Shaner v. Chase Bank USA, N.A.

United States Court of Appeals
For the First Circuit

No. 09-1157

JESSICA SHANER,
ON BEHALF OF HERSELF AND OTHERS SIMILARLY SITUATED,

Plaintiff, Appellant,

v.

CHASE BANK USA, N.A.,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. George A. O'Toole, Jr., U.S. District Judge]

Before
Torruella, Boudin and Dyk,*
Circuit Judges.

Barry L. Kramer with whom Law Offices of Barry L. Kramer,
David Pastor and Gilman and Pastor LLP were on brief for appellant.
Robert S. Stern with whom Nancy R. Thomas and Morrison &
Foerster LLP were on brief for appellee.
The Honorable Richard S. Gebelein, Chief Deputy Attorney
General, and Jennifer D. Oliva, Deputy State Solicitor, Delaware
Department of Justice, on brief for Robert A. Glen, Delaware State
Bank Commissioner, amicus curiae.

November 25, 2009

*
Of the Federal Circuit, sitting by designation.
 BOUDIN, Circuit Judge. This is an appeal from the

dismissal of a class action relating to interest rate charges on

bank credit cards. The named plaintiff is Jessica Shaner, a

Massachusetts resident, who has or had a consumer credit account

with defendant Chase Bank USA, N.A. ("Chase"), a national banking

association with its principal place of business in Delaware.

Shaner, like other holders of bank credit cards, pays monthly an

interest charge on the balance in her account that remains unpaid

after an initial period. The charge is calculated using a rate

known as an Annual Percentage Rate ("APR").

Chase's credit card agreement with its customers

expressly allows it to increase the APR for cardholders who fail to

perform one of the obligations created by their card agreement (for

example, fail to make a required payment on time). The current

dispute revolves around Chase's attendant policy of applying,

without prior notice, such a rate increase as of the start of the

month in which the default occurs. Shaner's card agreement stated

that in the event of a late payment Chase "may increase the APRs .

. . on all balances up to a maximum of the default rate stated in

the Rates and Fees Table"1 and that the new rate "will take effect

as of the first day of the billing cycle in which the default

occurs."

1
The Rates and Fees Table is not contained in this case's
record, but neither party disputes that it governed the card
agreement and specified a maximum default rate.

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 On two occasions in late 2005 and late 2006, Chase

increased Shaner's APR as a result of a default and applied the APR

increase as of the start of that billing cycle in accordance with

the card agreement, without notifying Shaner of the increase until

after the first day to which the increase was applied. For

example, when Chase determined around December 24, 2006, to

increase Shaner's APR due to late payment on a pending balance, it

applied the rate increase to Shaner's balances for the duration of

the month-long billing cycle that began on November 25, 2006.

Shaner's notice of the rate increase arrived, after the billing

cycle ended, in the form of a note on her billing statement that

declared, "The new APR and promotional rate expiration reflected on

this statement is a result of a late payment on your account."

Shaner filed a class action against Chase in

Massachusetts Superior Court, which Chase later removed to federal

district court. The class assertedly included all persons with

Massachusetts billing addresses on their Chase consumer credit card

accounts for which interest rates on outstanding balances were

retroactively increased "without warning or advance notice" from

July 30, 2003, onward. Shaner's complaint did not dispute that

"retroactive" adjustments were consistent with the language of the

credit card agreement; rather, the complaint alleged that it was

unlawful for Chase to so provide, primarily based on a reading of

Federal Reserve Board regulations.

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 Specifically, Shaner's complaint, amended in the federal

court, had three counts: the first accused Chase of violating the

Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601 et seq. (2006), by

failing to provide notice of a rate increase on or before the

effective date of the increase; the second accused Chase of

"Imposing and Enforcing an Illegal Penalty" by imposing

"retroactive rate increases" that were not a reasonable estimate of

the damages Chase incurred due to Shaner's default; and the third

alleged that Chase's rate increases were unfair or deceptive

practices in violation of Massachusetts law, Mass. Gen. Laws ch.

93A, § 2 (2009).

On Chase's motion to dismiss, the district court sided

with Chase. Shaner v. Chase Bank, USA, N.A., 570 F. Supp. 2d 195

(D. Mass. 2008). It concluded that the Federal Reserve Board's

TILA regulations, as read by the Board itself, did not require

Chase to provide advance notice when it made end-of-month

adjustments apply from the start of the month where the agreement

so permitted. The district court decided the Massachusetts Chapter

93A claim rested on the TILA regulations and fell with the TILA

claim. Finally, it found that Delaware law expressly authorized

Chase's "retroactive" rate increases and thus the illegal penalty

claim failed under Delaware law and was preempted--via the National

Bank Act--if based on the law of any other state.

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 Shaner now appeals from the adverse judgment, primarily

but not exclusively based on the TILA claim. Recent revisions to

TILA and its notice regulations--tightening disclosure restrictions

on the banks--may resolve the TILA question as to future

transactions in favor of borrowers like Shaner, but the new statute

and regulations by their terms did not take effect until August

2009 and Shaner does not claim that the new restrictions apply to

transactions, such as hers, that occurred prior to the new

statute.2 We review the district court's grant of the motion to

dismiss de novo, accepting as true the factual allegations Shaner

pleaded in her complaint. Cook v. Gates, 528 F.3d 42, 48 (1st Cir.

2008), cert. denied sub nom. Pietrangelo v. Gates, 129 S. Ct. 2763

(2009).

Nothing in TILA's express language prior to its 2009

revision forbade Chase from adjusting the interest rate as it did

in this case, but the statute gave the Board power to promulgate

regulations governing credit cards, 15 U.S.C. § 1604(a), and the

issue of whether notice is required for a rate increase under these

circumstances--governed by the Board's pre-amendment regulations--

is a close one that has already divided two circuits. Compare

2
Credit Card Accountability Responsibility and Disclosure Act
of 2009, Pub. L. No. 111-24, sec. 101(a), § 127(i), 123 Stat. 1734,
1735-36 (to be codified at 15 U.S.C. § 1637(i)); 74 Fed. Reg. 5244,
5414-15 (Jan. 29, 2009) (to be codified at 12 C.F.R. § 226.9(g));
74 Fed. Reg. 36,077, 36,077-78, 36,095-96 (July 22, 2009) (to be
codified at 12 C.F.R. § 226.9(g)).

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McCoy v. Chase Manhattan Bank, USA, N.A., 559 F.3d 963 (9th Cir.

2009), with Swanson v. Bank of America, N.A., 559 F.3d 653 (7th

Cir. 2009), reh'g & reh'g en banc denied with opinion, 563 F.3d 634

(7th Cir. 2009). Accordingly, we asked the Board for its views on

its own pre-amendment regulations and it has submitted them through

an amicus brief.

Two subsections of the TILA regulations are of

importance. Section 226.9(c)(1) and section 226.9(c)(2), 12 C.F.R.

§ 226.9(c)(1), (2) (2003)--as they stood at the time of Shaner's

transactions--state (emphasis added):

(c) Change in terms--(1) Written notice
required. Whenever any term required to be
disclosed under § 226.6 is changed . . . the
creditor shall mail or deliver written notice
of the change to each consumer who may be
affected. The notice shall be mailed or
delivered at least 15 days prior to the
effective date of the change. The 15-day
timing requirement does not apply if the
change has been agreed to by the consumer, or
if a periodic rate or other finance charge is
increased because of the consumer's
delinquency or default; the notice shall be
given, however, before the effective date of
the change.
(2) Notice not required. No notice under this
section is required when the change involves
late payment charges, charges for documentary
evidence, or over-the-limit charges; a
reduction of any component of a finance or
other charge; suspension of future credit
privileges or termination of an account or
plan; or when the change results from an
agreement involving a court proceeding, or
from the consumer's default or delinquency
(other than an increase in the periodic rate
or other finance charge).

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 Because Shaner's periodic rate was increased due to her

default in paying late, she claims that section 226.9(c)(1)'s last

sentence requires Chase to give notice, although not 15 days'

advance notice, on or before the effective date (that is, the first

day to which the increase was applied). Shaner argues that this

reading is reinforced by the final parenthetical of section

226.9(c)(2), which says no notice is required for changes that

"result[] from . . . the consumer’s default or delinquency (other

than an increase in the periodic rate or other finance charge)."

Chase reads the language differently. Pointing out that

section 226.9(c)(1) governs a "change in terms," it argues that

Chase has not changed and has merely implemented the terms of

Shaner's credit card agreement; the agreement has always provided

that on default a higher rate could be imposed by Chase in its

discretion up to a stated maximum, so no term has been changed

merely because Shaner has defaulted and her rate has gone up.

Section 226.9(c)(2) refers only to "the change" but, read together

with section 226.9(c)(1), also seems to be referring to a "[c]hange

in terms," a subsection heading that embraces both subsections.

Whether section 226.9(c)'s use of "change" in its two

subsections refers to a change in the APR being charged due to

default even when the agreement pre-authorizes the particular

change under specific circumstances--this is Shaner's position--or

only to a change in the contractual terms themselves--Chase's

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position--is less than self-evident. The ambiguity persists in the

Federal Reserve Board's Official Staff Commentary--specifically,

two comments known as comment 1 and comment 3, 12 C.F.R. pt. 226,

Supp. I, § 226.9(c)-1 at 409 (2003); id. pt. 226, Supp. I, §

226.9(c)(1)-3 at 410. Comment 3 appears somewhat helpful to Shaner

(emphasis added):

3. Timing--advance notice not required.
Advance notice of 15 days is not necessary--
that is, a notice of change in terms is
required, but it may be mailed or delivered as
late as the effective date of the change . . .
[i]f there is an increased periodic rate or
any other finance charge attributable to the
consumer's delinquency or default.

But Chase points to comment 1, which states (emphasis added):

1. Changes initially disclosed. No notice of
a change in terms need be given if the
specific change is set forth initially, such
as: Rate increases under a properly disclosed
variable-rate plan, a rate increase that
occurs when an employee has been under a
preferential rate agreement and terminates
employment, or an increase that occurs when
the consumer has been under an agreement to
maintain a certain balance in a savings
account in order to keep a particular rate and
the account balance falls below the specified
minimum. In contrast, notice must be given if
the contract allows 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).

The language of comment 1 could be taken as a gloss

reflecting a coherent underlying policy, namely, that later changes

in payment variables (such as the APR), if provided for and

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triggered by events spelled out in the contract itself, need not be

the subject of separate notice because the borrower already knows

of the risk and consequences. Admittedly, comment 1's final

sentence excludes changes that remain within the bank's discretion

(as in this case), but only where "the contract . . . does not

include specific terms for an increase"; and "specific terms" are

colorably provided by the maximum default rate and the list of

events constituting default that are incorporated in Shaner's

contract with Chase.

As between a comment 1 perhaps slightly favorable to

Chase and a comment 3 that might seem helpful to Shaner, there is

a structural reason to emphasize the former, namely, that--as Chase

argues and the Federal Reserve Board agrees--comment 3 merely

describes when notice must be given where it is otherwise required,

whereas comment 1 explains whether changes specified in advance

constitute changes in terms necessitating notice. See Swanson, 563

F.3d at 635-36; McCoy, 559 F.3d at 976 (Cudahy, J., dissenting).

Of course, policy reasoning here is double-edged: yes,

the contract explicitly warns of the risk and adverse consequences;

but a regulator, appreciating TILA's overall concern with consumer

awareness of credit cost, could decide that further notice of the

change in rate is warranted before it goes into effect. A purpose

of TILA is to promote the "informed use of credit," which TILA

explicitly says results from "an awareness of the cost thereof by

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consumers . . . so that the consumer will be able to compare more

readily the various credit terms available to him." 15 U.S.C. §

1601(a).

How consumer-protective to be is a judgment call, and in

its new regulations the Board has adopted a more protective

approach on a number of points including those before us.3 But the

new regulations are prospective and the Board's amicus brief--which

we acknowledge with appreciation--confirms that the prior version

favors the bank; the brief clearly states, "It is the Board's

position that at the time of the transactions at issue in this

case, Regulation Z did not require a change-in-terms notice to be

provided when a creditor increased a rate to a figure at or below

the maximum allowed by the contract in the event of default."

The Board's brief is not a litigating position supported

only by attorneys; it was solicited to supply the Board's view of

its own regulations and as such it is entitled to due respect as

the agency's "fair and considered judgment on the matter in

question," Auer v. Robbins, 519 U.S. 452, 462 (1997), which happens

3
In the process of adopting the new regulations, the Board
issued several Federal Register notices that the parties in this
case dispute as to their meaning and their authority as a potential
source of the Board's interpretation of its pre-2009 regulations.
E.g., Federal Reserve Board Truth in Lending Proposed Rule and
Request for Public Comment, 72 Fed. Reg. 32,948, 33,009 (June 14,
2007); Federal Reserve Board Truth in Lending Advance Notice of
Proposed Rulemaking, 69 Fed. Reg. 70,925, 70,931-32 (Dec. 8, 2004).
In light of the amicus brief clarifying the Board's interpretation
of its pre-2009 regulations, we need not resolve these disputes.

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to be the agency's own regulation. See Kennedy v. Plan Adm'r for

DuPont Sav. & Inv. Plan, 129 S. Ct. 865, 872 (2009); Rucker v. Lee

Holding Co., 471 F.3d 6, 12 (1st Cir. 2006).

Under Auer and its progeny, we treat an agency's

interpretation of a regulation it promulgated as "controlling"

unless it is "plainly erroneous." Kennedy, 129 S. Ct. at 872;

Auer, 519 U.S. at 461; Massachusetts v. United States, 522 F.3d

115, 127 (1st Cir. 2008). Absent the Board's brief, the regulation

in question is less than crystal clear on the issue before us,

which explains the current circuit split. With the brief, Chase's

position must prevail for the transactions in this case, which took

place prior to August 2009 when the statutory changes and the

revised regulations took effect.4

Shaner's second claim is that the increased APR is an

illegal penalty. The claim leaves unclear whether it is the timing

or level of the increase that is objectionable, although it appears

likely from the main argument that it is the "retroactive" effect

that is the target; and which state's law is invoked is also

unclear except that Delaware law is alleged not to provide a valid

defense. Delaware banking statutes expressly authorize both the

4
Shaner has recently asked to submit a responsive brief
challenging the Board's reading of its own regulation--primarily
based on textual and related arguments described above in this
decision. We are granting her motion and have considered her
arguments but they do not show that the Board's reading is an
unreasonable one.

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level and timing of the rate increase in her case, thus seemingly

precluding Shaner's common law penalty claim under Delaware law.

On the rate's level, Delaware's code states, "A bank may

charge and collect periodic interest under a revolving credit plan

on outstanding unpaid indebtedness in the borrower's account under

the plan at such . . . periodic percentage rate or rates as the

agreement governing the plan provides . . . ." Del. Code. Ann.

tit. 5, § 943 (2009). In Shaner's case, the card agreement

provided a maximum default rate, and Shaner has not alleged that

Chase charged a higher rate than that authorized by the agreement.

On the timing of the rate increase, Delaware code states:

If the agreement governing the revolving
credit plan so provides, the periodic
percentage rate or rates of interest under
such plan may vary in accordance with a
schedule or formula . . . and such periodic
percentage rate or rates, as so varied, 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 date of such
variation . . . . Without limitation, 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, whether by variation of
the then applicable periodic percentage rate
or rates of interest, variation of an index or
margin or otherwise, 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.

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Del. Code Ann. tit. 5, § 944 (2009).

Shaner claims section 944's provisions are not satisfied

here, arguing that Chase's card agreement did not provide a

"schedule or formula" because the choice to increase the APR was

discretionary with Chase. But the agreement explicitly made the

discretionary increase contingent upon a default in payment; the

Delaware banking statutes themselves say that the rate is to be

"established in the manner provided in the agreement," Del. Code

Ann. tit. 5, § 943, and that a "schedule or formula" includes

"provision in the agreement . . . for a change in the [APR] . . .

contingent upon the happening of any event or circumstance

specified in the plan," id. § 944; and the Delaware State Bank

Commissioner in an amicus brief confirms that the banking statutes

permit Chase to reserve discretion as to whether to charge the

maximum default rate.

Shaner also argues that the statute does not permit the

rate increase to be made effective from the start of the month

where the default occurs later in the month because--she claims--

such a practice would constitute "backdating" of the "effective

date of variation" in the interest rate. Yet section 944 clearly

conceives of such "effective date of variation" as a date

potentially distinct from the first day to which the rate increase

is applied, as evidenced by the fact that it states that the rate

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increase "may be made applicable . . . on or after the first day of

the billing cycle that contains the effective date of such

variation." Del. Code Ann. tit. 5, § 944 (emphasis added).

Shaner's claims under Massachusetts Chapter 93A lack

detail or argument. Shaner's brief fails to cite a single

Massachusetts case to support her contention that Chase's

"retroactive" adjustments constitute unfair or deceptive practices

under Massachusetts law. "It is not our job, especially in a

counseled civil case, to create arguments for someone who has not

made them or to assemble them from assorted hints and references

scattered throughout the brief." Yeomalakis v. Fed. Deposit Ins.

Corp., 562 F.3d 56, 61 (1st Cir. 2009).

Affirmed.

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