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LITWIN v. AMERICAN EXPRESS CO.

December 9, 1993

LAWRENCE B. LITWIN, Plaintiff,
v.
AMERICAN EXPRESS COMPANY and AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., Defendants.



The opinion of the court was delivered by: MICHAEL B. MUKASEY

 MICHAEL B. MUKASEY, U.S.D.J.

 Plaintiff, according to the complaint, is the holder of a charge card issued by defendant American Express Travel Related Services Company, Inc., one of the subsidiaries of defendant American Express Company, a holding company. (collectively, "American Express") He sues as the representative of all holders of the eponymous and nearly ubiquitous *fn1" cards. The factual predicate for plaintiff's various claims is that American Express charges its card-holders (whom American Express calls Cardmembers) an annual fee, but follows a secret marketing strategy of waiving such fees in whole or in part when Cardmembers complain about the fee and/or threaten to cancel their cards, and has compounded that evil by falsely denying to the Wall Street Journal, among others, that such a strategy exists.

 According to plaintiff, this course of conduct violates 15 U.S.C. § 1637(c) and (d) under the Truth In Lending Act ("TILA") and accompanying regulations, the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., common-law principles barring fraud, and Section 349 of New York's General Business Law, which grants a right of action to any consumer injured by deceptive business practices, and constitutes a breach of contract. He bases federal jurisdiction on the TILA and RICO claims, and relies on principles of pendent jurisdiction to sweep in the state law claims.

 Defendants dispute plaintiff's factual predicate, but argue that even if it is accepted as true, as it must be on a motion to dismiss under Fed. R. Civ. P. 12 (b)(6), the complaint fails to state a claim upon which relief can be granted. For the reasons set forth below, defendants are correct and the complaint is dismissed.

 I.

 The portions of TILA upon which plaintiff relies mandate truthful disclosure by credit issuers in direct mail applications and solicitations, of "any annual fee, other periodic fee, or membership fee imposed for the issuance or availability of a credit card, including any account maintenance fee or other charge imposed based on activity or inactivity for the account during the billing cycle," 15 U.S.C. § 1637(c), and disclosure of the same data in connection with renewals. 15 U.S.C. § 1637(d). The corresponding regulations requiring those disclosures appear at 12 C.F.R. §§ 226.5a(b)(2) and 226.9(e). Specific items to be disclosed are listed at 12 C.F.R. § 226.6, and include:

 
(b) Other charges. The amount of any charge other than a finance charge that may be imposed as part of the plan, or an explanation of how the charge will be determined.

 The regulation appearing at 12 C.F.R. § 226.9(c)(1) requires written notice to the consumer "whenever any term required to be disclosed under § 226.6 is changed[.]"

 Plaintiff's position, shorn of rhetoric and conformed to the applicable regulations, appears to be that the secret strategy pursued by American Express is a change in a "charge other than a finance charge" that not only has not been disclosed, but has been denied. Here, plaintiff appears to have overlooked an important canon of statutory and regulatory construction: read on. The next paragraph of the last-quoted regulation reads as follows:

 
Notice not required. No notice under this section is required when the change involves . . . a reduction of any component of a finance or other charge . . . .

 12 C.F.R. § 226.9(c)(2). Which is to say, to the extent the regulations bear on this case, they appear specifically to permit the conduct plaintiff claims violates the law: reduction of charges without notice.

 The case law plaintiff relies on bears no relationship to this case. Thus, plaintiff points to a bankruptcy court case, In re Cox, 114 Bankr. 165 (C.D. Ill. 1990), which held that an undisclosed reduction in the cost of credit could violate TILA. That case, however, was decided under a section of the statute and a regulation not applicable here, 15 U.S.C. § 1606(c) and 12 C.F.R. § 226.22(a)(2), which bars any deviation greater than 1/8 of a percentage point between the disclosed and the actual annual percentage rate of credit. See also Shroder v. Suburban Coastal Corp., 729 F.2d 1371 (11th Cir. 1984) (same). That regulation does not deal with annual fees.

 Plaintiff cites Jenkins v. Landmark Mtge. Corp., 696 F. Supp. 1089 (W.D.Va. 1989) to advance the claim that defendants have violated TILA's mandate that all disclosures be made "clearly and conspicuously." 15 U.S.C. § 1635(a). That mandate, however, relates to matters such as clarity of text and type size, ...


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