81 FR 8133 - Unfair or Deceptive Acts or Practices (Regulation AA)

FEDERAL RESERVE SYSTEM

Federal Register Volume 81, Issue 32 (February 18, 2016)

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 Section 1092(2) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) repealed section 18(f)(1) of the FTC Act, thus eliminating the Board's rule writing authority under the Act.

[Federal Register Volume 81, Number 32 (Thursday, February 18, 2016)]
[Rules and Regulations]
[Pages 8133-8134]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-03228]



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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Street Reform and Consumer Protection Act (Dodd-Frank Act) repealed 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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