OPINION AND ORDER
O'TOOLE, District Judge.
Jessica Shaner opened a credit card account with Chase Bank, USA, N.A. ("Chase"), in 2001. The terms of the account were governed by a Cardmember Agreement. Chase reserved the right to amend the terms from time to time, and it did so with respect to Shaner's account once in 2004. As amended, the Cardmember Agreement specified the circumstances that would permit Chase to deem the account in default and further provided:
(2004 Change-in-Terms Notice 5.)
In December 2005, Chase deemed Shaner's account to be in default and increased the interest rates applicable to the account effective as of the beginning of that month's billing cycle.
(First Am. Compl. ¶ 5.)
Congress enacted TILA to "assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices." 15 U.S.C. § 1601(a). While the statute itself does not expressly address when and how notice of changes in terms must be given, implementing regulations adopted by the Federal Reserve Board do. The Board's Regulation Z provides:
12 C.F.R. § 226.9(c)(1).
From the last sentence of the excerpt just quoted, it would seem that Chase would be required to notify Shaner not later than the effective date of the change, viz., the beginning of the monthly billing cycle, that her interest rates were being increased because of her delinquency or default, rather than almost at the end of the cycle, when she received her statement and learned of the retroactive change. This would seem to be confirmed by Comment 3 to § 226.9(c)(1), which states:
Id. § 226.9(c)(1), cmt. 3.
But another comment to the same section of Regulation Z casts some doubt on the question. Comment 1 to § 226.9(c)(1) describes circumstances where no notice of a change in terms is necessary, whether 15 days in advance or as late as the effective date of the change:
Id. § 226.9(c), cmt. 1. Chase interprets Comment 1 to excuse notice of a change in interest rates where the Cardmember Agreement provides that the rates may be increased up to the maximum APR upon default or delinquency by the cardholder, arguing that such a change is a "specific" one "set forth initially," just like an adjustment in rates "under a properly disclosed variable-rate plan."
While Comment 1 does say that no notice is required when the "specific change is set forth initially," it excludes from that no-notice exception contract provisions (presumably, even those "set forth initially") that allow "the creditor to increase the rate at its discretion but does not include specific terms for an increase (for example, when an increase may occur under the creditor's contract reservation right to increase the periodic rate)." That sort of provision seems to be at issue here. Under the Cardmember Agreement, Chase retains the discretion whether to increase rates upon default or delinquency, as well as how much to raise them. It is a little difficult to see how this latitudinarian reservation qualifies as "specific terms for an increase." Shaner's Cardmember Agreement only gives notice of the possibility of such non-specific discretionary changes. The penultimate sentence of the paragraph quoted above would seem rather plainly to require notice of an actual change.
Moreover, even if Comment 1 could be read to apply generally to the provision at issue here, there would still occur the separate question of why Comment 1 should prevail in preference to Comment 3 when
All that said, however, it must be acknowledged that the courts that have considered the question have generally agreed with Chase. See Swanson v. Bank of Am., N.A., 566 F.Supp.2d 821, 2008 WL 2738083, at *3-5 (N.D.Ill.2008); McCoy v. Chase Manhattan Bank USA, SACV 06-107-JVS (C.D.Cal. Aug. 10, 2006) (order granting defendant's motion to dismiss); Penner v. Chase Bank U.S.A., N.A., No. C06-5092-FDB, 2006 WL 2192435, at * 1 (W.D.Wash. Aug. 1, 2006); Evans v. Chase Manhattan Bank USA, N.A., No. C-05-3968-SC, 2006 WL 213740, at * 1 (N.D.Cal. Jan. 27, 2006), affirmed Evans v. Chase Bank USA, N.A., No. 06-15212, 2008 WL 467801 (9th Cir. Feb. 22, 2008). These courts have held that because the Cardmember Agreement provides notice to the card holder that "`the default rate will take effect as of the first day of the billing cycle in which the default occurs, and will apply to purchase balance from the previous billing cycle for which periodic finance charges have not been already billed,'" Evans, 2006 WL 213740, at *2 (quoting the Cardmember Agreement), Comment 1 is germane and no notice of the change prior to its implementation is necessary.
This resolution does not seem to take sufficient account of Comment 3's specific reference to changes as a result of a card holder's delinquency or default, and so, if there were nothing else, I would be inclined to take a different view. But there is something else. The staff of the Board seems itself to agree with the interpretation argued by Chase and adopted by these courts.
Comments 1 and 3 are part of the staffs commentary to Regulation Z. The staff commentary is "the vehicle by which the staff of the Division of Consumer and Community Affairs of the Federal Reserve Board issues official staff interpretations of Regulation Z." 12 C.F.R. pt. 226, supp. I. Interpretations of the regulations by the Board and its staff are due respect, because "Congress has specifically designated the Federal Reserve Board and staff as the primary source for interpretation and application of truth-in-lending law." Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 566, 100 S.Ct. 790, 63 L.Ed.2d 22 (1980). There has been "an unmistakable congressional decision to treat administrative rulemaking and interpretation under TILA as authoritative." Id. at 567-68, 100 S.Ct. 790; see also Anderson Bros. Ford v. Valencia, 452 U.S. 205, 219, 101 S.Ct. 2266, 68 L.Ed.2d 783 (1981) ("[A]bsent some obvious repugnance to the statute, the Board's regulation implementing this legislation [TILA] should be accepted by the courts, as should the Board's interpretation of its own regulation.").
The ambiguity that is at the heart of the present controversy has led consumer advocates and others to seek a clarification of the mixed signals seemingly being sent by the staff Comments 1 and 3. As a result the Board has initiated a proposed rulemaking to address the matter. In an "Advance Notice of Proposed Rulemaking" ("ANPR") published in 2004, the staff made the following pertinent statements:
69 Fed.Reg. 70925, 70831-32 (Dec. 8, 2004) (emphasis added).
After considering the responses received, the Board has recently proposed adding an entirely new subsection to § 226.9 of Regulation Z
Id. at 33009 (emphasis added).
It is evident from these summaries that the staff to the Board regards the Chase practice complained of by Shaner—giving her the first notice of the rate increase in the periodic statement for the cycle—to be permitted under existing regulations. I accede to that interpretation and adopt it, even though, for the reasons set out above, it is not the only permissible
Shaner's Chapter 93A claim is based on the putative violation of TILA. See Barnes v. Fleet Nat'l Bank, N.A., 370 F.3d 164, 175-76 (1st Cir.2004) (under Massachusetts state regulations, a violation of federal consumer protection statutes is a per se violation of 93A). Her Chapter 93A claim thus fails as the TILA claim fails.
Finally, Shaner claims that the retroactive assessment of interest as of the beginning of the billing period, though the default has occurred later than that, amounts to a "penalty" that is unlawful under the common law. Chase argues that the National Bank Act ("NBA") preempts this state cause of action and, in turn, that the practice does not violate the NBA.
Under the NBA, "[a]ny association may take, receive, reserve, and charge on any loan or discount made, or upon any notes, bills of exchange, or other evidences of debt, interest at the rate allowed by the laws of the State, Territory, or District where the bank is located." 12 U.S.C. § 85. Specifically, under § 85 a national bank can charge an interest rate in a foreign State higher than the laws of that State may permit, so long as if it is authorized to do so by the laws of the State in which it is located. Marquette Nat'l Bank of Minn. v. First of Omaha Serv. Corp., 439 U.S. 299, 307, 99 S.Ct. 540, 58 L.Ed.2d 534 (1978). Chase is incorporated—and thus, "located"—in Delaware, and as long as Delaware law would allow the interest charged, it cannot be made unlawful, as a "penalty" or otherwise, by the law of another State. Shaner acknowledges as much, but argues that Delaware law does not authorize a change in the interest rate unless it is "in accordance with a schedule or formula" specified in the agreement, which she argues is absent in her case.
DEL.CODE ANN. tit. 5, § 944. This section expressly authorizes Chase's practice. First, § 944 permits Chase to impose a higher interest rate in the case of defaulting cardholders, and the higher interest rate may "be made applicable to all or any part of outstanding unpaid indebtedness under the plan on or after the first day of the billing cycle that contains the effective
Second, as to whether there is an "adequate schedule or formula," the express text of the Delaware statute again answers this question in Chase's favor. Section 944 provides that "a permissible schedule or formula hereunder may include provision in the agreement governing the plan for a change in the periodic percentage rate or rates of interest applicable to all or any part of outstanding unpaid indebtedness. . . contingent upon the happening of any event or circumstance specified in the plan, which event or circumstance may include the failure of the borrower to perform in accordance with the terms of the plan." Id. The Cardmember Agreement does exactly that; it expressly permits a change in the interest rate in the event of "the failure of the borrower to perform in accordance with the terms of the plan," i.e., default. (2004 Change-in-Terms Notice 5); see also Evans, 2006 WL 213740, at *3 n. 6 ("The statute declares that a permissible formula or schedule can be based on the occurrence or non-occurrence of an event or circumstance described in the agreement, such as we see in the Cardmember Agreement."); McCoy, Order at 7 (adopting the Evans' court's analysis); Lowman v. MBNA Am. Bank, N.A., No. 05-75001 ER, at 2 (C.D.Cal. Feb. 17, 2006) (order granting in part and denying in part MBNA's motion to dismiss) ("Delaware law provides no relief for allegedly unconscionable interest rates that are specifically authorized by the Delaware Banking Act."); Penner, 2006 WL 2192435, at *4 (finding that the Cardmember Agreement "complied with" the statutory requirements of § 944).
Since the practice is lawful in the State where Chase is located, the NBA prevents it from being made unlawful in any other State. The common law "penalty" claim fails as well.
For all the foregoing reasons, the defendant's motion to dismiss (dkt. no. 18) is GRANTED in its entirety. The action is DISMISSED.
It is SO ORDERED.