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Schwartz v. HSBC Bank USA, N.A.

United States District Court, Second Circuit

October 18, 2013

BRUCE SCHWARTZ et al., Plaintiffs,
v.
HSBC BANK USA, N.A., Defendant.

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge.

Plaintiff Bruce Schwartz ("Schwartz") brings this putative class action against defendant HSBC Bank USA, N.A. ("HSBC" or "defendant"), alleging that certain practices of and disclosures by HSBC in connection with its credit card billing practices violated the Truth in Lending Act ("TILA" or "the Act"), 15 U.S.C. §§ 1601 et seq. In particular, Schwartz alleges that, on the monthly billing statements it sent him, HSBC inaccurately or incompletely disclosed the annual interest rate and the "balance subject to interest." Schwartz also claims HSBC improperly charged late fees and interest on payments he submitted by mail during one billing cycle.

HSBC moves to dismiss the Amended Complaint, under Federal Rule of Civil Procedure 12(b)(6), for failure to state a claim, or, alternatively, to strike certain class allegations pursuant to Federal Rule of Civil Procedure 23(d)(1)(D). For the reasons that follow, the Court grants HSBC's motion to dismiss.

I. Background

A. Facts[1]

In or about November 2011, Schwartz opened a credit card account with HSBC, a corporation with principal operations in New York City. Am. Compl. ¶¶ 9, 11; Schwartz Br. 1. Schwartz claims that HSBC made improper disclosures in three monthly billing statements on this account: those with closing dates of January 3, 2012 (the "January Statement") (Am. Compl. Ex. A), February 3, 2012 (the "February Statement") ( id. at Ex. B), and March 2, 2012 (the "March Statement") ( id. at Ex. C). Id. ¶¶ 44-50. Schwartz also claims that HSBC improperly charged him a late fee (later reversed) on a payment he made during the billing period that closed October 3, 2012 (the "October Statement") ( id. at Ex. D), whereas in fact his payments had complied with the bank's stated policy. Id. ¶¶ 15-15.[2] The Court describes each claim in turn.

1. Disclosure Deficiencies

a. Failure to Properly Disclose Whether APR Was Variable or Fixed

The second page of each of Schwartz's monthly statements contained a chart entitled "Interest Charge Calculation." Running vertically, the chart listed, under "Type of Balance, " the three lines of credit available to Schwartz on his HSBC Platinum MasterCard: Cash Advances, Purchases, and Balance Transfers. See Am. Compl. Ex. A-C.[3] Running horizontally, the chart presented, for each type of balance, the (1) "Annual Percentage Rate (APR)" applicable to that balance, (2) the "Balance Subject to Interest Rate, " and (3) the "Interest Charge." Id. Just above the chart, the statement stated: "Your Annual Percentage Rate (APR) is the annual interest rate on your account." Id. (boldface type omitted). Each chart set forth, under the APR header, the APR applicable to the line of credit in question. In each case, Cash Advances were subject to a 21.99% interest rate, whereas Purchases and Balance Transfers were subject to a 0.00% interest rate. Id. Immediately following those stated interest rates, each statement noted whether each APR was variable, i.e., whether the rate was subject to adjustment by the bank. It did so, where this was the case, by following the rate with a "(v)." An explanatory footnote, located at the bottom of the chart, stated, " v=Variable Rate. " Id.

The charts presented inconsistent information as to which APR rates were variable. The February Statement stated that all three APRs were variable rates. Am. Compl. ¶ 45, Ex. B. However, the March Statement stated that only the Cash Advances APR was a variable rate. Id. ¶ 46, Ex. C. Schwartz argues that, because the terms of his agreement with HSBC "did not call for any modification" of the APR between the February and March statements, the February and March statements "contradict one another" and that one of them therefore must violate 15 U.S.C. § 1637(b)(5), which requires disclosure of the periodic rate, the balance to which it is applied, and the corresponding nominal APR. Id. ¶ 47. Schwartz also alleges that this disclosure violated 12 C.F.R. § 1026.5(c) and § 226.5(c), which require that disclosures reflect the "legal obligations between the parties." Id. Schwartz further asserts that, if the APR for Purchases and Balance Transfers was indeed variable, as the February Statement stated, the March Statement violated 12 C.F.R. § 1026.7(b)(4)(i) and § 226.7(b)(4)(i), which mandate disclosure that such rates "may vary." Id. ¶ 48.

Schwartz does not claim that HSBC actually charged him an incorrect APR on any of his statements. Rather, Schwartz acknowledges that he was billed consistent with his card member agreement, which provided for a 12-month "introductory APR" of 0.00% for Purchases and Balance Transfers and a 21.99% variable APR for Cash Advances. Schwartz instead claims that the incorrect disclosure was a technical, but actionable, violation of TILA.

b. Failure to Properly Disclose Balance Subject to Interest Rate

Schwartz also claims that the February and March statements did not properly disclose the "balance subject to interest rate." In a chart entitled, "Summary of Account Activity, " the February Statement stated that the "new balance" on Schwartz's account as of February 3, 2012 was $528.70 (which was calculated by taking the $673.40 balance due as of January 3, 2012, subtracting $150 in payments Schwartz had made during the period covered by the February statement, and adding $5.30 in interest charged). See Am. Compl. Ex. B. Of this, the February Statement listed $284.02 as the "balance subject to interest" for Cash Advances; for Purchases and Balance Transfer, it listed a zero "balance subject to interest." See id. ¶ 49, Ex. B. The March Statement stated that the "new balance" on Schwartz's account as of March 2, 2012 was $431.81 (which was calculated by taking the $528.70 balance due as of February 3, 2012, subtracting $100 in payments and $25 in "[o]ther [c]redits, " and adding $25 in a fee for a latecharge assessment and $3.11 in interest charged). See id. Ex. C. Of this, the March Statement listed $184.65 as the "balance subject to interest" for Cash Advances; for Purchases and Balance Transfers, it again listed a zero "balance subject to interest." Id. ¶ 50, Ex. C.

As to the March Statement, Schwartz argues that, because he had not paid his outstanding balance, it was incorrect to report as zero the amount of his Purchases subject to interest. He does not concretely explain what the specific number should be, but maintains it should have been a positive number. In other words, he alleges, although his outstanding balances in the categories of both Purchases and Balance Transfers were subject to a 0.00% interest rate, and therefore HSBC was correct to calculate that no interest was due, as a technical matter, an interest rate was still being applied to his positive balance, and it was inaccurate to state that the balance was zero. In so stating, Schwartz alleges, HSBC violated TILA, specifically 15 U.S.C. § 1637(b)(5)[4] and 12 C.F.R. § 1026.5(b)(5) and § 226.5(b)(5). See id. ¶¶ 49-50. Again, Schwartz does not claim HSBC charged him an incorrect rate, just that the statements "erroneously disclosed" his balances. Id.

2. Improperly Charging a Late Fee for a Mailed Payment

Finally, Schwartz alleges that HSBC improperly charged him a late fee for a monthly payment that, he states, conformed to HSBC's stated payment policies. After the October Statement, Schwartz owed a $25 minimum payment toward his outstanding balance of $119.46; the $25 minimum payment was due October 28, 2012. See Am Compl. Ex D. Because October 28, 2012 was a Sunday, the bank was not receiving payments by mail that day. Id. ¶¶ 15, 19. Schwartz made two payments towards his outstanding balance. First, in the days before the due date, he mailed a $25 check with a payment coupon in a bank-specified envelope to meet the minimum charge; he alleges that this payment conformed to "the requirements in the Payment Instructions." Id. ¶ 15.[5] Around the same time, Schwartz states, he made another payment of $50, accompanied by its own payment coupon, sent in another bank-specified envelope; he alleges that this payment also conformed to HSBC's requirements. Id. ¶ 17. HSBC, however, charged Schwartz a $19 late fee, which is reported on the next (November) statement as having been assessed on October 28, 2012. On the November statement, HSBC reported $75 in total payments as having been received on Monday, October 29, 2012. Id. ¶ 18, Ex. E.

In its monthly statements, HSBC included the following payment instructions:

Payments should be mailed with a single payment coupon to the payment address shown on the front of this billing statement. Payments must be made by a single check or money order payable in U.S. dollars and drawn on a U.S. Institution... Payments received on any day at the payment address shown on the front by 5:00 p.m., in that payment address time zone, will be credited to your Account as of the date of receipt.... All payments received after 5:00 p.m. of the time zone indicated will be credited the next day. Crediting payments to your Account may be delayed up to five days if the payment is not made as described above, or, is not mailed to and received at the address provided for remittance; is not accompanied by the payment coupon; is received ...

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