Chevy Chase Bank to settle 7-year suit

July 27, 2006|By LAURA SMITHERMAN | LAURA SMITHERMAN,SUN REPORTER

After a seven-year legal battle, Chevy Chase Bank has agreed to pay $16.1 million to settle a nationwide class-action lawsuit that accused it of charging higher-than-promised interest rates on credit cards.

Baltimore Circuit Judge John M. Glynn gave preliminary approval to the settlement yesterday.

Chevy Chase denied wrongdoing but wanted to settle to avoid "further protracted and expensive litigation," according to the agreement. Thomas H. McCormick, general counsel at Chevy Chase, declined to comment.

F. Paul Bland Jr., the lead plaintiffs' attorney, said that after legal fees he expects about $11 million to be paid to hundreds of thousands of cardholders around the country. Chevy Chase is Maryland's third-largest bank by deposit share, according to the Federal Deposit Insurance Corp.

Some cardholders could be paid damages in the thousands of dollars, Bland said.

Chevy Chase also agreed to remove negative reports sent to the major credit bureaus for cardholders who missed payments or couldn't make full payments after the rates went up, Bland said.

"Several consumers told us it was hard to buy a house because the bank listed them as a bad debtor on their credit report, and we felt that getting that corrected was an important part of the deal and could turn out to be worth more than the cash," Bland said. "I feel like overall this is a great deal and one of the proudest moments of my life."

Trial Lawyers for Public Justice, a public interest law firm based in Washington, filed the lawsuit in February 1999.

The firm alleged that Chevy Chase increased interest rates above 24 percent, the maximum allowed under Maryland law, even though it had promised not to do so.

Chevy Chase made the changes in 1996 when it moved its home office to McLean in Virginia, which had no state limit on interest rates.

Chevy Chase later sold its card portfolio to First USA, now owned by JPMorgan Chase & Co., but retained liability in the case.

The lawsuit took years to litigate as the Maryland Court of Appeals settled two sticking points. The state's highest court overturned a lower-court ruling that blocked the lawsuit on grounds the dispute had to be resolved through arbitration and another ruling that found the plaintiffs' claims were pre-empted by federal law.

Bland said his office would notify cardholders about how to make a claim or object to the settlement agreement.

laura.smitherman@baltsun.com

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