(CN) - After converting customer cards to unsolicited, high-fee Visas and slashing credit rates, Target need not face a federal class action, the 7th Circuit ruled.
The dispute stems from Target's campaign to "upgrade" store-use-only guest cards by sending unsolicited general-purpose Visas to more than 10 million customers from 2000 to 2007.
The "Auto-Substitution" program let Target deactivate holders' old cards, which were governed by separate agreements than the new, all-purpose Target Visas, which typically had higher credit limits and lower annual percentage rates.
Various fliers and brochures informed customers: "Your old Target Card will be closing soon, so cut up your old Target Card, activate your new Target Visa and start using it today!"
Though Target transferred guest card balances to Visas that were activated, the autosub materials never stated that credit limits were subject to change, according to the ruling.
Target also reduced credit limits after activation, the court said, noting that most customers had $1,000 credit limits in the 2005 rollout but that many with credit scores under 649 had their limits slashed later.
Plus, the card agreements gave Target substantial leeway to modify or cancel accounts.
Target also had telemarketers call over a million people who did not immediately activate their new Visas, and closed accounts of customers who never activated the new cards.
Two customers, Richard Acosta and Jenifer Roman, hoped to represent a class claiming that Target violated the federal Truth in Lending Act and state law by failing to show all the differences between the old and new cards.
Acosta used a guest card from 1999 to 2005, when he activated an unsolicited Visa. The Visa that Roman activated in 2004, meanwhile, had a higher credit limit and lower minimum payment than the guest card. Because Roman failed to timely pay her old card's remaining balance, however, she was charged higher late fees and given a worse interest rate.
These claims nevertheless failed to sway a federal judge, who granted Target summary judgment after finding that the Autosub program was a "substitution" of the guest card specifically permitted by federal law.
A three-judge panel of the 7th Circuit affirmed Wednesday, holding that the new Visa was "a valid substitution for the guest card, both as the word is commonly understood and as the Federal Reserve Board has interpreted the term for the purposes of [Truth in Lending Act] TILA."
The court also upheld Target's claim that the Visas did not create a new account, noting that the Credit Card Accountability Responsibility and Disclosure Act amended Section 1637 of the Truth in Lending Act in 2009, requiring credit card mailings to clarify new accounts.
"Target had no way of knowing during the early- and mid-2000s that the Autosubbed Visas would violate § 1637, and so Target made the reasonable judgment that new account disclosures were not required," Judge Joel Flaum wrote for the Chicago-based panel.
In nixing the state-law claims, Flaum said it was not fraudulent for Target to omit "the fact that cardholders could maintain their guest cards by taking additional steps."
Te court also disagreed that that Target's right to make changes to "this
agreement" referred to the old card contract, also failed.
"There was nothing in the agreement that limited the scope of changes that Target was free to make," Flaum wrote. "And anytime Target made changes to a credit agreement, it had to send out the revisions to customers; when revisions were substantial, it often made sense to send an entirely new document (as opposed to just the revised portions)." (Parentheses in original).
Last, the plaintiffs failed to show that Target caused customers to lose their old cards unjustifiably in directing Target National Bank to convert guest cards to Visas.
"Target acted in accordance with its contracts and with applicable laws, which makes liability for tortious interference impossible here," Flaum wrote.