[Federal Register Volume 75, Number 85 (Tuesday, May 4, 2010)]
[Rules and Regulations]
[Pages 23565-23568]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-10196]
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DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 535
[Docket ID OTS-2010-0009]
RIN 1550-AC38
Unfair or Deceptive Acts or Practices; Amendment
AGENCY: Office of Thrift Supervision, Treasury (OTS).
ACTION: Final rule.
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SUMMARY: OTS is amending its regulations at 12 CFR part 535 titled
``Prohibited Consumer Credit Practices'' to avoid duplication and
inconsistency with the Credit Card Accountability Responsibility and
Disclosure Act of 2009 and the rules of the Board of Governors of the
Federal Reserve implementing that statute.
DATES: This rule is effective on July 1, 2010.
FOR FURTHER INFORMATION CONTACT: Richard Bennett, Senior Compliance
Counsel, Regulations and Legislation Division, (202) 906-7409; or April
Breslaw, Director, Consumer Regulations, (202) 906-6989, at Office of
Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.
SUPPLEMENTARY INFORMATION:
On December 18, 2008, OTS used its authority under the Federal
Trade Commission Act (15 U.S.C. 41-58) and the Home Owners' Loan Act
(12 U.S.C. 1461 et seq.) to adopt a final rule titled ``Unfair or
Deceptive Acts or Practices'' amending its rule at 12 CFR part 535
titled ``Prohibited Consumer Credit Practices.'' The rule was published
in the Federal Register on January 29, 2009 (January 2009 UDAP rule).
74 FR 5498. OTS issued its rule jointly with rules issued by the Board
of Governors of the Federal Reserve (Board) and the National Credit
Union Administration (NCUA). The rule was scheduled to go into effect
on July 1, 2010.
The January 2009 UDAP rule contained three subparts to part 535 and
an Appendix to part 535 containing an Official Staff Commentary.
Subparts A and B addressed general provisions and credit practices
respectively. Subpart C addressed unfair consumer credit card account
practices. The Supplementary Information to the January 2009 UDAP rule
described all these changes in detail.
On May 5, 2009, OTS published proposed amendments to the January
2009 UDAP rule (May 2009 proposed amendments). See 74 FR 20804.
On May 22, 2009, the President signed into law the Credit Card
Accountability Responsibility and Disclosure Act of 2009 (Credit CARD
Act). Public Law 111-24, 123 Stat. 1734 (2009). The Credit CARD Act
primarily amended the Truth in Lending Act (15 U.S.C. 1601 et seq.) and
established a number of new substantive and disclosure requires to
establish fair and transparent practices pertaining to open-end
consumer credit plans, including credit card accounts. On July 22,
2009, the Board published an interim final rule amending Regulation Z
(12 CFR pt. 226) and the staff commentary to implement those provisions
of the Credit CARD Act that became effective on August 20, 2009. See 74
FR 36077. On February 22, 2010, the Board published a new final rule
amending Regulation Z and the staff commentary in order to implement
the Credit CARD Act. See 75 FR 7658.
The Credit CARD Act and the Board's implementing rule do not affect
the provisions of subparts A and B and the corresponding portion of the
Appendix in the January 2009 UDAP rule. Accordingly, today's final rule
repromulgates those provisions, subject only to necessary conforming
amendments. These provisions will take effect on July 1, 2010 as
previously scheduled.
[[Page 23566]]
In contrast, the practices addressed in subpart C and the
corresponding portion of the Appendix in the January 2009 UDAP rule, as
proposed to be revised by the May 2009 proposed amendments are subsumed
within, though not identical to, the practices addressed by Credit CARD
Act and the Board's implementing rule. In some respects, the Credit
CARD Act and the Board's implementing rule address the same practices
addressed in the January 2009 UDAP rule, but in somewhat different ways
that afford greater consumer protection. In order to avoid duplication
and inconsistency, OTS is removing subpart C and the corresponding
portion of the Appendix. For procedural reasons, OTS is making these
changes effective July 1, 2010. Consequently, subpart C and the
corresponding portion of the Appendix will not take effect. Likewise,
OTS does not intend to finalize the May 2009 proposed amendments.
The Credit CARD Act and the Board's implementing rule do not affect
the standards for unfairness or deception under the FTC Act.
Accordingly, in analyzing whether an act or practice is unfair, OTS
will continue to apply the standards described in the Supplementary
Information to the January 2009 UDAP rule. See 74 FR at 5502-04. Under
these standards, an act or practice is unfair where: (1) It causes or
is likely to cause substantial injury to consumers; (2) the injury
cannot be reasonably avoided by consumers themselves; and (3) the
injury is not outweighed by countervailing benefits to consumers or to
competition. Established public policy may also be considered in the
analysis of whether a particular act or practice is unfair, but public
policy may not serve as the primary basis for a determination that an
act or practice is unfair. An act or practice is deceptive where: (1)
there is a representation or omission of information that is likely to
mislead consumers acting reasonably under the circumstances; and (2)
that information is material to consumers.
Further, as noted in the Supplementary Information to the January
2009 UDAP rule, the fact that a particular act or practice is not
addressed in a rule on unfair or deceptive acts or practices, does not
limit the ability of an agency to make a determination that the
practice is unfair or deceptive. 74 FR at 5504. Accordingly, OTS will
continue to consider the analysis of consumer credit card account
practices contained in the Supplementary Information to the January
2009 UDAP rule and the May 2009 proposed amendments, even though OTS is
removing subpart C and the corresponding portion of the Appendix.
OTS issued its January 2009 UDAP rule and the May 2009 proposed
amendments jointly with rules issued by the Board and the NCUA. Today's
final rule, however, applies only to the OTS rule and does not affect
the rules issued by the Board and NCUA. OTS notes that on February 22,
2010, the Board issued a corresponding final rule (75 FR 7925) and on
February 10, 2010, the NCUA issued a corresponding final rule (75 FR
6558).
Administrative Procedure Act
Under 5 U.S.C. 553(b)(B) of the Administrative Procedure Act (APA),
an agency may, for good cause, find (and incorporate the finding and
brief statement of reasons therefore in the rule issued) that notice
and public procedure thereon are impracticable, unnecessary, or
contrary to the public interest. The conforming amendments to subparts
A and B and the corresponding portion of the Appendix are technical in
nature. The substance of subparts A and B was previously subject to
notice and comment, as described in detail in the SUPPLEMENTARY
INFORMATION contained in January 2009 UDAP rule.
The consumer protections contained in subpart C to part 535 as
proposed to be revised by the May 2009 proposed amendments are subsumed
within, though not identical to, the protections of the Credit CARD Act
and the Board's implementing rule. Accordingly, the removal of subpart
C is necessary to avoid duplication and inconsistency. Therefore, OTS
has determined that publishing a notice of proposed rulemaking and
providing opportunity for public comment are unnecessary.
Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act (Pub.
L. 96-354, 5 U.S.C. 601), the OTS Director certifies that these
amendments to 12 CFR part 535 will not have a significant economic
impact on a substantial number of small entities. OTS previously
certified that the January 2009 UDAP rule would not have a significant
economic impact on a substantial number of small entities. See 74 FR at
5549-50. Since this final rule removes subpart C, any impact of the
January 2009 UDAP rule will be even further reduced. Accordingly, this
final rule will not have a significant economic impact on a substantial
number of small entities.
Paperwork Reduction Act of 1995
Office of Management and Budget (OMB) regulations require OMB to
review and approve information collection requirements imposed by
agency rule. OTS is submitting notification to OMB of revisions to an
approved paperwork section. In this final rule, OTS has removed the
paperwork requirements for subpart C, which were contained in section
535.24(a).
Executive Order 12866
OTS previously provided a regulatory impact analysis under
Executive Order 12866. 74 FR at 5551-5558. The analysis addressed the
impact of the consumer credit card practices in subpart C to part 535.
Since this final rule removes subpart C, its impact will be eliminated.
Unfunded Mandates Reform Act of 1995
OTS has determined that the requirements of this final rule will
not result in expenditures by State, local, and tribal governments, or
by the private sector, of $100 million or more in any one year.
Accordingly, a budgetary impact statement is not required under section
202 of the Unfunded Mandates Reform Act of 1995. OTS previously
certified that the January 2009 UDAP rule would not result in
expenditures by State, local, and tribal governments, of $100 million
or more in any one year, but may result in expenditures by the private
sector in excess of that threshold. See 74 FR at 5558. Since this final
rule removes subpart C, any impact of the January 2009 UDAP rule will
be even further reduced. Accordingly, this final rule will not result
in expenditures by State, local, and tribal governments, or by the
private sector, of $100 million or more in any one year.
Executive Order 13132 Determination
OTS previously certified that the January 2009 UDAP rule does not
have any federalism implications for purposes of Executive Order 13132.
See 74 FR at 5558. That determination continues to apply.
List of Subjects in 12 CFR Part 535
Consumer credit, Consumer protection, Credit, Credit cards,
Deception, Intergovernmental relations, Savings associations, Trade
practices, Unfairness.
Authority and Issuance
0
For the reasons discussed in the preamble, OTS revises 12 CFR part 535
to read as follows:
[[Page 23567]]
PART 535--UNFAIR OR DECEPTIVE ACTS OR PRACTICES
Subpart A--General Provisions
Sec.
535.1 Authority, purpose, and scope.
Subpart B--Consumer Credit Practices
535.11 Definitions.
535.12 Unfair credit contract provisions.
535.13 Unfair or deceptive cosigner practices.
535.14 Unfair late charges.
Appendix to Part 535--Official Staff Commentary
Authority: 12 U.S.C. 1462a, 1463, 1464; 15 U.S.C. 57a.
Subpart A--General Provisions
Sec. 535.1 Authority, purpose and scope.
(a) Authority. This part is issued by OTS under section 18(f) of
the Federal Trade Commission Act, 15 U.S.C. 57a(f) (section 202(a) of
the Magnuson-Moss Warranty--Federal Trade Commission Improvement Act,
Pub. L. 93-637) and the Home Owners' Loan Act, 12 U.S.C. 1461 et seq.
(b) Purpose. The purpose of this part is to prohibit unfair or
deceptive acts or practices in violation of section 5(a)(1) of the
Federal Trade Commission Act, 15 U.S.C. 45(a)(1). Subpart B defines and
contains requirements prescribed for the purpose of preventing specific
unfair or deceptive acts or practices of savings associations. The
prohibitions in subpart B do not limit OTS's authority to enforce the
FTC Act with respect to any other unfair or deceptive acts or
practices. The purpose of this part is also to prohibit unsafe and
unsound practices and protect consumers under the Home Owners' Loan
Act, 12 U.S.C. 1461 et seq.
(c) Scope. This part applies to savings associations and
subsidiaries owned in whole or in part by a savings association
(``you'').
Subpart B--Consumer Credit Practices
Sec. 535.11 Definitions.
For purposes of this subpart, the following definitions apply:
(a) Consumer means a natural person who seeks or acquires goods,
services, or money for personal, family, or household purposes, other
than for the purchase of real property, and who applies for or is
extended consumer credit.
(b) Consumer credit means credit extended to a natural person for
personal, family, or household purposes. It includes consumer loans;
educational loans; unsecured loans for real property alteration, repair
or improvement, or for the equipping of real property; overdraft loans;
and credit cards. It also includes loans secured by liens on real
estate and chattel liens secured by mobile homes and leases of personal
property to consumers that may be considered the functional equivalent
of loans on personal security but only if you rely substantially upon
other factors, such as the general credit standing of the borrower,
guaranties, or security other than the real estate or mobile home, as
the primary security for the loan.
(c) Earnings means compensation paid or payable to an individual or
for the individual's account for personal services rendered or to be
rendered by the individual, whether denominated as wages, salary,
commission, bonus, or otherwise, including periodic payments pursuant
to a pension, retirement, or disability program.
(d) Obligation means an agreement between you and a consumer.
(e) Person means an individual, corporation, or other business
organization.
Sec. 535.12 Unfair credit contract provisions.
It is an unfair act or practice for you, directly or indirectly, to
enter into a consumer credit obligation that constitutes or contains,
or to enforce in a consumer credit obligation you purchased, any of the
following provisions:
(a) Confession of judgment. A cognovit or confession of judgment
(for purposes other than executory process in the State of Louisiana),
warrant of attorney, or other waiver of the right to notice and the
opportunity to be heard in the event of suit or process thereon.
(b) Waiver of exemption. An executory waiver or a limitation of
exemption from attachment, execution, or other process on real or
personal property held, owned by, or due to the consumer, unless the
waiver applies solely to property subject to a security interest
executed in connection with the obligation.
(c) Assignment of wages. An assignment of wages or other earnings
unless:
(1) The assignment by its terms is revocable at the will of the
debtor;
(2) The assignment is a payroll deduction plan or preauthorized
payment plan, commencing at the time of the transaction, in which the
consumer authorizes a series of wage deductions as a method of making
each payment; or
(3) The assignment applies only to wages or other earnings already
earned at the time of the assignment.
(d) Security interest in household goods. A nonpossessory security
interest in household goods other than a purchase-money security
interest. For purposes of this paragraph, household goods:
(1) Means clothing, furniture, appliances, linens, china, crockery,
kitchenware, and personal effects of the consumer and the consumer's
dependents.
(2) Does not include:
(i) Works of art;
(ii) Electronic entertainment equipment (except one television and
one radio);
(iii) Antiques (any item over one hundred years of age, including
such items that have been repaired or renovated without changing their
original form or character); or
(iv) Jewelry (other than wedding rings).
Sec. 535.13 Unfair or deceptive cosigner practices.
(a) Prohibited deception. It is a deceptive act or practice for
you, directly or indirectly in connection with the extension of credit
to consumers, to misrepresent the nature or extent of cosigner
liability to any person.
(b) Prohibited unfairness. It is an unfair act or practice for you,
directly or indirectly in connection with the extension of credit to
consumers, to obligate a cosigner unless the cosigner is informed,
before becoming obligated, of the nature of the cosigner's liability.
(c) Disclosure requirement--(1) Disclosure statement. A clear and
conspicuous statement must be given in writing to the cosigner before
becoming obligated. In the case of open-end credit, the disclosure
statement must be given to the cosigner before the time that the
cosigner becomes obligated for any fees or transactions on the account.
The disclosure statement must contain the following statement or one
that is substantially similar:
Notice of Cosigner
You are being asked to guarantee this debt. Think carefully
before you do. If the borrower doesn't pay the debt, you will have
to. Be sure you can afford to pay if you have to, and that you want
to accept this responsibility.
You may have to pay up to the full amount of the debt if the
borrower does not pay. You may also have to pay late fees or
collection costs, which increase this amount.
The creditor can collect this debt from you without first trying
to collect from the borrower. The creditor can use the same
collection methods against you that can be used against the
borrower, such as suing you, garnishing your wages, etc. If this
debt is ever in default, that fact may become a part of your credit
record.
(2) Compliance. Compliance with paragraph (d)(1) of this section
[[Page 23568]]
constitutes compliance with the consumer disclosure requirement in
paragraph (b) of this section.
(3) Additional content limitations. If the notice is a separate
document, nothing other than the following items may appear with the
notice:
(i) Your name and address;
(ii) An identification of the debt to be cosigned (e.g., a loan
identification number);
(iii) The date (of the transaction); and
(iv) The statement, ``This notice is not the contract that makes
you liable for the debt.''
(d) Cosigner defined. (1) Cosigner means a natural person who
assumes liability for the obligation of a consumer without receiving
goods, services, or money in return for the obligation, or, in the case
of an open-end credit obligation, without receiving the contractual
right to obtain extensions of credit under the account.
(2) Cosigner includes any person whose signature is requested as a
condition to granting credit to a consumer, or as a condition for
forbearance on collection of a consumer's obligation that is in
default. The term does not include a spouse or other person whose
signature is required on a credit obligation to perfect a security
interest pursuant to state law.
(3) A person who meets the definition in this paragraph is a
cosigner, whether or not the person is designated as such on a credit
obligation.
Sec. 535.14 Unfair late charges.
(a) Prohibition. In connection with collecting a debt arising out
of an extension of credit to a consumer, it is an unfair act or
practice for you, directly or indirectly, to levy or collect any
delinquency charge on a payment, when the only delinquency is
attributable to late fees or ydelinquency charges assessed on earlier
installments and the payment is otherwise a full payment for the
applicable period and is paid on its due date or within an applicable
grace period.
(b) Collecting a debt defined--Collecting a debt means, for the
purposes of this section, any activity, other than the use of judicial
process, that is intended to bring about or does bring about repayment
of all or part of money due (or alleged to be due) from a consumer.
Appendix to Part 535--Official Staff Commentary
Subpart A--General Provisions
Section 535.1 Authority, Purpose, and Scope.
1(c) Scope
1. Penalties for noncompliance. Administrative enforcement of the
rule for savings associations may involve actions under section 8 of
the Federal Deposit Insurance Act (12 U.S.C. 1818), including cease-
and-desist orders requiring that actions be taken to remedy violations
and civil money penalties.
2. Application to subsidiaries. The term ``savings association'' as
used in this Appendix also includes subsidiaries owned in whole or in
part by a savings association.
Dated: April 27, 2010.
By the Office of Thrift Supervision.
John E. Bowman,
Acting Director.
[FR Doc. 2010-10196 Filed 5-3-10; 8:45 am]
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