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There Ought To Be a Law…An Interview with “Super Lawyer” Michael Braun

In addition to the five class actions lawsuits we’ve listed on the site so far, ChangeInTerms.com has learned a sixth class action, Stockton v. Chase, was filed last week in Federal Court in the Northern District of California. The Braun Law Group (BLG) of Los Angeles, a firm specializing in consumer and securities class actions, is representing plaintiffs. BLG is working on several suits in various stages of the legal process against Chase Bank for its abusive practices.

Class action attorneys who work for the public do so on a contingency basis; they don’t get paid unless they win at trial or can reach a settlement. Therefore, they have to pick and choose among potential cases for the strongest ones. Michael Braun, Esq., BLG´s lead attorney, received the Clay award for his legal accomplishments in 2000, and was named a Southern California Super Lawyer by Los Angeles Magazine in 2005. In an exclusive interview for ChangeInTerms.com, he told us why he thinks this particular instance of misconduct by Chase has drawn the attention of so many law firms, so fast.

He explained that managing risk is the mantra of the credit card companies, how they justify jacking up customers’ rates. But in this case, Chase has not even bothered to claim that there is a risk of default; they just want more money! “It’s barefaced, out in the open,“ he said.

Chase is gambling that they can get away with their “change in terms” long enough to make it lucrative. Braun said that most class actions don’t make it through the various hurdles in the court system, or are settled before they get to trial. Settlements are often for pennies on the dollar, so if for example, a bank makes $100 million in illegitimate charges, then settles a lawsuit for $30 million, that’s still a 70 percent profit. “It’s just a cost of doing business. Right and wrong doesn’t enter into it.”

One of the strengths of our claim is Chase’s refusal to allow us to opt out and close the account, paying off the balance under the original terms while barred from making future charges. This option is typically available to customers whose interest rates have been raised based on the card issuer’s assertion that the customer’s credit profile has deteriorated and thus poses an increased risk.

But we were given low fixed rate “life of the balance” offers precisely because we are low-risk customers, with a history of meeting our obligations to Chase and other creditors. Shortly before, and even after, imposing the “change in terms,” Chase continues to send offers encouraging us to access the unused portion of our credit. Risk is obviously not the issue. Chase is banking on the fact that they can essentially extort most of us into paying a higher rate, one way or the other, rather than risk defaulting and damaging our credit ratings.

The $10 monthly finance charge we were assessed is a red flag. Not only does it violate the promised fixed rate, it’s not based on anything but the fact that Chase wants more money. On the one hand, Chase claims it’s not a finance charge but a service fee. However, they are willing remove the fee if the customer agrees to a doubling of the interest rate. “Servicing” an account with a 3.99 percent APR is no different, however, from “servicing” one with a higher APR.

On the other hand, the $10 appears on our statements as a finance charge, with a higher APR assigned, thus it will accrue interest because any payments we make will first be applied to our lower APR balances. If it’s a “finance charge” then it is clearly in violation of the terms of a “life of the balance” fixed rate because it raises the effective APR of the entire account, absent any failure to perform as agreed by the customer.

Arguably, it sets a dangerous precedent with broader implications. If Chase can assess an arbitrary amount of $10 because it believes it has customers over a barrel, there’s nothing to prevent Chase, or any other corporate bully, from demanding $50 a month, or $100 dollars a month! Notwithstanding that the card member agreements and change in terms notices consist of non-negotiable one-sided terms given to the consumer on a take it or leave it basis, a fundamental principle of contract law requires the parties to have a meeting of the minds — a common understanding of their rights and obligations. Unilaterally changing terms in this manner offends the core of this principle.

Chase’s conduct makes a mockery of the idea of a contract, and transforms us from customers to serfs. All the various commercial transactions we engage in daily are based on contracts, whether expressed or implied. What if everyone you did business with behaved like Chase?

Most people are familiar with automated car washes. When you drive in there’s a sign listing the types of wash service and the prices. You pay for the type of wash you want and are given some sort of ticket or receipt, and then your car is hooked up to a track that pulls it through a tunnel filled with brushes and nozzles and it emerges clean on the other end. Imagine if, as you were about to drive off in your clean car, a car wash worker blocked your way and demanded $10. “Hey,“ you’d say, “here’s my receipt. It shows that I already paid $9.99 for the wash and wax.”

The car wash man replies, “Yeah, but you didn’t pay the blue car surcharge. You got a blue car, that’s ten dollars extra.”

You say,” You’ve got to be kidding! It didn’t say anything about a blue car surcharge on your price list.”

But he’s not smiling, “Yeah, that’s because it’s a new policy that went into effect while you were in the tunnel.”

You, probably yelling by now, “That’s insane! You can’t do that!”

He replies, “Yeah we can. Look at the back of your receipt. It says we reserve the right to change the terms at any time. Gimme ten bucks or this car isn’t going anywhere!”

Commerce as we know it would soon cease if we couldn’t trust anybody to keep their end of the bargain, or if we felt there was no way of knowing what we were getting into. In fact, there are laws, such as the Truth in Lending Act, that specify that a credit card company must disclose all the circumstances and methods for calculating the interest rate, fees, and penalties assessed to a customer’s account.

BLG has another Federal class action, Barrer v Chase filed in the Oregon District. It may interest some of the Chase victims that find their way here. It also concerns a bait and switch offer, though not one fixed for the life of the balance. The plaintiffs allege that Chase suddenly increased their APR for reasons not disclosed in card member agreements. The Barrers, an Oregon couple, opened an account with Chase in 2000 with a “Preferred Rate” of 8.99%. In April 2005, the APR suddenly skyrocketed to 24.74%. The Barrers contacted Chase for an explanation and received a letter in response that informed them that their account had been selected for a rate increase because a credit report Chase received showed their outstanding loans were” too high”, and they had “too many recently opened revolving accounts.”

The Barrers’ credit report did not show missed or late payments to Chase or any other creditor, insufficient funds, or any instance of exceeding their credit limit, the only reasons for a rate increase specified in their card member agreement. Chase did not disclose that it would consider credit-to-debt ratio or the number of accounts as a basis for raising the APR, and it certainly did not define what constitutes “too high” or “too many.”

This is a clear violation of the Truth in Lending Act. How does Chase expect to get away with its egregious behavior?

If you search the voluminous fine print of your card agreement, you will find a clause barring you from entering into a class action lawsuit against Chase. But without the option of class action, you have no functional legal rights, your theoretical equality under law notwithstanding, because most people can’t, or won’t pay legal fees far in excess of the financial damages caused by Chase to file a case on an individual basis. But, Michael Braun said, courts in some states, notably California, Oregon and Washington, have ruled that these clauses in credit card agreements banning class actions are “unconscionable” and contrary to the intent of public policy goals to protect consumers.

However, Chase is incorporated in Delaware, not coincidentally a state that cares little for consumer protection, Braun added. Chase’s strategy is to argue that they get to play by Delaware rules, because of the National Bank Act, a Federal law heavily influenced by industry lobbyists and passed by their Congressional representatives that allows a national bank to operate nationwide governed by the laws of the state in which it is incorporated.

Though his work is to get justice for consumers in the courts, Braun believes that abusive practices won’t stop until people organize to pressure Congress to change the laws. “Five years ago, I wouldn’t have said that. I’d have told you, write to your Congress member if it makes you feel good, but it’s not going to accomplish anything. Now, things are different. People must speak out and let them know it’s an election issue.”

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