The Supreme Court said on Monday it would hear JPMorgan Chase & Co's appeal over a lawsuit accusing the bank of violating federal law by failing to notify credit card holders before raising interest rates due to late payments or defaults.

The lead plaintiff in the class-action lawsuit, James McCoy, had accused Chase Manhattan Bank of violating the Truth in Lending Act by raising interest rates retroactively to the beginning of his payment cycle after his account was closed after a late payment to Chase or another creditor.

Chase said that in its card member agreement, it disclosed the conditions that McCoy had to comply with to remain eligible for the lower interest rate, as well as the maximum interest rate that could apply if he violated those terms.

At issue is whether a federal regulation required notice when a creditor increased the rate on a credit card in response to a cardholder default and in accord with a contract.

A federal judge in California dismissed the lawsuit, which was filed in 2006, but a federal appeals court reinstated it last year.

The appeals court ruled that McCoy can proceed with the lawsuit if Chase failed to notify him of the rate increase because of a delinquency or default, or if his card member contract did not spell out specific terms for an increase.

The appeals court said a Federal Reserve Board regulation required contemporaneous notice in cases of discretionary rate increases that occur because of a cardholder's default.

The Fed amended the regulation last year to require advance notice of 45 days for higher interest rates.

The Supreme Court will hear arguments in the case during its upcoming term that begins in October.

(Reporting by James Vicini. Editing by Gerald E. McCormick and John Wallace)

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