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Rubio v. ABC-CW Capital One Bank

July 21, 2010

RAQUEL RUBIO, ON BEHALF OF HERSELF AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFF-APPELLANT,
v.
ABC-CW CAPITAL ONE BANK, DEFENDANT-APPELLEE.



Appeal from the United States District Court for the Central District of California D.C. No. 2:07-cv-06766 Audrey B. Collins, Chief District Judge, Presiding.

The opinion of the court was delivered by: B. Fletcher, Circuit Judge

FOR PUBLICATION

OPINION

Argued and Submitted February 3, 2010 -- Pasadena, California

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

Partial Concurrence and Partial Dissent by Judge Graber 10385

OPINION

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 percentage 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 purchases 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 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 prominent 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 subject 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 purchase and special transfer APRs (if applicable) may be increased to a rate of 12.9% ANNUAL PERCENTAGE 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 provided, 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 periodic rates and other charges, or add or remove requirements . . . 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 briefing, 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) dismissal, 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 Agreement, 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).

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 requirements. 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 compute 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 disclosure, 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 "require 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 liability on the creditor," Jackson v. Grant, 890 F.2d 118, 120 (9th Cir. 1989).

B.

In her only unwaived TILA claim, Rubio contends that the Schumer Box in Capital One's solicitation misleadingly disclosed 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 falsities, 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 reading of Regulation Z," id., Hauk did not condone misleading disclosures. It simply rejected the argument that TILA liability 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 violate TILA merely by offering a promotional APR to a consumer 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 undeclared intent to impose the higher APR is not included in the 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 disclosure 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 solicitations, is defined in the official staff commentary to Regulation 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 official staff commentary is owed deference). Thus, Regulation Z prohibits a Schumer Box from making "misleading" APR disclosures, where "misleading" means a disclosure that a reasonable consumer will either not ...


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