[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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