Rubio v. Capital One Bank

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

RAQUEL RUBIO, on behalf of 
herself and all others similarly No. 08-56544
situated, D.C. No.
Plaintiff-Appellant,
 2:07-cv-06766-
v. ABC-CW
CAPITAL ONE BANK, OPINION
Defendant-Appellee.

Appeal from the United States District Court
for the Central District of California
Audrey B. Collins, Chief District Judge, Presiding

Argued and Submitted
February 3, 2010—Pasadena, California

Filed July 21, 2010

Before: Betty B. Fletcher, Harry Pregerson, and
Susan P. Graber, Circuit Judges.

Opinion by Judge B. Fletcher;
Partial Concurrence and Partial Dissent by Judge Graber

10385
 RUBIO v. CAPITAL ONE BANK 10389
COUNSEL

Behram V. Parekh (argued) and Joshua A. Fields, Kirtland &
Packard LLP, El Segundo, California, for the plaintiff-
appellant.

James F. McCabe (argued), Nancy R. Thomas, and Michelle
N. Comeau, Morrison & Foerster LLP, San Francisco, Cali-
fornia, for the defendant-appellee.

OPINION

B. FLETCHER, Circuit Judge:

This appeal arises from a direct-mail credit card solicitation
that Plaintiff Raquel Rubio received from Defendant Capital
One Bank. The solicitation disclosed a “fixed” annual per-
centage rate of 6.99% on purchases and balance transfers and
named three conditions under which that rate could increase.
About three and a half years after Rubio applied for and
received Capital One’s credit card, the interest rate on pur-
chases and balance transfers increased to 15.9%, even though
none of the three triggering conditions occurred. Rubio filed
suit, alleging violations of the Truth in Lending Act (TILA),
the California Unfair Competition Law (UCL), and a breach
of contract. The district court dismissed each of these claims
under Federal Rule of Civil Procedure 12(b)(6), and Rubio
appealed. We reverse in part, affirm in part, and remand.

I

Rubio’s First Amended Complaint alleged that in or about
February 2004, she received a credit card solicitation in the
mail from Capital One, informing Rubio in an opening letter
that she had “been pre-selected . . . for a Capital One Platinum
MasterCard featuring a low 6.99% fixed APR on balance
10390 RUBIO v. CAPITAL ONE BANK
transfers and purchases.” In the solicitation’s so-called
“Schumer Box,” a table required by federal law, the credit
card’s APR for purchases was described as a “fixed rate of
6.99%,” with the words in ten-point type and the number
printed in large, bold type. Next to the Schumer Box’s promi-
nent heading, “ANNUAL PERCENTAGE RATE (APR) for
purchases,” was an asterisk linked to a paragraph printed just
below the Schumer Box. That paragraph stated in ten-point
type:

All your Annual Percentage Rates (APRs) are sub-
ject to increase if any of the following conditions
(“Conditions”) occur: (i) you fail to make a payment
to us when due; (ii) your account is overlimit; (iii) or
your payment is returned for any reason. All APRs
will change with the beginning of the billing period
after the period in which the condition occurred. The
first time any of the Conditions occur [sic], your pur-
chase and special transfer APRs (if applicable) may
be increased to a rate of 12.9% ANNUAL PER-
CENTAGE RATE (0.03534% daily periodic rate).
If any of the Conditions occur [sic] twice within any
6-month period, all of your APRs may be increased
to a rate of 25.9% ANNUAL PERCENTAGE
RATE (0.07096% daily periodic rate).

Outside the Schumer Box, but farther down on the same
page, there was a heading that read “Terms of Offer.” Under
that heading, printed in eight-point type, the solicitation pro-
vided, as part of the terms: “I will receive the Capital One
Customer Agreement and am bound by its terms and future
revisions thereof. My Agreement terms (for example, rates
and fees) are subject to change.”

Rubio applied for the Capital One MasterCard, and
received it, along with a Cardholder Agreement, in March
2004. In the Agreement, Capital One reserved the right to
“amend or change any part of your Agreement, including
 RUBIO v. CAPITAL ONE BANK 10391
periodic rates and other charges, or add or remove require-
ments . . . at any time.”

According to the First Amended Complaint, the Capital
One MasterCard provided Rubio with a 6.99% APR on all
balance transfers and purchases from March 2004 to August
2007. Rubio never submitted a late payment, exceeded her
credit limit, or had her payment returned. On August 3, 2007,
however, Rubio received written notification from Capital
One that her APR of 6.99% would increase to 15.9%. Rubio
could avoid the increase only by closing her credit card
account and paying off the balance on the card by September
11, 2007. Neither of Rubio’s two Complaints alleges whether
Rubio chose to retain or to close her account.

Rubio’s First Amended Complaint included claims for
breach of contract and violation of the UCL, and attached the
Capital One MasterCard solicitation as an exhibit. After brief-
ing, the district court dismissed the breach of contract claim.

Rubio then filed a Second Amended Complaint that made
very slight changes in factual allegations and added a TILA
claim to the existing UCL claim. Like the First Amended
Complaint, it attached Capital One’s solicitation as an exhibit.
Capital One moved to dismiss Rubio’s TILA and UCL
claims, and the district court granted the motion.

In reviewing de novo the district court’s Rule 12(b)(6) dis-
missal, we, like the district court, consider the credit card
solicitation, see Parks Sch. of Bus., Inc. v. Symington, 51 F.3d
1480, 1484 (9th Cir. 1995), as well as the Cardholder Agree-
ment, which Capital One submitted but “whose contents are
alleged in [the] complaint and whose authenticity no party
questions,” Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir.
1994), overruled on other grounds by Galbraith v. County of
Santa Clara, 307 F.3d 1119 (9th Cir. 2002).
10392 RUBIO v. CAPITAL ONE BANK
II

A

[1] Direct-mail credit card solicitations are among the
credit disclosures that TILA regulates. TILA requires that all
such solicitations disclose, among other information, “[e]ach
annual percentage rate applicable to extensions of credit
under” the credit card agreement. 15 U.S.C.
§ 1637(c)(1)(A)(i)(I) (2006). This APR disclosure must be
made “clearly and conspicuously,” id. § 1632(a), and “in the
form of a table,” id. § 1632(c)(2)(A). This table is popularly
called the “Schumer Box.”

[2] TILA also delegates to the Federal Reserve Board of
Governors the duty to implement TILA’s disclosure require-
ments. Id. § 1604(a). Under that delegation, the Board has
promulgated “Regulation Z,” 12 C.F.R. pt. 226 (2009), to
which provisions we defer unless “demonstrably irrational.”
Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 565
(1980). To implement TILA’s mandate that a Schumer Box
disclose credit card APRs, Regulation Z requires a Schumer
Box to disclose “[e]ach periodic rate that may be used to com-
pute the finance charge on an outstanding balance . . . ,
expressed as an annual percentage rate.” 12 C.F.R.
§ 226.5a(b)(1). Regulation Z provides that this APR disclo-
sure, like other credit-card disclosures, must “reflect the terms
of the legal obligation between” creditor and consumer. Id.
§ 226.5(c).

In applying TILA and its implementing regulations, we “re-
quire absolute compliance by creditors,” Hauk v. JP Morgan
Chase Bank USA, 552 F.3d 1114, 1118 (9th Cir. 2009), and
“[e]ven technical or minor violations of the TILA impose lia-
bility on the creditor,” Jackson v. Grant, 890 F.2d 118, 120
(9th Cir. 1989).
 RUBIO v. CAPITAL ONE BANK 10393
B

In her only unwaived TILA claim, Rubio contends that the
Schumer Box in Capital One’s solicitation misleadingly dis-
closed the APRs that could be charged under the Cardholder
Agreement. According to Rubio, by describing the APR as
“fixed” at 6.99% and listing only three conditions under
which the APR could be changed, the Schumer Box misled
her into believing that 6.99% rate could increase only if one
of the three specified events occurred. In doing so, Rubio
argues, Capital One’s disclosure did not accurately reflect the
terms of the Cardholder Agreement, which reserved the right
to change the 6.99% rate for any reason at all.

1

Capital One first argues that its disclosure was literally true,
because the 6.99% rate could change under any of the three
events in the paragraph linked by asterisk to the Schumer
Box. It relies on our decision in Hauk, which it interprets to
reject the notion “that TILA prohibits ‘not only literal falsi-
ties, but also misleading statements.’ ” 552 F.3d at 1121
(quoting Rossman v. Fleet Bank (R.I.) N.A., 280 F.3d 384, 391
(3d Cir. 2002)). We disagree with this reading of Hauk.

By parting ways from the “Third Circuit’s expansive read-
ing of Regulation Z,” id., Hauk did not condone misleading
disclosures. It simply rejected the argument that TILA liabil-
ity could be based on disclosures that were misleading about
anything at all — what it called “ ‘misleading’ in the
abstract.” Id. It did not hold that a creditor was allowed to
mislead consumers about information that TILA specifically
requires be disclosed. Hauk held that a creditor does not vio-
late TILA merely by offering a promotional APR to a con-
sumer who the creditor knows is ineligible for the
promotional APR, as long as the conditions for imposing the
higher nonpromotional APR are properly disclosed. An unde-
clared intent to impose the higher APR is not included in the
10394 RUBIO v. CAPITAL ONE BANK
information TILA and Regulation Z require to be disclosed.
See id. at 1120-22.

[3] By contrast, TILA and Regulation Z do require a
Schumer Box to disclose credit card APRs. 15 U.S.C.
§ 1637(c)(1)(A)(i)(I); 12 C.F.R. § 226.5a(b)(1). This disclo-
sure must be clear and conspicuous, 15 U.S.C. § 1632(a); 12
C.F.R. § 226.5(a)(1), which, for purposes of credit card solici-
tations, is defined in the official staff commentary to Regula-
tion Z as “in a reasonably understandable form and readily
noticeable to the consumer.” 12 C.F.R. pt. 226 supp. I, para.
5a(a)(2), cmt. 1; see also Barrer v. Chase Bank USA, N.A.,
566 F.3d 883, 887 & n.4 (9th Cir. 2009) (noting that the offi-
cial staff commentary is owed deference). Thus, Regulation Z
prohibits a Schumer Box from making “misleading” APR dis-
closures, where “misleading” means a disclosure that a rea-
sonable consumer will either not understand or not readily
notice. See Barrer, 566 F.3d at 892 (adopting “reasonable
cardholder” standard). Put differently, an APR disclosure that
is not “clear and conspicuous” is ipso facto “misleading.”

2

The Schumer Box and the paragraph linked to it by an
asterisk described the APR as “fixed” and listed only three
events under which the APR could increase. We conclude that
Capital One cannot show that, as a matter of law, this disclo-
sure is clear and conspicuous.

a

Although clarity and conspicuousness is a question of law,
see Barrer, 566 F.3d at 892; Rossman, 280 F.3d at 395,
empirical evidence is helpful in determining what a reason-
able consumer will understand and readily notice. Fortu-
nately, evidence on how a reasonable consumer will
understand the term “fixed rate” is available from the Federal
Reserve Board of Governors, the very agency tasked with
 RUBIO v. CAPITAL ONE BANK 10395
implementing TILA. The Board has relied on that evidence in
promulgating a new regulation that generally prohibits credi-
tors from using the term “fixed.” See United States v. Woods,
335 F.3d 993, 1001 (9th Cir. 2003) (noting that under 44
U.S.C. § 1507, the Federal Register must be judicially
noticed). Where such persuasive and directly relevant evi-
dence is available, armchair empiricism is comparatively
unhelpful in determining how a reasonable consumer will
read a solicitation.

In 2006, the Board retained a research firm to conduct con-
sumer testing and design improved credit card disclosures
based on the results of the testing. See Macro Int’l Inc.,
Design and Testing of Effective Truth in Lending Disclosures
1 (2007), available at http://www.federalreserve.gov/dcca/
regulationz/20070523/ Execsummary.pdf. The firm prepared
model credit card disclosures and conducted several rounds of
interviews of credit cardholders. Those recruited to participate
in the study were intended to represent the full range of demo-
graphic characteristics and financial experience in the card-
holding public. Id. at 4, 17; see also id. app. A.

In the early rounds of interviews, the study found that “par-
ticipants frequently assume that a rate that is labeled ‘fixed’
cannot be changed for any reason.” Id. at 33; see also id. at
10 (“When asked to define what a ‘fixed’ rate was, most par-
ticipants said that it was a rate that would not change.”); id.
at 30 (“When asked what it meant if a rate was labeled
‘fixed,’ most participants responded that these rates would not
change for any reason.”). So pervasive was this assumption
that the term “fixed” was “removed from models in later
rounds.” Id. at 33.

[4] Based on this research as well as later research by the
same firm, the Federal Reserve Board promulgated revisions
to Regulation Z that became effective July 1, 2010. See Truth
in Lending, 74 Fed. Reg. 5244, 5246-48 (Jan. 29, 2009).
10396 RUBIO v. CAPITAL ONE BANK
Based on the research, the revisions specify that in the
Schumer Box’s APR disclosure,

the term fixed, or a similar term, may not be used to
describe [the annual percentage] rate unless the cred-
itor also specifies a time period that the rate will be
fixed and the rate will not increase during that
period, or if no such time period is provided, the rate
will not increase while the plan is open.

Id. at 5401 (to be codified at 12 C.F.R. § 226.5(a)(2)(iii)).
Under this regulation, a creditor may do what Capital One did
— describe an APR as “fixed,” without specifying a period
during which the APR will remain the same — only if the rate
is unchangeable for the life of the card. In explaining the reg-
ulation, the Board categorized the term “fixed” as
“[m]isleading” and stated that it had “found through consumer
testing . . . that consumers generally believe a ‘fixed’ rate
does not change . . . . [A]lthough creditors often use the term
‘fixed’ to describe an APR that is not tied to an index, con-
sumers do not understand the term in this manner.”1 Id. at
5372-73 (cited by id. at 5272).

[5] The new regulation did not become effective until after
the events giving rise to this litigation, and thus does not bind
us. The form of Regulation Z that governs this case, however,
does prohibit disclosures that a reasonable consumer will not
understand. 12 C.F.R. pt. 226 supp. I, para. 5a(a)(2), cmt. 1.
The new regulation was adopted because the agency that
1
In explaining why its new regulation generally prohibits the word
“fixed” in a Schumer Box, the Board refers the reader to its “decision with
respect to use of the term ‘fixed’ . . . in an advertisement.” 74 Fed. Reg.
at 5272. That decision restricts the use of “fixed” in an advertisement,
classifying it as a “misleading term.” See id. at 5372.
The “index” the Board refers to in its new regulation is a publicly avail-
able measure of the cost of funds (for example, the federal funds rate). See
Consumers Union of U.S., Inc. v. Fed. Reserve Bd., 938 F.2d 266, 267-68
(D.C. Cir. 1991).
 RUBIO v. CAPITAL ONE BANK 10397
implements TILA, relying on empirical evidence, concluded
that describing an APR as “fixed” is misleading to reasonable
consumers. What was misleading in 2006 and 2007, when the
consumer studies were conducted, was also misleading in
2004, when Rubio received Capital One’s solicitation. The
new regulation and the empirical studies it relies on are there-
fore relevant and informative for this case. For “even where
not binding,” an agency’s interpretation of a statute “certainly
may influence courts facing questions the agenc[y] ha[s]
already answered.” Tualatin Valley Builders Supply, Inc. v.
United States, 522 F.3d 937, 941 (9th Cir. 2008) (citation and
quotation marks omitted).

[6] Here, the Board has concluded that “fixed” is “general-
ly” interpreted to mean that the rate will not be changed and
that the creditor has not reserved the right to change it at a
later date. 74 Fed. Reg. at 5373. We need not go so far as to
decide how “fixed” is generally interpreted. But the Board’s
conclusion and the study on which it relies certainly persuade
us that “fixed” can reasonably be interpreted to mean “un-
changeable.” For that reason, it is not “clear and conspicuous”
to describe an APR as “fixed” when the creditor has reserved
the right to change the APR for any reason.

Our decision does not make the Board’s new regulation
retroactive. The Board promulgated its new regulation
because, after surveying consumers, it concluded “fixed” was
misleading. That is why the new regulation is relevant and
helpful: TILA has always prohibited misleading APR disclo-
sures. Our holding is simply a concrete application of that
prohibition.

It is argued that this appeal should be remanded for factual
development because “fixed” can also reasonably be inter-
preted to mean “not tied to an index.” See Concurrence and
Dissent at 10409-10. But it is precisely because reasonable
consumers can interpret an ambiguous disclosure in more than
one way that such a disclosure cannot be clear and conspicu-
10398 RUBIO v. CAPITAL ONE BANK
ous. See, e.g., Lifanda v. Elmhurst Dodge, Inc., 237 F.3d 803,
808 (7th Cir. 2001). Furthermore, because TILA is liberally
construed in favor of the consumer and strictly enforced
against the creditor, Jackson, 890 F.2d at 120, any misleading
ambiguity — any disclosure that a reasonable person could
read to mean something that is not accurate — “should be
resolved in favor of the consumer.” Rossman, 280 F.3d at
394.

As a final argument that the term “fixed” cannot be mis-
leading, Capital One also relies on the official staff commen-
tary to Regulation Z, which appears to use “fixed” to mean
“not tied to an index” rather than “unchangeable.” See 12
C.F.R. pt. 226 supp. I, para. 5a(b)(1), cmt. 5. We find this
contention unpersuasive. The staff commentary to Regulation
Z is intended to guide regulated firms and the courts. See id.
pt. 226 supp. I, intro. cmt. 1. There is nothing in the staff
commentary to indicate that its internal use of “variable” and
“fixed” defines how a reasonable consumer would interpret
the words. As the Board has concluded, the best evidence on
that question comes from the consumer studies indicating that
many reasonable consumers do interpret the term “fixed” as
“unchangeable.”

b

[7] Capital One, however, argues that it cleared up any
misunderstanding the term “fixed” may have produced by
explicitly listing three conditions under which the APR could
change and by adding the statement, “[m]y Agreement terms
(for example, rates and fees) are subject to change.” We do
not agree that this statement made Capital One’s disclosure
clear and conspicuous as a matter of law.

In the minds of a significant number of consumers, the term
“fixed” means “unchangeable.” When reading Capital One’s
Schumer Box against that meaning, reasonable consumers
could conclude that the APR was “unchangeable” except for
 RUBIO v. CAPITAL ONE BANK 10399
the three exceptions. They could conclude that Capital One
explicitly mentioned the three conditions precisely because
they were the only reasons that the APR could change. Our
analysis on this point comports with the Third Circuit’s deci-
sion in Roberts v. Fleet Bank (R.I.), N.A., 342 F.3d 260, 266-
67 (3d Cir. 2003).

[8] Unlike the three triggering conditions, the statement,
“[m]y Agreement terms (for example, rates and fees) are sub-
ject to change,” was placed outside the Schumer Box and was
not linked to it by asterisk. We assume for the sake of argu-
ment that in deciding whether a Schumer Box disclosure was
clear and conspicuous, we can take into account statements
outside the Schumer Box and not linked to it by an asterisk.2
Even under this assumption, Capital One’s argument fails.
There was nothing in the statement, “[m]y Agreement terms
. . . are subject to change,” to indicate that the APR was “sub-
ject to change” for reasons other than the three reasons the
Schumer Box discloses. A reasonable consumer, having con-
cluded from reading the Schumer Box that the APR could
change only for the three reasons expressly enumerated, could
have interpreted the outside-the-Box statement to mean that
the APR was “subject to change” exclusively for those three
reasons. In so holding, we again follow the Third Circuit.
Roberts, 342 F.3d at 268.

[9] At issue in this case is not Capital One’s “obligation to
disclose the change-in-terms provision, but its obligation to
disclose the APR” clearly and conspicuously. Id. at 267.
Rubio has stated a TILA claim not because Capital One failed
2
TILA and Regulation Z do not merely require that a solicitation dis-
close each APR that may be used to compute a credit card’s finance
charge. See 15 U.S.C. § 1637(c)(1)(A)(i); 12 C.F.R. § 226.5a(b)(1). They
also require that this disclosure be “in the form of a table,” that is, dis-
closed by means of the Schumer Box. 15 U.S.C. § 1632(c)(2)(A); 12
C.F.R. § 226.5a(a)(2)(i). Allowing disclosures made outside the Box to
cure a Schumer Box’s unclear or inconspicuous APR disclosure would
seem to allow creditors to evade the tabular requirement.
10400 RUBIO v. CAPITAL ONE BANK
to disclose its unqualified right to change the terms of the
Cardholder Agreement, but rather because Capital One has
failed to show as a matter of law that it made its APR disclo-
sure “in a reasonably understandable form and readily notice-
able to the consumer.” 12 C.F.R. pt. 226 supp. I, para.
5a(a)(2), cmt. 1. We therefore reverse the district court’s dis-
missal of Rubio’s TILA claim.

III

Rubio alleges that Capital One’s solicitation also violated
the UCL, which prohibits “unfair competition,” defined as
“any unlawful, unfair or fraudulent business act or practice
and unfair, deceptive, untrue or misleading advertising.” Cal.
Bus. & Prof. Code § 17200 (West 2008). A business act or
practice may violate the UCL if it is either “unlawful,” “un-
fair,” or “fraudulent.” Each of these three adjectives captures
“a separate and distinct theory of liability.” Kearns v. Ford
Motor Co., 567 F.3d 1120, 1127 (9th Cir. 2009) (citing S. Bay
Chevrolet v. Gen. Motors Acceptance Corp., 85 Cal. Rptr. 2d
301, 316 (Ct. App. 1999)). According to Rubio, the solicita-
tion she received violated the UCL under all of these theories
of liability. Capital One responds that Rubio lacks standing to
assert a UCL claim, and even if she had standing, her claim
fails on its merits.

A

[10] To assert a UCL claim, a private plaintiff needs to
have “suffered injury in fact and . . . lost money or property
as a result of the unfair competition.” Cal. Bus. & Prof. Code
§ 17204. This provision requires Rubio to show that she has
lost “money or property” sufficient to constitute an “injury in
fact” under Article III of the Constitution,3 see Birdsong v.
3
Standing under the UCL requires a particular kind of injury in fact —
loss of “money or property.” See Troyk v. Farmers Group, Inc., 90 Cal.
Rptr. 3d 589, 625 n.31 (Ct. App. 2009). By contrast, Rubio has standing
to bring her TILA claim simply because she “suffered the loss of a statu-
tory right to disclosure.” DeMando v. Morris, 206 F.3d 1300, 1303 (9th
Cir. 2000).
 RUBIO v. CAPITAL ONE BANK 10401
Apple, Inc., 590 F.3d 955, 959-60 (9th Cir. 2009), and also
requires a “causal connection” between Capital One’s alleged
UCL violation and her injury in fact, Hall v. Time Inc., 70
Cal. Rptr. 3d 466, 471-72 (Ct. App. 2008).

Rubio has alleged a loss of money or property. When Capi-
tal One increased the APR from 6.99% to 15.9%, it gave
Rubio a choice either to close the account and pay off the out-
standing balance, or to keep the account open and accept the
increased APR. Rubio does not allege which choice she
accepted, though either would cause a loss of money or prop-
erty. If she closed the account, she would have suffered a
monetary loss by losing the credit that Capital One extended.
White v. Trans Union, LLC, 462 F. Supp. 2d 1079, 1084 (C.D.
Cal. 2006) (ruling that damage to credit was loss of money or
property). If she kept her account open, she would have
accepted a higher APR and thus also lost money. See Troyk
v. Farmers Group, Inc., 90 Cal. Rptr. 3d 589, 624-25 (Ct.
App. 2009) (holding that payment of extra money as a result
of the defendant’s action was sufficient for standing). This
“actual economic injury” is enough to create standing under
the UCL. Aron v. U-Haul Co. of Cal., 49 Cal. Rptr. 3d 555,
559 (Ct. App. 2006); cf. Birdsong, 590 F.3d at 961 (holding
that hypothetical injury was insufficient for standing).

Rubio has also alleged a causal connection between Capital
One’s solicitation and the Hobson’s choice she faced.
Because Rubio alleges that she entered into a credit card
agreement with Capital One due to the solicitation’s promise
of a “fixed” APR, the choice she faced in August 2007, when
she learned of the APR increase, was “a result of” Capital
One’s alleged UCL violation.

B

Rubio has standing to assert her UCL claim. We now con-
sider the merits of the claim under the “unlawful,” “fraudu-
lent,” and “unfair” prongs of the UCL.
10402 RUBIO v. CAPITAL ONE BANK
[11] By properly alleging a TILA violation, Rubio has also
alleged a UCL violation under the prong of the UCL that pro-
hibits “unlawful” business acts or practices. See Velazquez v.
GMAC Mortgage Corp., 605 F. Supp. 2d 1049, 1068 (C.D.
Cal. 2008); Troyk, 90 Cal. Rptr. 3d at 614.

[12] Rubio has also alleged a violation of the “fraudulent”
prong of the UCL. As in TILA, this prong of the UCL is
“governed by the reasonable consumer test”: a plaintiff may
demonstrate a violation by “show[ing] that [reasonable] mem-
bers of the public are likely to be deceived.” Williams v. Ger-
ber Prods. Co., 552 F.3d 934, 938 (9th Cir. 2008) (citations
and quotation marks omitted). This deception need not be
intended. See In re Tobacco II Cases, 207 P.3d 20, 29 (Cal.
2009). As we have explained above, a reasonable consumer
was indeed likely to be deceived by Capital One’s solicitation.

[13] Finally, Rubio has stated a claim under UCL’s “un-
fair” prong. California appellate courts disagree on how to
define an “unfair” act or practice in the context of a UCL con-
sumer action. See generally Lozano v. AT&T Wireless Servs.,
Inc., 504 F.3d 718, 735-36 (9th Cir. 2007). Under the balanc-
ing test to which some courts adhere, Rubio may be able to
prove facts showing that “the harm to the consumer” from
Capital One’s solicitation outweighed the solicitation’s “utili-
ty.” Id. at 735. She may, for example, be able to show that
removing the term “fixed,” an action that would have cost
Capital One nothing, could have prevented consumer confu-
sion. Under the alternative test, which requires a plaintiff to
show that a practice violates public policy as declared by
“specific constitutional, statutory or regulatory provisions,”
Gregory v. Albertson’s, Inc., 128 Cal. Rptr. 2d 389, 395 (Ct.
App. 2002), Rubio has stated a claim by successfully alleging
a TILA violation.

We therefore reverse the district court’s dismissal of
Rubio’s UCL claim.
 RUBIO v. CAPITAL ONE BANK 10403
IV

The district court also dismissed Rubio’s claim for breach
of contract. She alleges that by stating that the credit card’s
APR was “fixed” at 6.99%, but later increasing the APR to
15.9%, Capital One breached its contract with her. Rubio’s
legal theory is that Capital One’s solicitation was an offer and
her application an acceptance.

[14] Rubio has not stated a breach-of-contract claim.
Under California law, which according to Rubio controls, a
binding offer “is the manifestation of willingness to enter into
a bargain, so made as to justify another person in understand-
ing that his assent to that bargain is invited and will conclude
it.” Donovan v. RRL Corp., 27 P.3d 702, 709 (Cal. 2001)
(emphasis added, citation and quotation marks omitted).
There is a binding offer only if it is reasonable to conclude,
based on “all the surrounding circumstances,” that acceptance
will leave nothing further to negotiate or do before the con-
tract is effective. Id.

[15] It would have been unreasonable to believe that Capi-
tal One’s solicitation was a binding contractual offer. As the
district court noted, the solicitation was generally described as
an “invitation” or “application,” and it listed a number of con-
tingencies under which her application could be rejected. The
solicitation did include a heading entitled “TERMS OF
OFFER,” but the language of that section made it clear that
sending in the application, by itself, did not consummate the
contract: “I hereby apply to Capital One Bank . . . for a credit
card account. . . . I will receive the Capital One Customer
Agreement and am bound by its terms and future revisions
thereof.” In Lopez v. Charles Schwab & Co., the plaintiff had
filled out an application form to open an account, which con-
tained the similar statement, “I hereby request that [Schwab]
open a brokerage account . . . . I agree to read and be bound
by the terms of the applicable Account Agreement.” 13 Cal.
Rptr. 3d 544, 549 (Ct. App. 2004). The court of appeal con-
10404 RUBIO v. CAPITAL ONE BANK
cluded that “[t]his language . . . indicates Lopez did not
expect that filling out the application would conclude her bar-
gain with Schwab . . . .” Id. The solicitation and application
do not constitute an enforceable contract. The language in
Capital One’s solicitation is indistinguishable in all relevant
aspects from the language in Lopez and did not constitute a
binding offer.

Rubio also argues that the Cardholder Agreement was
unconscionable. Under California law, however, unconsciona-
bility is an affirmative defense, Dean Witter Reynolds, Inc. v.
Superior Court, 259 Cal. Rptr. 789, 794 (Ct. App. 1989), not
a cause of action, Cal. Grocers Ass’n v. Bank of Am., 27 Cal.
Rptr. 2d 396, 403-04 (Ct. App. 1994). Rubio as plaintiff can-
not assert unconscionability as an independent claim for
relief. We affirm the district court’s dismissal of Rubio’s
claim for breach of contract.

V

We affirm the district court’s dismissal of Rubio’s breach-
of-contract claim but reverse its dismissal of her claims under
TILA and the UCL. We remand for further proceedings con-
sistent with this opinion. The parties shall bear their own
costs.

REVERSED IN PART, AFFIRMED IN PART, AND
REMANDED.

GRABER, Circuit Judge, concurring in part and dissenting in
part:

I respectfully concur in part1 and dissent in part.
1
I agree with the majority that the solicitation did not constitute an offer.
Plaintiff argues that California law governs the parties’ agreement. But
 RUBIO v. CAPITAL ONE BANK 10405
The district court dismissed this case on the pleadings, rea-
soning that the required disclosure sufficed as a matter of law.
The majority holds that the disclosure is inadequate as a mat-
ter of law. In my view, the clarity of the disclosure should be
considered an issue of fact for the trier of fact. While a finder
of fact could conclude, as the majority does, that the disclo-
sure was unclear, for the reasons explained below I think that
a finder of fact also could conclude that the disclosure was
clear.

Defendant Capital One Bank told Plaintiff Raquel Rubio
that she could apply for a credit card at “a fixed rate of
6.99%.” Approximately three and a half years after Plaintiff
obtained a Capital One credit card carrying the 6.99% rate,
Defendant raised the annual percentage rate (“APR”) to
15.9%. Defendant increased the APR because market interest
rates had risen, rather than because of any irregularities in
Plaintiff’s payments or her use of the account. Was there a
clear and conspicuous disclosure of the potential for raising
the APR, for the purposes of the Truth In Lending Act
(“TILA”), when the solicitation advertised “a fixed rate of
6.99%” but stated on the same page that the rates and fees
were “subject to change”? In my view, there was.

even under California law, “[a]n offer is the manifestation of willingness
to enter into a bargain, so made as to justify another person in understand-
ing that his assent to that bargain is invited and will conclude it.” Donovan
v. RRL Corp., 27 P.3d 702, 709 (Cal. 2001) (emphasis added) (internal
quotation marks omitted). Here, the solicitation made it clear that sending
in the application did not, by itself, consummate the agreement. The solici-
tation listed a number of contingencies under which Plaintiff’s application
could be rejected. See Lopez v. Charles Schwab & Co., 13 Cal. Rptr. 3d
544 (Ct. App. 2004) (holding that an application containing the statement,
“I hereby request that [the defendant] open a brokerage account,” did not
create an enforceable contract).
In addition, because I too would hold that Plaintiff has stated a TILA
claim—although I would decline to hold that the disclosure is clear as a
matter of law—I agree with the majority that the district court erred by
dismissing the California unfair competition claim.
10406 RUBIO v. CAPITAL ONE BANK
In 2004, Defendant mailed Plaintiff a solicitation to open
a credit card account. The solicitation began:

YOU HAVE BEEN PRE-SELECTED FOR THIS
OFFER FOR A CAPITAL ONE PLATINUM
MASTERCARD FEATURING A LOW 6.99%
FIXED APR ON BALANCE TRANSFERS AND
PURCHASES, A CREDIT LINE UP TO $20,000*
AND NO ANNUAL MEMBERSHIP FEE. THIS IS
NOT AN INTRODUCTORY RATE!

The solicitation repeatedly referred to the 6.99% APR as
“fixed.” The “Schumer box,” an informative table required by
federal regulations, described the “ANNUAL PERCENT-
AGE RATE (APR) for purchases*” as “A fixed rate of
6.99%.” The asterisk directed the reader lower on the page,
where the solicitation stated:

*All your Annual Percentage Rates (APRs) are sub-
ject to increase if any of the following conditions
(“Conditions”) occur: (i) you fail to make a payment
to us when due; (ii) your account is overlimit; (iii) or
your payment is returned for any reason. All APRs
will change with the beginning of the billing period
after the period in which the condition occurred. The
first time any of the Conditions occur, your purchase
and special transfer APRs (if applicable) may be
increased to a rate of 12.9% ANNUAL PERCENT-
AGE RATE (0.03534% daily periodic rate). If any
of the Conditions occur twice within any 6-month
period, all of your APRs may be increased to a rate
of 25.9% ANNUAL PERCENTAGE RATE
(0.07096% daily periodic rate).

Farther down on the same page, the “TERMS OF OFFER”
included this provision: “I will receive the Capital One Cus-
tomer Agreement and am bound by its terms and future revi-
 RUBIO v. CAPITAL ONE BANK 10407
sions thereof. My Agreement terms (for example, rates and
fees) are subject to change.”

Plaintiff responded to the credit card solicitation and, in
March 2004, she received a cardholder agreement from
Defendant. The agreement similarly provided that Defendant
reserved the right to “amend or change any part of your
Agreement, including periodic rates and other charges, or add
or remove requirements . . . at any time.” In August 2007,
Defendant mailed Plaintiff a notification that the APR on her
credit card was about to increase to 15.9% unless she halted
her use of the card and made no further charges on it. The
notice explained the change in the future lending rate as sim-
ply a response to changing market interest rates. “In light of
rising interest rates over the past few years and the rate cur-
rently applied to your account balance, the APRs on your
account are about to increase.”

We have construed TILA and Regulation Z to prohibit dis-
closures that are either inconspicuous or opaque to a reason-
able consumer. “Clear and conspicuous disclosures . . . are
disclosures that a reasonable cardholder would notice and
understand.” Barrer v. Chase Bank USA, N.A., 566 F.3d 883,
892 (9th Cir. 2009) (emphasis added). Our inquiry is not
whether additional disclosure would be useful to consumers
but, rather, whether the disclosures that were made complied
with the requirements of TILA and Regulation Z. Hauk v. JP
Morgan Chase Bank USA, 552 F.3d 1114, 1121 (9th Cir.
2009).

In other words, here, is the disclosure accurate and clear?2
In my view, a reasonable trier of fact could find that it is.
2
Plaintiff’s brief does not argue that the disclosure is inconspicuous. In
Barrer, we held that a disclosure was not conspicuous when “the change-
in-terms provision appear[ed] . . . five dense pages after the disclosure of
the APR” and was “neither referenced in nor clearly related to the
‘Finance Terms’ section.” 566 F.3d at 892. Here, the APR disclosure and
the general reservation of rights appear on the same page, in a legible font.
A reasonable consumer would have noticed them; they are conspicuous.
10408 RUBIO v. CAPITAL ONE BANK
The term “fixed” accurately describes an interest rate that
is not linked to an external index and is not designed to expire
or reset automatically at any particular point in time. The
commentary to Regulation Z distinguishes between a “fixed-
rate account” and a “variable-rate account.” See 12 C.F.R. pt.
226 supp. I, para. 5a(b)(1), cmt. 5 (contrasting disclosures
required for the different types of accounts). A “variable-rate
account” is one in which “rate changes are part of the plan
and are tied to an index or formula.” Id. at cmt. 2. By implica-
tion, then, a fixed-rate account is one that does not share those
characteristics. The account advertised by Defendant here did
not feature rate changes tied to an index or formula as a part
of the credit plan. That is, it was a fixed-rate account. The dis-
closure was accurate in describing the rate as “fixed.”

Nor did Defendant’s general reservation of rights—the pro-
vision stating that rates and fees were subject to change—
transform the accurate term “fixed” into an inaccurate disclo-
sure. 12 C.F.R. pt. 226, supp. I, para. 6(a)(2), cmt. 2. The
account still did not involve pre-planned rate changes, even
if Defendant retained the right to adjust the rate later in
response to general market conditions.3 The disclosure was
accurate.

The crux of this dispute, then, is the clarity of the disclo-
sure. Would a reasonable consumer understand that Defen-
dant may alter the “fixed” APR because market conditions
change? In my view, this should be a question of fact. More-
over, I conclude that a fact-finder reasonably could find that
the answer to the question is “yes” because, on the same page
as the statement of the 6.99% fixed rate, the solicitation
3
The general reservation clause was permissible and need not have
explained that Defendant might change the APR if market conditions
changed. The commentary to Regulation Z anticipates that credit agree-
ments may contain a general reservation clause. 12 C.F.R. pt. 226, supp.
I, para. 6(a)(2), cmt. 2. And adequate disclosure under Regulation Z does
not require that creditors must “specify the general circumstances under
which they anticipate[ ] changing terms.” Barrer, 566 F.3d at 891 n.9.
 RUBIO v. CAPITAL ONE BANK 10409
informed the consumer that “Agreement terms (for example,
rates and fees) are subject to change.” That is to say, a fact-
finder permissibly could find that a reasonable consumer
would understand from the disclosure here that the “fixed”
APR might go up or down in the future.

An average consumer might well understand that a “fixed”
rate on a credit card does not mean that the rate is “perma-
nent” or “forever” when the issuer expressly and simulta-
neously reserves its right to “change” its “rates” later.
Reasonable consumers know that interest rates fluctuate—
sometimes dramatically—over time; no reasonable consumer
expects that short-term borrowing rates will remain static for-
ever. Reasonable consumers might well understand that, as
market conditions change, the APR available from a credit
card company that has explicitly reserved its right to adjust
rates prospectively may change as well.4

Plaintiff contends that a reasonable consumer, even if
aware that the fixed rate was not guaranteed permanently,
would be confused by the solicitation’s list of three conditions
that would trigger a higher APR. Plaintiff argues that the cus-
tomer reasonably might think that those three conditions are
the only ones that permit a rate increase. A reasonable trier of
fact could find this argument unpersuasive.
4
Indeed, when Defendant formerly sought to entice customers to open
an account with precisely that “forever” feature, it described the credit in
very different terms. Fifteen years ago, Defendant advertised a card with
a “Lifetime APR” and told consumers that they would “receive a low
fixed APR of 10.9%—for life!” DeMando v. Morris, 206 F.3d 1300,
1301-02 (9th Cir. 2000) (emphasis omitted). The solicitation trumpeted:
“You will keep this low fixed rate as long as your account remains in good
standing. . . . [Y]ou will never have to shop for another credit card again!”
Id. at 1302. By contrast, the solicitation at issue here lacks any reference
to keeping the advertised interest rate “for life” or for the consumer’s
“lifetime,” nor does it promise that the rate will stay the same “as long as”
the account remains in good standing.
10410 RUBIO v. CAPITAL ONE BANK
First, the statement that the APR is “subject to change if
any of the following conditions (‘Conditions’) occur” notably
lacks a qualifying term such as “only,” “exclusively,” or
“solely.” An average consumer might well understand the dif-
ference between saying that her rate will increase if she
misses a payment and saying that her rate will increase only
if she misses a payment.

But more importantly, a reasonable consumer would not
necessarily believe that a “fixed APR” on a credit card whose
issuer has reserved its right to change rates is a promise to
keep the same interest rate forever so long as the cardholder
behaves well. The warning that specific undesirable acts by
the cardholder will lead to a higher interest rate does not nec-
essarily suggest that the account will otherwise be shielded
from global economic conditions.

What, then, should the result be when the majority’s pro-
posed understanding of the disclosure’s clarity is not the only
reasonable understanding? In my view, the better answer to
that question is to remand the case for fact-finding.

There seems to be a circuit split regarding the question
whether the clarity of a disclosure is a question of law or fact.
The Seventh Circuit holds that this is a question of law.
Hamm v. Ameriquest Mortgage Co., 506 F.3d 525, 529 (7th
Cir. 2007).5 By contrast, the Third Circuit, in a case on which
5
Although we have held that conspicuousness of a TILA disclosure is
a question of law, Am. Gen. Fin., Inc. v. Bassett (In re Bassett), 285 F.3d
882, 885 (9th Cir. 2002), we have not addressed how to treat the clarity
of a disclosure. The reasons why we treat conspicuousness as a question
of law do not compel us to treat clarity similarly. In In re Bassett, we bor-
rowed the definition of conspicuousness from the Uniform Commercial
Code (“UCC”). Id. at 884. The UCC expressly provides that conspicuous-
ness is a decision for the court. U.C.C. § 1-201(b)(10). I am aware of no
comparable UCC provision regarding clarity. We also explained in In re
Bassett that “subjecting conspicuousness to fact-finding would introduce
too much uncertainty into the drafting process.” 285 F.3d at 885. Whether
 RUBIO v. CAPITAL ONE BANK 10411
the majority relies heavily in other respects, appears to treat
the clarity of a disclosure as a question of fact.6

In Roberts v. Fleet Bank (R.I.) National Ass’n, 342 F.3d
260, 263 (3d Cir. 2003), a consumer received a solicitation
advertising a “7.99% Fixed APR,” which stated that the APR
was “NOT an introductory rate” and that “[i]t won’t go up in
just a few short months.” There, the issuer raised the card-
holder’s rate after 13 months. Id. at 264. As in this case, the
Roberts solicitation listed two specific circumstances in which
the fixed rate would increase—failure to meet payment
requirements and closure of the account—and neither of those
events had occurred. Id. at 263-64.

In Roberts, the Third Circuit “recognize[d] that a fixed rate
is not necessarily permanent.” Id. at 268 n.3. But it held that
the solicitation could lead a reasonable consumer to be “con-
fused about the temporal quality of the offer” and to conclude
that rates “are subject to change only for the two reasons out-
lined.” Id. at 268. As a result, the court held “that a question
of fact exists as to whether Fleet made any misleading state-
ments in the mailing” and whether it failed to disclose infor-
mation clearly, as TILA requires. Id. at 269 (emphasis added).

The majority’s reliance on evidence outside the pleadings

or not it is actually true that a court’s determination regarding conspicu-
ousness is more predictable than a fact-finder’s, it is manifestly not true
with respect to clarity. The assessment of a reasonable consumer’s under-
standing of a disclosure would be more accurate—and hence more
predictable—if made by an informed fact-finder than if made by a court
in the abstract.
6
In Rossman v. Fleet Bank (R.I.) National Ass’n, 280 F.3d 384, 394-95
(3d Cir. 2002), the Third Circuit implicitly treated the accuracy of a dis-
closure as a question of law. But the court did not discuss that issue, and
it is not clear whether the court held that the disclosure was inaccurate
because, in that record, no issue of fact existed or, instead, because the
issue is always one of law.
10412 RUBIO v. CAPITAL ONE BANK
underscores the appropriateness of fact-finding in a case such
as this. The majority relies on the results of research done two
years after Defendant sent the solicitation at issue here. The
evidence on which the majority relies consists of an executive
summary of three rounds of interviews with a total of 25 indi-
viduals who were shown mock credit card solicitations. See
Macro Int’l Inc., Design and Testing of Effective Truth in
Lending Disclosures, app. A, tbl. 1 (2007), available at http://
www.federalreserve.gov/dcca/regulationz/0523/summary.pdf
[hereinafter Executive Summary] (showing that researchers
interviewed nine consumers in Baltimore, nine in Kansas
City, and seven in Denver). This small sample of consumers
was not intended to be—and was not—representative of the
card-holding public, even though the majority is correct that
it was intended to represent the range of those consumers.7 Id.
at 17, app. A. The executive summary does not reveal how
many of the consumers in two rounds of the interviews misin-
terpreted the term “fixed” as used in the experimental solicita-
tions. Compare id. at 22 (stating that six participants in
Kansas City misunderstood the term), with id. at 10, 30 (stat-
ing that “most participants” in Baltimore and in Denver mis-
understood the term). Thus, the majority accepts what may be
7
A representative sample is one in which the frequency or distribution
of some trait corresponds to that trait’s frequency or distribution in the
population being sampled. See McGraw-Hill Dictionary of Scientific and
Technical Terms 1789 (6th ed. 2002) (defining “representative sample” as
“[a] sample whose characteristics reflect those of the population from
which it is drawn”). To illustrate the distinction, consider that a represen-
tative sample of college students would contain primarily individuals
between 18 and 30 years of age, because most college students are young
adults. By contrast, a sample that represented the range of college students
might be made up of a precocious fourteen-year-old, a conventional
nineteen-year-old, and an energetic senior citizen. Research on the former,
representative sample would predict more accurately the behavior of col-
lege students because fourteen-year-olds and senior citizens are relatively
uncommon among college students.
 RUBIO v. CAPITAL ONE BANK 10413
as few as 15 unrepresentative consumers as “persuasive.”
Maj. op. at 10395. I am dubious of that assessment.8

Furthermore, I am concerned by such heavy reliance on
evidence that has bypassed the adversarial process. No party
mentioned this research in briefing or at oral argument. Con-
sequently, we are entirely ignorant of whether there are other
flaws in the study that Defendant might bring to our attention
if it had the opportunity to do so. Nor do we know if other
research has yielded countervailing results.

Nothing in the former regulations suggested that the agency
deemed the term “fixed” to be misleading. The researchers
initially included it in their experimental solicitations, and
none of the “key research questions” listed in the executive
summary suggests that these experts suspected that the term
would be misunderstood. Executive Summary at 2-3. In fact,
even the researchers seem to have been surprised by their
results regarding the term: they were slower to remove the
term from subsequent rounds of interviews than they were to
act on some of their other findings. The researchers continued
to use the term “fixed” for three rounds of interviews, id. at
iii, while they made several other changes to the experimental
solicitations after the first and second rounds of interviews, id.
at 14, 26-27.

In summary, a reasonable trier of fact could find that
Defendant’s solicitation accurately, conspicuously, and
clearly disclosed the terms of its credit card account. What
happens in an insurance bad-faith case (to take just one exam-
ple) when the pleadings (or summary judgment documents)
8
My discomfort is not assuaged by the fact that the Federal Reserve
Board of Governors later cited this research to justify regulating use of the
term “fixed.” 74 Fed. Reg. 5244, 5272, 5372-73 (Jan. 29, 2009). The evi-
dence that underlies a minor prospective change need not always be as
persuasive as that required to hold a credit card company liable for its past
actions.
10414 RUBIO v. CAPITAL ONE BANK
allow a reasonable trier of fact to find either bad faith or good
faith denial of coverage? The case proceeds to trial. The same
is true for unfair trade practices, medical negligence, punitive
damages, and nearly every other kind of claim—that is,
whether or not the claim is statutory, and whether or not it
involves assessing someone’s state of mind.

In most areas of law, then, when reasonable minds can dif-
fer about a factual conclusion, an appellate court does not
substitute itself for a finder of fact. I would apply the usual
rule to the question of clarity of a TILA disclosure. I would,
therefore, hold that the pleading is sufficient to state a claim
but that issues of fact remain for resolution on remand.