Bank of America Wins Round in Battle with High-Balance Credit Cardholders

A federal appeals court has awarded Bank of America Corp. the right to retroactively raise interest rates to punish high-balance cardholders who go over their credit limits too often.

The 7th Circuit Court of Appeals in Chicago denied claims by Bank of America cardholders, who filed a class-action lawsuit alleging the Truth in Lending Act prevented the bank from imposing a 32-percent interest rate retroactively for an entire month after they exceeded their credit limits too many times.

The appeals court decision, which upheld a lower court’s ruling in favor of Bank of America, deals a blow to millions of credit-card consumers who want to challenge high interest rates as being unfairly burdensome on consumers.

The court also refused to apply state rather than federal rules to the controversy after finding that Bank of America is a national bank which can choose to impose interest rates that are lawful in Delaware, where it is incorporated. That ruling comes as states have complained that they are not allowed to impose stronger, local regulations on nationwide lenders.

Court Approves Interest Rate Hikes

The appeals court approved of Bank of America raising a credit cardholder’s interest rate from 18 percent to 32 percent after the cardholder went over her credit line in two or more times in the previous year and continued to use the card. The bank notified the cardholder that her interest rate would be increased and imposed the increase retroactively for the entire month in which the notice was given.

The cardholder argued that she was given insufficient notice of the rate increase. The 9th Circuit Court of Appeals, which includes California and other western states, and several district courts have issued similar rulings upholding retroactively applied interest rate hikes.

Supreme Court Ruling Coming Soon

The U.S. Supreme Court is currently considering another case challenging the extent to which states may regulate Bank of America, JP Morgan Chase, Citigroup Inc., Wells Fargo & Co., and other national banks. A ruling in that case is expected by June, when the Supreme Court begins its summer recess.

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