Credit where credit's not due? Consumer suit reinstated

Hauk v. JP Morgan Chase Bank USA, -- F.3d --, 2009 WL 153236 (9th Cir.)

Hauk opened a Chase credit card account in June 2003. In October 2004, Chase sent him a balance transfer offer with a 4.99% teaser APR for any transferred balances. The offer said Chase could impose an increased rate if Hauk made a late payment to Chase or any other creditors. Hauk transferred a $10,200 balance, and on his October statement, Chase gave him the promotional APR. But the next month, Chase applied a 28.74% APR, resulting in a $241.60 finance charge. Hauk called and Chase told him he lost eligibility because of a late payment he’d made to another creditor three months before he accepted Chase’s balance transfer offer. In July 2004, he’d made a final mortgage payment one day after the 30-day grace period, and the servicer HCF reported that his account was 30 days delinquent to Experian, a credit reporting agency.

Hauk sued for violation of TILA and California’s false advertising law. The court of appeals affirmed the dismissal of the TILA claims—Chase’s disclosure was adequate—but reversed on the state law claims.

Essentially, Hauk argued that it was misleading for Chase to offer him a teaser rate and then yank it based on facts it knew or should have known at the time it made the offer; indeed, Hauk argued that he could reasonably believe that only late payments made after accepting the offer would trigger the increased rate. Chase argued that it didn’t know about the July 2004 payment, but Hauk’s evidence about what Experian recorded, and about Chase’s use of Experian’s services in August and September 2004 before making him the offer, was sufficient to create a fact issue on that point.

Complying with TILA didn’t provide Chase a total safe harbor, only protection from a state-law suit based on allegations that Chase’s disclosure was insufficient. But the issue here was different: Hauk alleged that Chase took action at odds with the rules it had disclosed by imposing a higher APR based on Hauk’s pre-offer record. If Chase knew or should have known about Hauk’s earlier late payment before offering him the teaser rate, TILA would be no shield. And then Hauk might be able to show a violation of California law, because (1) assertion of a contractual right that doesn’t actually exist can be an unfair business practice, and (2) a reasonable consumer might have been deceived into thinking that Chase wouldn’t hike the rate based on a late payment it already knew about when offering the low rate.

On remand, the court of appeals noted, the district court might decline to exercise supplemental jurisdiction, because the federal claims were out of the case.