On August 22, 2014 the Federal Reserve Board requested comment on a proposal to repeal its Regulation AA (Unfair or Deceptive Acts or Practices). Also on Friday, the Board, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency issued guidance clarifying that the repeal of the credit practices rules applicable to banks, savings associations, and federal credit unions is not a determination that the prohibited practices contained in those rules are permissible. The practices described in the former credit practices rules could potentially violate the prohibition against unfair or deceptive practices under the Federal Trade Commission Act and Dodd-Frank Act, even in the absence of a specific regulation governing the conduct.
Since 1985 Regulation AA prohibits the following contract provisions and remedies:
(1) Confession of judgment clauses that require consumers to agree in advance to waive their right to a hearing;
(2) Waivers of state statutory exemptions that protect debtors’ homes and personal necessities from attachment to satisfy a debt, unless they were pledged as collateral for the loan;
(3) Clauses that assign consumers’ future wages to the creditor in the event of default; and
(4) Provisions granting the creditor a security interest in household goods not in the creditor’s possession, unless the goods were purchased with the credit.
The rule also prohibits banks from:
(1) Obligating a co-signer on the debt unless the co-signer previously received a clear and conspicuous written notice explaining the nature of the co-signer’s obligations and liabilities under the contract; and
(2) Imposing a late fee when a consumer makes a full loan payment on time or within the grace period, solely because the consumer did not pay a previous late fee imposed on an earlier installment (the “pyramiding” of late fees).
Comments on the proposal must be submitted by October 27, 2014. A copy of the proposal is available by clicking here. A copy of the interagency guidance is available by clicking here.
Editor’s Note: We like the idea of repealing regulations. If the agencies are accepting suggestions for additional repeal, we suggest Regulation Z.