Under the 2009 CARD Act, 15 U.S.C. § 1666i-1, credit card issuers are generally prohibited from increasing annual percentage rates, fees, or finance charges. One exception to this rule, though, is for “an increase in a variable annual percentage rate in accordance with a credit card agreement that provides for changes in the rate according to operation of an index that is not under the control of the creditor and is available to the general public.”
Bank of America offers variable-rate credit cards with rates calculated by adding together the highest U.S. Prime Rate each month, and an invariable margin. Under this formula, Austin Milliken’s interest rate shot up as the Prime Rate more than doubled from March 2022 through July 2023. Milliken then filed a class action claiming that the rate increase violated the CARD Act.
The district court rejected Milliken’s argument, and this week the Ninth Circuit affirmed. The court of appeals agreed with the district court that the rates qualified for the statutory exception- rejecting Miliken’s argument “that since the effective value of the Prime Rate can change day-to-day, retroactively setting the variable rate for the entire billing cycle based solely on the rate’s effective value at the end of the month is not doing so ‘according to operation’ of the Prime Rate.” The exception for variable rates, the court held, does not prohibit the application of index-based changes to outstanding balances. The court rejected Miliken’s additional policy-based arguments, as well, and concluded that the Bank’s position was consistent with CFPB regulations and guidance.
