TLPJ Wins Battle with Chevy Chase Bank Over Credit Cardholders' Right to Sue for Excessive Rate Hikes

Maryland High Court Rules that Federal Law Does Not Preempt Cardholders’ Claims

Maryland’s highest court issued a ruling on September 23, 2003 that gives credit cardholders the green light to proceed with the national class action lawsuit that Trial Lawyers for Public Justice (TLPJ) filed against Chevy Chase Bank for breaking its promise “never” to charge more than 24 percent interest. In a 44-page decision with a 1-page dissent, Maryland’s Court of Appeals ruled 6-1 in Wells v. Chevy Chase Bank that the federal Home Owners' Loan Act (HOLA) does not preempt cardholders’ breach of contract claims. As a result, the cardholders will get their day in court to challenge Chevy Chase’s 1996 decision to increase interest rates well above the promised 24 percent ceiling.

TLPJ filed Wells in February 1999, charging that the bank breached its contracts with credit cardholders by unilaterally raising interest rates above its promised 24 percent ceiling, and imposing new and higher fees. The company’s agreement with its customers expressly provided that it would “never” charge more than 24 percent, but the company did so anyway.

On November 14, 2001, the trial court in Baltimore dismissed the case, holding that HOLA preempts the consumers’ claims for breach of contract. The Court of Appeals reversed that decision, holding that while the federal law limits the obligations that states can impose upon banks, “that agreement was prepared by Chevy Chase; it was not imposed on Chevy Chase as a matter of law.”

“The Court of Appeals confirms what we have said all along: federal law does not give banks the right to break their promises to their customers,” said TLPJ Staff Attorney F. Paul Bland, Jr., who argued the appeal in Annapolis, Maryland on November 7, 2002. “Since the Court rejected Chevy Chase’s main defense, we intend to hold the bank accountable for violating its customers’ trust by charging excessive interest rates.”

The Maryland Court of Appeals had considered this case once before. In August 1999, the trial court held that the plaintiffs could not proceed in court, but instead had to submit all of their claims to an arbitration firm selected by Chevy Chase. TLPJ appealed that decision and, on March 8, 2001, the Maryland Court of Appeals reversed the trial court, ruling that the terms of the cardholder contract Chevy Chase had drafted made it clear that cardholders did not agree that they could be forced to arbitrate these claims. The Court also held that the cardholders could choose to arbitrate their claims if they wished, but that they could not be compelled to arbitrate in a case like this one where they had chosen to go to court instead.

“The Court correctly rejected Chevy Chase’s argument that federal law strips away all of its cardholders’ rights under state contract law,” said TLPJ Staff Attorney Leslie A. Brueckner, co-counsel. “The Court recognized that federal law does not protect banks from breaking their contractual promises.”

The case will now return to the trial court in Baltimore. 

In addition to Bland and Brueckner, TLPJ’s legal team in this case includes co-counsel John T. Ward of Ward Kershaw in Baltimore, Michael P. Malakoff of Malakoff Doyle & Finberg, P.C. in Pittsburgh, and TLPJ Staff Attorney Michael J. Quirk.