August 09, 2010
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News: Capital One Finance Back On The Hotseat
Capital One Financial Corp. (COF) is back on the hot seat after raising credit cardholders' interest rate for no apparent reason. A Federal U.S. Court Appeals Court reinstated a lawsuit filed against the bank by a credit cardholder who said COF raised her interest rate from a fixed 6.99 percent to 15.9 percent without cause. According to COF, the bank's conditions which allow it to raise interest rates were written in the contract. However, in a 2-1 ruling, the 9th U.S. Circuit Court of Appeals in San Francisco ruled that COF had failed to prove that they had made "clear and conspicuous" disclosures that would allow them to raise the credit card interest rate. According to Judge Betty Fletcher, an interest rate cannot be considered "fixed" if the bank claims the right to change the APR at any time even though the bank claimed to make it "clear and conspicuous" that they had the right to change it for any reason.
The judge also stated that Capital One's credit card terms and conditions statements were not "reasonably understandable" and "readily noticeable." The lawsuit which was filed by Raquel Rubio originated in a California lower court and claimed that COF had violated the Truth in Lending Act as well as the California unfair competition law. The story began in February of 2004 when Rubio a pre-approved mail credit card application for a 6.99 percent interest rate. In small print, the contract stated that COF that the terms were "subject to change." The following month, Rubio received a statement from the bank stated that COF could "amend or change any part" of her agreement "at any time." Although Rubio had not violated any terms of the contract, in August of 2007 COF raised her interest rate.
Although the case is not over, it is good news for credit cardholders who may have found themselves in the same position as Rubio who has filed for a class action status. The case will now be returned to the District Court in Los Angeles for further handling. According to Judge Susan Graber, of the U.S. Appeals Court, the ruling establishes that disclosure clarity is a question of fact rather than law.