Rossman v. Fleet Bank (R.I.) National Ass'n
2002 U.S. App. LEXIS 2020, 280 F.3d 384 (2002)
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Rule of Law:
The Truth in Lending Act (TILA) requires credit card solicitations to be clear and not misleading; a "no annual fee" offer implies a promise of at least a year without such a fee, and a creditor's undisclosed intent to impose a fee shortly thereafter, combined with the contractual authority to do so, constitutes a misleading disclosure under TILA.
Facts:
- In late 1999, Paula Rossman received a "Pre-Qualified Invitation" from Fleet Bank for a "Fleet Platinum MasterCard" offering a low annual percentage rate and explicitly stating "no annual fee."
- The solicitation's "Consumer Information" enclosure, including the legally required "Schumer Box," prominently displayed "None" under the "Annual Fee" heading.
- Rossman accepted the offer and received her "no-annual-fee Platinum MasterCard" in December 1999 or January 2000, along with a "Cardholder Agreement" that also stated, "No annual membership fee will be charged to your Account," but included a general change-in-terms provision allowing Fleet to change any terms at any time.
- In May 2000, Fleet Bank sent Rossman a letter announcing its intention to change the agreement terms by imposing a $35 annual membership fee, effective with billing cycles closing on or after June 1, 2000, to appear on the statement including the account's next anniversary date.
- By letter dated June 20, 2000, Fleet Bank modified the effective date of the change, notifying Rossman that the annual fee would be imposed almost immediately, in the billing cycle closing in July 2000.
- A $35 annual fee was charged to Rossman's account by July 6, 2000, less than a year after she accepted the "no annual fee" offer.
- Rossman alleged that Fleet continued to solicit other new customers with "no annual fee" offers despite imposing fees on existing customers, implying a systematic "bait-and-switch" scheme where Fleet intended to impose a fee shortly after the initial offer.
- Fleet Bank maintained that it had the authority under the cardholder agreement to impose an annual fee at any time, asserting its original disclosures were accurate reflections of the agreement at the time they were made.
Procedural Posture:
- Paula Rossman filed a putative class action lawsuit against Fleet Bank in the United States District Court for the Eastern District of Pennsylvania.
- Rossman's complaint asserted, among other claims, a violation of the Truth in Lending Act (TILA).
- Fleet Bank filed a motion to dismiss the TILA count under Rule 12(b)(6) for failing to state a claim upon which relief could be granted.
- The District Court granted Fleet Bank's motion, holding that Rossman's allegations did not sufficiently demonstrate a deficiency in the original disclosures to constitute a TILA violation.
- The District Court declined to exercise supplemental jurisdiction over Rossman's remaining state law claims and dismissed the entire suit.
- Rossman (Appellant) appealed the District Court's dismissal to the United States Court of Appeals for the Third Circuit (Fleet Bank as Appellee).
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Issue:
Does a credit card issuer violate the Truth in Lending Act (TILA) when it solicits customers with a "no annual fee" offer but intends to impose an annual fee shortly after account opening, and subsequently changes the terms to impose such a fee within the first year, assuming the underlying agreement permits such a modification?
Opinions:
Majority - Scirica, Circuit Judge
Yes, a credit card issuer violates the Truth in Lending Act (TILA) when its "no annual fee" solicitation is misleading because it does not accurately reflect the terms of the agreement as understood by a reasonable consumer, particularly if the issuer intends to impose such a fee shortly after opening the account and the underlying agreement permits this within the first year. The court emphasized that TILA, a remedial consumer protection statute, must be construed liberally in favor of the consumer to assure meaningful disclosure of credit terms. TILA requires credit card solicitations to include clear, conspicuous, and accurate disclosures, which must reflect the legal obligations between the parties at the time they are made. While a creditor need not anticipate future changes, disclosures must be truthful and not misleading. The statement "no annual fee" is reasonably understood by a consumer to imply a duration of at least one year. If the issuer can impose a fee within that year, the disclosure is at best ambiguous, and under TILA's consumer-friendly interpretation, such ambiguities must be resolved in favor of the consumer. The court found that Fleet's general "change-in-terms" provision in the cardholder agreement, which was not itself a required disclosure in the solicitation, did not excuse the misleading nature of the specific "no annual fee" representation in the initial offer. The court distinguished Clark v. Troy & Nichols, Inc., which addressed a bait-and-switch scheme before contract consummation, by noting that in Rossman's case, the misleading solicitation was not corrected before she entered into the credit agreement. The "switch" here occurred after contract formation by invoking an undisclosed ability to change terms, placing Rossman in a disadvantageous position (e.g., a high APR on a balance if she attempted to cancel the card). Furthermore, Congress imposed special early disclosure requirements on credit card solicitations to ensure consumers have information for informed choices at the solicitation stage. Permitting misleading early disclosures that are later "corrected" would render these requirements ineffectual and allow the use of disclosures to intentionally deceive consumers. Federal Reserve Board comments also support that introductory or waived fees require disclosure of their temporary nature. Assuming Fleet had the contractual authority to impose the fee at any time, the "no annual fee" solicitation was misleading for TILA purposes. The court reversed the District Court's dismissal and remanded for further proceedings.
Analysis:
This decision significantly strengthens consumer protections under the Truth in Lending Act, particularly regarding credit card solicitations. It clarifies that a "no annual fee" promise carries an implied one-year duration from the perspective of a reasonable consumer, demanding creditors explicitly disclose any shorter intended periods or immediate changeability. The ruling discourages "bait-and-switch" tactics by emphasizing that specific, attractive initial disclosures cannot be undermined by general change-in-terms clauses, especially when the consumer is effectively locked into a disadvantageous position post-contract. Future credit card issuers must ensure the accuracy and non-misleading nature of all prominent terms in their solicitations, recognizing the broad, liberal construction afforded to TILA in favor of consumers.
