                                                                                                                           Opinions of the United
2002 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


2-8-2002

Rossman v. Fleet Bank RI Natl
Precedential or Non-Precedential:

Docket 1-1094




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Filed February 8, 2002

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 01-1094

PAULA E. ROSSMAN,
individually and for all others similarly situated

v.

FLEET BANK (R.I.) NATIONAL ASSOCIATION,
a nationally chartered bank;
FLEET BANK CREDIT CARD SERVICES, L.P.,
a Rhode Island limited partnership;
FLEET CREDIT CARD HOLDINGS, INC.,
a Delaware corporation;
FLEETBOSTON FINANCIAL CORPORATION,
a Massachusetts corporation

       Paula E. Rossman,
       Appellant

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
D.C. Civil Action No. 00-cv-03879
(Honorable Bruce W. Kauffman)

Argued September 5, 2001

Before: SCIRICA, ALITO and BARRY, Circuit Judg es

(Filed: February 8, 2002)
       MICHAEL D. DONOVAN, ESQUIRE
        (ARGUED)
       Donovan Searles
       1845 Walnut Street, Suite 1100
       Philadelphia, Pennsylvania 19103

       MICHAEL P. MALAKOFF, ESQUIRE
       Malakoff, Doyle & Finberg
       The Frick Building, Suite 200
       Pittsburgh, Pennsylvania 15219

        Attorneys for Appellant

       BURT M. RUBLIN, ESQUIRE
        (ARGUED)
       Ballard, Spahr, Andrews & Ingersoll
       1735 Market Street, 51st Floor
       Philadelphia, Pennsylvania 19103

        Attorney for Appellees

OPINION OF THE COURT

SCIRICA, Circuit Judge.

In this Truth in Lending Act case, we must interpret the
"no annual fee" provision of a credit card solicitation.
Months after plaintiff Paula Rossman responded to a
solicitation offering this term, defendant Fleet Bank
changed the operable credit agreement and imposed an
annual fee. Rossman brought this putative class action
alleging, inter alia, that Fleet violated the TILA by failing to
disclose the fee later imposed. The District Court dismissed
plaintiff 's TILA count for failing to state a claim upon which
relief could be granted.1 We will reverse and remand.
_________________________________________________________________

1. See Rossman v. Fleet Bank (R.I.), N.A., No. 00-3879, 2000 WL
33119419 (E.D. Pa. Dec. 29, 2000). The District Court had jurisdiction
over plaintiff 's TILA claim under 28 U.S.C.S 1331. We have appellate
jurisdiction under 28 U.S.C. S 1292. Because this is an appeal from the
granting of a motion to dismiss under Rule 12(b)(6),"[w]e accept all
factual allegations in the complaints and all reasonable inferences to be
drawn therefrom in the light most favorable to the plaintiffs. We may
affirm only if it is certain that no relief could be granted under any set
of facts which could be proven." Lorenz v. CSX Corp., 1 F.3d 1406, 1411
(3d Cir. 1993).

                                  2
I.

In late 1999, plaintiff Paula Rossman received a"Pre-
Qualified Invitation" to obtain a credit card from defendant
Fleet Bank.2 The solicitation was for a "Fleet Platinum
MasterCard" with a low annual percentage rate 3 and "no
annual fee." If interested, the recipient of this offer was to
check a box next to which was written, "YES! I want the top
card for genuine value and superior savings, the no-
annual-fee Platinum MasterCard." An asterisk directed the
recipient to a note that stated, "See the TERMS OF PRE-
QUALIFIED OFFER and CONSUMER INFORMATION for
detailed rate and other information."

The enclosure entitled "Consumer Information" contained
the "Schumer Box"--the table of basic credit card
information that is required under the Truth in Lending
Act, 15 U.S.C. S 1601 et seq., as amended by the Fair
Credit and Charge Card Disclosure Act of 1988. Within the
Schumer Box, there was a column with the heading
"Annual Fee"; the box beneath that heading contained only
the word "None." On the "Consumer Information"
enclosure, but outside the Schumer box, Fleet listed other
fees. Also in that location was the statement, "We reserve
the right to change the benefit features associated with
your Card at any time."
_________________________________________________________________

2. Rossman named four Fleet entities as defendants: Fleet Bank (R.I.)
National Association, Fleet Credit Card Services, L.P., Fleet Credit Card
Holdings, Inc., and FleetBoston Financial Corporation. As there are no
issues in dispute requiring these entities to be differentiated, we will
refer to them collectively as "Fleet."

3. It appears Rossman may have received two different credit card offers
from Fleet. The one plaintiff appended to her complaint offered a "2.99%
fixed APR until May 1, 2000," after which the rate was to rise to a
"9.99% fixed APR." That offer expired on November 30, 1999. Fleet
submits, and Rossman has not contested, that she actually responded to
a second offer, which expired on December 31, 2000. That mailing
offered a "7.99% fixed APR," which Fleet emphasized was "not an
introductory rate." As we discuss, the card Rossman ultimately received
appears to have had a 7.99% APR, suggesting she responded to the
second solicitation. As both mailings offered a card with "no annual fee"
--the term at issue in this case--the resolution of this appeal does not
implicate this ambiguity.

                               3
Rossman responded to Fleet's offer, and soon thereafter
received her "no-annual-fee Platinum MasterCard." It is
unclear from her complaint and the documents in the record4
exactly when this occurred. It appears, however, that she
received her card in December of 1999 or January of 2000.
Along with the card, Rossman was sent Fleet's "Cardholder
Agreement," which contained the following provision
concerning annual fees: "No annual membership fee will be
charged to your Account."

The Agreement provided for various applicable annual
percentage rates charged on outstanding balances,
including the standard rate for purchases (7.99%) and
several higher rates that could be triggered by certain acts
or omissions on the part of the cardholder. Among these
was a rate of 24.99% that Fleet was entitled to impose
"upon any closure of [the] Account." The Agreement also
contained a change-in-terms provision, which stated:

        We have the right to change any of the terms of this
       Agreement at any time. You will be given notice of a
       change as required by applicable law. Any change in
       terms governs your Account as of the effective date,
       and will, as permitted by law and at our option, apply
       both to transactions made on or after such date and to
       any outstanding Account balance.

In May 2000, Fleet sent a letter to plaintiff announcing
its intention to change the terms of the agreement. That
letter read, in part:

        Over the past several months, the Federal Reserve
       has been steadily raising interest rates, making it
_________________________________________________________________

4. While this is an appeal from a Rule 12(b)(6) dismissal, certain
documents may be considered in addition to the complaint itself.
Exhibits attached to the complaint and upon which one or more claim
is based are appropriately incorporated into the record for consideration
of a 12(b)(6) motion. Rose v. Bartle, 871 F.2d 331, 340 n.3 (3d Cir.
1989). Furthermore, "a court may consider an undisputedly authentic
document that a defendant attaches as an exhibit to a motion to dismiss
if the plaintiff 's claims are based on the document." Pension Benefit
Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir.
1993). Neither party disputes that the relevant credit card solicitations
and agreements constitute such documents.

                               4
       difficult for credit card issuers to maintain products
       and services at current rates. While many experts
       predict that the Federal Reserve will continue to raise
       interest rates, the regular rate for purchases and
       balance transfers on your Fleet account remains at a
       fixed 7.99% APR.

        While this rate remains unchanged, a $35 annual
       membership fee will apply to your account. Effective
       with billing cycles closing on or after June 1, 2000, the
       annual fee will appear beginning with your monthly
       statement that includes the next anniversary date of
       your account opening.

Soon thereafter, by letter dated June 20, 2000, Fleet
announced a modification of its original change. Claiming
the move was necessary in light of still further interest rate
hikes by the Federal Reserve, Fleet modified the effective
date of the change. Rather than waiting until the
anniversary of plaintiff 's account opening, Fleet notified
Rossman that the annual fee would be imposed almost
immediately:

        We are modifying the terms of your Fleet Cardholder
       Agreement only to correct the timing of the annual
       membership fee previously disclosed. That fee will first
       be charged to your Account in your billing cycle that
       closes in July, 2000, and will be charged in that billing
       cycle each year thereafter.

A thirty-five-dollar fee was charged to Rossman's account
by July 6, 2000, in accordance with the second letter.

Rossman alleges that despite Fleet's protestations that it
had been effectively forced to cease offering the card
without an annual fee, it continued to solicit other new
customers with offers for no-annual-fee credit cards. Thus,
she contends, Fleet systematically baited new customers
with the no-annual-fee offer, while telling its existing
customers that the fee increase was necessitated by
changing market conditions. These "no annual fee" offers,
Rossman alleges, were made by Fleet with the intention of
imposing a fee shortly thereafter.

Rossman filed this putative class action on behalf of

                               5
herself and "[a]ll persons who received or will receive an
offer . . . from Fleet . . . for a no annual fee credit card, and
who accepted that offer and who were then charged, or
have been notified they will be charged, an annual fee."5
She asserts violations of the TILA and Rhode Island law: (1)
violation of Rhode Island's Deceptive Trade Practices Act,
R.I. Gen. Laws S 6-13.1-1 et seq.; (2) common law fraud;
and (3) breach of contract. The essence of plaintiff 's TILA
claim is that the original solicitations, insofar as they
described the credit card as one with no annual fee,
violated the TILA's requirement of accurate disclosure.

Fleet moved to dismiss the TILA count, contending
Rossman failed to state a proper claim. Granting the
motion to dismiss, the District Court held Rossman's
allegations did not state a deficiency in the original
disclosures sufficient to constitute a violation under the
TILA. Declining to exercise supplemental jurisdiction over
the state law claims, the District Court dismissed the suit.
Rossman appealed.

II.

The stated purpose of the Truth in Lending Act, which
took effect in 1969, is "to assure a meaningful disclosure of
credit terms so that the consumer will be able to compare
more readily the various credit terms available to him and
avoid the uninformed use of credit, and to protect the
consumer against inaccurate and unfair credit billing and
credit card practices." 15 U.S.C. S 1601. In pursuit of these
aims, the statute requires a series of disclosures that must
be made before the consummation (the point at which legal
obligations attach) of the underlying credit agreement, as
well as at certain other specified times.

Congress included in the Act a provision expressly
authorizing the Federal Reserve Board to "prescribe
regulations to carry out the purposes of " the TILA. 15
U.S.C. S 1604. The Board promulgated "Regulation Z," 12
C.F.R. S 226, for this purpose. It also published extensive
_________________________________________________________________

5. The District Court dismissed the case before considering class
certification under Fed. R. Civ. P. 23.

                               6
"Official Staff Interpretations." 12 C.F.R. Pt. 226 Supp. I.
"[T]he Supreme Court has emphasized the broad powers
that Congress delegated to the Board to fill gaps in the
statute" with these two devices. Ortiz v. Rental Mgmt., Inc.,
65 F.3d 335, 339 (3d Cir. 1995). "Unless demonstrably
irrational, Federal Reserve Board staff opinions construing
the Act or Regulation should be dispositive . . . ." Ford
Motor Credit Co. v. Milhollin, 444 U.S. 555, 565 (1980).

Because the TILA is a remedial consumer protection
statute, we have held it "should be construed liberally in
favor of the consumer." Ramadan v. Chase Manhattan
Corp., 156 F.3d 499, 502 (3d Cir. 1998); accord Begala v.
PNC Bank, Ohio, N.A., 163 F.3d 948, 950 (6th Cir. 1998)
("We have repeatedly stated that TILA is a remedial statute
and, therefore, should be given a broad, liberal construction
in favor of the consumer."); Fairley v. Turan-Foley Imps.,
Inc., 65 F.3d 475, 482 (5th Cir. 1995) ("The TILA is to be
enforced strictly against creditors and construed liberally in
favor of consumers . . . .").

In 1988, Congress determined the protections of the TILA
with respect to credit and charge cards were inadequate to
ensure sufficiently informed use of these credit devices.
Congress enacted the "Fair Credit and Charge Card
Disclosure Act,"6 which substantially strengthened the
TILA's requirements with respect to credit cards.
Significantly, for the first time, it imposed disclosure
requirements on credit card applications and solicitations.
The TILA now requires applications and solicitations to
disclose the annual percentage rates, certain fees (including
annual fees), the grace period for payments, and the
balance calculation method. 16 U.S.C. S 1637. Before the
amendment, the TILA required only that issuers make
these disclosures before the opening of the account--a
requirement ordinarily fulfilled by providing the disclosures
along with the card. See S. Rep. No. 100-259, at 3 (1988),
reprinted in 1988 U.S.C.C.A.N. 3936, 3938.
_________________________________________________________________

6. "Charge cards" for these purposes are cards, such as the American
Express card, that are used to obtain credit, but which do not allow the
carrying of a balance from one billing cycle to the next.

                               7
The TILA mandates the required terms be "clearly and
conspicuously" disclosed. 15 U.S.C. S 1632(a). This
standard requires the disclosures to be "in a reasonably
understandable form and readily noticeable to the
consumer." 12 C.F.R. Pt. 226, Supp. I, cmt. 5a(a)(2); cf.
Applebaum v. Nissan Motor Acceptance Corp., 226 F.3d 214,
220 (3d Cir. 2000) (applying a similar standard in a related
Consumer Leasing Act case). Certain required terms in
credit card disclosure statements--including annual fees--
must be presented within a simple table--the "Schumer
Box"--that facilitates easy comparison of credit cards'
terms. 16 U.S.C. S 1632(c).

The disclosures are intended to make the terms of the
contractual agreement accessible to the consumer. As
stated in Regulation Z, "Disclosures shall reflect the terms
of the legal obligation between the parties." 12 C.F.R.
S 226.5(c). And "[t]he legal obligation normally is presumed
to be contained in the contract that evidences the
agreement." 12 C.F.R. Pt. 226, Supp. I, cmt. 5(c). Therefore,
disclosures should reflect the contractual agreement itself.
But the mere inclusion of these terms in the agreement is
ordinarily insufficient to meet the disclosure requirements.
The purpose of the disclosures is to present the significant
terms of the agreement to the consumer in a consistent
manner that is readily seen and easily understood, thereby
"enabling consumers to shop around for the best cards." S.
Rep. No. 100-259, at 3, 1988 U.S.C.C.A.N. at 3938.

The purpose of the TILA is to assure "meaningful"
disclosures. 15 U.S.C. S 1601. Consequently, the issuer
must not only disclose the required terms, it must do so
accurately. The accuracy demanded excludes not only
literal falsities, but also misleading statements. See
Gennuso v. Commercial Bank & Trust Co., 566 F.2d 437,
443 (3d Cir. 1977) (recognizing violation based on
misleading disclosure); see also Taylor v. Quality Hyundai,
Inc., 150 F.3d 689, 692 (7th Cir. 1998); Smith v. Chapman,
614 F.2d 968, 977 (5th Cir. 1980) ("A misleading disclosure
is as much a violation of TILA as a failure to disclose at
all.").

Furthermore, the accuracy of the representations
contained in the disclosures is measured at the time those

                                8
representations are made. "The disclosures should reflect
the credit terms to which the parties are legally bound at
the time of giving the disclosures." 12 C.F.R. Pt. 226, Supp.
I, cmt. 5(c)(1). And, more particularly, "disclosures in direct
mail applications and solicitations must be accurate as of
the time of mailing." 12 C.F.R. Pt. 226, Supp. I, cmt.
5a(c)(1).

Fleet's statement that the card had "no annual fee" was
lawful, therefore, only if it met two conditions. First, it must
have disclosed all of the information required by the
statute. And second, it must have been true--i.e., an
accurate representation of the legal obligations of the
parties at that time--when the relevant solicitation was
mailed. With this background in place, we turn to the
specifics of this case.

III.

Rossman challenges the adequacy of the disclosures in
Fleet's credit card solicitation on three related grounds.
First, she contends the statute requires not only disclosure
of presently imposed annual fees, but also any annual fee
that might be imposed in the future. Second, she argues
whether or not Fleet was required to disclose future fees, its
disclosures failed to meet the requirements of the TILA
because they misleadingly suggested there never would be
an annual fee. Finally, she asserts Fleet used the
disclosures as part of a bait-and-switch scheme, by which
it attracted business with the offer for a no-annual-fee card,
even though it intended to charge an annual fee on the
card soon thereafter. The first challenge goes to the
adequacy of Fleet's disclosures; the latter two are more
naturally understood as directed at their accuracy.

The District Court rejected plaintiff 's arguments by
interpreting the TILA as requiring the disclosure of only
annual fees expressly contemplated by the credit agreement
as it then existed. And since there was not, at either the
time of the mailing of the solicitation or the opening of
Rossman's account, an annual fee associated with the card,
its statement that there was no such fee was accurate7:
_________________________________________________________________

7. The District Court emphasized, however, that the accuracy of the
statement, for purposes of the TILA, did not imply the alleged scheme

                               9
"Fleet's disclosures in late 1999 were accurate with respect
to the terms offered at that time; the fact that Fleet allegedly
intended to change those terms in the near future did not
render the disclosures inaccurate for purposes of the TILA."
Rossman, 2000 WL 33119419, at *3. Consistent with this
view, Fleet contends it was required to state, in its
disclosures, that the card had no annual fee, since any
other statement would fail to accurately reflect the
underlying agreement, which did not (until modified) permit
the imposition of such a fee.

Fleet emphasizes that the requirements at issue here are
disclosure requirements. As noted, the disclosures are
intended to alert the consumer to the applicable terms of
the credit agreement. If there is unlawful manipulation of
the underlying terms, that is governed by the substantive
law applicable to these agreements. The requirements of the
TILA are violated, however, only if the substance of the
agreement is not properly disclosed at each point. Fleet
maintains that, assuming the facts as alleged by Rossman,
the manipulation of the agreements may be wrongful, but
the disclosures were accurate reflections of the substance
of the agreements at the relevant times, which is all the
TILA requires.

Under Fleet's view, it was not required to disclose the
annual fee because it did not specify such a fee in the
agreement it drafted. That it did not include the term in the
agreement was no significant impediment to its imposing
the fee because it was able to invoke the change-in-terms
provision of the agreement, a provision not itself required to
be disclosed. Thus, Fleet contends it was not barred from
imposing an annual fee, but did not have to disclose that
fact in advance. In essence, then, the interpretation of the
TILA urged by Fleet--and adopted by the District Court--
would permit Fleet to effectively avoid its disclosure
_________________________________________________________________

was an acceptable course of conduct: "If, as alleged, Fleet lured
consumers into opening credit card accounts with relatively favorable
terms while intending to switch those terms shortly thereafter, then Fleet
unquestionably engaged in wrongdoing." Rossman, 2000 WL 33119419,
at *3.

                               10
obligations by strategic use of a change-in-terms provision.
The question is whether the statute permits such a
circumvention of its disclosure requirements.

IV.

a. Periodic Fee Disclosure Requirements.

Contending the District Court misinterpreted the TILA
with respect to the specific disclosure requirements
applicable to periodic fees, Rossman challenges its ruling
the TILA requires only disclosures of "presently imposed"
fees. The Act requires the disclosure of "[a]ny annual fee,
other periodic fee, or membership fee imposed for the
issuance or availability of a credit card." 15 U.S.C.
S 1637(c)(1)(A)(ii)(I). Regulation Z contains similar--but
importantly different--language, requiring disclosure of
"[a]ny annual or other periodic fee . . . that may be imposed
for the issuance or availability of a credit or charge card."
12 C.F.R. S 226.5a(b)(2) (emphasis added). Fleet was
therefore required to provide clear, conspicuous, and
accurate notice of the parties' legal obligations with respect
to any such fee "that may be imposed for the issuance or
availability" of the Fleet Platinum MasterCard.

Rossman contends the language requiring disclosure of
any annual fee "that may be imposed" refers to all fees that
might ever be imposed. According to Rossman, if Fleet
reserves the power to impose fees in the future, as it has,
it must disclose all fees it may later impose--including, of
course, the thirty-five-dollar annual fee it subsequently
imposed.

We decline to read the annual-fee disclosure requirement
so broadly. The TILA, as interpreted and implemented by
the Federal Reserve Board, permits subsequent changes
that do not affect the accuracy of a previous disclosure.
E.g., 12 C.F.R. S 226.9(c) ("Whenever any term required to
be disclosed under S 226.6 is changed or the required
minimum periodic payment is increased, the creditor shall
mail or deliver written notice of the change to each
consumer who may be affected."); cf. 15 U.S.C. S 1634 ("If
information disclosed in accordance with this part is

                                11
subsequently rendered inaccurate as the result of any act,
occurrence, or agreement subsequent to the delivery of the
required disclosures, the inaccuracy resulting therefrom
does not constitute a violation of this part."); 12 C.F.R.
S 226.5(e) ("If a disclosure becomes inaccurate because of
an event that occurs after the creditor mails or delivers the
disclosures, the resulting inaccuracy is not a violation of
this regulation, although new disclosures may be required
under S 226.9(c)."). It is implicit in these provisions that: (1)
ordinarily, a future change in terms need not be anticipated
in disclosures; and (2) a failure to disclose does not
necessarily foreclose the possibility of such a future
change. Rossman's interpretation cannot be squared with
this framework.

Furthermore, as the District Court correctly noted, the
Federal Reserve Board's use of the word "may" does not
compel adoption of plaintiff 's interpretation. The phrase
"may impose" means "is permitted to impose" in this
context, and not, as suggested by plaintiff, "might impose."
Thus, the issuer is required to disclose any fees it is
permitted to impose under the applicable agreement. The
permissive sense of "may" is more congruous with the
structure of the TILA as a whole.

Accordingly, we hold that credit card issuers need not
disclose all periodic fees not contemplated by the applicable
agreement. Absent a separate basis for requiring the
disclosure of the presently disputed fee, therefore, Fleet
need not have disclosed it.

b. Duration.

As noted, the TILA prohibits not only failures to disclose,
but also false or misleading disclosures. Regardless of
Fleet's disclosure obligations, it was not permitted to
mislead the recipients of its credit card solicitations into
believing that Fleet could not or would not impose such a
fee. Rossman asserts Fleet's disclosures were inaccurate
and misleading, and hence, violated the TILA's disclosure
requirements.

Rossman contends the statement "no annual fee"
contains no temporal limitation; it means "no annual fee

                               12
(ever)." This message is strengthened, Rossman argues, by
Fleet's advertising the absence of an annual fee as a
defining feature of the card. The solicitation plainly
described the card as "the no-annual-fee Platinum
MasterCard." Under Rossman's view, the disclosures
themselves implied that Fleet was indefinitely committed to
providing the card free of an annual fee. Because under the
cardholder agreement, Fleet was not so committed, the
disclosures, as naturally understood, were false, or at least
misleading.

Had the solicitations actually stated the offered card
would have "no annual fee ever," then Fleet would have
violated the TILA, assuming the underlying agreement
permitted Fleet to impose such a fee in the future. That
statement would have been false--at the time it was made
--about the legal obligations of the parties contemplated by
the then-relevant agreement. Similarly, had the disclosure
said, "no annual fee subject to change at any time,
including in the first year," then the disclosure would be
perfectly accurate for these purposes. The question is, how
should the statement "no annual fee" be interpreted with
respect to its duration?

The District Court implicitly understood the statement
"no annual fee" as implying no duration at all. For only in
light of such an understanding would the District Court be
correct in concluding, "Fleet's disclosures in late 1999 were
accurate with respect to the terms offered at that time."
Rossman, 2000 WL 33119419, at *3 (emphasis removed).8

Because the TILA is a consumer protection act designed
to provide easily-understood information to ordinary
consumers, it is appropriate to make this determination
_________________________________________________________________

8. The District Court did not discuss this issue, so it is unclear how it
reached this understanding. It may have done so on the basis of the
Official Staff Interpretations' instructions that"disclosures should
reflect
the credit terms to which the parties are legally bound at the time of
giving of the disclosures." 12 C.F.R. Pt. 226, Supp. I, cmt. 5(c)(1). The
legal standard for what is required, however, cannot provide a basis for
determining what the disclosures actually mean. The challenge here is
not to what Fleet was required to disclose, but what it actually did
disclose.

                               13
from the point of view of the consumer.9 We need not
determine whether Rossman is correct that the disclosure
implied a permanent promise to refrain from imposing an
annual fee. For we believe a reasonable consumer would, at
any rate, be entitled to assume upon reading Fleet's
solicitation that the issuer was committed to refraining
from imposing an annual fee for at least one year. The
statement "no annual fee," in other words, is fairly
understood to contain an implied term of a year. If Fleet
had imposed an "annual fee" of twenty dollars upon the
opening of Rossman's account, she would have been
entitled to expect that, upon payment of that fee, she would
be entitled to a year's use of the card, assuming her other
obligations were met. Thus, had Fleet imposed another
"annual fee" of thirty-five dollars mid-year, she would
surely have been deceived. The original twenty-dollar fee
would then not be an annual fee, but simply a fee.
Similarly, a reasonable consumer could understand the
statement "no annual fee" as describing a promise of (at
least) a fee-free year. It would follow that Rossman's credit
card was not a no-annual-fee card unless no such fee
would be charged for a year. Consequently, Fleet's
statement to the contrary would be false or misleading for
purposes of the TILA.

In any event, the statement "no annual fee" is not a clear
and conspicuous disclosure of a set of contract terms that
permit the imposition of an annual fee within a year.
Interpreting the statement with an implied annual term is
at least as natural as interpreting it with no such term, so
the statement is ambiguous at best. And because the TILA,
which "should be construed liberally in favor of the
_________________________________________________________________

9. We have stated the requirement that disclosures be "reasonably
understandable" does not require that they be understandable by the
average consumer. Instead, we have said disclosures must be reasonably
understandable "in light of the inherent difficulty or complexity of the"
information disclosed. Applebaum, 226 F.3d at 220. The appropriate
level of difficulty of understanding the disclosure is not an issue here.
Instead, the inquiry is into what the disclosures are fairly understood to
mean, a question not at issue in Applebaum. In any event, there is
nothing complex about annual fees, so the intended audience is the
ordinary consumer.

                               14
consumer," Ramadan, 156 F.3d at 502, is intended to
provide clear information to consumers, such ambiguities
should be resolved in favor of the consumer. A clear and
conspicuous statement of Fleet's authority to change the
term at any time would, of course, correct this problem.

Fleet contends such a statement is unnecessary, because
the change-in-terms provision of the agreement is not
among the terms that must be disclosed under the TILA.
The issue here, however, is not Fleet's obligation to disclose
the change-in-terms provision, but its obligation to disclose
annual fees. And because the statement "no annual fee"
was misleading with respect to the duration of the offer,
further clarification was necessary for it to meet the
requirements of the TILA, assuming the terms of the
cardholder agreement actually permitted Fleet to dispense
with its no-annual-fee promise mid-year.10

This reasoning might, of course, apply as well to the
contractual term promising "no annual fee." Rossman has
also stated a claim for breach of contract. If the contract
itself included such a promise, then the contract might
have been breached, but the disclosure statement would
presumably be accurate. The disclosure would not,
therefore, violate the TILA. The contractual question is not,
however, before us and Fleet has taken the position that it
was contractually permitted to impose the fee at any time.
Therefore, we assume, at this juncture, that the contract
did permit Fleet to impose the fee. Under this assumption,
a disclosure that implied that Fleet was committed to
_________________________________________________________________

10. Fleet's statement on the solicitation disclosure insert that it
"reserve[d] the right to change the benefit features associated with your
Card at any time" did not clearly and conspicuously clarify the annual-
fee term. It was located outside the Schumer Box, on a line with a
statement about "Platinum services." The solicitation also included a
"cardmember benefit list," which included such items as a "Free-Year-
End Account Summary," "Free Rental Car Insurance," and the like. Not
included were basic terms such as the APR or fees. Thus, the term
"benefit" may reasonably be understood to only include these "extras,"
and not such features as a lack of an annual fee. Hence, the statement
fails to clearly and conspicuously alert the consumer to the fact that the
"no-annual-fee" feature could be changed at any time, including within
the first year.

                               15
refrain from imposing periodic fees for a year would be
inaccurate for purposes of the TILA. It would be inaccurate
--at the time of the disclosure--with respect to the legal
obligations of the parties at that time.

If the cardholder agreement did prohibit the imposition of
periodic fees for a least a year, then the facts of this case
would be like those presented in DeMando v. Morris, 206
F.3d 1300 (9th Cir. 2000). There, the credit card issuer
originally offered a permanent, fixed rate of 10.9%. The
issuer sought to raise the rate under the change-in-terms
clause in the applicable agreement. By the time the case
reached the Court of Appeals, the card issuer admitted the
attempt to raise the rate violated the terms of the
agreement, insofar as it promised a permanent fixed rate.
Under those facts, the original disclosures, which promised
a fixed rate, accurately reflected the terms of the underlying
agreement at the time they were made. Id. at 1302-03.

The Ninth Circuit concluded, however, that the notice
announcing the change of rates violated the TILA, as it
disclosed a rate not permitted under the agreement. Id. at
1303. Rossman has not claimed the change-in-terms letter
itself violated the TILA. Consequently, her TILA claim will
survive only if the agreement permitted Fleet to impose the
fee, for if it did not, then the original disclosure would have
accurately reflected the agreement so understood.

In sum, because Fleet maintains--and for present
purposes we assume--that it had the authority under the
cardholder agreement to impose an "annual fee" at any
time, the solicitation disclosures, which promised a"no-
annual-fee" credit card, did not clearly, conspicuously, and
accurately reflect the truth of the matter. A final
determination of whether the statement was false or
misleading for purposes of the TILA, therefore, will turn on
an assessment of the portion of the underlying agreement
the statement purports to disclose. If the agreement does
not permit modification of an annual fee terms before the
completion of the first annual term, the statement"no
annual fee" is, as far as this analysis goes, an adequate
disclosure. If the agreement did permit such a modification,
however, then the disclosure falls short.

                               16
c. Bait-and-Switch Allegations.

Rossman challenges the District Court's dismissal of her
TILA claim on the basis of her assertion that Fleet here
engaged in a "bait and switch" scheme. Rossman alleges--
and we must assume the truth of these allegations for
purposes of a 12(b)(6) motion--that Fleet solicited her
business with the no-annual-fee offer while intending to
change the terms shortly thereafter. Rejecting this claim,
the District Court held that the legality of such schemes is
outside the TILA's narrow focus on disclosure.

The Federal Trade Commission treats advertising in bait-
and-switch schemes as false or misleading. 16 C.F.R.S 238
("Guides Against Bait Advertising "). Regulation Z also
addresses these schemes.11 See 12 C.F.R. S 226.16(a) ("If an
advertisement for credit states specific credit terms, it shall
state only those terms that actually are or will be arranged
or offered by the creditor."); Ralph J. Rohner & Fred H.
Miller, Truth in Lending 752 (2000) ("This rule is aimed at
the ancient but dishonorable practice of `bait and switch'
advertising where the creditor uses the lure of attractive
credit terms to induce customers in, but no such favorable
terms are in fact available."). Bait advertising, although not
necessarily literally false (there is usually a real item
described in the advertising), is nonetheless considered
deceptive, insofar as it suggests the product advertised is
actually offered and intended to be sold, when the real
intention is simply to create a contact with the buyer that
allows the seller to switch the consumer to a more
profitable sale. It is the bait, not the switch, that is
deceptive. Hence, the deception occurs at the time of the
bait advertisement. Rossman contends Fleet's solicitations
contained a deception of this kind, which negates its claim
_________________________________________________________________

11. Regulation Z also provides, "The disclosures given in accordance with
S 226.5a do not constitute advertising terms for purposes of the
requirements of this section." 12 C.F.R. S 226.16(b) n.36d. Therefore, at
least much of the information contained in the solicitations may not fall
under this rule. Furthermore, the Act does not expressly provide for a
private cause of action for violations of the advertising requirements, so
it is not clear that Rossman could raise such a claim. See 15 U.S.C.
S 1640(a). In any event, Rossman has not alleged a violation of section
226.16.

                                  17
that the disclosures were accurate at the time they were
made.

Citing Clark v. Troy & Nichols, Inc., 864 F.2d 1261 (5th
Cir. 1989), the District Court rejected plaintiff 's position.
Defendant Troy & Nichols offered to obtain a mortgage for
plaintiff Clark on certain terms and the parties entered into
an agreement to that effect. Clark was then offered a
substantially less advantageous set of terms. Clark refused
and the credit arrangement was never consummated.

While accepting that Clark had properly characterized
defendants' actions as a bait-and-switch scheme, the Fifth
Circuit explicitly rejected bait-and-switch actions under the
TILA: "The Truth in Lending Act does not provide a cause
of action when a lender engages in `bait and switch'
techniques. It does require that the lender make certain
disclosures with respect to the offered terms." Id. at 1264.
Under this view, the creditor's intention not to offer the
originally stated terms is irrelevant to the analysis. So long
as the disclosures reflect the stated terms of an agreement,
they are accurate under the TILA. And since, in Clark, the
terms ultimately agreed to were disclosed before the
consummation of the loan there at issue, the requirements
of the TILA were met. Cf. Janikowski v. Lynch Ford, Inc.,
210 F.3d 765, 769 (7th Cir. 2000) (holding that"spot
delivery" schemes, identical in relevant respects to bait-
and-switch schemes, do not violate the TILA).

The District Court here adopted this approach, stating,
"Fleet's disclosures in late 1999 were accurate with respect
to the terms offered at that time; the fact that Fleet allegedly
intended to change those terms in the near further did not
render the disclosures inaccurate for purposes of the TILA."
Rossman, 2000 WL 33119419, at *3.

In one sense, the solicitation disclosures here were
accurate--the agreement then referred to by the disclosures
did not contemplate an annual fee. But in another sense, if
Fleet intended to impose an annual fee shortly thereafter,
the disclosures were at least misleading. A reasonable
consumer would expect that, even if the terms may change,
the stated terms are those that the card issuer intends to
provide. The disclosures--we assume for these purposes--

                               18
feigned an intention to provide credit under a set of terms
that Fleet did not intend to provide over time. Thus, even if
the language of the disclosures did not imply that Fleet was
obligated for at least a year, the disclosures were
misleading with respect to Fleet's alleged intentions. As the
dissent in Clark noted, such a deception may, in some
ways, be worse than simply inaccurate disclosures:

        The majority concludes that even though the lender
       never intended to extend credit on the terms disclosed,
       the accuracy of the disclosures remain untainted. In
       my view, an intention from the outset not to extend
       credit on disclosed terms is far more egregious than
       inaccurate terms. On careful review of the disclosures,
       one might detect an inconsistency between the interest
       rate promised and the amortization schedule disclosed.
       By contrast, there is no way to enter the lender's mind
       to determine whether he means what he discloses.

        Disclosures feigning one's true intention, in my view,
       are inaccurate.

864 F.2d at 1266 (Thornberry, J., dissenting).

Because the TILA is to be construed strictly against the
creditor, Ramadan, 156 F.3d at 502, it is at least debatable
that the dissent had the better understanding of the
accuracy required by the TILA. We need not enter that
particular debate, however, because we believe, in any
event, this case is distinguishable from Clark .

Clark was a classic bait-and-switch case. The plaintiff
there was first attracted by a deceptive offer. Having
obtained his audience, the lender attempted to switch the
offer to a set of terms more favorable to itself and less
favorable to the borrower. All of this occurred before the
consummation of an agreement. Clark was able to, and
chose to, refuse the switch based on accurate disclosures.
He was never a party to a credit agreement whose terms
were not adequately disclosed.

The disclosures at issue in Clark were initial disclosures
--disclosures that must be made by a specified time before
the consummation of the agreement. With respect to the
terms actually offered, disclosure was achieved by the

                                19
second disclosure statement. The first statement did not
accurately reflect the terms of the agreement ultimately
offered, but the second statement provided Clark with fully
adequate disclosure before an agreement was reached,
providing Clark with the opportunity to accept or decline
the proposed agreement on the basis of full information.
Armed with that information, he chose not to enter into an
agreement.

Here, by contrast, the original disclosures were not
corrected before Rossman entered into the agreement.
These disclosures remained the relevant disclosures of the
agreement ultimately reached. But it is essential to the
TILA's purposes that consumers be informed of the basic
conditions of credit before they enter a credit relationship.
As the second disclosures in Clark did provide adequate
information before consummation, these concerns were not
implicated there.

This bait-and-switch case, therefore, goes beyond
standard bait-and-switch cases such as Clark. The switch
here did not occur as the result of a sales tactic before the
formation of the contract, but by invoking an undisclosed
term in an existing contract. Rossman entered the
agreement without the benefit of disclosure of what she
alleges was Fleet's intended annual fee. To the extent the
original disclosures were corrected by the notice of change,
this correction happened only after Rossman had used, and
been bound by, the agreement for several months. Had
Rossman received the notice of the change in the form of an
initial notice before opening her account, she would have
been subject to a classic bait-and-switch analogous to
Clark, and would have found herself in a correspondingly
less disadvantageous position.

Significantly, it would appear that Rossman was not
entirely free, following notice of the pending imposition of
the annual fee, to walk away from her credit arrangement
in the same way that Clark was upon receiving his second
set of disclosures. Credit card holders may have balances
they are unable to pay off within a month. And if Rossman
did attempt to cancel the card while carrying a balance,
Fleet retained the contractual authority to assess a 24.99%
APR on the remaining balance. Therefore, there may have

                               20
been no way to avoid incurring the obligation to pay the
annual fee under the changed contract. As such, the notice
of change was correspondingly less valuable than initial
disclosure of the annual fee would have been.

Furthermore, Congress has imposed special requirements
on credit card solicitations that did not apply to the
mortgage in Clark. Not only must issuers disclose the basic
terms of the agreement prior to consummation ("initial
disclosures"), they must additionally12 disclose--clearly,
conspicuously, and accurately--many of those terms in the
solicitation itself ("solicitation disclosures" or "early
disclosures").13 These requirements are unique to credit and
charge cards.14 They seek to ensure that consumers have
the information needed to make informed choices with
respect to credit cards not only before the agreement is
consummated, but also at the (generally earlier) point at
_________________________________________________________________

12. While distinct requirements apply to solicitation disclosures, and to
initial disclosures, the credit card issuer may fulfil both requirements
with the same instrument:

       Combining disclosures. The initial disclosures required by S 226.6
do
       not substitute for the disclosures required by S 226.5a; however, a
       card issuer may establish procedures so that a single disclosure
       statement meets the requirements of both sections. For example, if
       a card issuer in complying with S 226.5a(e)(2) provides all the
       applicable disclosures required under S 226.6, in a form that the
       consumer may keep and in accordance with the other format and
       timing requirements for that section, the issuer satisfies the
initial
       disclosure requirements under S 226.6 as well as the disclosure
       requirements of S 226.5a(e)(2).

12 C.F.R. Pt. 226, Supp. I, cmt. 5a-2.

13. We recognize that the TILA contains a kind of early disclosure
requirement for mortgages, like the one at issue in Clark. 16 U.S.C.
S 1638(b)(2) (requiring disclosures "not later than three business days
after the creditor receives the consumer's written application"). That
provision, however, simply changes the timing of the initial disclosures.
It is not an additional requirement, as is the credit card solicitation
disclosure requirement.

14. Because credit card rates did not decline along with other interest
rates during the 1980s, and were among the most profitable loans
during that period, Congress singled out credit cards for special
treatment. See S. Rep. 100-259, at 2, 1988 U.S.C.C.A.N. at 3937.

                                21
which they are considering responding to an issuer's
solicitation.

Under the approach urged by Fleet, a credit issuer would
be able to disclose any terms it wanted to, with no intention
ultimately to offer those terms. It could send, together with
the card, a new set of disclosures stating the terms it had
always actually intended to provide. Fleet's approach would
have the potential to render the solicitation disclosure
requirements created by the 1988 amendments to the TILA
entirely ineffectual. Misleading early disclosures would
serve no informative purpose. And worse, the additional
disclosure requirement mandated by Congress--for the
purpose of encouraging informed consumer choices--could
be used for the purpose of deceiving consumers.

The Federal Reserve Board has determined that when a
credit card issuer offers rates or fees that are reduced or
waived for a limited period of time, the issuer must disclose
the applicable rate or fee that will apply indefinitely, and is
permitted to disclose introductory rates only if the period of
time in which the rate or fee is applicable is also disclosed.
12 C.F.R. Pt. 226, Supp. I, cmt. 5a(b)(1)-5 (introductory
rates); cmt. 5a(b)(2)-4 (waived or reduced fees). 15 Thus, as
_________________________________________________________________

15. These comments, in full, read as follows:

       Introductory rates--discounted rates. If the initial rate is
temporary
       and is lower than the rate that will apply after the temporary rate
       expires, the card issuer must disclose the annual percentage rate
       that would otherwise apply to the account. In a fixed-rate account,
       the card issuer must disclose the rate that will apply after the
       introductory rate expires. In a variable-rate account, the card
issuer
       must disclose a rate based on the index or formula applicable to
the
       account in accordance with the rules in S 226.5a(b)(1)(ii) and
       comment 5a(b)(1)-3. An initial discounted rate may be provided in
       the table along with the rate required to be disclosed if the card
       issuer also discloses the time period during which the introductory
       rate will remain in effect.

       Waived or reduced fees. If fees required to be disclosed are waived
       or reduced for a limited time, the introductory fees or the fact of
fee
       waivers may be provided in the table in addition to the required
fees
       if the card issuer also discloses how long the fees or waivers will
       remain in effect.
22
general matter, credit card issuers are required to disclose
fees whose imposition will be delayed for a given period of
time, such as the annual fee at issue here.

Fleet is apparently of the view that the card issuer's
obligation, under this provision, to disclose the temporary
nature of the fee in advance arises only when the
cardholder agreement, which is ordinarily provided later,
will include mention of the fee. Such a rule, however, would
permit issuers to readily circumvent the requirement. The
common practice of offering cards with low "teaser" rates
would effectively be rendered immune from disclosure
requirements. From the point of view of the consumer,
there is no substantive difference between a card that had
a low "fixed" rate that the issuer secretly intends to
increase six months later, and a card with a low temporary
rate that will similarly increase after half a year. The only
purported basis for the difference in disclosure
requirements is language in a document that, in most
cases, the consumer will not have been provided at the time
of the disclosures. Solicitation disclosures are intended to
alert the consumer to the basic costs of the credit card he
is considering--a purpose unserved where the issuer
conceals the temporary nature of a favorable fee or rate in
this manner.

Because so many credit solicitations do include
introductory rates and fees, it is reasonable to view a
solicitation that promises fixed rates and no annual fees as
describing an agreement under which the issuer intends to
offer those terms until there is a reason to change them. A
statement, therefore, that a card has "no annual fee" made
by a creditor that intends to impose such a fee shortly
thereafter, is misleading. It is an accurate statement only in
the narrowest of senses--and not in a sense appropriate to
consumer protection disclosure statute such as the TILA.
Fleet's proposed approach would permit the use of required
disclosures--intended to protect consumers from hidden
costs--to intentionally deceive customers as to the costs of
credit. Neither the language of the TILA itself, nor
Regulation Z or the Official Staff Interpretations directs
such a result.

                               23
Rossman has alleged Fleet intentionally and in fact
misled her and others with its disclosure of a "no-annual-
fee" credit card. If Rossman's allegations are true--which
we assume on a motion to dismiss--such misleading
statements are inaccurate for purposes of the TILA, and
violate its requirements.

Conclusion

For the forgoing reasons, we hold that Rossman has
stated a claim under the TILA. Accordingly, we will reverse
the judgment of the District Court, and remand for
proceedings consistent with this opinion.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

                                24
