Summary
The Ninth Circuit affirmed dismissal under Federal Rule of Civil Procedure 12(b)(6) of Austin Milliken’s lawsuit alleging that Bank of America’s variable-rate credit card formula violated the CARD Act. The court held that the formula, which adds a fixed margin to the publicly available U.S. Prime Rate, falls within the statutory exception for rate changes tied to an index not controlled by the creditor. The court also concluded that the bank’s use of the Prime Rate on the last publication day of each month complied with the applicable Regulation Z provisions.
Topics
Practice areas
Questions Presented
- Whether Bank of America’s variable-rate credit-card agreement qualifies for the CARD Act exception permitting increases made according to operation of a publicly available index not under the creditor’s control.
- Whether applying the Prime Rate published on the last publication day of the month to the entire billing cycle violates the CARD Act.
- Whether Milliken’s collateral California Unfair Competition Law claim could survive when the alleged rate-calculation method did not violate the CARD Act.
Holdings
- A credit-card agreement qualifies for the CARD Act’s variable-rate exception when the agreement specifies that the variable rate changes according to a publicly available index that is not under the creditor’s control, and the agreement leaves no discretion regarding whether or how changes in that index affect the rate. Bank of America’s agreement satisfied that exception because the variable rate changed by the same amount as the U.S. Prime Rate.
- The CARD Act does not require a variable-rate issuer to calculate the rate using day-to-day index values or prohibit applying a rate determined by a specified end-of-month index value to the entire billing cycle, including outstanding balances.
- The possibility that a creditor might manipulate billing cycles does not make the Prime Rate an index under the creditor’s control where the agreement makes a change in the Prime Rate, rather than the billing cycle, the event triggering a rate change, and the plaintiff does not allege such manipulation.
Key quotations
“Because Milliken’s credit card agreement with Bank of America changes rates “according to operation of an index that is not under the control of the creditor,” 15 U.S.C. § 1666i-1(b)(2), we hold that it does not violate the CARD Act.” (at 13)
“In other words, any change in the cardholder’s interest rate is made “according to” a change in the Prime Rate.” (at 7)
Factual background
Bank of America’s credit-card agreements calculated variable rates by adding a constant margin to the U.S. Prime Rate published on the last publication day of each month. During the relevant period, Federal Reserve rate increases caused the Prime Rate, and consequently Bank of America’s variable rates, to increase; the increased rates were applied to outstanding balances for the billing cycle. Milliken alleged that this method violated the CARD Act because it applied the changed rate retroactively within a billing cycle, and he also asserted a California Unfair Competition Law claim.
Procedural history
Milliken filed a class action alleging that Bank of America unlawfully applied increased variable interest rates to outstanding balances. The Northern District of California dismissed the lawsuit under Rule 12(b)(6), concluding that the bank’s rate formula fell within the CARD Act’s variable-rate exception. Milliken appealed, and the Ninth Circuit reviewed the dismissal de novo.