9th Circuit Considers "Fixed" Rates under TILA
In Rubio v. Capital One Bank, the 9th Circuit considered what constitutes a "fixed" credit card interest rate under TILA. Plaintiff Rubio received a direct mail solicitation reflecting a "fixed" rate for balance transfers, listing three conditions under which the rate might change (late payment, exceeding credit limit, and returned payment), and stating the terms of the cardholder agreement were subject to change at any time. Rubio's rate increased though none of the three identified conditions had occurred.
Rubio sued for breach of contract, violation of the Truth in Lending Act (TILA) and violation of California's Unfair Competition Law (UCL). The district court dismissed all three causes of action on motions to dismiss. Plaintiff appealed.
On appeal, the Ninth Circuit reversed the dismissal of plaintiff's TILA and UCL causes of action and affirmed the dismissal of plaintiff' breach of contract cause of action.
The Court reversed the TILA claim dismissal because it held defendant had not shown "as a matter of law that it made its APR disclosure 'in a reasonably understandable form and readily noticeable to the consumer'" under TILA and its implementing regulations. Specifically, Rubio argued that the use of the word "fixed" regarding the interest rate was misleading in conjunction with the three identified conditions, because it implied that these conditions were the only things that would lead to a rate change, when in fact the card issuer reserved the right to change the rate for any reason at all.
The Court first noted that the July 1, 2010 revisions to Regulation Z, which the Court noted were non-binding but persuasive, a card issuer may only describe the rate as "fixed" without specifying a time period only if the rate is unchangeable for the life of the card. The Court also rejected defendant's position that "fixed" in this context means "not tied to an index."
The Court then held that Rubio had standing under the UCL, and had adequately alleged all three prongs of the statute. The Court affirmed the dismissal of the breach of contract claim, holding Capital One's solicitation was not a binding contractual offer.
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