[Federal Register Volume 81, Number 32 (Thursday, February 18, 2016)]
[Rules and Regulations]
[Pages 8133-8134]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03228]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 81, No. 32 / Thursday, February 18, 2016 /
Rules and Regulations
[[Page 8133]]
FEDERAL RESERVE SYSTEM
12 CFR Part 227
[Docket No. R-1490; RIN 7100 AE-19]
Unfair or Deceptive Acts or Practices (Regulation AA)
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
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SUMMARY: The Board of Governors of the Federal Reserve System (Board)
is repealing its Regulation AA, which was issued pursuant to its rule
writing authority under section 18(f)(1) of the Federal Trade
Commission Act (FTC Act or Act). Section 1092(2) of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank Act) repealed
section 18(f)(1) of the FTC Act, thus eliminating the Board's rule
writing authority under the Act.
DATES: The final rule is effective March 21, 2016.
FOR FURTHER INFORMATION CONTACT: Mandie K. Aubrey, Counsel, Division of
Consumer and Community Affairs, at (202) 452-3667, Board of Governors
of the Federal Reserve System, 20th and C Streets NW., Washington, DC
20551. For users of Telecommunications Device for the Deaf (TDD) only,
contact (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
The FTC Act directs the Federal Trade Commission (FTC) to
promulgate rules to define and prevent unfair or deceptive acts or
practices for persons other than banks, savings and loans, and Federal
credit unions.\1\ Pursuant to the Act, in 1984 the FTC issued its
Credit Practices Rule, which applied to persons within the FTC's
jurisdiction.\2\
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\1\ 15 U.S.C. 45 and 57a(a)(1).
\2\ 16 CFR 444.1-.5.
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Prior to amendments to the FTC Act made by the Dodd-Frank Act in
2010, section 18(f)(1) of the FTC Act required the Board to promulgate
rules applicable to banks that were ``substantially similar'' to these
FTC rules, with some exceptions.\3\ In addition, section 18(f)(1) of
the Act provided the Board the authority to prescribe additional rules
for banks addressing unfair or deceptive acts or practices--regardless
of whether the FTC had promulgated rules about such acts or practices.
The Act also required the Board to take appropriate action on
complaints about unfair or deceptive acts or practices by banks.\4\
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\3\ Section 18(f)(1) of the Act was previously codified at 15
U.S.C. 57a(f)(1). The Board was not required to impose substantially
similar rules if it found that: (1) Such acts or practices of banks
were not unfair or deceptive, or (2) implementation of similar
regulations with respect to banks would seriously conflict with
essential monetary and payments systems policies of the Board.
\4\ The same authority that was conferred to the Board by
section 18(f)(1) of the Act also applied to the Federal Home Loan
Bank Board (FHLBB) (predecessor to the Office of Thrift
Supervision), with respect to savings associations, and to the
National Credit Union Administration (NCUA), with respect to Federal
credit unions.
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Pursuant to its rule writing authority in section 18(f)(1) of the
FTC Act, the Board issued Regulation AA, including the Board's credit
practices rule, which was adopted in 1985.\5\ The Board's credit
practices rule was substantially similar to the FTC's Credit Practices
Rule; in adopting the rule, the Board relied on the extensive findings
that had been made by the FTC that the prohibited practices were unfair
or deceptive.
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\5\ 12 CFR part 227, subpart B.
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The Board's credit practices rule in Regulation AA prohibited banks
from using certain remedies to enforce consumer credit obligations and
from including these remedies in their consumer credit contracts. The
rule also prohibited 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).
In addition, Regulation AA contained a provision that informed
consumers how to file a complaint regarding a state member bank and
explained the Board's procedure for responding to such complaints.\6\
Regulation AA also contained information regarding state exemptions
from the credit practices rule.\7\ The Board published, separately from
the regulation, Staff Guidelines to clarify how Regulation AA applied
in particular circumstances.\8\
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\6\ 12 CFR 227.2. This provision listed an address to which
consumers may send their complaint, and explained that consumers
will receive, within 15 business days, either a substantive response
or an acknowledgment setting a reasonable time for a substantive
response.
\7\ 12 CFR 227.16.
\8\ http://www.federalreserve.gov/regulations/cg/crdtpracrul.htm.
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The Dodd-Frank Act \9\ repealed section 18(f)(1) of the FTC
Act.\10\ This legislative repeal of the Board's rulemaking authority
nullified the provisions in Regulation AA that were issued pursuant to
that authority. Regulation AA did not transfer from the Board to the
Consumer Financial Protection Bureau (Bureau) under the Dodd-Frank Act,
as did other consumer protection laws and regulations.\11\ As a result,
neither the Board nor the Bureau has authority to promulgate rules
pursuant to the FTC Act. The Bureau, however, was given separate
authority under the Dodd-Frank Act to promulgate rules to identify
unfair, deceptive, or abusive acts or practices.\12\
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\9\ Public Law 111-203, 124 Stat. 1376 (Jul. 21, 2010).
\10\ See section 1092(2) of the Dodd-Frank Act. The repeal of
section 18(f)(1) of the FTC Act also repealed the authorities of the
former FHLBB and the NCUA. See supra note 4. Section 1092(2) of the
Dodd-Frank Act did not repeal FTC Act rule writing authority for the
FTC, so the FTC Credit Practices Rule remains in effect. See supra
note 2.
\11\ The Dodd-Frank Act transferred rule writing authority only
for ``Federal consumer financial laws,'' but did not include the FTC
Act in the definition of ``Federal consumer financial law.''
Therefore, Regulation AA was excluded from the authority that
transferred from the Board to the Bureau. See Dodd-Frank Act
sections 1061(a)(1), (b)(1) (transferring authority of ``Federal
consumer financial laws'' to the Bureau) and section 1002(14)
(defining ``Federal consumer financial laws'').
\12\ Section 1031 of the Dodd-Frank Act.
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In August 2014, the Board published a proposal to repeal Regulation
AA (Proposed Rule).\13\ Simultaneously with the proposed repeal of
Regulation AA, the Board joined the Bureau, Federal Deposit Insurance
Corporation, NCUA, and Office of the Comptroller of the
[[Page 8134]]
Currency in issuing interagency guidance stating that, depending on the
facts and circumstances, a depository institution might violate the
prohibition against unfair or deceptive practices in the FTC Act and
the Dodd-Frank Act if it engages in the practices prohibited by the
former credit practices rules.\14\
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\13\ 79 FR 51115 (Aug. 27, 2014).
\14\ ``Interagency Guidance Regarding Unfair or Deceptive Credit
Practices'' (Aug. 22, 2014). http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20140822a2.pdf.
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II. Discussion
Fourteen commenters responded to the proposed repeal of Regulation
AA. Three individual commenters stated that Regulation AA was a
necessary and helpful regulation; two of these commenters stated that
the Board's reasons for repealing the regulation were unclear. A
comment letter received from seven consumer advocate organizations
acknowledged that the Board's repeal of Regulation AA was required by
the Dodd-Frank Act. In their letter, these commenters also provided
recommendations to the Bureau regarding acts or practices that the
Bureau now has to authority to regulate if it finds they are unfair or
deceptive.\15\
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\15\ One state chartered bank commenter did not address the
proposed repeal, but objected to examiners' citations of banks for
unfair or deceptive practices in the supervisory process. Two
individual commenters did not address the proposed repeal of
Regulation AA.
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Eight commenters addressed the interagency guidance that was issued
simultaneously with the proposed repeal of Regulation AA. One
individual commenter believed the guidance would discourage banks from
engaging in unfair or deceptive acts or practices, but seven consumer
advocate commenters recommended strengthening the guidance language.
The consumer advocate commenters also recommended that the Board issue
additional guidance regarding other acts or practices that the
commenters believe should be declared unfair or deceptive acts or
practices.
The Board is finalizing the repeal of Regulation AA as proposed. As
the Board discussed in the Proposed Rule, the Dodd-Frank Act eliminated
the Board's rule writing authority under the FTC Act, which nullified
the regulation. The Board will continue to monitor developments with
respect to unfair or deceptive acts or practices and assess whether to
issue additional supervisory guidance.
The repeal of Regulation AA also eliminates Subpart A of the
regulation, which generally describes the internal procedures used by
the Board in handling consumer complaints. The Board did not receive
comment on the removal of these internal procedures from the Code of
Federal Regulations. Information about how the Board processes consumer
complaints is provided on the Board's public Web site.\16\
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\16\ https://www.federalreserveconsumerhelp.gov/.
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III. Final Regulatory Flexibility Analysis
The Regulatory Flexibility Act \17\ (RFA) generally requires an
agency to perform an assessment of the impact a rule is expected to
have on small entities. Based on its analysis, and for the reasons
stated below, the Board believes that this final rule will not have a
significant economic impact on a substantial number of small entities.
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\17\ 5 U.S.C. 601 et seq.
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1. Statement of the need for, and objectives of, the final rule.
Regulation AA was issued pursuant to section 18(f)(1) of the FTC Act.
As noted above, the Dodd-Frank Act repealed this provision of the FTC
Act.\18\ Accordingly, the Board is repealing its Regulation AA.
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\18\ See section 1092(2) of the Dodd-Frank Act.
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2. Summary of issues raised by comments in response to the initial
regulatory flexibility analysis. The Board did not receive any comments
on the initial regulatory flexibility analysis.
3. Small entities affected by the final rule. The final rule
repeals Regulation AA, which was issued pursuant to section 18(f)(1) of
the FTC. As a result of the FTC Act amendments made by the Dodd-Frank
Act, the Board no longer has rule writing authority under section
18(f)(1). The legislative repeal of the Board's rulemaking authority
nullified the provisions in Regulation AA that were issued pursuant to
that authority. Consequently, the Board's repeal of the regulation,
which no longer has legal effect, will not affect any entity, including
any small entity. The repeal of Regulation AA will also remove
information about how the Board processes consumer complaints from the
Code of Federal Regulations. This is not expected to have an effect on
small entities because that information is provided on the Board's
public Web site.
4. Recordkeeping, reporting, and compliance requirements. The final
rule repeals Regulation AA and therefore does not impose any
recordkeeping, reporting, or compliance requirements on any entities.
5. Significant alternatives to the final revisions. Because the
repeal of Regulation AA will have no impact, there are no alternatives
that would further minimize the economic impact of the final rule on
small entities.
IV. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (PRA) of 1995 (44
U.S.C. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the rule
under the authority delegated to the Federal Reserve by the Office of
Management and Budget (OMB). The final rule contains no requirements
subject to the PRA.
List of Subjects in 12 CFR Part 227
Banks, Banking, Consumer protection, Credit, Federal Reserve
System, Finance.
Authority and Issuance
For the reasons set forth in the preamble, and under the authority
of section 1092(2) of Public Law 111-203, 124 Stat. 1376 (Jul. 21,
2010), the Board amends 12 CFR chapter II by removing part 227.
PART 227--[REMOVED]
By order of the Board of Governors of the Federal Reserve
System, February 11, 2016.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2016-03228 Filed 2-17-16; 8:45 am]
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