The Federal Reserve Board issued a proposal to repeal Regulation AA (Unfair or Deceptive Acts or Practices). Regulation AA contains the “credit practices rule,” prohibiting banks from using certain remedies to enforce consumer credit obligations and from including these remedies in their consumer credit contracts.
Concurrently, Federal Banking agencies jointly issued clarifying guidance that the repeal of the credit practices rules is not a determination that the prohibited practices contained in such rules are now permissible. The guidance clarifies that the practices codified in the credit practices rules may potentially violate the prohibition against unfair or deceptive practices under the Federal Trade Commission Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, even in the absence of specific regulation and that the Agencies have supervisory and enforcement authority regarding unfair or deceptive acts or practices.
The agencies noted that the FTC’s Credit Practices Rule requires — and the former credit practices rules applicable to banks and savings associations required — creditors to provide a “Notice to Cosigner” explaining the cosigner’s obligations and his or her liability if the borrower fails to pay. The agencies believe that creditors have properly disclosed a cosigner’s liability if, prior to obligation, they continue to provide a “Notice to Cosigner.”