Milliken v. Bank of America N.A.

Background

Austin Milliken brought a proposed class action against Bank of America, N.A., alleging that the Bank charged excessive interest on variable-rate credit cards. Milliken held a variable-rate card issued by the Bank. The card agreement stated that variable rates were calculated by adding a margin to an index based on the highest U.S. Prime Rate published in The Wall Street Journal on the last publication day of each month. It also stated that an index increase or decrease would change the variable rate on the first day of the billing cycle beginning in the same month as the publication.

Milliken alleged that, since March 2022, the Bank had adjusted his card’s interest rate at least 10 times. He claimed that the Bank applied each new rate not only to future charges but also to purchases made earlier in the billing cycle, before the rate changed. In his view, that practice made the rate “proprietary” rather than properly tied to the U.S. Prime Rate and violated the federal Credit Card Accountability Responsibility and Disclosure Act of 2009, known as the CARD Act.

Claims and motion

Milliken asserted a claim under the Truth in Lending Act, as amended by the CARD Act and implemented by Regulation Z, 12 C.F.R. Part 1026. He also asserted a claim under the “unlawful” prong of California’s Unfair Competition Law, which treats violations of other laws as independently actionable unlawful practices.

The Bank moved to dismiss both claims under Federal Rule of Civil Procedure 12(b)(6). That rule tests whether the complaint states a legally sufficient claim. The Bank argued that its variable-interest practices fell within the CARD Act’s exception for variable-rate credit cards.

Court’s analysis

The CARD Act generally restricts retroactive increases to interest on outstanding or protected credit-card balances. But the statute’s variable-rate exception applies when a credit-card agreement provides for rate changes based on an index that is not controlled by the creditor and is available to the public. Regulation Z similarly permits an increase when the annual percentage rate varies according to an outside index and the increase is caused by an increase in that index.

The court held that the Bank’s formula met this exception. The agreement tied the variable rate to the publicly available U.S. Prime Rate, and Milliken did not argue that the Bank controlled that index or that the index was unavailable to the public. The court also found that applying the rate published on the last index-publication date to the full billing cycle overlapping that date did not separate the rate from the index. The rate continued to move up or down with the U.S. Prime Rate.

The court further reasoned that the Bank had applied the rate changes as disclosed in the card agreement. It rejected Milliken’s contention that the rate had to change more frequently or immediately when the index changed. The court concluded that the CARD Act’s variable-rate exception applied and that Milliken failed to state a Truth in Lending Act claim.

Because Milliken’s Unfair Competition Law claim was based on the alleged Truth in Lending Act violation, the court held that the state-law claim also failed. Once the federal claim was dismissed, there was no underlying legal violation for the Unfair Competition Law claim to borrow.

Disposition

The court granted the Bank’s motion to dismiss. It dismissed the Truth in Lending Act claim with prejudice, finding the claim facially implausible and legally deficient and concluding that amendment would be futile. The court dismissed the derivative Unfair Competition Law claim and concluded by dismissing the case with prejudice. Milliken acknowledged at the hearing that he could not allege additional facts because the dispute concerned statutory interpretation.