UNFAIR CREDIT-CARD FEES

The federal court that hears cases from Pennsylvania recently ruled that credit-card holders can sue banks and credit lenders to avoid unfair annual fees.

The suit was brought by a consumer who accepted a "pre-qualified invitation" from a national bank for a "Platinum MasterCard" with "no annual fee." The detailed information enclosed with the invitation included a federally mandated table of basic credit-card information. In addition to identifying a 7.99% interest rate on purchases, the enclosure advised the prospective card holder that a rate of 24.99% interest would be applied to any balance left on the card when the consumer closed the account. The enclosure confirmed that no annual fee would be charged, but the attached agreement included language that the bank had the right to change any of the terms of the agreement with proper notice to the card holder.

Within six months of the issuance of the card, the bank sent the card holder a notice that a new annual fee of $35 would be imposed. Annoyed by the fact that the bank was still soliciting new card holders for "no annual fee" accounts, the card holder sued in federal court.

The court found that the federal Truth in Lending Act and related laws prohibit banks and credit-card companies who advertise "no annual fee" from imposing an annual fee in the first year. The court was especially troubled by the "bait and switch" that resulted when the bank relied on its agreement language to make changes in the terms after specifically soliciting new card holders by holding out the promise of no annual fee. Noting that card holders with balances would suffer a 24.99% interest rate if they chose to close the card on imposition of the fee, the court found that the card holder had a claim under the Truth in Lending Act.

Wise consumers keep copies of the initial offers, enclosures, and agreements relating to their credit cards. While the terms of the credit-card agreement will generally control, comprehensive consumer protection laws like the Truth in Lending Act limit the changes in terms that creditors can impose on card holders and require clear disclosure of all terms at the time the account is opened.

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