[Federal Register Volume 59, Number 73 (Friday, April 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9138]


[[Page Unknown]]

[Federal Register: April 15, 1994]


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FEDERAL TRADE COMMISSION
16 CFR Part 444

 

Regulatory Flexibility Act Review of Trade Regulation Rule 
Concerning Credit Practices

AGENCY: Federal Trade Commission.

ACTION: Regulatory Review; Request for Comments.

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SUMMARY: In accordance with the Regulatory Flexibility Act (5 U.S.C. 
601 et seq.) and a published plan for Periodic Review of Commission 
Rules (46 FR 35,118 (July 7, 1981)), the Federal Trade Commission is 
soliciting comments and data on whether the Trade Regulation Rule 
Concerning Credit Practices (16 CFR part 444) (the ``Rule'') has had a 
significant impact on a substantial number of small entities, and if it 
has, whether the Rule should be amended to minimize any significant 
impact on small entities. The Commission is also requesting comments 
about the overall costs and benefits of the Rule and its overall 
regulatory and economic impact as a part of its systematic review of 
all current Commission regulations and guides.

DATES: Comments must be received on or before June 14, 1994.

ADDRESSES: Comments and data should be sent to: Secretary, Federal 
Trade Commission, Washington, DC 20580. Submissions should be marked 
``Credit Practices Rule Comments.''

FOR FURTHER INFORMATION CONTACT:
Sandra M. Wilmore, Attorney, Division of Credit Practices, Bureau of 
Consumer Protection, room S4429, Federal Trade Commission, 6th and 
Pennsylvania Avenue, NW., Washington, DC 20580. Tel: (202) 326-3224.

SUPPLEMENTARY INFORMATION: The Regulatory Flexibility Act requires the 
Federal Trade Commission to conduct a periodic review of rules issued 
by the Commission that have or will have a significant economic impact 
on a substantial number of small entities.
    For the purpose of the Regulatory Flexibility Act review, the term 
``small entity'' is defined under the Small Business Size Standards, 
codified at 13 CFR part 121 and revised by the Small Business 
Administration (49 FR 5024 et seq., Feb. 9, 1984). Because the 
definition of ``small entity'' differs for the various types of 
business entities covered by the Rule, persons wishing to comment on 
the Rule's impact on a particular type of small entity should refer to 
the Small Business Size Standards.
    In addition, the Commission has determined, as a part of its 
oversight responsibilities, to review rules and guides periodically. 
These reviews will seek information about the costs and benefits of the 
Commission's rules and guides and their regulatory and economic impact. 
The information obtained will assist the Commission in identifying 
rules and guides that warrant modification or rescission. This periodic 
review is conducted in accordance with the Commission's plan for 
periodic review of rules (46 FR 35118 (July 7, 1981)).
    The rule was promulgated by the Commission on March 1, 1984 (49 FR 
7740) and became effective on March 1, 1985. The Rule applies to 
lenders and retail installment sellers (creditors) and prohibits them 
from directly or indirectly taking or receiving from a consumer an 
obligation that:
    (1) Constitutes or contains 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.
    (2) Constitutes or contains 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.
    (3) Constitutes or contains an assignment of wages or other 
earnings unless:
    (i) The assignment by its terms is revokable at the will of the 
debtor, or
    (ii) 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
    (iii) The assignment applies only to wages or other earnings 
already earned at the time of the assignment.
    (4) Constitutes or contains a non-possessory security interest in 
house-hold goods\1\ other than a purchase money security interest.
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    \1\``Household goods'' are defined at Sec. 444.1(i) of the Rule 
and include possessions of the consumer and his family that are 
generally regarded as necessities.
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    The rule requires lenders and retail installment sellers to inform 
cosigners, prior to the time that the agreement creating the cosigner's 
liability is executed, of the nature of their liability as cosigners.
    The rule prohibits lenders and retail installment sellers, in 
connection with collecting a debt arising out of an extension of credit 
to a consumer, from directly or indirectly levying or collecting any 
delinquency charge on a payment, which payment is otherwise a full 
payment for the applicable period and is paid on its due date or within 
an applicable grace period, when the only delinquency is attributable 
to late fee(s) or delinquency charge(s) assessed on earlier 
installment(s).
    In promulgating the Rule, the Commission found that:
    (1) Consumers suffered substantial economic and non-economic injury 
from creditors' use of the remedies that the Rule restricts;
    (2) Consumers cannot reasonably avoid these remedies themselves or 
avoid the harsh consequences of the remedies by avoiding default; and
    (3) The overall costs to consumers are greater that the 
countervailing benefits that the use of these remedies provide to 
consumers or creditors.\2\
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    \2\See Credit Practices Rule: Statement of Basis and Purpose and 
Regulatory Analysis (SBP), 49 FR 7740, 7743-7745 (1984).
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    The objective of the review initiated by this notice under the 
Regulatory Flexibility Act is to determine whether any part of the Rule 
has had a significant impact on a substantial number of small entities 
and, if so, whether any such impact can be reduced consistent with the 
operation of the Rule. In addition, the Commission requests comments on 
a number of other issues relating to the operation of the Rule.
    For the purposes of this review, the Commission poses the following 
questions for public comment:
    1. Is there a continuing need for the rule?
    a. What benefits has the rule provided to purchasers of the 
products or services affected by the rule?
    b. Has the rule imposed costs on purchasers?
    2. What changes, if any, should be made to the rule to increase the 
benefits of the rule to purchasers?
    a. How would these changes affect the costs the rule imposes on 
firms subject to its requirements?
    3. What significant burdens or costs, including the cost of 
compliance, has the rule imposed on firms subject to its requirements?
    a. Has the rule provided benefits to such firms?
    4. What changes, if any, should be made to the rule to reduce the 
burdens or costs imposed on firms subject to its requirements?
    a. How would these changes affect the benefits provided by the 
rule?
    5. Does the rule overlap or conflict with other federal, state, or 
local laws or regulations?
    6. Since the rule was issued, what effects, if any, have changes in 
relevant technology or economic conditions had on the rule?
    7. What significant burdens or costs, including costs of 
compliance, has the rule imposed on small firms subject to its 
requirements?
    a. How do these burdens or costs differ from those imposed on 
larger firms subject to the rule's requirements?
    8. To what extent are the burdens or costs that the rule imposes on 
small firms similar to those that small firms would incur under 
standard and prudent business practices?
    9. What changes, if any, should be made to the rule to reduce the 
burdens or costs imposed on small firms?
    a. How would these changes affect the benefits of the rule?
    b. Would such changes adversely affect the competitive position of 
larger firms?
    10. Should the ``Notice to Cosigner'' set forth at 16 CFR 444.3(c) 
be rewritten to make it easier to understand? How?
    11. In considering the effect the rule has had on the availability 
and cost of credit:
    a. Has the rule caused an increase in the cost of consumer credit 
or a decline in the availability of consumer credit, in particular 
credit provided to consumers with low incomes or poor credit histories?
    b. What evidence is there that any changes in the cost or 
availability of credit to consumers are, in fact, attributable to the 
rule and not to other changes in the market place?
    12. In considering the continuing need for the existing rule:
    a. Would an alternative rule that required disclosure of contract 
provisions that might cause injury to consumers, as opposed to 
restricting the use of such provisions, be effective in protecting 
consumers?
    b. How would such disclosures be made to ensure that the consumer 
is aware of and understands them?
    c. How would the costs and benefits of a disclosure approach 
compare to the costs and benefits of the current approach?
    In responding to these questions, please distinguish to the extent 
possible between smaller and larger creditors and between new firms and 
more established firms. In addition, please submit the factual data 
(e.g., economic and accounting information, statistical analysis, 
surveys, studies, etc.) upon which comments are based together with the 
comments.

List of Subjects in 16 CFR Part 444

    Federal Trade Commission, Consumer credit contracts, Cosigner 
disclosures, Trade practices, Truth in Lending.

    Authority: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. 
(1980).

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 94-9138 Filed 4-14-94; 8:45 am]
BILLING CODE 6750-01-M