## Facts

- Cheryl and Walter Barrer held a Chase credit card governed by a cardmember agreement accepted in late 2004.
- The agreement disclosed preferred and non-preferred APR calculations and identified specified default events (e.g., late payment or exceeding the credit limit) that could trigger a default rate.
- The agreement also included a broad change-in-terms clause stating Chase could change the agreement at any time, including APRs and fees.
- The agreement stated Chase could periodically review cardholders’ credit history by obtaining credit-bureau information.
- The Barrers initially had a preferred APR of 8.99%.
- In February 2005, Chase sent a change-in-terms notice increasing the APR; the notice permitted rejection by a deadline, but the Barrers did not reject and continued using the card.
- The higher APR became effective within about two months, increasing from 8.99% to roughly 24.24%.
- The Barrers alleged Chase engaged in risk-based “adverse action repricing,” increasing APRs based on undisclosed credit-report-based “risk factors,” without clearly disclosing the triggers or the possible resulting rates, violating TILA and Regulation Z.
- The district court dismissed the complaint under Rule 12(b)(6); the Barrers appealed.

## Issues

1. Whether the agreement and change-in-terms notice satisfied TILA and Regulation Z by clearly and conspicuously disclosing the circumstances under which Chase could increase the APR and the rates that could apply.
2. Whether TILA requires disclosure of risk-based repricing triggers and the possible APRs (including a range or maximum) that could result from repricing.
3. Whether a general clause reserving the right to change terms at any time, coupled with a generic credit-review statement, can satisfy TILA’s disclosure duties regarding APR increases.

## Decision

- The Ninth Circuit reversed the Rule 12(b)(6) dismissal and remanded.
- The court held the Barrers plausibly alleged that Chase’s disclosures did not, as a matter of law, clearly and conspicuously disclose risk-based repricing and the possible APRs that could be imposed.
- The court concluded that generic change-in-terms language and a credit-review statement did not necessarily inform consumers that credit-history reviews could lead to large APR increases unrelated to disclosed default events.

## Legal Principles

- TILA and Regulation Z require credit terms, including circumstances for APR increases and applicable rates, to be disclosed clearly and conspicuously so consumers can understand the cost of credit.
- Disclosing default-rate triggers does not necessarily disclose a separate practice of raising APRs based on post-opening, credit-report-based risk factors.
- A creditor’s broad reservation of the right to change APRs “at any time” is not, by itself, a sufficient disclosure of (1) the conditions that may cause an APR increase and (2) the possible rates that may apply.
- A disclosure that the creditor may review a consumer’s credit history does not necessarily disclose that unfavorable information may lead to a substantial APR increase or identify the possible resulting APRs.
- On a motion to dismiss, the question is whether the pleadings and documents show compliance as a matter of law; where disclosures plausibly fail to provide meaningful notice of triggers and possible rates, the claim may proceed.

## Conclusion

The Ninth Circuit held that the plaintiffs stated a plausible TILA claim because the card agreement and change notice did not necessarily provide clear and conspicuous disclosure that Chase could reprice APRs based on credit-report-based risk factors and did not adequately disclose the possible higher APRs that could result, requiring reversal of the dismissal and remand for further proceedings.


Barrer v. Chase Bank USA, N.A., 566 F.3d 883 (9th Cir. 2009)