Friday, July 25, 2008

Deceptive Practices Suit Based on Credit Card Solicitation Not Preempted by Truth-in Lending Act

This posting was written by Andrew Soubel, Editor of CCH State Unfair Trade Practices Law.

The federal Truth-in-Lending Act (TILA) did not preempt claims or the relief granted by a lower court against a credit card company for engaging in a fraudulent and deceptive solicitation scheme in violation of the New York Deceptive Acts and Practices Law (DAPL), a divided New York Court of Appeals has ruled.

The New York attorney general alleged that the company’s applications and solicitations regarding potential credit limits, initially-available credit, secured card benefits, credit insurance coverage, re-aging benefits, and deceptive enrollment of consumers in a cardholder benefit program constituted a violation of DAPL.

Disclosures in Credit Card Application, Solicitation

The company argued that the TILA preempted the claims. The TILA expressly preempted state credit and charge card provisions governing application and solicitation disclosures. However, the attorney general’s claim did not relate to the disclosures in credit card applications or solicitations. Instead, the court found that it related to the inclusion in those materials of certain fraudulent and deceptive misinformation—none of which was addressed by the federal disclosure scheme.

The company also argued that the relief granted under the DAPL should be preempted by the TILA. A recent Supreme Court decision stated that if the relief granted imposed substantive requirements (i.e. disclosure requirements), then the judgment would be preempted by the federal law. However, because the relief granted below did not impose any disclosure requirements, it was not preempted, the court held.


The dissent argued that the TILA should preempt the attorney general’s bid to impose disclosure requirements on the company. The judge stated that the majority reached the opposite conclusion by misreading the TILA’s special preemption rule for credit or charge card applications or solicitations. Also, the dissenter suggested that the relief sought did alter the format and content of the disclosure in the company’s credit or charged card solicitations in violation of the TILA.

The June 26 decision is In the Matter of the People of the State of New York v. Applied Card Systems, Inc., CCH State Unfair Trade Practices Law ¶31,610.

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