CHASE BANK USA v. MCCOY
A class of Chase Bank ("Chase") credit card holders sued Chase in a California federal district alleging the bank violated the Truth in Lending Act ("TILA"). The investors argued that Chase violated the act when it increased interest rates retroactively after the credit account was closed as a result of a late payment to the bank. The district court dismissed the complaint.
On appeal, the U.S. Court of Appeals for the Ninth Circuit reversed the district court, holding in part that Regulation Z of TILA required a creditor, like Chase, to provide contemporaneous notice of interest rate increases that occurred because of customer default. Here, Chase failed to provide such notice.
When a creditor increases the periodic rate on a credit card account in response to cardholder default, but pursuant to a default rate term disclosed in the contract governing the account, does Regulation Z of TILA require the creditor to provide the cardholder with a change-in-terms notice?
Legal provision: Truth in Lending Act
No. The Supreme Court reversed and remanded the lower court decision in a unanimous opinion by Justice Sonia Sotomayor who held that at the time of the transactions at issue, Regulation Z did not require Chase to provide McCoy with a change-in-terms notice before implementing the agreement term allowing it to raise his interest rate.
OPINION OF THE COURT
CHASE BANK USA, N. A. V. MCCOY
562 U. S. ____ (2011)
SUPREME COURT OF THE UNITED STATES
CHASE BANK USA, N. A., PETITIONER v. JAMES A. McCOY, individually and on behalf of all others similarly situated
on writ of certiorari to the united states court of appeals for the ninth circuit
[January 24, 2011]
Justice Sotomayor delivered the opinion of the Court.
As applicable to this case, Regulation Z—promulgated by the Board of Governors of the Federal Reserve System (Board) pursuant to its authority under the Truth in Lending Act (TILA), 82 Stat. 146, 15 U. S. C. §1601 et seq.—requires that issuers of credit cards provide cardholders with an “[i]nitial disclosure statement” specifying, inter alia, “each periodic rate” associated with the account. 12 CFR §226.6(a)(2) (2008). The regulation also imposes “[s]ubsequent disclosure requirements,” including notice to cardholders “[w]henever any term required to be disclosed under §226.6 is changed.” §226.9(c)(1). This case presents the question whether Regulation Z requires an issuer to notify a cardholder of an interest-rate increase instituted pursuant to a provision of the cardholder agreement giving the issuer discretion to increase the rate, up to a stated maximum, in the event of the cardholder’s delinquency or default. We conclude that the version of Reg- ulation Z applicable in this case does not require such notice.
Congress passed TILA to promote consumers’ “informed use of credit” by requiring “meaningful disclosure of credit terms,” 15 U. S. C. §1601(a), and granted the Board the authority to issue regulations to achieve TILA’s purposes, §1604(a). Pursuant to this authority, the Board promulgated Regulation Z, which requires credit card issuers to disclose certain information to consumers.[Footnote 1] Two provisions of Regulation Z are at issue in this case. The first, 12 CFR §226.6, explains what information credit card issuers are obliged to provide to cardholders in the “[i]nitial disclosure statement,” including “each periodic rate that may be used to compute the finance charge.” §226.6(a)(2). The second, §226.9, imposes upon issuers certain “[s]ubsequent disclosure requirements,” including a requirement to provide notice “[w]henever any term required to be disclosed under §226.6 is changed.” §226.9(c)(1). As a general matter, notice of a change in terms has to be provided 15 days in advance of the effective date of the change. Ibid. When “a periodic rate or other finance charge is increased because of the consumer’s delinquency or default,” however, notice only need be given “before the effective date of the change.” Ibid. Regulation Z also explains that no notice is required under §226.9 when the change in terms “results from … the consumer’s default or delinquency (other than an increase in the periodic rate or other finance charge).” §226.9(c)(2).
The official interpretation of Regulation Z (Official Staff Commentary or Commentary) promulgated by the Board explains these requirements further: Section 226.9(c)(1)’s notice-of-change requirement does not apply “if the specific change is set forth initially, such as … 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.” 12 CFR pt. 226, Supp. I, Comment 9(c)–1, p. 506 (2008) (hereinafter Comment 9(c)–1). On the other hand, the Commentary explains, “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).” Ibid. As to the timing requirements, the Commentary states: “[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.” Id., Comment 9(c)(1)–3, at 507 (hereinafter Comment 9(c)(1)–3).
At least as early as 2004, the Board began considering revisions to Regulation Z. The new regulations the Board eventually issued do not apply to the present case, but the details of their promulgation provides useful background in considering the parties’ arguments with respect to the version of Regulation Z we address here. In 2004 the Board issued an advance notice of proposed rulemaking announcing its intent to consider revisions. 69 Fed. Reg. 70925 (2004). In so doing, the Board described how it understood the notice requirements to function at that time:
“[A]dvance notice is not required in all cases. For example, if the interest rate or other finance charge increases due to a consumer’s default or delinquency, notice is required, but need not be given in advance. 12 CFR 226.9(c)(1); comment 9(c)(1)–3. And no change-in-terms notice is required if the creditor specifies in advance the circumstances under which an increase to the finance charge or an annual fee will occur. Comment 9(c)–1. For example, some credit card account agreements permit the card issuer to increase the interest rate if the consumer pays late . . . . Under Regulation Z, because the circumstances are specified in advance in the account agreement, the creditor need not provide a change-in-terms notice 15 days in advance of the increase; the new rate will appear on the periodic statement for the cycle in which the increase occurs.” Id., at 70931–70932.
The Board asked for public comment on whether these “existing disclosure rules” were “adequate to enable consumers to make timely decisions about how to manage their accounts.” Id., at 70932.
Subsequently, in 2007, the Board published proposed amendments to Regulation Z and the Commentary. 72 Fed. Reg. 32948. One amendment would have required 45 days’ advance written notice when “(i) [a] rate is increased due to the consumer’s delinquency or default; or (ii) [a] rate is increased as a penalty for one or more events spec- ified in the account agreement, such as making a late payment or obtaining an extension of credit that exceeds the credit limit.” Id., at 33058 (proposed 12 CFR §226.9(g)). The Board explained that, under the amendments, “creditors would no longer be permitted to provide for the immediate application of penalty pricing upon the occurrence of certain events specified in the contract.” 72 Fed. Reg. 33012.
In January 2009, the Board promulgated a final rule implementing many of the proposed changes, scheduled to be effective July 1, 2010. 74 Fed. Reg. 5244. Most saliently, the Board included a new provision, §226.9(g), which requires 45 days’ advance notice of increases in rates due to cardholder delinquency or default, or as a penalty, including penalties for “events specified in the account agreement, such as making a late payment … .” 12 CFR §226.9(g)(1)(2010). In May 2009, Congress enacted the Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act or Act), 123 Stat. 1734. The Act amended TILA, in relevant part, to require 45 days’ advance notice of most increases in credit card annual percentage rates. 15 U. S. C. §1637(i) (2006 ed., Supp. III). Because the Credit CARD Act’s notice requirements with respect to interest-rate increases largely mirror the requirements in the new version of the regu- lation, the Board changed the effective date of those requirements to August 20, 2009, to coincide with the statutory schedule. See 74 Fed. Reg. 36077–36079. The transactions giving rise to the dispute at issue in this case, however, arose prior to enactment of the Act and the promulgation of the new regulatory provisions.
Respondent James A. McCoy brought this action in the Superior Court of Orange County, California on behalf of himself and others similarly situated against petitioner Chase Bank USA, N. A.; Chase removed the action to the United States District Court for the Central District of California under 28 U. S. C. §1441. At the time of the transactions at issue, McCoy was the holder of a credit card issued by Chase. The cardholder agreement between the parties (Agreement) provides, in relevant part, that McCoy is eligible for “Preferred rates,” but that to keep such rates he has to meet certain conditions, including making “at least the required minimum payments when due on [his] Account and on all other loans or accounts with [Chase] and [his] other creditors.” Brief for Respondent 8, n. 2; see also 559 F. 3d 963, 972, n. 1 (CA9 2009) (Cudahy, J., dissenting). If any of the conditions in the Agreement are not met, Chase reserves the right to “change [McCoy’s] interest rate and impose a Non-Preferred rate up to the maximum Non-Preferred rate described in the Pricing Schedule” and to apply any changes “to existing as well as new balances … effective with the billing cycle ending on the review date.” Brief for Respondent 8, n. 2.
McCoy’s complaint alleges that Chase increased his interest rate due to his delinquency or default, and applied that increase retroactively. McCoy asserts that the rate increase violates Regulation Z because, pursuant to the Agreement, Chase did not notify him of the increase until after it had taken effect.[Footnote 2] The District Court dismissed McCoy’s complaint, holding that because the increase did not constitute a “change in terms” as contemplated by §226.9(c), Chase was not required to notify him of the increase before implementing it. See App. to Pet. for Cert. 37a–47a.
A divided panel of the United States Court of Appeals for the Ninth Circuit reversed in relevant part, holding that Regulation Z requires issuers to provide notice of an interest-rate increase prior to its effective date. See 559 F. 3d, at 969. Concluding that the text of Regulation Z is ambiguous and that the agency commentary accompanying the 2004 request for comments and the 2007 proposed amendments favors neither party’s interpretation, the court relied primarily on the Official Staff Commentary; in particular, the court noted that Comment 9(c)–1 requires no notice of a change in terms if the “specific change” at issue is set forth in the initial agreement. See id., at 965–967. The court found, however, that because the Agreement vests Chase with discretion to impose any Non-Preferred rate it chooses (up to the specified maximum) upon McCoy’s default, the Agreement “provides McCoy with no basis for predicting in advance what retroactive interest rate Chase will choose to charge him if he defaults.” Id., at 967. Accordingly, the court held that because the Agreement does not alert McCoy to the “specific change” that will occur if he defaults, Chase was obliged to give notice of that change prior to its effective date. Ibid. Relying primarily on the 2004 notice of proposed rulemaking and the 2007 proposed amendments, the dissenting judge concluded that Regulation Z does not require notice of an interest-rate increase in the circumstances of this case. See id., at 972–979 (opinion of Cudahy, J.).
After the Ninth Circuit’s ruling, the United States Court of Appeals for the First Circuit decided the same question in Chase’s favor. See Shaner v. Chase Bank USA, N. A., 587 F. 3d 488 (2009). The First Circuit relied in part on an amicus brief submitted by the Board at the court’s request, in which the agency advanced the same interpretation of Regulation Z that it now does before this Court. Id., at 493. We granted certiorari to resolve this division in authority.[Footnote 3] 561 U. S. ___ (2010).
In order to decide this case, we must determine whether an interest-rate increase constitutes a “change in terms” under Regulation Z, when the change is made pursuant to a provision in the cardholder agreement allowing the issuer to increase the rate, up to a stated maximum, in the event of the cardholder’s delinquency or default. Accordingly, this case calls upon us to determine the meaning of a regulation promulgated by the Board under its statutory authority. The parties dispute the proper interpretation of the regulation itself, as well as whether we should accord deference to the Board’s interpretation of its regulation. As explained below, we conclude that the text of the regulation is ambiguous, and that deference is warranted to the interpretation of that text advanced by the Board in its amicus brief.
Our analysis begins with the text of Regulation Z in effect at the time this dispute arose. First, §226.6 requires an “[i]nitial disclosure statement”:
“The creditor shall disclose to the consumer, in terminology consistent with that to be used on the periodic statement, each of the following items, to the extent applicable:
“(a) Finance charge. The circumstances under which a finance charge will be imposed and an explanation of how it will be determined, as follows:
. . . . .
“(2) A disclosure of each periodic rate that may be used to compute the finance charge, the range of balances to which it is applicable, and the corresponding annual percentage rate. When different periodic rates apply to different types of transactions, the types of transactions to which the periodic rates apply shall also be disclosed.” (Footnotes omitted.)
Second, §226.9(c) requires certain “[s]ubsequent disclosure requirements”:
“Change in terms—(1) Written notice required. Whenever any term required to be disclosed under §226.6 is changed or the required minimum periodic payment is increased, 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 … results from … the consumer’s default or delinquency (other than an increase in the periodic rate or other finance charge).”
The question is whether the increase in McCoy’s interest rate constitutes a change to a “term required to be disclosed under §226.6,” requiring a subsequent disclosure under §226.9(c)(1). One of the initial terms that must be disclosed under §226.6 is “each periodic rate that may be used to compute the finance charge … and the corresponding annual percentage rate.” §226.6(a)(2). McCoy argues that, because an increase in the interest rate increases the “periodic rate” applicable to his account, such an increase constitutes a change in terms within the meaning of §226.9(c)(1). As further support, McCoy points to two provisions in §226.9(c): first, that notice of an increase in the interest rate must be provided “before the effective date of the change” when the increase is due to “the consumer’s delinquency or default,” §226.9(c)(1); and second, that no notice is required of a change resulting “from the consumer’s default or delinquency (other than an increase in the periodic rate or other finance charge),” §226.9(c)(2). Accordingly, because §226.9(c) includes interest-rate increases due to delinquency or default, McCoy argues that the plain text of the regulation indicates that a change in the periodic rate due to such default is a “change in terms” requiring notice under §226.9(c)(1).
We recognize that McCoy’s argument has some force; read in isolation, the language quoted above certainly suggests that credit card issuers must provide notice of an interest-rate increase imposed pursuant to cardholder delinquency or default. But McCoy’s analysis begs the key question: whether the increase actually changed a “term” of the Agreement that was “required to be disclosed under §226.6.” If not, §226.9(c)’s subsequent notice requirement with respect to a “change in terms” does not apply. Chase argues precisely this: The increase did not change a term in the Agreement, but merely implemented one that had been initially disclosed, as required. This interpretation, though not commanded by the text of the regulation, is reasonable. Section 226.6(a)(2) requires initial disclosure of “each periodic rate that may be used to compute the finance charge.” The Agreement itself discloses both the initial rate (Preferred rate) and the maximum rate to be imposed in the event of default (Non-Preferred rate). See Brief for Respondent 8, n. 2; Brief for Petitioner 13–14.[Footnote 4] Accordingly, it is plausible to understand the Agreement to initially disclose “each periodic rate” to be applied to the account, and Chase arguably did not “change” those rates as a result of McCoy’s default. Instead, Chase merely implemented the previously disclosed term specifying the Non-Preferred rate.[Footnote 5]
This reading still leaves the question why §226.9(c)(1) refers to interest-rate increases resulting from delinquency or default if such increases do not constitute a “change in terms.” One reasonable explanation Chase offers is that §226.9(c)(1) refers to interest-rate increases that were not specifically outlined in the agreement’s initial terms (unlike those in the present Agreement). For example, credit card agreements routinely include a “reservation of rights” provision giving the issuer discretion to change the terms of the contract, often as a means of responding to events that raise doubts about the cardholder’s creditworthiness. An issuer may exercise this general contract-modification authority and raise the interest rate applicable to the account to address any heightened risk. See Brief for Petitioner 6. In such a case, §226.9(c)(1) is best read to require that notice must be given prior to the effective date of the increase, because the unilateral increase instituted by the issuer actually changed a term—the interest rate—in a manner not specifically contemplated by the agreement.[Footnote 6] See Comment 9(c)–1 (providing that notice is required if the agreement “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)”).
In short, Regulation Z is unclear with respect to the crucial interpretive question: whether the interest-rate increase at issue in this case constitutes a “change in terms” requiring notice. We need not decide which party’s interpretation is more persuasive, however; both are plausible, and the text alone does not permit a more definitive reading. Accordingly, we find Regulation Z to be ambiguous as to the question presented, and must therefore look to the Board’s own interpretation of the regulation for guidance in deciding this case. See Coeur Alaska, Inc. v. Southeast Alaska Conservation Council, 557 U. S. ___, ___ (2009) (slip op., at 14) (stating that when an agency’s regulations construing a statute “are ambiguous … we next turn to the agencies’ subsequent interpretation of those regulations” for guidance); Ford Motor Credit Co. v. Milhollin, 444 U. S. 555, 560 (1980) (stating that when the question presented “is not governed by clear expression in the … regulation … it is appropriate to defer to the Federal Reserve Board and staff in determining what resolution of that issue” is appropriate).
The Board has made clear in the amicus brief it has submitted to this Court that, in the Board’s view, Chase was not required to give McCoy notice of the interest rate increase under the version of Regulation Z applicable at the time. Under Auer v. Robbins, 519 U. S. 452 (1997), we defer to an agency’s interpretation of its own regulation, advanced in a legal brief, unless that interpretation is “plainly erroneous or inconsistent with the regulation.” Id., at 461 (internal quotation marks omitted). Because the interpretation the Board presents in its brief is consistent with the regulatory text, we need look no further in deciding this case.[Footnote 7]
In its brief to this Court, the Board explains that the Ninth Circuit “erred in concluding that, at the time of the transactions at issue in this case, Regulation Z required credit card issuers to provide a change-in-terms notice be- fore implementing a contractual default-rate provision.” See Brief for United States as Amicus Curiae 11; see also ibid. (stating that when a term of an agreement authorized the credit provider “to increase a consumer’s interest rate if the consumer failed to make timely payments . . . any resulting rate increase did not represent a ‘change in terms,’ but rather the implementation of terms already set forth in the initial disclosure statement”); id., at 15–16 (stating that “[w]hen a cardholder agreement identifies a contingency that triggers a rate increase, and the maximum possible rate that the issuer may charge if that contingency occurs,” then “no change-in-terms notice is required” under Regulation Z).[Footnote 8] Under the principles set forth in Auer, we give deference to this interpretation.
In Auer we deferred to the Secretary of Labor’s interpretation of his own regulation, presented in an amicus brief submitted by the agency at our invitation. 519 U. S., at 461–462. Responding to the petitioners’ objection that the agency’s interpretation came in a legal brief, we held that this fact did not, “in the circumstances of this case, make it unworthy of deference.” Id., at 462. We observed that “[t]he Secretary’s position is in no sense a ‘post hoc rationalizatio[n]’ advanced by an agency seeking to defend past agency action against attack.” Ibid. (quoting Bowen v. Georgetown Univ. Hospital, 488 U. S. 204, 212 (1988)). We added: “There is simply no reason to suspect that the interpretation does not reflect the agency’s fair and considered judgment on the matter in question.” Auer, 519 U. S., at 462.
The brief submitted by the Board in the present case, at our invitation, is no different. As in Auer, there is no reason to believe that the interpretation advanced by the Board is a “post hoc rationalization” taken as a litigation position. The Board is not a party to this case. And as is evident from our discussion of Regulation Z itself, see Part II–A, supra, the Board’s interpretation is neither “plainly erroneous” nor “inconsistent with” the indeterminate text of the regulation. In short, there is no reason to suspect that the position the Board takes in its amicus brief reflects anything other than the agency’s fair and considered judgment as to what the regulation required at the time this dispute arose.
McCoy may well be correct in asserting that it is better policy to oblige credit-card issuers to give advance notice of a rate increase; after all, both Congress and the Board have recently indicated that such a requirement is warranted. See Credit CARD Act, §101(a)(1), 123 Stat. 1735–1736; 12 CFR §226.9(g) (2009). That Congress and the Board may currently hold such views does not mean, however, that deference is not warranted to the Board’s different understanding of what the pre-2009 version of Regulation Z required. To the contrary, the interpretation the Board advances in its amicus brief is entirely consistent with its past views. The 2004 notice of rulemaking and the 2007 proposed amendments to Regulation Z make clear that, prior to 2009, the Board’s fair and considered judgment was that “no change-in-terms notice is required if the creditor specifies in advance the circumstances under which an increase … will occur,” 69 Fed. Reg. 70931, and “immediate application of penalty pricing upon the occurrence of certain events specified in the contract” was permissible, 72 Fed. Reg. 33012.
Under Auer, therefore, it is clear that deference to the interpretation in the Board’s amicus brief is warranted. The cases McCoy cites in which we declined to apply Auer do not suggest that deference is unwarranted here. In Gonzales v. Oregon, 546 U. S. 243 (2006), we declined to defer because—in sharp contrast to the present case— the regulation in question did “little more than restate the terms of the statute” pursuant to which the regulation was promulgated. Id., at 257. Accordingly, no deference was warranted to an agency interpretation of what were, in fact, Congress’ words. Ibid. In contrast, at the time of the transactions in this case, TILA itself included no requirements with respect to the disclosure of a change in credit terms. In Christensen v. Harris County, 529 U. S. 576 (2000), we declined to apply Auer deference because the regulation in question was unambiguous, and adopting the agency’s contrary interpretation would “permit the agency, under the guise of interpreting a regulation, to create de facto a new regulation.” 529 U. S., at 588. In light of Regulation Z’s ambiguity, there is no such danger here. And our statement in Christensen that “deference is warranted only when the language of the regulation is ambiguous,” ibid., is perfectly consonant with Auer itself; if the text of a regulation is unambiguous, a conflicting agency interpretation advanced in an amicus brief will necessarily be “plainly erroneous or inconsistent with the regulation” in question. Auer, 519 U. S., at 461 (internal quotation marks omitted). Accordingly, under our precedent deference to the Board’s interpretation of its own regulation, as presented in the agency’s amicus brief, is wholly appropriate.
McCoy further argues that deference to a legal brief is inappropriate because the interpretation of Regulation Z in the Official Staff Commentary commands a different result. To be sure, the Official Staff Commentary promulgated by the Board as an interpretation of Regulation Z may warrant deference as a general matter. See Anderson Bros. Ford v. Valencia, 452 U. S. 205, 219 (1981) (holding that “the Board’s interpretation of its own regulation” should generally “be accepted by the courts”); Milhollin, 444 U. S., at 565 (“Unless demonstrably irrational, Federal Reserve Board staff opinions construing [TILA] or Regulation [Z] should be dispositive”). We find, however, that the Commentary at issue here largely replicates the ambiguity present in the regulatory text, and therefore it offers us nothing to which we can defer with respect to the precise interpretive question before us.[Footnote 9] Cf. Smith v. City of Jackson, 544 U. S. 228, 248 (2005) (O’Connor, J., concurring in judgment) (noting that deference is not warranted when “there is no reasoned agency reading of the text to which we might defer”).
The Ninth Circuit relied primarily on Comment 9(c)(1)–3, which states in relevant part that “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 attri- butable to the consumer’s delinquency or default.” This exposition of the regulation does not add any clarity to the regulatory text, which expresses the same requirement. See §226.9(c)(1) (2008) (“[I]f a periodic rate or other finance charge is increased because of the consumer’s delinquency or default … notice shall be given … before the effective date of the change”). And like §226.9(c), Comment 9(c) is entitled “Change in terms.” Accordingly, Chase’s plausible interpretation of §226.9(c)(1) is equally applicable to Comment 9(c)(1)–3: On Chase’s view, because the interest-rate increase at issue in this case did not constitute a “change in terms,” the disclosure requirements in the regulation and Commentary simply do not come into play. See supra, at 10–11.
Comment 9(c)–1 is also ambiguous, though the most plausible reading supports Chase’s position more than it does McCoy’s. The Comment begins: “No notice of a change in terms need be given if the specific change is set forth initially” in the agreement. We do not find that the Comment’s addition of the modifier “specific” to the word “change” enables us to determine, any more than we could in light of the text of the regulation, see supra, at 12, whether the interest-rate increase at issue in this case was a “change in terms” requiring notice. According to Chase, as long as the agreement explains that delinquency or default might trigger an increased interest rate and states the maximum level to which the rate could be increased, the “specific change” that ensues upon default has been set forth initially and no additional notice is required before implementation. McCoy argues to the contrary: Under Comment 9(c)–1, any new rate imposed after delinquency or default must be disclosed prior to the effective date, if the particular rate (rather than the maximum rate) was not specifically mentioned in the agreement. On the whole, then, the Official Staff Commentary’s explanation of Regulation Z does not resolve the uncertainty in the regulatory text, and offers us no reason to disregard the interpretation advanced in the Board’s amicus brief.[Footnote 10]
McCoy further contends that our reliance here on an agency interpretation presented outside the four corners of the Official Staff Commentary will require future litigants, as well as the Board, to expend time and resources “to comb through … correspondence, publications, and the agency’s website to determine the agency’s position.” Brief for Respondent 37–38. We are not convinced. McCoy may be correct that the Board established the Official Staff Commentary so as to centralize its opinion-making process and avoid “overburdening the industry with excessive detail and multiple research sources.” 46 Fed. Reg. 50288. But his suggestion that, if we accord deference to an amicus brief, all other “unofficial” sources will be fair game is of no moment. Today we decide only that the amicus brief submitted by the Board is entitled to deference in light of “the circumstances of this case.” Auer, 519 U. S., at 462.
Accordingly, we conclude that, at the time of the transactions at issue in this case, Regulation Z did not require Chase to provide McCoy with a change-in-terms notice before it implemented the Agreement term allowing it to raise his interest rate following delinquency or default.
* * *
For the foregoing reasons, the judgment of the United States Court of Appeals for the Ninth Circuit is reversed, and the case is remanded for further proceedings consistent with this opinion.
It is so ordered.Footnote 1
As discussed more fully below, see infra, at 4–5, in 2009 the Board amended Regulation Z, such that the provisions discussed in this opinion are no longer in effect. However, because the pre-2009 provisions are the ones applicable to the case before us, we will refer to them in the present tense.Footnote 2
McCoy also asserted various state-law claims that are not before us. We note that McCoy’s complaint provides little detail regarding the transactions at issue in this case. The parties, however, are in agreement as to the essential facts alleged.Footnote 3
The United States Court of Appeals for the Seventh Circuit has also rejected the reasoning of the Ninth Circuit, though on a different question than the one presented in this case. See Swanson v. Bank of America, N. A., 559 F. 3d 653, reh’g denied, 563 F. 3d 634 (2009) (disagreeing with the Ninth Circuit’s interpretation of Regulation Z).Footnote 4
The Pricing Schedule referred to in the Agreement is not contained in the case record, nor are its contents apparent from the parties’ briefs, but neither side disputes that it specified a maximum Non-Preferred rate applicable to the Agreement.Footnote 5
We are not persuaded by McCoy’s argument that, although Chase did not change a “contract term” when it raised his interest rate pursuant to the terms of the Agreement, it changed a “credit term,” thereby triggering §226.9(c)’s notice requirement. The relevant text of Regulation Z does not refer to, let alone distinguish between, “contract terms” and “credit terms,” and McCoy’s repeated citations to TILA’s broad policy statement do not convince us that such a distinction is warranted. See 15 U. S. C. §1601(a) (“It is the purpose of this subchapter to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit”).Footnote 6
The Government offers an alternative example. Assume that the agreement is similar to the one at issue here, with a specified maximum level to which the interest rate can be increased if the cardholder defaults. If default occurs but the issuer raises the rate above the contractual maximum, notice must be given prior to the effective date because the issuer actually changed the term of the contract initially specifying the maximum rate possible. See Brief for United States as Amicus Curiae 14–15.Footnote 7
We note that, in reaching its decision, the Ninth Circuit did not have the benefit of briefing from the Board. The Ninth Circuit apparently did not solicit the views of the Board in the proceedings below, see Brief for Petitioner 16, and the First Circuit did not solicit the Board’s views in Shaner v. Chase Bank USA, N. A., 587 F. 3d 488 (2009), until after the Ninth Circuit issued its opinion in this case, see Order in No. 09–1157 (CA1, Aug. 4, 2009).Footnote 8
This is consistent with the view the Board advanced in its amicus brief to the First Circuit, in which the Board noted that it “has in- terpreted the applicable provisions of Regulation Z not to require a pre-effective date change-in-terms notice for an increase in annual per-centage rate when the contingency that will trigger a rate increase and the specific consequences for the consumer’s rate are set forth in the initial card member agreement.” App. to Brief for United States as Amicus Curiae 2a.Footnote 9
We are not persuaded by McCoy’s argument that the Board’s own regulations make the Official Staff Commentary “the exclusive source of authorized staff opinion.” Brief for Respondent 36 (emphasis added). In the regulations McCoy cites the Board has indicated only that the central purpose of the Commentary is to present agency interpretations that, if relied upon, provide the basis for invoking the good-faith defense to liability under TILA. See 15 U. S. C. §1640(f) (precluding liability for “any act done or omitted in good faith in conformity . . . with any interpretation … by an official or employee … duly authorized by the Board to issue such interpretations … under such procedures as the Board may prescribe”); 12 CFR pt. 226, App. C (2008) (“[O]fficial staff interpretations of this regulation … provide the protection afforded under [§1640(f)]”); id., Supp. I, Introduction ¶1, p. 451 (same); 46 Fed. Reg. 50288 (1981) (same). McCoy cites no authority indicating that, in promulgating the Commentary and establishing certain statutory safe harbors, the Board intended to limit its ability to issue authoritative interpretations for other purposes.Footnote 10
In concluding otherwise, the Ninth Circuit focused on the examples Comment 9(c)–1 provides of changes that, if set forth initially, require no further disclosure when put into effect:
“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.”
The Ninth Circuit concluded that, in contrast to each of these three examples, “the increase here occurs at Chase’s discretion.” 559 F. 3d 963, 966 (2009). That is, once the triggering event—McCoy’s default—occurred, Chase had the latitude to increase the interest rate as it saw fit (up to the limit specified in the Pricing Schedule).
We are not persuaded by the Ninth Circuit’s reasoning. Certainly, under a “variable-rate” plan the interest rate fluctuates according to an external variable easily discernable by the cardholder (like the Federal Prime rate), and the issuer has no discretion. See ibid. But the Comment’s second and third examples do not appear to be significantly different from this case: The agreement contains a preset rate, but it also provides that, on the occurrence of a predefined event (terminating employment or a low account balance), the rate will increase.
Moreover, Comment 9(c)–1 further states that notice is needed “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.” It would seem that the narrower latitude Chase had under the Agreement to set the precise new rate within a specified range after McCoy defaulted is not the kind of “discretion” the last example of Comment 9(c)–1 contemplates. In short, analogizing to the Comment’s examples suggests that Chase’s action in setting a new rate was most likely a “specific change” that the Agreement itself contemplated, and subsequent disclosure was not clearly required.
ORAL ARGUMENT OF SETH P. WAXMAN ON BEHALF OF THE PETITIONER
Chief Justice John G. Roberts: We will hear argument first this morning in Case 09-329, Chase Bank v. McCoy.
Mr. Waxman: Mr. Chief Justice, and may it please the Court:
The question presented is how to interpret a since-amended version of Regulation Z.
In amicus briefs filed, solicited by the First Circuit and by this Court, the Federal Reserve Board has confirmed that it has long interpreted its regulation just as Chase Bank and the rest of the regulated credit card industry understood.
Justice Elena Kagan: Mr. Waxman?
Mr. Waxman: Yes, Justice Kagan?
Justice Elena Kagan: Can I ask you about the deference that we should give to the briefs that have been filed in the First Circuit and the invitation brief in this case?
Auer deference seems pretty four-square with this.
It's a brief that was filed to interpret an agency regulation.
But I'm wondering whether Auer continues to remain good law after Christensen and Mead.
In Christensen the Court held, and I quote,
"Interpretations such as those in opinion letters, like interpretations contained in policy statements, agency manuals, and enforcement guidelines, all of which lack the force of law, do not warrant Chevron-style deference. "
And Mead said pretty much the same thing.
So it seems to me that there are three possibilities for why Auer remains good law.
One is that briefs are somehow different from all those other things that we talked about in Christensen.
Another is that an agency gets more deference when interpreting regulations than when interpreting its own statutes -- something that I think I just don't quite understand, but maybe you could convince me of it.
And a third is, well, look, they are just basically inconsistent, but Auer was Auer and we don't feel like overruling cases, and we're not so sure we got it right in Christensen and Mead anyway.
So which is it?
Mr. Waxman: A lot of the above.
First of all, Auer has been applied in the context of amicus briefs since Christensen and Mead, both -- unanimously both in Kennedy and in Long Island Care at Home.
And I must say, in both of those cases the deference was to a brief that acknowledged a change in the agency's position, which is quite unlike what's going on here.
Justice Elena Kagan: Absolutely right, Mr. Waxman, but in each of those cases it was basically a sentence or two.
We never really addressed the possible conflict between Auer and Christensen and Mead.
Mr. Waxman: Nonetheless, I think those cases stand for the proposition that Auer is alive and well.
And in any event, as your question pointed out, both Mead and Christensen and the passage in Christensen that you are referring to dealt with the question of Chevron deference to informal letters from the -- from, you know, a -- somebody who was employed by an administrative agency.
And the question in the case, the interpretive question in the case, in the Chevron context, is: What confidence can we have that Congress has in fact delegated to the agency interpretive or rulemaking authority in this context?
And so, for example, in Mead, the Court distinguished between notice and comment regulations that Customs put out, as opposed to the kind of determinations that were made by 46 different offices at the rate of something like 15,000 letters a year.
In the -- when Christensen dealt with the Auer question, because it did involve a -- an informal opinion of the wage and hour administrator both interpreting the Fair Labor Standards Act and the regulation, when it came to interpreting the regulation what this Court said is: Our deference doesn't apply here because we read the regulation as clear.
And Auer, of course, made clear that deference is due to an agency brief unless it is plainly erroneous or the regulation is clear.
Now, here we have a situation in which it is not an agency staff or whatever that has applied.
The First Circuit asked the government for -- solicited the Federal Reserve Board itself to explain the meaning of its own regulation.
And the brief that was filed represented that it was the longstanding and consistent interpretation of the Federal Reserve Board that--
Justice Ruth Bader Ginsburg: Mr. Waxman, I take it from this whole discussion that you are recognizing that this is not a crystal-clear regulation; there is some ambiguity, and that's why we are talking about how much deference we owe to the agency?
Mr. Waxman: --That's correct.
We think that the Federal Reserve Board's reading of the two regulatory provisions is the better reading, but we acknowledge, as every court I think that has addressed this, that there is some ambiguity just looking at the regulations.
But I think it's important to understand also that the views expressed in the amicus brief solicited by the First Circuit and by this Court are entirely consistent with explanations that the Board, as a Board, provided in the course of a 4-year rulemaking process about what these provisions mean.
Justice Sonia Sotomayor: So you think the same deference is owed to ANPR's as to the amicus briefs?
What is your position on that?
Mr. Waxman: I -- I think that if it weren't for the amicus briefs in this case which are later in time and address the very specific question that is presented in this case, our deference would be appropriate.
And it's not just an ANPR.
There was the Federal Reserve explanation accompanying the ANPR, a functionally identical explanation accompanying the proposed rule, and one also accompanying the final rule.
And those explanations of the Board are entitled to Auer deference.
After all, in Anderson Ford, another case involving the construction of Regulation Z, this Court acknowledged that deference was due to a proposed -- the commentary accompanying a proposed change in Regulation Z which had not in fact even been implemented.
Chief Justice John G. Roberts: So I suppose--
Justice Anthony Kennedy: Judge Cudahy in dissent relied very much on the advance notice of proposed rulemaking.
Mr. Waxman: --I'm sorry?
Justice Anthony Kennedy: Judge Cudahy in dissent relied considerable -- put considerable reliance on the ANPR.
Mr. Waxman: --Yes.
And in fact, Justice Kennedy, I would say that both the majority and the dissent below referred to the ANPR when -- both when they were referring to the commentary to the ANPR and the commentary to the actual proposed rule in 2007.
Now, of course Judge Cudahy was deciding this before the First Circuit had solicited the views.
On rehearing, we urged the Ninth Circuit to solicit the views of the Federal Reserve Board if there were any doubt, because a split had been created, but it declined to do so.
Justice Antonin Scalia: Of course -- I suppose, having done it twice before, we could in this case apply Auer without explaining why it is that Auer is not inconsistent with Mead, right?
We did it twice before; we could do it here.
Mr. Waxman: --Sure.
Justice Antonin Scalia: Absolutely.
Mr. Waxman: --Or you could -- you could explain that it is not in any way inconsistent with Mead, because Mead--
Justice Antonin Scalia: That's a lot more trouble, though.
Mr. Waxman: --To be sure, but you granted plenary review in this case.
And I do, I just want to underscore, I'm not trying to -- I'm not trying to be flip here.
I don't think that there is any inconsistency between Auer and Mead.
Mead involved the question of whether or not there was -- the court could be confident that Congress had delegated some sort of law-making function to these letters that were written by customs officers across the country to individual importers, when the letters themselves made clear that they couldn't be relied on by anybody other than that particular importer and only unless and until the customs officer changed her mind.
Justice Elena Kagan: But Mead did put a lot of emphasis on procedural formality.
So, you know, Justice Scalia sort of snidely, but I think accurately, described Mead as saying:
"Only when agencies act through adjudication, notice and comment rulemaking, or some other procedure indicating comparable congressional intent, whatever that means, is Chevron deference applicable. "
Mr. Waxman: I don't--
Justice Elena Kagan: --This is not an adjudication.
It's not a notice and comment rulemaking, and it's hard to see why there is some procedure here indicating comparable congressional intent, as Mead would require.
Mr. Waxman: --Justice Kagan, with respect to the Mead question, which is a Chevron question, the Board's explanation in -- published in the Federal Register in 2004, and again in 2007, and again in 2009, is a formal explication of the Board's rules pursuant to its very, very broad rulemaking authority under the Truth in Lending Act.
Justice Stephen G. Breyer: Of course, you can also read Mead and decide what it says.
Being in the majority, I thought the dissent's characterization was not what it said.
I mean, the dissent -- the dissent can write what it wants to write.
But I don't think that that was what Mead said, but I guess there's disagreement about that.
What did you think?
Mr. Waxman: Given my chosen line of work, it may be mete for me not to inject myself into this debate.
Justice Stephen G. Breyer: No, no.
But I'm sorry.
You are an informed reader and I thought Mead definitely did not say that.
That was the dissent's characterization of what it said.
Mr. Waxman: Giving the dissent its full weight, I had understood both the majority and the dissent to explain that notice -- the existence of formal notice and comment rulemaking is an important indicator--
Justice Stephen G. Breyer: That is one indicator.
Mr. Waxman: --one indicator of congressional delegation of rulemaking authority.
Justice Stephen G. Breyer: But not exclusive.
Mr. Waxman: But not exclusive.
Justice Ruth Bader Ginsburg: Mr. Waxman, why are we getting into all of this, because there is no question in this case that the Federal Reserve Board had authority to issue Regulation Z.
There is no question about what authority Congress gave to the Board.
Mr. Waxman: Correct.
Justice Ruth Bader Ginsburg: So the only question is, so the Board adopts Regulation Z and then a question comes up, what does it mean?
Well, surely the Board that wrote the rule is first and foremost the proper interpreter.
Mr. Waxman: Right.
As to -- I agree with that and, as to why we are getting into all this, you know, I had a prepared statement that actually was going off in a different direction.
Not in the sense that I am disagreeing with the Court, but the point that it seems to me--
Chief Justice John G. Roberts: --This is not new to you, is it, this method of proceeding?
So I understand -- so before you move in the direction you would like to, I understand your view to be that Chevron and Auer apply and it's consistent with Mead because you have more indications that Congress delegated this authority to the Board than were present in Mead?
Mr. Waxman: --That's correct.
And I think to the extent that there's anything more that's needed, it seems to me the icing on the cake here is that the rulemaking that I have been discussing during which over the course of several years the Board engaged in consumer testing, in surveys, in comments, and decided to change its regulation -- it produced as what it called a, quote, 226.9, that establishes as a new requirement what the Respondent in this case erroneously ascribes to the previously unamended text.
And that is--
Justice Sonia Sotomayor: Well, I do think -- I do think, counsel, that that major change doesn't have to be the way you describe it.
The difference between either contemporary notice and/or 15-day notice versus 45 is a significant change.
Mr. Waxman: --That's correct and it's--
Justice Sonia Sotomayor: And so it doesn't need to have been precipitated solely by a decision that the old rule, if it's as your adversary advocates it, didn't exist.
Mr. Waxman: --I agree, Justice Sotomayor, that that -- that one of the two changes that the Board made could be characterized and was in fact a major change.
But if the Court will take note of the pages, the Federal Register record cites that we provided on page 29, Note 7, of our blue brief, and that the Federal Reserve Board's amicus brief in the First Circuit provided at page 12a of the government's brief, I think you will see that the Board -- the Board in 2009 was very careful to explain, as it did in 2007, that it was making in this respect two major changes.
One is that in those instances in which the contract was being changed, that is a term of the contract was being changed, advance notice of 45 days would be required regardless of what kind of change it was, but that when there was a -- an rate increase, quote,
"due to delinquency, deficiency, or penalty, not due to a change in contractual terms in consumer's account. "
reference should be made to new subsection (g).
And the Federal Reserve Board was very, very clear that it was making two different changes: One to extend the advanced notice period with respect to changes in terms from what the original disclosure provided; and another to provide that if you are increasing the rate, even if it is entirely consistent with the initial disclosures, you are required by this new subsection to provide advance notice.
Justice Samuel Alito: May I ask you a question about how the contract works?
In the situation in which a cardholder is found by -- was found by Chase to have defaulted by failing to make some payment other than payment on the Chase credit card, so you determine, I guess from information obtained from a credit agency, that the cardholder has failed to make payments to someone else on time, you conclude that the cardholder is in default, you increase the interest rate.
How is the -- the cardholder, knowing, thinking that he or she has made all Chase payment on time is, not going to be alerted to the fact that there may be an increase in the rate.
So how is that cardholder going to realize what has happened, just by scrutinizing the monthly statement and seeing that the little interest figure is different from what it was the last time?
Mr. Waxman: Yes.
Now, of course, we are talking about a rule that -- it had been amended 2 years ago, but under the old regime the cardholder was on notice.
I mean there had to be -- and the Reg Z commentary was clear that in order for it to be a default rate it had to specify in the initial disclosures both the precise triggering event, that is, what constitutes a default -- and here there is no doubt that it was specified that what constitutes a default is a default or failure to make a payment to any creditor -- and there also has to be a specification of the maximum rate that could be applied as a result.
Now, in this case, as the Board explained, the consumer would be notified in the next monthly statement -- and it is pretty prominent -- that the interest rate applied to all balances for that month was as follows.
May I save the balance of my time?
Justice Antonin Scalia: Mr. Waxman you refer to footnote 7 on page 29 of your blue brief?
Is that what you said?
Mr. Waxman: Oh, gosh, I hope I have this right.
I'm sorry, it's footnote 7 on page 29 of our petition.
Justice Antonin Scalia: Oh, of the petition, all right.
Chief Justice John G. Roberts: Thank you, counsel.
ORAL ARGUMENT OF JOSEPH R. PALMORE, ON BEHALF OF THE UNITED STATES, AS AMICUS CURIAE, SUPPORTING PETITIONER
Mr. Palmore: Mr. Chief Justice and may it please the Court:
During the relevant time period the Federal Reserve Board's Regulation Z did not require provision of change-in-terms notice when a credit card issuer merely implemented a contractual penalty rate provision that had already been disclosed.
This is clear from staff commentary to the rule, from the Board's own statements in the Federal Register when discussing changes to this very rule, and finally from the amicus briefs filed by the Board in the First Circuit and in this Court.
I think it's important to put the particular regulatory provisions here in a larger context because the policy question at issue here, whether there should be advance notice under these circumstances, is not new.
It did not arise with this litigation.
It has been the subject of intense regulatory focus at the Board since 2004.
It has been the subject of two rounds of notice and comment rulemaking, of consumer testing, and finally of an amendment to the rule to provide notice under these circumstances, notice that in the court of appeals view had always been required, unbeknownst to the Board or anyone in the regulatory community.
Chief Justice John G. Roberts: I take it, apart from the amendment to the rule, you think those circumstances provide for Chevron/Auer deference.
Mr. Palmore: I do.
This is, of course, not a Chevron case.
There is no provision in the Truth in Lending Act that deals with subsequent disclosure.
The subsequent disclosure--
Chief Justice John G. Roberts: Our Long Island health care case?
Mr. Palmore: --It's an Auer case, and we believe that all of these provisions, certainly the staff commentary deserves deference, and that was the holding of this Court in the Milholland, in the Milholland case.
But also the Board's own authoritative statements in the rulemaking proceedings about what its old rules meant certainly deserve deference, and we believe the amicus briefs do as well.
In 2004 it was--
Justice Antonin Scalia: Well, you know, we don't -- we don't do that with Congress.
When a later Congress says what a statute enacted by an earlier Congress meant, we don't -- we don't retroactively say, well, that must be what it meant.
Are there other examples of where the Board says what a prior rule meant that we deferred on?
Mr. Palmore: --Well, this Board -- this Court, of course, in Long Island Care at Home deferred to an internal advisory memorandum that was provided after the court of appeals decision that was at issue.
That was an after-the-fact reading and it was a change in policy.
In the context of Auer deference, when you are looking to the author of the agency's regulation to elucidate what that regulation has meant, means, the Court has looked at a broad range of material because it understands that when Congress delegates rulemaking authority to an agency that it also as an adjunct to that delegates authority to interpret those rules.
So in 2004 the Board launched a proceeding because it was concerned with the very issue that underlies this litigation.
And then in 2007 it issued rules to address this situation.
And in that rulemaking notice, and this is at page 12 of the blue brief, the Board described what the old rules required.
And it did so in a way that is irreconcilable with the court of appeals' view of what the old rules required.
The Board noted that staff comment 9(c)(1) did not require provision of a change in terms notice when a specific change had been previously disclosed.
Justice Elena Kagan: Mr. Palmore, what would the Board's position be on the following hypothetical: That a card issuer says when any of 50 different things happen, so 50 different triggering events, the issuer can raise the rate to -- anywhere up to 300 percent, so has complete discretion if any of a quite large number of triggering events occurs.
And then one of those 50 triggering events occurs, and the card issuer says, okay, we will raise the interest rate to 42 percent.
Would there need to be notice for that?
Mr. Palmore: Under the old rule, no.
Justice Elena Kagan: Under the old rule?
Mr. Palmore: Under the old rule, no.
There is a specific staff comment, 6(a)(2)-11, which deals with the initial disclosure of penalty rate provisions, and it said there are two requirements of specificity.
The specific maximum rate that may be applied must be disclosed, and the specific event or events that could lead to imposition of that specific maximum rate must be disclosed.
Justice Ruth Bader Ginsburg: Mr. Palmore, suppose there was no triggering event, but in the initial statement the company said: We reserve the right to raise the interest to X amount.
No triggering event, just a reservation of the right to raise the interest.
Would that have to be -- and then it implements that later on.
Would the cardholder have to have notice of that under the old regs?
Mr. Palmore: Yes.
Under staff comment 9(c)(1), the staff makes clear that if there is a general exercise of a change in rates pursuant to a general reservation of rights clause that is not specific with respect to the maximum rate that could apply or the specific triggering event that could lead to imposition of the maximum rate, that advance notice is required.
But the staff contrasted that to the situation we have here, when the specific change is previously disclosed, and it provided some examples, the third of which is quite analogous here.
It's a situation where the cardholder has agreed to maintain a certain balance in a savings account at the risk of having his rate go up if he -- if he goes below that balance.
Justice Anthony Kennedy: And when was that staff comment made?
Mr. Palmore: That was in -- that's been there since 1981, Justice Kennedy.
But going back to the 2007 notice of proposed rulemaking, the Court specifically -- sorry -- the Board specifically addressed this situation.
"Some credit card agreements permit the card issuer to increase the periodic rate if the consumer makes a late payment. "
"Because the circumstances of the increase are specified in advance in the account agreement, the creditor currently need not provide a change in terms notice. "
"Under current 226.7(d), the new rate will appear on the periodic statement for the cycle in which the increase occurs. "
This statement by the Board authoritatively interpreting its rule is inconsistent with the court of appeals view of those rules.
Chief Justice John G. Roberts: Could you address your friend's contention that because the notice doesn't occur, the notice that the increase has gone into effect, doesn't occur until the end of the billing cycle, it's a retroactive increase without notice.
Mr. Palmore: It's a retroactive increase without notice that was specifically disclosed initially.
So if you look to the cardholder agreement here on page 20a of the petition appendix, Chase was up front that that's what would happen, that the change would be -- the increase in rates would be applied to existing balances; and that, consistent with the statement from the notice of proposed rulemaking, that the consumer would find out about that when he received his next periodic statement.
That's a backward-looking statement.
That is inconsistent with the court of appeals' view that advance notice had always been required.
The court of appeals tried to dismiss this statement and others like it as incidental descriptions of current law.
Chief Justice John G. Roberts: But it is correct to characterize what is being allowed under your interpretation as an increase in rates without notice?
Mr. Palmore: Without advance notice.
There are actually two kinds of notice under the old rule.
Now there are three.
Chief Justice John G. Roberts: Well, advanced notice is notice, right?
Mr. Palmore: Right.
It has to be -- it has to be disclosed initially.
It had to be disclosed initially, and if the cardholder didn't like the terms he didn't have to sign up for that card.
And then it had to be disclosed subsequently on the periodic statement immediately following the rate increase, which would typically be within a matter of weeks.
Now, the Board now believes that there should be a third--
Justice Antonin Scalia: What would have to be disclosed, just the increase in rate?
Mr. Palmore: --The new rate, right.
Justice Antonin Scalia: Not the reason for it?
Mr. Palmore: Not the reason.
Under the new rule, a general reason has to be given.
So when the court of appeals described this as an incidental description of current law, it was correct that this is a description of current law, but it wasn't at all incidental.
It was inherent in the rulemaking proceeding.
The agency needed to explain what its old rules required while it was -- so the readers could make sense of what it was proposing to do to those rules.
And then, as Mr. Waxman said, when the Board then adopted amendments it did two different things.
It changed 226.9(c), the provision at issue here, to extend the notice period to 45 days.
But then it did something additional.
It adopted a new subsection, 226.9(g), to provide for notice in situations where there was no change in terms, where, by contrast, the card issuer was simply implementing terms that had previously been disclosed.
Justice Samuel Alito: Did the Board think that requiring the card-issuing company to provide immediate notice would be very burdensome?
And if not, what -- what was its reason for interpreting the Regulation Z the way it did?
Mr. Palmore: I think it's important to note that in 1981, as we discussed earlier, there was no provision in the Truth in Lending Act requiring subsequent disclosure at all.
And the focus in the statute at that time and in the Board at that time was on the importance of initial disclosure.
And it was thought that initial disclosure was the key tool that consumers could use to comparison shop for credit.
And the Board wasn't as focused on things that happened later in that credit arrangement.
And it thought that the initial disclosure and the subsequent disclosure was sufficient, in the same way that in a variable rate plan there is initial disclosure of the variable rate and there is subsequent disclosure on the periodic statement after the rate adjusts.
There was no requirement and there still is no requirement that there be advanced notice when a variable rate increases.
The consumer find out about it on the periodic statement within a matter of weeks of the rate adjustment, and the Board previously viewed these penalty rate provisions in much the same way.
The Board has now come to a different judgment.
Chief Justice John G. Roberts: Thank you, counsel.
ORAL ARGUMENT OF GREGORY A. BECK ON BEHALF OF THE RESPONDENT
Gregory A. Beck: Mr. Chief Justice, and may it please the Court:
The question in this case is whether a bank must provide notice of a change in terms when, after prominently disclosing a specific purchase rate in the cardholder agreement, the bank then changes that rate -- then changes that rate based on a reservation of discretion in the fine print of the cardholder agreement.
Justice Ruth Bader Ginsburg: Changes the rate in the cardholder's favor?
Gregory A. Beck: Changes the rate -- the rules, the regulations as they exist as relevant to this case, provide that you do not need to provide notice if the interest rate is reduced.
Is that your question, Justice Ginsburg?
Justice Ruth Bader Ginsburg: Yes, but would you -- would it be in the greater interest of your client if the initial notice said, we are going to raise it to the top, no discretion?
Gregory A. Beck: It -- there -- Justice Ginsburg, there would still be discretion.
And we're not -- and nothing we say would take away discretion or discourage discretion.
We are simply saying that either the -- the credit card company has to decide specifically what rate will apply beforehand and put it in the cardholder agreement, or it can specify a range of possible rates, reserve that discretion, and then when it decides which rate it wants to apply it would then inform the borrower what that rate is.
Justice Ruth Bader Ginsburg: But it says, we prefer one notice to two.
So, sorry, we can't give our cardholders that benefit; we will say this is the rate, this is going to be it.
Then we will spare ourselves a second notice.
Gregory A. Beck: Right.
And -- and there's -- but there has been no showing that the -- this notice cost would be a significant burden on the credit card companies.
And the important thing is that, if you don't know, if you don't get that notice and all you know is that the credit card company has discretion to raise the rate, then you never know for sure whether your rate has even gone up or not, much less how much it's gone up.
So you never have that opportunity to go and see whether there is a better-priced loan available.
You might not -- you might miss an opportunity to avoid making a purchase that would -- that would be at a rate higher than you expected; and the lack of that -- that ability to shop between loans is really the central motivating--
Justice Ruth Bader Ginsburg: Well, you know the highest rate, because that is stated in the original notice, and you could shop on the basis of that.
Gregory A. Beck: --You could, but you wouldn't know that the rate had gone up at all, because all you know is that there's a maximum rate, and the -- and the credit card company has discretion to raise the rate or not.
So absent any notice, the assumption would be that the rate hasn't changed, that--
Justice Antonin Scalia: You get the notice with your next statement.
But you are talking about the purchases made before the next statement, right?
Gregory A. Beck: --Right.
You -- you don't get notice on your next statement, Your Honor.
Justice Antonin Scalia: Well, you get notice if your rates changed.
It would show it, wouldn't it?
Gregory A. Beck: It will -- it will state, Your Honor, it will state on the statement that -- what your rate is.
Justice Antonin Scalia: Right.
Gregory A. Beck: But it will not tell you that the rate has changed and it won't tell you how much it has changed.
So you would have to figure that out by yourself.
So it is not notice of a change in that sense.
Justice Antonin Scalia: What's to figure out?
Gregory A. Beck: Well--
Justice Antonin Scalia: --If he had been paying, what, 10 percent and it's now 25 percent, it would seem evident on the face.
But that doesn't solve the problem of the purchases that you have made before you got that statement.
Gregory A. Beck: --Well, that's right -- that's correct, Your Honor.
It still doesn't solve that problem.
And when the rate is applied retroactively back to the beginning of the cycle, so this would go back to the first of the month even before the default occurred, as happened in this case, then the problem is exacerbated even more.
Justice Elena Kagan: Mr. Beck, just to clarify your position, if the initial agreement said your rate is 10 percent, but if you are delinquent, your rate will be 20 percent, so not up to 20 percent, just 20 percent, it's an automatic increase in your rate -- in that case, would notice -- would subsequent notice be required?
Gregory A. Beck: I think if the disclosure was specific and -- and prominent, as required by the initial disclosures, and it wasn't retroactive, then I think the best reading of the rules would be you would not need to disclose that.
Justice Elena Kagan: So if you don't need to disclose this, and I think that this is the import of Justice Ginsburg's question--
Gregory A. Beck: Right.
Justice Elena Kagan: --what's the difference between going, okay, we will do the initial agreement, 10 percent to 20 percent; then we can always lower the rate without providing notice; we will go back down to 12 percent, and now you have a 12 percent rate.
What's the difference between doing that and on the other hand doing what the card issuer said here, which is if you are delinquent, we have the discretion to go up to 20 percent, but you know, we could also go to 12?
Gregory A. Beck: Well, the easy answer to that question is that it -- it's different because the regulation specifies a different result in each case.
Section 226.9(c)(2) says that no notice is required when any component of the finance charge decreases or is changed in the customer's favor.
So there would be under the plain language of the regulation no need to -- to provide notice there.
But I think the intent of the question is, is Chase's argument about there is no practical difference between the two.
That is, there is basically no harm from -- from not telling people that the -- about their rate change.
And we disagree with that as well, first of all because, as I was saying to Justice Ginsburg, you need to have the notice that there has been a change at all in order to -- to realize that you might want to avoid making extra purchases or consider -- not throw away the low APR offer that comes in the mail, for example.
And also, aside from that, we think that when you have only a -- a maximum rate, that is basically the equivalent of a range of possible rates between the initial rate and the maximum rate.
And that undercuts the ability to compare loans at the time of the cardholder agreement, even before the whole default comes into play, because at that point you have to compare two loans with two possible ranges of rates, and the key factor between the two, the value of the two loans, is how the credit card company will issue -- will use its discretion--
Chief Justice John G. Roberts: Well, that's just saying that the problem that Justice Ginsburg is concerned with isn't likely to come up, because a credit card issuer realizes he's not going to get chosen by a consumer if he says your rate is going to be somewhere between 5 and 20 percent.
No one's going to sign up for that card.
Gregory A. Beck: --Well, that's -- that's part of the problem, Justice -- Mr. Chief Justice, because the point -- the central motivating purpose of TILA is to provide clear and up-front and specific disclosures, and that -- that would put the burden on the consumer to -- to look into the fine print to figure out the conditions, and after judging all the applicability of those conditions, to figure out how it would apply and compare with other loans.
Justice Ruth Bader Ginsburg: And it's fine to say then, Federal Reserve Board, this regulation that you had and that you explained a number of times was a bad one, you should change it -- which they did.
But you are up against a regulation that both sides say has some ambiguity, but that the Board has said what it meant a number of times.
So is -- is the Court free to say the new rule is much better so we are going to say that's what the old rule was as well, in the face of what the Board has said?
Gregory A. Beck: No, definitely not, Justice Ginsburg.
Justice Stephen G. Breyer: Why not?
Can't an agency interpret its own rules?
I thought there was a long line of cases, Udall v. Whatever it was.
I mean, there are like 50 of them--
Gregory A. Beck: --Yes.
Justice Stephen G. Breyer: --where an agency can interpret its own rules; and if it has authority to make the rule, it could decide that it means something different.
Where -- where in the law does it say they can't do that?
Gregory A. Beck: It doesn't, Justice Breyer, and -- and all we're saying is that agencies speak with varying levels of authority, and -- and those different methods of statement make a difference in how much deference will go to those statements.
And what we have here is the official staff commentary which the Board has designated as the official source of -- of interpretation of the rules, and we are asking the Court to -- to read those rules and defer to those.
Justice Stephen G. Breyer: But at the Board -- isn't there realism in this?
When you read what the Board later said in -- in these reports, you would say, well, this is what the Board now thinks.
And what in the law prevents the Board, which is in charge of its own regulations, from telling us what it thinks, if it's in good faith and isn't making up some kind of ex-post rationalization?
That's the word used, you know, in the brief case.
Gregory A. Beck: I think that the Board itself made that law when it decided that it would issue official staff commentary through a notice and comment process and interpret the rules in that way.
Justice Ruth Bader Ginsburg: But the problem with that is when the Ninth Circuit split about the official statement and Judge Cudahy gave a very cogent explanation of why the majority is just dead wrong in how it read those official comments.
So you are relying on what two judges have said the official interpretation was, against the dissenting opinion and the Board itself saying, that's what we meant in our official comments, in our official comments.
Gregory A. Beck: Well, we -- we think that Justice Cudahy's analysis made the same mistake that other courts have made in examining the regulations, which is to defer to the -- the unofficial statements of the Board, the Board or the Board's staff, before coming to a conclusion about the plain meaning of the official regulations, the official interpretation.
Justice Ruth Bader Ginsburg: And what about the invited brief in the First Circuit?
Gregory A. Beck: Well, there is no question that the invited brief is against our position, and we certainly wouldn't argue otherwise.
Justice Anthony Kennedy: You talk about plain meaning.
I thought you agreed that the -- that the regulation is ambiguous.
Gregory A. Beck: --No, we don't agree that the regulation is ambiguous.
Justice Anthony Kennedy: I thought you did.
Gregory A. Beck: And I would like to talk about that.
Section 226.9 is the relevant change of terms provision and it states that notice is required, quote,
"whenever any term required to be disclosed under section 226 is changed. "
And section 226.6 in turn states that there is a required disclosure when --
"of each periodic rate that may be used to compute the finance charge. "
And so those two sections working together say that you have to -- you have to disclose when there's a change of terms and -- and that one of the terms that has to be disclosed is the interest rate.
And in fact the interest rate is the most important disclosure--
Justice Antonin Scalia: But the rates -- the rates that may be charged--
Gregory A. Beck: --Right.
Justice Antonin Scalia: --hasn't been changed.
That still remains what it was.
Gregory A. Beck: All right.
But I don't think the word "may" here can be read to exclude the requirement that the bank also disclose the rates that are charged.
Justice Antonin Scalia: Ah.
No, you're the one that's reading it to say something different from what it says.
It says the rates that may be charged.
That's the term, "these rates may be charged".
That term hadn't been changed.
You want to change it to "the rates that are charged".
Gregory A. Beck: But even -- even the board and even Chase does not argue that you have to disclose the actual -- the actual purchase rate at the beginning of the agreement.
Everybody agrees that that has to be disclosed and that has to be disclosed with specificity.
So the word "may" has to include the -- both rates that might be applied and rates that are applied.
And the reason the word "may" has to be there is because it's quite possible that a -- that a rate may never come into play.
For example, if you have an initial rate that changes at the end of 6 months and you leave the credit card before the 6 months are up, then that new rate will never come into play.
But that doesn't mean you don't also have to disclose the rate that happened at the beginning of the credit card agreement.
Justice Antonin Scalia: Well, I think it's at least a horse race, and that brings us back to how much deference you give to the -- to the board.
Gregory A. Beck: Uh-huh.
Justice Antonin Scalia: You are trying to make the argument that it's clear.
The fact that it says "may be charged" alone makes it unclear, it seems to me.
Gregory A. Beck: --Well, I would say that even the government doesn't -- doesn't agree with that, that "may" means that.
Because that would -- the government doesn't argue initial disclosures don't have to be specific and don't have to be -- don't have to be made.
The government's argument is a little bit different.
What they are saying is that the word 226.9 means contractual terms rather than credit terms.
And that's a different argument because it doesn't -- it wouldn't -- it wouldn't affect the initial disclosures.
It would only -- it would only mean that you don't have to give subsequent notice if you haven't changed the contract in the first instance.
And so these are actually somewhat -- somewhat different theories.
And under the government's theory, there would be no role for section 226.9 to play because you would -- the only times it would come into play is when there is a change in the contract.
And any time there is a change in the contract, under the basic contract law of every State, you have to provide notice at least to the other party to the contract.
So the only time notice would be required under section 226.9 would be when the -- when contract law requires that notice to be given anyway.
And even worse than that, it would -- it would actually cut back on the required notice that would be available under contract law, because, for example, Delaware says you have to give 15 days advance notice of a change in terms to a credit card agreement in the event of a default.
And under this reading, you would -- even if the creditor changed the terms of the contract, as in increased the default rate above the maximum that the contract would authorize -- so the contract says we can charge you 30 percent in the event of a default and you impose an interest rate of 100 percent -- then even in those circumstances, you only have to provide contemporaneous notice of the change.
So you would basically have to put a letter in the mailbox on the day that you implement the new 100 percent interest rate that was not disclosed in the initial agreement.
And our submission is that that is not a reasonable interpretation of section 226.9.
And it is true that the rules have been amended, but we have to look at the purpose of the rules from the point of view of the -- of the board which enacted those rules in 1981.
And you can't assume that the Board at that time expected a set of rules that would never -- that would never require subsequent notice to be -- to be supplied unless there is a change in the terms of a contract, in which -- in which notice would have to be required anyway.
The next point that the parties -- aside from the language of the -- of the regulation itself, the parties rely on official staff commentary, as do we, in supporting their position.
And the parties argue that the word "specific" allows them to -- I'm sorry -- the government and Chase Bank argue that the word "specific" allows them to specify in advance only the maximum rate and that the word "specific" encompasses a maximum, and the circumstances of causing that maximum to go in effect of a universal default situation, where if you default to any creditor or make a late payment to any creditor, then it triggers the new rate, which goes up to a discretionary maximum.
It's our contention that that kind of situation of a universal default and a discretionary maximum rate is not a specific disclosure under any sense of the word.
Justice Ruth Bader Ginsburg: Are we getting back to what was my initial question?
So you say you can't have flexibility that would favor the cardholder; if the initial notice is to count, then it has to be a fixed rate and the company can't exercise discretion to reduce the rate.
That's what you are saying: A fixed rate would be okay.
The problem with this is the company provided flexibility to reduce the rate in the interest of the cardholder.
Gregory A. Beck: --That's one of the problems.
The other problems are that the triggering event is not specific enough and that it applies retroactively.
But as to that problem, which we -- we do agree is a problem, that's a result of the Board's decision to allow reductions in interest rates without requiring notice.
And if it were true that that meant that, there is no point in giving a specific interest rate because it could always, after all, be lower--
Justice Stephen G. Breyer: It doesn't say "specific interest rate".
I mean, my understanding of it -- and I'm asking, so you can correct me if that isn't so -- is there's a regulation, Regulation Z.
Gregory A. Beck: --Right.
Justice Stephen G. Breyer: And then the staff put out some commentary and says, here's what that means, among other things: That the creditor can increase the rate at its discretion, and you have to give notice.
You have to give notice, but you have to give some more notice if the original notice does not include specific terms for an increase.
Then they give an example.
Suppose the increase could occur under the creditor's contract reservation right to increase the periodic rate.
Gregory A. Beck: Right.
Justice Stephen G. Breyer: That's a little obscure.
As I say it, I'm not sure what I'm talking about.
So then, later on, the Board puts out another -- not called official staff commentary, but they say:
"We'll tell you what that word "specific terms" means. "
It means when they didn't say anything about the interest rate, or they didn't say when in fact they were going to increase the interest rate from X to Y, then they didn't give specific notice.
But they did give specific notice if they told you when it would increase, by default -- when you default.
And they did give specific notice when they told you what the maximum it would go up to was, like 8 percent or 18 or whatever it was.
So that's the Board's interpretation of its official staff commentary, which in turn is an interpretation of the reg.
So if we are supposed to defer to their interpretation of their own reg -- I mean, my goodness, wouldn't we defer like double to their own interpretation of their own staff commentary, which is an interpretation of a reg which they have an authority to issue under the -- you see my point.
Gregory A. Beck: I see your point, Justice Breyer.
But I would say that when you are talking about an interpretation of an interpretation, you are even further away from the original congressional intent that's empowering these kinds of interpretations.
So I don't think that would--
Justice Stephen G. Breyer: I mean, that would be an argument you could make.
You could say that -- that their interpretation here exceeds their authority under the statute.
Now, of course, if you are right about that, all this stuff goes out the window.
Gregory A. Beck: --Right.
Justice Stephen G. Breyer: But it's a pretty hard argument to make that one, I think.
Gregory A. Beck: And we are not making that argument, Your Honor.
But what we are saying is -- is that when you look at the interpretation, you have to judge it based on the authority that comes with it and the deliberation that comes with it.
And in this case, we know that the Board itself has designated the official staff commentary with notice and comment process as the way that it wants to officially interpret rules.
And there is a good reason for that, because the Board was concerned, as Congress was concerned, that there was all these differing interpretations of the -- of Regulation Z that were going out in the form of opinion letters.
Justice Sonia Sotomayor: What's left of their arguments if we decide that the statute is ambiguous, the official staff commentary is ambiguous?
What is left?
Is Auer deference then required?
Gregory A. Beck: I think -- I think Auer--
Justice Sonia Sotomayor: To the amicus brief at least?
We can talk about whether the ANPRs or the unofficial commentaries are due deference.
But what are we left with if we think there is ambiguity?
Gregory A. Beck: --I think in that case that the Court would have to defer to some degree to the brief, because that would be the only source of the Board's opinion in that--
Justice Sonia Sotomayor: So your case rises and falls on whether we believe that the statute is clear?
Gregory A. Beck: --The regulation and the official staff commentary.
But I would also say that that deference does not have to be conclusive and it should not be given the force of law, even to the brief, because the agency has said that it doesn't -- it specified the official staff commentary so that there aren't these multiplicity of different opinions going out, interpretations of Regulation Z that are difficult for banks to access to figure out what their obligations are under the regulations.
And -- and so the Board itself doesn't want opinion letters and briefs and things to be -- to be interpreted as with the force of law, because that would, you know--
Justice Sonia Sotomayor: That's a different question.
You are claiming that the Board's regulation supersede whatever deference Auer would otherwise give to amicus briefs?
Gregory A. Beck: --I think that's right or at least limit that deference.
I think that the Court should at least -- at least view the brief with more skepticism, given that the Board has wanted this very careful deliberative process for making its rules.
Justice Elena Kagan: Mr. Bauer, most of your argument seems to rely on the official staff commentary, but the official staff commentary itself seems to me to cut against you.
It says no notice need be given if the specific change is set forth initially.
And then it gives examples of what that means.
And it says such as, 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.
So the example they give is an example where there is a triggering event and there is a penalty rate that comes into effect as a result of the triggering event.
And that is exactly what is true here.
Gregory A. Beck: Yes, but in that case, Justice Kagan, you know for certain anyone who has a bank account can know what the balance of that bank account is.
So there is no uncertainty about whether the balance triggering event is satisfied.
And then there no uncertainty about what the resulting rate is because section 226.6 says you have to disclose each interest rate and the range of balances to which it is applicable.
So you have to know both the interest rate and you have to know the triggering event.
And that's very different from a case where you are not sure, first of all, whether the bank is going to use its discretion at all.
You don't know for sure if whether there is anything negative on your credit report that would even trigger that discretion to begin with.
And you don't know if the discretion is triggered what the rate will be because the bank reserves discretion to set it anywhere up to the maximum.
Justice Elena Kagan: Well, on the triggering event first.
It's true that you might know your account balance, but it's also true that you might know whether you paid your bills on time.
What's the difference?
Gregory A. Beck: There is the discretionary difference, for example.
In the bank situation the rate is automatic and it does not base, it doesn't just trigger an exercise of discretion.
Justice Elena Kagan: Well, I don't see that in the example that's given.
I don't see that it limits it to a situation in which there is an automatic increase in your rate rather than a discretionary increase in your rate.
Gregory A. Beck: For that I would look to section 226.6(a)(2), which says that each periodic rate and the range of balances to which it is applicable must be set forth initially.
And so you know from the very beginning which balances on your account would trigger a certain interest rate.
So there is no, in that case there is no uncertainty.
But the other difference is that in a bank account situation, you're balance either above the maximum or below the maximum, but when you are talking about universal default, it is not always going to be obvious to you, first of all, whether anyone has reported anything to the credit agency.
Oftentimes certain creditors will overlook a certain late payment, for example, and maybe they reported one and it might not show up on your Experian credit report for months or years later and then you will not know at what point it comes into play.
So the only way to know for sure in that circumstance is to subscribe to the Experian credit reporting service just like Chase does so that you would know when there are any negative events that are reported to the credit agency that would possibly trigger Chase's discretion, but even in that case you would not know for sure whether Chase had implemented its discretion or not.
And I wanted to say the Government, its own interpretation of the regulation is, especially when considering the amendment is itself inconsistent.
Because the Government says that the new regulation fixed the problem.
But the new regulation uses the same language as the old regulation when it comes to what's required for a later change.
It does carve out the default rate situation is a special case.
But for every other kind of rate increase that has happened subsequent to the initial disclosure, it still uses as a triggering event any change in terms required to be disclosed by section 226.6.
And if it were true that what the Board wanted to do was fix this ambiguity and this problem that was set forth, that was in the original regulations, then it would be very, very unlikely that the Government would then implement the same language in the amended regulation to meet that same ambiguity in place rather than clarifying exactly when subsequent notice would be required.
Justice Ruth Bader Ginsburg: I'm not following that argument.
I thought that the new regulation says now any time there is a change in the rate, whether it was announced originally or comes up later, just keeping it nice and simple, a rate change, you send notice.
And that's -- and you have to do it -- give 45 days notice.
I thought that is what the new regulation was?
Gregory A. Beck: That's why I am saying the Government is inconsistent because that's what the Government says that it does.
But what the regulation actually says in 226.6(c), the new version, any change required to be disclosed -- a change in any term required to be disclosed within section 226.6 is the same thing.
It is true that there is a new subsection g that applies just to default rates, and it is very extensive because it covers a lot of aspects of default rates.
So now I think it is clear that default rate increases would have to be disclosed, so the problem in this case would certainly be resolved.
But the Government's position is that there was a consolidation of all change notices into one 45 day notice period, and that's not clear from the regulation because it still uses this same ambiguous language that was in the old version.
So I think the Court -- the Court should -- and for us that's an independent reason for the Court to view skeptically the Government's submissions in this case and view it with some skepticism instead of granting it the force of law.
The Court should consider that.
The Board itself hasn't adopted a consistent interpretation of the language at issue.
Unless there are any further questions?
Chief Justice John G. Roberts: Thank you, Mr. Beck.
Gregory A. Beck: Thank you, Your Honor.
Chief Justice John G. Roberts: Mr. Waxman, you have three minutes remaining.
REBUTTAL ARGUMENT OF SETH P. WAXMAN ON BEHALF OF THE PETITIONER
Mr. Waxman: May it please the Court:
Just three small points.
My interest was peaked when Justice Breyer said that he acknowledged that he may have no idea what he was talking about with respect to a reservation of rights.
And I just want to be clear that reservation of rights clauses, which are also referred to as change in terms clauses, are ubiquitous in these contracts and initial disclosures, they are a term of art as the Board has recognized.
And what they are is simply a statement by the credit card issuer in a consumer open credit account arrangement that, you know, it may decide to change any term in any respect at any time and the Board's regulations make clear that if you do that, that is if you implement a change in terms pursuant to a reservation of rights clause, you have to provide notice.
Now, the specific -- what 1998 amendment to Regulation Z, which is comment 6(a)(2)-11, which is reprinted in relevant part on page A of our blue brief.
This really is in our blue brief.
Justice Stephen G. Breyer: So in your view, that's staff commentary, the staff thing means?
Mr. Waxman: Page 8.
Justice Antonin Scalia: 8.
Justice Stephen G. Breyer: If you fail to say in your original notice that default is the trigger, then you would have to give another notice?
Mr. Waxman: Right.
You have to -- I mean, what it says, and I'm quoting from 4/5 of the way down page 8.
"If the initial rate may increase upon the occurrence of one or more specific events such as a late payment or an extension of credit that exceeds the credit limit, the creditor must disclose the initial rate and the increased penalty rate that may apply. "
And this was an amendment in 1998 that the Board made to Reg Z in what it recognized, what it stated was on account of the increased use of default penalty terms in the initial disclosures, that it wanted to make clear that if both the triggering event and the maximum rate was specified there would be no change in terms if an increased rate were implemented.
And finally, I just want to address my friend's point that there may be some question about whether TILA even authorizes the Board's explanation of the type of subsequent disclosure that was or wasn't required and underscore Mr. Palmore's observation that in TILA until 2009 there was a requirement for initial disclosures, there was a requirement for periodic statements, but nothing at all about subsequent disclosures.
Chief Justice John G. Roberts: Thank you, counsel.
The case is submitted.
Justice Sonia Sotomayor: Regulation Z, promulgated by the Federal Reserve Board pursuant to its authority under the Truth in Lending Act, requires issuers of credit cards to disclose certain information to cardholders.
The version of Regulation Z, applicable in this case, requires that insurers provide cardholders with an “initial disclosure statement”, specifying “each periodic rate” associated with the account.
The regulation also imposes “subsequent disclosure requirements” including giving to cardholders notice when any term required to be initially disclosed is changed.
The cardholder agreement between petitioner, Chase Bank and respondent James McCoy, authorized Chase to raise McCoy's interest rate up to a preset maximum, in the event that McCoy was delinquent or in default.
This case presents the question, whether Regulation Z required Chase to notify McCoy of an increase it imposed within the range specified in the agreement following such delinquency or default.
We conclude that it did not.
We find that the text of Regulation Z is ambiguous with respect to the key question, whether an interest rate increase instituted pursue -- pursuant to a previously disclosed contractual provision is a change in term requiring notice.
Because the regular -- regulatory text is unclear, we look to the Board's own interpretation of the regulation for guidance.
Under our precedent in Auer versus Robbins, we deferred to an agency's interpretation of its own regulations advanced in a legal brief, unless that interpretation is plainly erroneous or inconsistent with the regulation.
In its amicus brief to this Court, the Board states that in its view, the version of Regulation Z, applicable in this case, does not require notice.
The interest rate increase at issue did not change the term of the agreement.
It's simply implemented a term previously disclosed.
This interpretation is neither plainly erroneous nor inconsistent with the regulation, and we have no reason to suspect that it does not reflect the Board's fair and considered judgment on the matter.
Accordingly, this interpretation is authoritative under Auer and we need look no further.
The judgment of the Court of Appeals for the Ninth Circuit is reversed.