For Immediate Release: February 8, 1999
Bank Broke Its Promise That Interest Rates "Will Never Exceed 24 Percent"
Trial Lawyers for Public Justice (TLPJ) has filed a national class action lawsuit against Chevy Chase Bank charging that the bank breached its contracts with cardholders by raising their interest rates in excess of a promised 24 percent ceiling. After years of promising in its agreement that "your annual percentage rate will never exceed 24 percent," the bank tried to amend the agreement without the legally required notice -- and then began charging up to 27 percent.
"This is unconscionable," said TLPJ Foundation President Joseph A. Power, Jr. of Chicago's Power, Rogers & Smith. "Chevy Chase Bank broke its word. We intend to hold it accountable."
The lawsuit, Wells v. Chevy Chase Bank, FSB, was filed Friday in Circuit Court for Baltimore City, Maryland, on behalf of a nationwide class of hundreds of thousands of cardholders. For years, the company had its home office in Chevy Chase, Maryland, it promised cardholders their interest rates "will never exceed 24 percent" (the maximum rate permissible under Maryland law), and it further guaranteed cardholders that it would comply with Maryland consumer credit laws. Those laws require banks to provide specific written notice of any proposed amendments to cardholder agreements and to give cardholders the right to refuse the amendments and pay off their balances under the old terms.
In January 1996, Chevy Chase relocated its home office to McLean, Virginia, where state law places no limit on interest rates. The bank immediately, and without the required notice, tried to amend the agreement to make Virginia law apply and eliminate its promise not to charge more than 24 percent. In addition, Chevy Chase increased other charges and added new fees for cardholders who made their payments late or exceeded their credit limit. The bank then began charging its customers these higher rates and fees -- even on balances accrued before Chevy Chase moved to Virginia.
"This is an example of pure corporate greed," said John T. Ward of Ward, Kershaw & Minton of Baltimore, who is serving as lead counsel in the case. "If this financial institution is allowed to unilaterally change the terms of its contracts with consumers to charge such excessive interest rates and fees, nothing will stop other credit card issuers from immediately following suit. Chevy Chase is attempting to take advantage of its customers, and we plan to put a stop to it."
TLPJ's lawsuit alleges that Chevy Chase breached its contract with cardholders by:
raising interest rates above the promised 24 percent cap;
applying the new, higher interest rates to balances cardholders accrued under the old contract terms;
failing to provide proper notice of contract amendments;
changing the method by which it calculated cardholders' finance charges; and
increasing its late fees and penalties for customers who charge more than their limit.
Consumer Advocate Ralph Nader has spoken out against Chevy Chase's practices and even written a letter to the B.F. Saul, CEO of Chevy Chase. Nader did not receive a response.
The lawsuit also names First USA as a defendant because First USA purchased Chevy Chase's credit card business in September 1998.
In addition to Ward, TLPJ's legal team in this case includes Michael P. Malakoff of Malakoff, Doyle & Finberg in Pittsburgh; and TLPJ Staff Attorneys Sarah Posner and F. Paul Bland, Jr.
Nader's letter is available by fax.