers.” The appellate court found that Fullam was right in holding that the UTPCPA claim was exempted because the Office of the Comptroller of the Currency — the primary regulator of national banks under the National Bank Act — has the power to regulate false and misleading advertising. In dismissing the TILA claim, Fullam had sided with Fleet’s lawyers — Burt M. Rublin and Alan S. Kaplinsky of Ballard Spahr Andrews & Ingersoll — who argued that the promise of a “fixed” rate was not false since the term “fixed” simply means that the interest rate is not “variable.” And the disclosures in Fleet’s credit agreement, the defense lawyers said, made it perfectly clear that the terms of the credit card, including the interest rate, could be changed “at any time.” On appeal, lawyers for Denise Roberts argued that Fleet’s initial solicitation letter was misleading because it promised that the 7.99 percent interest rate was “NOT an introductory rate” and that “it won’t go up in just a few short months.” The suit said the solicitation also stated that “with an extraordinary 7.99 percent fixed APR … the Fleet Titanium MasterCard goes beyond all expectations.” U.S. Circuit Judge Julio M. Fuentes found that the flier included with the solicitation letter strongly emphasized the 7.99 percent rate and listed only two specific circumstances under which that rate could change — if the cardholder failed to meet any repayment requirements or upon closure of the account. But when the consumer received the card, Fuentes found, it came with a “cardholder agreement” that said: “We have the right to change any of the terms of this agreement at any time.” Fleet later sent Roberts a letter notifying her that it would be increasing the rate to 10.5 percent. The higher rate took effect 13 months after Roberts had received her card. Fuentes found that Congress amended TILA in 1988 because it “determined that consumers were being inundated with credit card solicitations that failed to disclose basic cost information about the cards being promoted.” Prior to the passage of the Fair Credit and Charge Card Disclosure Act, Fuentes said, TILA did not require issuers to provide such information until the consumer actually received the card. “Congress decided that demanding early disclosure of relevant cost information from credit card companies would enable consumers to shop around for the best cards,” Fuentes wrote. Now under TILA, a credit card provider must disclose certain information in “direct mail applications and solicitations,” including annual percentage rates. Plaintiffs’ attorney Ira Neil Richards of Trujillo Rodriguez & Richards argued that Fleet’s solicitation letter violated TILA because it failed to “clearly and conspicuously” inform consumers that the 7.99 percent rate was subject to change at any time. Since the flier listed two conditions that could cause the rate to change, Richards argued that consumers would assume that only those conditions could result in a rate increase. But Fleet’s lawyers argued that it had adequately disclosed all of the necessary information in the solicitation letter and that federal regulations prevent it from including a “change in terms” provision. Fuentes disagreed, saying, “The issue is not Fleet’s obligation to disclose the change-in-terms provision but its obligation to disclose the APR.” Although TILA regulates only the language of a bank’s formal disclosure statement, Fuentes found that courts can also look at other statements made in the solicitation. “When Congress decided to require credit card issuers to disclose required terms in a clear and conspicuous manner, we doubt that it intended for us to ignore other statements made by those issuers in their credit card solicitation materials,” Fuentes wrote. Fuentes found that Fleet’s use of the term “fixed” and its statements that the 7.99 percent rate was “NOT an introductory offer” and “won’t go up in just a few short months” added to the confusion. Such statements, Fuentes found, “could cause a reasonable consumer to be confused about the temporal quality of the offer.” Fleet argued that the invitation letter also stated that the terms were “subject to change” and therefore made it clear that the 7.99 percent rate was not permanent. Fuentes disagreed, saying, “Read in conjunction with information contained in the [disclosure statement] right below it, that statement could lead a consumer to conclude that the rates are subject to change only for the two reasons outlined.” The more explicit announcement in the cardholder agreement that said the terms of the credit card, including the interest rate, could be changed “at any time” didn’t cure the problem, Fuentes found. “Fleet only mails the cardholder agreement after a consumer has accepted the invitation,” Fuentes wrote. “Thus, a consumer will not learn, until after the acceptance of the invitation, that the APR can be changed by Fleet at any time. Indeed, Fleet’s practice of mailing the cardholder agreement containing important rate change information, after the consumer accepts the card, is contrary to the TILA mandate that credit card solicitations disclose all required information,” Fuentes wrote. Fuentes was joined by 3rd Circuit Judge Samuel A. Alito Jr. and visiting Senior U.S. District Judge Louis F. Oberdorfer of the District of Columbia. Richards was joined on the brief by Gary M. Goldstein of Trujillo Rodriguez & Richards; Roberta D. Liebenberg and Mary L. Russell of Fine Kaplan & Black; and Marc H. Edelson of Hoffman & Edelson in Doylestown, Pa.

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