Seventh Circuit Holds Retailer's Credit Card Upgrade Program Did Not Violate TILA

Credit Cards TILA Class Action Regulation Z

On March 19, the U.S. Court of Appeals for the Seventh Circuit held that a retailer’s credit card upgrade program that replaced existing customers’ limited use store charge cards with unsolicited general use credit cards did not violate TILA, and affirmed the district court’s dismissal of a putative class action. Acosta v. Target Corp., No. 13-2706, 2014 WL 1045202 (7th Cir. Mar. 19, 2014). Under the upgrade program, the retailer automatically issued new general purpose cards to existing store card customers and closed the old account upon either the activation of the new account or rejection by the consumer of the new card. The class representatives claimed that the program constituted an offer to change the underlying account relationship and violated TILA’s prohibition on the mailing of unsolicited credit cards. The court held that the program fell within TILA’s exemption for substitute cards based on the common understanding of “substitution” and the Federal Reserve Board staff’s Regulation Z commentary. The court also rejected the cardholders’ argument that they were fraudulently induced to accept the new card. The court determined that the retailer disclosed the reasons for a change in the APR and did not raise the rate unless payments were missed, and sufficiently disclosed the potential for a change in credit limit. The court also held that the retailer’s omission of the fact that cardholders could take steps to retain their store card account was not fraudulent, and added that to hold otherwise would require the retailer “to disclose any condition that could theoretically be negotiated with the card issuer.” The court also affirmed the dismissal of the cardholders’ breach of contract and tortious interference claims.