[Federal Register: May 19, 2008 (Volume 73, Number 97)] [Proposed Rules] [Page 28903-28964] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr19my08-21] [[Page 28903]] ----------------------------------------------------------------------- Part III Federal Reserve System 12 CFR Part 227 ----------------------------------------------------------------------- Department of the Treasury Office of Thrift Supervision 12 CFR Part 535 ----------------------------------------------------------------------- National Credit Union Administration 12 CFR Part 706 ----------------------------------------------------------------------- Unfair or Deceptive Acts or Practices; Proposed Rule [[Page 28904]] FEDERAL RESERVE SYSTEM 12 CFR Part 227 [Regulation AA; Docket No. R-1314] DEPARTMENT OF THE TREASURY Office of Thrift Supervision 12 CFR Part 535 [Docket ID. OTS-2008-0004] RIN 1550-AC17 NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Part 706 RIN 3133-AD47 Unfair or Deceptive Acts or Practices AGENCIES: Board of Governors of the Federal Reserve System (Board); Office of Thrift Supervision, Treasury (OTS); and National Credit Union Administration (NCUA). ACTION: Proposed rule; request for public comment. ----------------------------------------------------------------------- SUMMARY: The Board, OTS, and NCUA (collectively, the Agencies) are proposing to exercise their authority under section 5(a) of the Federal Trade Commission Act to prohibit unfair or deceptive acts or practices. The proposed rule would prohibit institutions from engaging in certain acts or practices in connection with consumer credit cards accounts and overdraft services for deposit accounts. This proposal evolved from the Board's June 2007 Notice of Proposed Rule under the Truth in Lending Act and OTS's August 2007 Advance Notice of Proposed Rulemaking under the Federal Trade Commission Act. The proposed rule relates to other Board proposals under the Truth in Lending Act and the Truth in Savings Act, which are published elsewhere in today's Federal Register. DATES: Comments must be received on or before August 4, 2008. ADDRESSES: Because paper mail in the Washington DC area and at the Agencies is subject to delay, we encourage commenters to submit comments by e-mail, if possible. We also encourage commenters to use the title ``Unfair or Deceptive Acts or Practices'' to facilitate our organization and distribution of the comments. Comments submitted to one or more of the Agencies will be made available to all of the Agencies. Interested parties are invited to submit comments as follows: Board: You may submit comments, identified by Docket No. R-1314, by any of the following methods: Agency Web site: http://www.federalreserve.gov. Follow the instructions for submitting comments at http://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm. Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments. E-mail: regs.comments@federalreserve.gov. Include the docket number in the subject line of the message. Facsimile: (202) 452-3819 or (202) 452-3102. Mail: Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, NW., Washington, DC 20551. All public comments are available from the Board's Web site at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, unless modified for technical reasons. Accordingly, your comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper form in Room MP-500 of the Board's Martin Building (20th and C Streets, NW) between 9 a.m. and 5 p.m. on weekdays. OTS: You may submit comments, identified by OTS-2008-0004, by any of the following methods: Federal eRulemaking Portal- ``Regulations.gov'': Go to http://www.regulations.gov, under the ``more Search Options'' tab click next to the ``Advanced Docket Search'' option where indicated, select ``Office of Thrift Supervision'' from the agency drop-down menu, then click ``Submit.'' In the ``Docket ID'' column, select ``OTS-2008-0004'' to submit or view public comments and to view supporting and related materials for this proposed rulemaking. The ``How to Use This Site'' link on the Regulations.gov home page provides information on using Regulations.gov, including instructions for submitting or viewing public comments, viewing other supporting and related materials, and viewing the docket after the close of the comment period. Mail: Regulation Comments, Chief Counsel's Office, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, Attention: OTS-2008-0004. Facsimile: (202) 906-6518. Hand Delivery/Courier: Guard's Desk, East Lobby Entrance, 1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, Attention: Regulation Comments, Chief Counsel's Office, Attention: OTS-2008-0004. Instructions: All submissions received must include the agency name and docket number for this rulemaking. All comments received will be entered into the docket and posted on Regulations.gov without change, including any personal information provided. Comments, including attachments and other supporting materials received are part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. Viewing Comments Electronically: Go to http:// www.regulations.gov, select ``Office of Thrift Supervision'' from the agency drop-down menu, then click ``Submit.'' Select Docket ID ``OTS- 2008-0004'' to view public comments for this notice of proposed rulemaking. Viewing Comments On-Site: You may inspect comments at the Public Reading Room, 1700 G Street, NW., by appointment. To make an appointment for access, call (202) 906-5922, send an e-mail to public.info@ots.treas.gov, or send a facsimile transmission to (202) 906-6518. (Prior notice identifying the materials you will be requesting will assist us in serving you.) We schedule appointments on business days between 10 a.m. and 4 p.m. In most cases, appointments will be available the next business day following the date we receive a request. NCUA: You may submit comments, identified by number RIN 3133-AD47, by any of the following methods: Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments. NCUA Web site: http://www.ncua.gov/news/proposed_regs/ proposed_regs.html. Follow the instructions for submitting comments. E-mail: Address to regcomments@ncua.gov. Include ``[Your name] Comments on Proposed Rule Part 706'' in the e-mail subject line. Facsimile: (703) 518-6319. Use the subject line described above for e-mail. Mail: Address to Mary Rupp, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, VA 22314-3428. Hand Delivery/Courier: Same as mail address. FOR FURTHER INFORMATION CONTACT: Board: Benjamin K. Olson, Attorney, or Ky Tran-Trong, Counsel, Division of Consumer and Community Affairs, at (202) 452-2412 or (202) 452-3667, Board of Governors of the Federal Reserve System, 20th and C Streets, [[Page 28905]] NW., Washington, DC 20551. For users of Telecommunications Device for the Deaf (TDD) only, contact (202) 263-4869. OTS: April Breslaw, Director, Consumer Regulations, (202) 906-6989; Suzanne McQueen, Consumer Regulations Analyst, Compliance and Consumer Protection Division, (202) 906-6459; Glenn Gimble, Senior Project Manager, Compliance and Consumer Protection Division, (202) 906-7158; or Richard Bennett, Senior Compliance Counsel, Regulations and Legislation Division, (202) 906-7409, at Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552. NCUA: Matthew J. Biliouris, Program Officer, Office of Examination and Insurance, (703) 518-6360; or Moisette I. Green or Ross P. Kendall, Staff Attorneys, Office of General Counsel, (703) 518-6540, National Credit Union Administration, 1775 Duke Street, Alexandria, VA 22314- 3428. SUPPLEMENTARY INFORMATION: The Federal Reserve Board (Board), the Office of Thrift Supervision (OTS), and the National Credit Union Administration (NCUA) (collectively, the Agencies) are proposing several new provisions intended to protect consumers against unfair or deceptive acts or practices with respect to consumer credit card accounts and overdraft services for deposit accounts. These proposals are promulgated pursuant to section 18(f)(1) of the Federal Trade Commission Act (FTC Act), which makes the Agencies responsible for prescribing regulations that prevent unfair or deceptive acts or practices in or affecting commerce within the meaning of section 5(a) of the FTC Act. See 15 U.S.C. 57a(f)(1), 45(a). I. Background A. The Board's June 2007 Regulation Z Proposal on Open-End (Non-Home Secured) Credit On June 14, 2007, the Board requested public comment on proposed amendments to the open-end credit (not home-secured) provisions of Regulation Z, which implements the Truth in Lending Act (TILA), as well as proposed amendments to the corresponding staff commentary to Regulation Z. 72 FR 32948 (June 2007 Proposal). The purpose of TILA is to promote the informed use of consumer credit by providing disclosures about its costs and terms. See 15 U.S.C. 1601 et seq. TILA's disclosures differ depending on whether the consumer credit is an open- end (revolving) plan or a closed-end (installment) loan. The goal of the proposed amendments was to improve the effectiveness of the disclosures that creditors provide to consumers at application and throughout the life of an open-end (not home-secured) account. As part of this effort, the Board retained a research and consulting firm (Macro International) to assist the Board in conducting extensive consumer testing in order to develop improved disclosures that consumers would be more likely to pay attention to, understand, and use in their decisions, while at the same time not creating undue burdens for creditors. While the testing assisted the Board in developing improved disclosures, the testing also identified the limitations of disclosure, in certain circumstances, as a means of enabling consumers to make decisions effectively. See 72 FR at 32948- 52. In response to the June 2007 Proposal, the Board received more than 2,500 comments, including approximately 2,100 comments from individual consumers. Comments from consumers, consumer groups, a member of Congress, other government agencies, and some creditors were generally supportive of the proposed revisions to Regulation Z. A number of comments, however, urged the Board to take additional action with respect to a number of credit card practices, including late fees and other penalties resulting from perceived reductions in the amount of time consumers are given to make timely payments, allocation of payments to balances with the lowest annual percentage rate, application of increased annual percentage rates to pre-existing balances, and the so-called two-cycle method of computing interest. B. The OTS's August 2007 FTC Act Advance Notice of Proposed Rulemaking On August 6, 2007, OTS issued an ANPR requesting comment on its rules under section 5 of the FTC Act. See 72 FR 43570 (OTS ANPR). The purpose of OTS's ANPR was to determine whether OTS should expand on its current prohibitions against unfair and deceptive acts or practices in its Credit Practices Rule (12 CFR part 535). OTS's ANPR discussed a very broad array of issues including: The legal background on OTS's authority under the FTC Act and the Home Owners' Loan Act (HOLA); OTS's existing Credit Practices Rule; Possible principles OTS could use to define unfair and deceptive acts or practices, including looking to standards the FTC and states follow; Practices that OTS, individually or on an interagency basis, has addressed through guidance; Practices that other federal agencies have addressed through rulemaking; Practices that states have addressed statutorily; Acts or practices OTS might target involving products such as credit cards, residential mortgages, gift cards, and deposit accounts; and OTS's existing Advertising Rule (12 CFR 563.27). OTS recognized in its ANPR that the financial services industry and consumers have benefited from consistency in rules and guidance as the federal banking agencies and the NCUA have adopted uniform or very similar rules in many areas. 72 FR at 43571. OTS emphasized in its ANPR that it would be mindful of the goal of consistent interagency standards as it considered issues relating to unfair and deceptive acts or practices. Id. OTS received 29 comment letters on its ANPR, including thirteen from financial institutions and their trade associations, three from consumer advocacy organizations, two from members of Congress, one from the FTC, and ten from others. Generally speaking, the commenters agreed on only one point . . . that OTS should adopt the same principles-based standards for unfairness and deception used by the FTC, the other federal banking agencies, and the NCUA. Financial industry commenters opposed OTS taking any further action beyond issuing guidance along those lines. They argued that OTS must not create an unlevel playing field for OTS-regulated institutions and that uniformity among the federal banking agencies and the NCUA is essential. They questioned the need for any new OTS rules. They challenged the list of practices OTS had indicated it could consider targeting, arguing that the practices listed were neither unfair nor deceptive under the FTC standards. They explained the reasons they use the particular practices listed and how some benefit consumers. Some commenters urged OTS to await the Board's rulemaking under the Home Ownership and Equity Protection Act (HOEPA) on unfair or deceptive acts or practices and then follow the Board's lead.\1\ They also opposed using state laws as a model or converting guidance to rules. Further, they opposed OTS expanding its advertising rules. --------------------------------------------------------------------------- \1\ The Board issued its HOEPA proposed in January 2008. See 73 FR 1672 (Jan. 9, 2008). --------------------------------------------------------------------------- In contrast, the consumer commenters urged OTS to move ahead with a rule that would combine the FTC's principles-based standards with prohibitions on specific practices. They [[Page 28906]] urged OTS to ban numerous practices, including but not limited to those the ANPR indicated OTS might target. One emphasized that whatever OTS does must not preempt state laws on unfair and deceptive acts or practices. A joint comment from House Financial Services Committee Chairman Barney Frank and Subcommittee on Financial Institutions and Consumer Credit Chairman Carolyn Maloney urged OTS to proceed promptly to adopt comprehensive regulations on unfair and deceptive acts or practices. A comment from Senator Carl Levin urged OTS to move ahead with rulemaking; he focused his comment on unfair or deceptive credit card practices. A comment from the FTC summarized the FTC's interest and experience with respect to financial services, described how the FTC has used its unfairness and deception authority in rulemaking and law enforcement actions, and recommended that OTS consider the FTC's experience in determining whether to impose rules prohibiting or restricting particular acts and practices. OTS received comments on several practices relevant to the specific credit card practices addressed in today's proposal: OTS received comments on the practice of ``universal default'' or ``adverse action pricing,'' which the OTS ANPR described as imposing an interest rate increase that is triggered by adverse information unrelated to the credit card account. The OTS ANPR contrasted this practice to long-established risk based pricing. Consumer groups supported prohibiting these practices as abusive and unfair to consumers. They cited inaccuracies in the credit reporting system and disparate racial impact as reasons to prohibit using credit reports or credit scores to impose penalty rates. On the other hand, several industry commenters defended these practices. They commented that credit cards should be priced to reflect their current risk. They argued that otherwise, credit card issuers would build a risk premium into all rates to the detriment of other customers. OTS received comments on the practice of applying payments first to balances subject to a lower rate of interest before applying payments to balances subject to higher rates of interest, as well as the practice of applying payments first to fees, penalties, or other charges before applying them to principal and interest. Consumer groups supported prohibiting these practices as abusive and unfair to consumers. On the other hand, several industry commenters defended these practices. They commented that if these practices were prohibited fewer products would be available to consumers such as zero or low-cost balance transfers. Some commented that applying payments in this manner was fundamental and would impose significant implementation costs to change. OTS received comments on the practice of imposing an over- the-credit-limit fee that is triggered by the imposition of a penalty fee (such as a late fee) and the practice of charging penalty fees in consecutive months based on previous late or over-the-credit-limit transactions, not on new actions. Consumer groups supported prohibiting these practices and prohibiting any over-the-credit-limit fee where the creditor approved the transaction or padded the credit limit, as abusive and unfair to consumers. On the other hand, several industry commenters defended these practices. They commented that the practices deter future defaults and are a way to charge a little more to a customer who has demonstrated higher risk without permanently raising the customer's borrowing costs. They argued that otherwise, these costs would be passed on to borrowers who do not go over their credit limit or pay late. Consumer groups also commented on additional credit card practices of concern that are relevant to the practices addressed in today's proposal. They urged that payment cut-off times be prohibited and that payments be treated as timely if they are postmarked as of the due date. They also urged that subprime credit cards be prohibited if less than $300 of available credit is left after initial fees are subtracted or initial fees total more than 10% of the overall credit line. C. Related Action by the Agencies In addition to receiving information via comments, the Agencies have conducted outreach regarding credit card practices, including meetings and discussions with consumer group representatives, industry representatives, other federal and state banking agencies, and the FTC. On April 8, 2008, the Board hosted a forum on credit cards in which card issuers and payment network operators, consumer advocates, counseling agencies, and other regulatory agencies met to discuss relevant industry trends and identify areas that may warrant action or further study. Among the topics discussed were the Board's previously announced plan to issue a proposal under the FTC Act and the Board's June 2007 Proposal. In addition, the Agencies have reviewed consumer complaints received by each of the federal banking agencies and several studies of the credit card industry.\2\ The Agencies' understanding of credit card practices and consumer behavior has also been informed by the results of consumer testing conducted on behalf of the Board in connection with its June 2007 Proposal under Regulation Z. Based on this and other information discussed below, the Agencies have developed proposed rules under the FTC Act prohibiting specific unfair acts or practices regarding consumer credit card accounts. --------------------------------------------------------------------------- \2\ See, e.g., Am. Bankers Assoc., Likely Impact of Proposed Credit Card Legislation: Survey Results of Credit Card Issuers (Spring 2008); Darryl E. Getter, Cong. Research Srvc., The Credit Card Market: Recent Trends, Funding Cost Issues, and Repricing Practices (Feb. 2008); Tim Westrich & Christian E. Weller, Ctr. for Am. Progress, House of Cards: Consumers Turn to Credit Cards Amid the Mortgage Crisis, Delaying Inevitable Defaults (Feb. 2008) (available at http://www.americanprogress.org/issues/2008/02/pdf/ house_of_cards.pdf); Jose A. Garcia, Demos, Borrowing to Make Ends Meet: The Rapid Growth of Credit Card Debt in America (Nov. 2007) (available at http://www.demos.org/pubs/borrowing.pdf ); Nat'l Consumer Law Ctr., Fee-Harvesters: Low-Credit, High-Cost Cards Bleed Consumers (Nov. 2007) (available at http://www.consumerlaw.org/ issues/credit_cards/content/FEE-HarvesterFinal.pdf); Jonathan M. Orszag & Susan H. Manning, Am. Bankers Assoc., An Economic Assessment of Regulating Credit Card Fees and Interest Rates (Oct. 2007) (available at http://www.aba.com/aba/documents/press/ regulating_creditcard_fees_interest_rates92507.pdf); Cindy Zeldin & Mark Rukavia, Demos, Borrowing to Stay Healthy: How Credit Card Debt Is Related to Medical Expenses (Jan. 2007) (available at http://www.demos.org/pubs/healthy_web.pdf); U.S. Gov't Accountability Office, Credit Cards: Increased Complexity in Rates and Fees Heightens Need for More Effective Disclosures to Consumers (Sept. 2006) (``GAO Credit Card Report'') (available at http:// www.gao.gov/new.items/d06929.pdf ); Board of Governors of the Federal Reserve System, Report to Congress on Practices of the Consumer Credit Industry in Soliciting and Extending Credit and their Effects on Consumer Debt and Insolvency (June 2006) (available at http://www.federalreserve.gov/boarddocs/rptcongress/bankruptcy/ bankruptcybillstudy200606.pdf ); Demos & Ctr. for Responsible Lending, The Plastic Safety Net: The Reality Behind Debt in America (Oct. 2005) (available at http://www.demos.org/pubs/PSN_low.pdf). --------------------------------------------------------------------------- Finally, the Agencies have also gathered information from a number of recent Congressional hearings on consumer protection issues regarding credit cards.\3\ In these hearings, members of Congress heard testimony from individual consumers, [[Page 28907]] representatives of consumer groups, representatives of financial and credit card industry groups, and others. Consumer and community group representatives generally testified that certain credit card practices (including those discussed above) unfairly increase the cost of credit after the consumer has committed to a particular transaction. These witnesses further testified that these practices should be prohibited because they lead consumers to underestimate the costs of using credit cards and that disclosure of these practices under Regulation Z is ineffective. Financial services and credit card industry representatives agreed that consumers need better disclosures of credit card terms but testified that substantive restrictions on specific terms would lead to higher interest rates for all borrowers as well as reduced access to credit for some. Members of Congress have proposed several bills addressing consumer protection issues regarding credit cards.\4\ --------------------------------------------------------------------------- \3\ See, e.g., The Credit Cardholders' Bill of Rights: Providing New Protections for Consumers: Hearing before the H. Subcomm. on Fin. Instits. & Consumer Credit, 110th Cong. (2007); Credit Card Practices: Unfair Interest Rate Increases: Hearing before the S. Permanent Subcomm. on Investigations, 110th Cong. (2007); Credit Card Practices: Current Consumer and Regulatory Issues: Hearing before H. Comm. on Fin. Servs., 110th Cong. (2007); Credit Card Practices: Fees, Interest Rates, and Grace Periods: Hearing before the S. Permanent Subcomm. on Investigations, 110th Cong. (2007). \4\ See, e.g., The Credit Card Reform Act of 2008, S. 2753, 110th Cong. (Mar. 12, 2008); The Credit Cardholders' Bill of Rights Act of 2008, H.R. 5244, 110th Cong. (Feb. 7, 2008); The Stop Unfair Practices in Credit Cards Act of 2007, H.R. 5280, 110th Cong. (Feb. 7, 2008); The Stop Unfair Practices in Credit Cards Act of 2007, S. 1395, 110th Cong. (May 15, 2007); The Universal Default Prohibition Act of 2007, H.R. 2146, 110th Cong. (May 3, 2007); The Credit Card Accountability Responsibility and Disclosure Act of 2007, H.R. 1461, 110th Cong. (Mar. 9, 2007). --------------------------------------------------------------------------- D. Agency Actions on Overdraft Services Overdraft services are sometimes offered to transaction account customers as an alternative to traditional ways of covering overdrafts (e.g., overdraft lines of credit or linked accounts). Coverage is generally ``automatically'' provided to consumers that meet a depository institution's criteria, and the service may extend to check as well as other transactions, such as automated teller machine (ATM) withdrawals, debit card transactions and automated clearinghouse (ACH) transactions. Most institutions state that payment of an overdraft is at their discretion. If an overdraft is paid, the consumer will be charged a flat fee for each item. A daily fee also may apply for each day the account remains overdrawn. In response to the increased availability and customer use of these overdraft protection services, the FDIC, Board, OCC, OTS, and NCUA published guidance on overdraft protection programs in February 2005.\5\ The Joint Guidance addresses three primary areas--safety and soundness considerations, legal risks, and best practices--while the OTS guidance focuses on safety and soundness considerations and best practices. The best practices focus on the marketing and communications that accompany the offering of overdraft services, as well as the disclosure and operation of program features, including the provision of a consumer election or opt-out of the overdraft service. The Agencies have also published a consumer brochure on overdraft services.\6\ --------------------------------------------------------------------------- \5\ See Interagency Guidance on Overdraft Protection Programs (Joint Guidance), 70 FR 9127 (Feb. 24, 2005) and OTS Guidance on Overdraft Protection Programs, 70 FR 8428 (Feb. 18, 2005). \6\ The brochure, entitled ``Protecting Yourself from Overdraft and Bounced-Check Fees,'' can be found at: http:// www.federalreserve.gov/pubs/bounce/default.htm. --------------------------------------------------------------------------- In May 2005, the Board separately issued revisions to Regulation DD and the staff commentary pursuant to its authority under the Truth in Savings Act (TISA) to address concerns about the uniformity and adequacy of institutions' disclosure of overdraft fees generally, and to address concerns about advertised overdraft services in particular.\7\ The goal of the final rule was to improve the uniformity and adequacy of disclosures provided to consumers about overdraft and returned-item fees to assist consumers in better understanding the costs associated with the payment of overdrafts. In addition, the final rule addressed some of the Board's concerns about institutions' marketing practices with respect to overdraft services. --------------------------------------------------------------------------- \7\ 70 FR 29582 (May 24, 2005). A substantively similar rule applying to credit unions was issued separately by the NCUA. 71 FR 24568 (Apr. 26, 2006). The NCUA issued an interim final rule in 2005. 70 FR 72895 (Dec. 8, 2005). --------------------------------------------------------------------------- In addition to regulatory actions, there has also been significant Congressional interest in overdraft services, with legislation introduced seeking to curb some of the perceived abusive practices associated with these services. In June 2007, a hearing was held to discuss the proposed legislation with testimony from consumer advocates and industry representatives.\8\ --------------------------------------------------------------------------- \8\ H.R. 946, ``The Consumer Overdraft Protection Fair Practices Act.'' See also Overdraft Protection: Fair Practices for Consumers: Hearing Before the House Subcomm. on Financial Institutions and Consumer Credit, 110th Cong. (2007). --------------------------------------------------------------------------- II. Statutory Authority Under the Federal Trade Commission Act To Address Unfair or Deceptive Acts or Practices A. Rulemaking and Enforcement Authority Under the FTC Act Section 18(f)(1) of the FTC Act provides that the Board (with respect to banks), OTS (with respect to savings associations), and the NCUA (with respect to federal credit unions) are responsible for prescribing ``regulations defining with specificity * * * unfair or deceptive acts or practices, and containing requirements prescribed for the purpose of preventing such acts or practices.'' 15 U.S.C. 57a(f)(1).\9\ --------------------------------------------------------------------------- \9\ The FTC Act refers to OTS's predecessor agency, the Federal Home Loan Bank Board (FHLBB), rather than to OTS. However, in section 3(e) of HOLA, Congress transferred this rulemaking power of the FHLBB, among others, to the Director of OTS. 12 U.S.C. 1462a(e). The FTC Act refers to ``savings and loan institutions'' in some provisions and ``savings associations'' in other provisions. Although ``savings associations'' is the term currently used in the HOLA, see, e.g., 12 U.S.C. 1462(4), the terms ``savings and loan institutions'' and ``savings associations'' can be and are used interchangeably. OTS has determined that the outdated language does not affect OTS's rulemaking authority under the FTC Act. --------------------------------------------------------------------------- The FTC Act allocates responsibility for enforcing compliance with regulations prescribed under section 18 with respect to banks, savings associations, and federal credit unions among the Board, OTS, and NCUA, as well as the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC). See 15 U.S.C. 57a(f)(2)- (4). The FTC Act grants the FTC rulemaking and enforcement authority with respect to other persons and entities, subject to certain exceptions and limitations. See 15 U.S.C. 45(a)(2); 15 U.S.C. 57a(a). The FTC Act, however, sets forth specific rulemaking procedures for the FTC that do not apply to the Agencies. See 15 U.S.C. 57a(b)-(e), (g)- (j); 15 U.S.C. 57a-3. B. Standards for Unfairness Under the FTC Act Congress has codified standards developed by the Federal Trade Commission (FTC) for the FTC to use in determining whether acts or practices are unfair under section 5(a) of the FTC Act.\10\ Specifically, the FTC Act provides that the FTC has no authority to declare an act or practice is unfair unless: (1) It causes or is likely to cause substantial injury to consumers; (2) the injury is not reasonably avoidable by consumers themselves; and (3) the injury is not outweighed by countervailing benefits to consumers or to competition. In addition, the FTC may consider established public policy, but public policy may not serve as the primary basis for its determination that an act or practice is unfair. See 15 U.S.C. 45(n). --------------------------------------------------------------------------- \10\ See 15 U.S.C. 45(n); FTC Policy Statement on Unfairness, Letter from the FTC to the Hon. Wendell H. Ford and the Hon. John C. Danforth, S. Comm. on Commerce, Science & Transp. (Dec. 17, 1980) (FTC Policy Statement on Unfairness) (available at http:// www.ftc.gov/bcp/policystmt/ad-unfair.htm). --------------------------------------------------------------------------- [[Page 28908]] In proposing rules under section 18(f)(1) of the FTC Act, the Agencies have applied the statutory elements consistent with the standards articulated by the FTC. The Board, FDIC, and OCC have issued guidance generally adopting these standards for purposes of enforcing the FTC Act's prohibition on unfair or deceptive acts or practices.\11\ Although the OTS has not taken similar action in generally applicable guidance,\12\ the commenters on OTS's ANPR who addressed this issue overwhelmingly urged OTS to be consistent with the FTC's standards for unfairness. --------------------------------------------------------------------------- \11\ See Board and FDIC, Unfair or Deceptive Acts or Practices by State-Chartered Banks (Mar. 11, 2004) (available at http:// www.federalreserve.gov/boarddocs/press/bcreg/2004/20040311/ attachment.pdf ); OCC Advisory Letter 2002-3, Guidance on Unfair or Deceptive Acts or Practices (Mar. 22, 2002) (available at http:// www.occ.treas.gov/ftp/advisory/2002-3.doc). \12\ See OTS ANPR, 72 FR at 43573. --------------------------------------------------------------------------- According to the FTC, an unfair act or practice will almost always represent a market failure or imperfection that prevents the forces of supply and demand from maximizing benefits and minimizing costs.\13\ Not all market failures or imperfections constitute unfair acts or practices, however. Instead, the central focus of the FTC's unfairness analysis is whether the act or practice causes substantial consumer injury.\14\ --------------------------------------------------------------------------- \13\ Statement of Basis and Purpose and Regulatory Analysis for Federal Trade Commission Credit Practices Rule (Statement for FTC Credit Practices Rule), 49 FR 7740, 7744 (Mar. 1, 1984). \14\ Id. at 7743. --------------------------------------------------------------------------- First, the FTC has stated that a substantial consumer injury generally consists of monetary, economic, or other tangible harm.\15\ Trivial or speculative harms do not constitute substantial consumer injury.\16\ Consumer injury may be substantial, however, if it imposes a small harm on a large number of consumers or if it raises a significant risk of concrete harm.\17\ --------------------------------------------------------------------------- \15\ See id.; FTC Policy Statement on Unfairness at 3. \16\ See Statement for FTC Credit Practices Rule, 49 FR at 7743 (``[E]xcept in aggravated cases where tangible injury can be clearly demonstrated, subjective types of harm--embarrassment, emotional distress, etc.--will not be enough to warrant a finding of unfairness.''); FTC Unfairness Policy Statement at 3 (``Emotional impact and other more subjective types of harm * * * will not ordinarily make a practice unfair.''). \17\ See Statement for FTC Credit Practices Rules, 49 FR at 7743; FTC Policy Statement on Unfairness at 3 & n.12. --------------------------------------------------------------------------- Second, the FTC has stated that an injury is not reasonably avoidable when consumers are prevented from effectively making their own decisions about whether to incur that injury.\18\ The marketplace is normally expected to be self-correcting because consumers are relied upon to survey the available alternatives, choose those that are most desirable, and avoid those that are inadequate or unsatisfactory.\19\ Accordingly, the test is not whether the consumer could have made a wiser decision but whether an act or practice unreasonably creates or takes advantage of an obstacle to the consumer's ability to make that decision freely.\20\ --------------------------------------------------------------------------- \18\ See FTC Policy Statement on Unfairness at 3. \19\ See Statement for FTC Credit Practices Rule, 49 FR at 7744 (``Normally, we can rely on consumer choice to govern the market.''); FTC Policy Statement on Unfairness at 3. \20\ See Statement for FTC Credit Practices Rule, 49 FR at 7744 (``In considering whether an act or practice is unfair, we look to whether free market decisions are unjustifiably hindered.''); FTC Policy Statement on Unfairness at 3 & n.19 (``In some senses any injury can be avoided--for example, by hiring independent experts to test all products in advance, or by private legal actions for damages--but these courses may be too expensive to be practicable for individual consumers to pursue.''). --------------------------------------------------------------------------- Third, the FTC has stated that the act or practice causing the injury must not also produce benefits to consumers or competition that outweigh the injury.\21\ Generally, it is important to consider both the costs of imposing a remedy and any benefits that consumers enjoy as a result of the practice.\22\ The FTC has stated that both consumers and competition benefit from prohibitions on unfair or deceptive acts or practices because prices may better reflect actual transaction costs and merchants who do not rely on unfair or deceptive acts or practices are no longer required to compete with those who do.\23\ --------------------------------------------------------------------------- \21\ See Statement for FTC Credit Practices Rule, 49 FR at 7744; FTC Policy Statement on Unfairness at 3; see also S. Rep. 103-130, at 13 (1994), reprinted in 1994 U.S.C.C.A.N. 1776, 1788 (``In determining whether a substantial consumer injury is outweighed by the countervailing benefits of a practice, the Committee does not intend that the FTC quantify the detrimental and beneficial effects of the practice in every case. In many instances, such a numerical benefit-cost analysis would be unnecessary; in other cases, it may be impossible. This section would require, however, that the FTC carefully evaluate the benefits and costs of each exercise of its unfairness authority, gathering and considering reasonably available evidence.''). \22\ See FTC Public Comment on OTS-2007-0015, at 6 (Dec. 12, 2007) (available at http://www.ots.treas.gov/docs/9/963034.pdf ). \23\ See FTC Public Comment on OTS-2007-0015, at 8 (citing Preservation of Consumers' Claims and Defenses, Statement of Basis and Purpose, 40 FR 53506, 53523 (Nov. 18, 1975) (codified at 16 CFR 433)); see also FTC Policy Statement on Deception, Letter from the FTC to the Hon. John H. Dingell, H. Comm. on Energy & Commerce (Oct. 14, 1983) (FTC Policy Statement on Deception) (available at http:// www.ftc.gov/bcp/policystmt/ad-decept.htm) (``Deceptive practices injure both competitors and consumers because consumers who preferred the competitor's product are wrongly diverted.''). --------------------------------------------------------------------------- C. Standards for Deception Under the FTC Act The FTC has also adopted standards for determining whether an act or practice is deceptive under the FTC Act.\24\ Under the FTC's standards, 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.\25\ Although these standards have not been codified, they have been applied by numerous courts.\26\ Accordingly, in proposing rules under section 18(f)(1) of the FTC Act, the Agencies have applied the standards articulated by the FTC for determining whether an act or practice is deceptive.\27\ --------------------------------------------------------------------------- \24\ FTC Policy Statement on Deception. \25\ Id. at 1-2. The FTC views deception as a subset of unfairness but does not apply the full unfairness analysis because deception is very unlikely to benefit consumers or competition and consumers cannot reasonably avoid being harmed by deception. Id. \26\ See, e.g., FTC v. Tashman, 318 F.3d 1273, 1277 (11th Cir. 2003); FTC v. Gill, 265 F.3d 944, 950 (9th Cir. 2001); FTC v. QT, Inc., 448 F. Supp. 2d 908, 957 (N.D. Ill. 2006); FTC v. Think Achievement, 144 F. Supp. 2d 993, 1009 (N.D. Ind. 2000); FTC v. Minuteman Press, 53 F. Supp. 2d 248, 258 (E.D.N.Y. 1998). \27\ As noted above, the Board, FDIC, and OCC have issued guidance generally adopting these standards for purposes of enforcing the FTC Act's prohibition on unfair or deceptive acts or practices. As with the unfairness standard, comments on OTS's ANPR addressing this issue overwhelmingly urged the OTS to adopt the same deception standard as the FTC. --------------------------------------------------------------------------- A representation or omission is deceptive if the overall net impression created is likely to mislead consumers.\28\ The FTC conducts its own analysis to determine whether a representation or omission is likely to mislead consumers acting reasonably under the circumstances.\29\ When evaluating the reasonableness of an interpretation, the FTC considers the sophistication and understanding of consumers in the group to whom the act or practice is targeted.\30\ If a representation is susceptible to more than one reasonable interpretation, and if one such interpretation is misleading, then the representation is deceptive even if other, non-deceptive interpretations are possible.\31\ --------------------------------------------------------------------------- \28\ See, e.g., FTC v. Cyberspace.com, 453 F.3d 1196, 1200 (9th Cir. 2006); Gill, 265 F.3d at 956; Removatron Int'l Corp. v. FTC, 884 F.2d 1489, 1497 (1st Cir. 1989). \29\ See FTC v. Kraft, Inc., 970 F.2d 311, 319 (7th Cir. 1992); QT, Inc., 448 F. Supp. 2d at 958. \30\ FTC Policy Statement on Deception at 3. \31\ Id. --------------------------------------------------------------------------- A representation or omission is material if it is likely to affect the consumer's conduct or decision regarding a product or service.\32\ Certain types of claims are presumed to be material, including express claims and [[Page 28909]] claims regarding the cost of a product or service.\33\ --------------------------------------------------------------------------- \32\ Id. at 2, 6-7. \33\ See FTC Public Comment on OTS-2007-0015, at 21; FTC Policy Statement on Deception at 6; see also FTC v. Pantron I Corp., 33 F.3d 1088, 1095-96 (9th Cir. 1994); In re Peacock Buick, 86 F.T.C. 1532, 1562 (1975), aff'd 553 F.2d 97 (4th Cir. 1977). --------------------------------------------------------------------------- D. Choice of Remedy The Agencies have wide latitude to determine what remedy is necessary to prevent an unfair or deceptive act or practice so long as that remedy has a reasonable relation to the act or practice.\34\ Thus, the Agencies are not required to adopt the most restrictive means of preventing the act or practice, nor are they required to adopt the least restrictive means. --------------------------------------------------------------------------- \34\ See Am. Fin. Servs. Assoc. v. FTC, 767 F.2d 957, 988-89 (DC Cir. 1985) (citing Jacob Siegel Co. v. FTC, 327 U.S. 608, 612-13 (1946)). --------------------------------------------------------------------------- III. Summary of Proposed Revisions In order to best ensure that all entities that offer the products addressed in the proposed rule are treated in a like manner, the Board, OTS, and NCUA have joined together to issue today's proposal. This interagency approach is consistent with section 303 of the Riegle Community Development and Regulatory Improvement Act of 1994. See 12 U.S.C. 4803. Section 303(a)(3), 12 U.S.C. 4803(a)(3), directs the federal banking agencies to work jointly to make uniform all regulations and guidelines implementing common statutory or supervisory policies. In today's proposal, two federal banking agencies--the Board and OTS--are primarily implementing the same statutory provision, section 18(f) of the FTC Act, as is the NCUA. Accordingly, the Agencies have endeavored to propose rules that are as uniform as possible. The Agencies also consulted with the two other federal banking agencies, OCC and FDIC, as well as with the FTC. The effort to achieve an even playing field is also furthered by the Agencies' focus on unfair and deceptive acts or practices involving credit cards and overdraft services, which are generally provided only by depository institutions such as banks, savings associations, and credit unions. The Agencies recognize that state-chartered credit unions and any entities providing consumer credit card accounts independent of a depository institution fall within the FTC's jurisdiction and therefore would not be subject to these rules. The Agencies believe, however, that FTC-regulated entities represent a small percentage of the market for consumer credit card accounts and overdraft services. For OTS, addressing certain deceptive credit card practices in today's proposal, rather than through an interpretation or expansion of its Advertising Rule, also fosters consistency because the other Agencies do not have comparable advertising regulations. Credit Practices Rule The Agencies are proposing to make non-substantive, organizational changes to the Credit Practices Rule. Specifically, in order to avoid repetition, the Agencies would move the statement of authority, purpose, and scope out of the Credit Practices Rule and revise it to apply not only to the Credit Practices Rule but also to the proposed rules regarding consumer credit card accounts and overdraft services. OTS and NCUA have made additional, non-substantive changes to the organization of their versions of the Credit Practices Rule. Consumer Credit Card Accounts The Agencies are proposing seven provisions under the FTC Act regarding consumer credit card accounts. These provisions are intended to ensure that consumers have the ability to make informed decisions about the use of credit card accounts without being subjected to unfair or deceptive acts or practices. First, institutions would be prohibited from treating a payment as late for any purpose unless consumers have been provided a reasonable amount of time to make that payment. The proposed rule would create a safe harbor for institutions that adopt reasonable procedures designed to ensure that periodic statements (which provide payment information) are mailed or delivered at least 21 days before the payment due date. Elsewhere in today's Federal Register, the Board has made two additional proposals under Regulation Z that would further ensure that consumers receive a reasonable amount of time to make payment. Specifically, the Board is proposing to revise 12 CFR 226.10(b) to prohibit creditors from setting a cut-off time for mailed payments that is earlier than 5 p.m. at the location specified by the creditor for receipt of such payments. The Board is also proposing to add 12 CFR 226.10(d), which would require that, if the due date for payment is a day on which the U.S. Postal Service does not deliver mail or the creditor does not accept payment by mail, the creditor may not treat a payment received by mail the next business day as late for any purpose. Second, when different annual percentage rates apply to different balances, institutions would be required to allocate amounts paid in excess of the minimum payment using one of three specified methods or a method that is no less beneficial to consumers. The specified methods are applying the entire amount first to the balance with the highest annual percentage rate, splitting the amount equally among the balances, or splitting the amount pro rata among the balances. Furthermore, when an account has a discounted promotional rate balance or a balance on which interest is deferred, institutions would be required to give consumers the full benefit of that discounted rate or deferred interest plan by allocating amounts in excess of the minimum payment first to balances on which the rate is not discounted or interest is not deferred (except, in the case of a deferred interest plan, for the last two billing cycles during which interest is deferred). Institutions would also be prohibited from denying consumers a grace period on purchases (if one is offered) solely because they have not paid off a balance at a promotional rate or a balance on which interest is deferred. Third, institutions would be prohibited from increasing the annual percentage rate on an outstanding balance. This prohibition would not apply, however, where a variable rate increases due to the operation of an index, where a promotional rate has expired or is lost (provided the rate is not increased to a penalty rate), or where the minimum payment has not been received within 30 days after the due date. Fourth, institutions would be prohibited from assessing a fee if a consumer exceeds the credit limit on an account solely due to a hold placed on the available credit. If, however, the actual amount of the transaction would have exceeded the credit limit, then a fee may be assessed. Fifth, institutions would be prohibited from imposing finance charges on balances based on balances for days in billing cycles that precede the most recent billing cycle. The proposed rule would prohibit institutions from reaching back to earlier billing cycles when calculating the amount of interest charged in the current cycle, a practice that is sometimes referred to as two-or double-cycle billing. Sixth, institutions would be prohibited from financing security deposits or fees for the issuance or availability of credit (such as account-opening fees or membership fees) if those deposits or fees utilize the majority of the available credit on the [[Page 28910]] account. The proposal would also require security deposits and fees exceeding 25 percent of the credit limit to be spread over the first year, rather than charged as a lump sum during the first billing cycle. In addition, elsewhere in today's Federal Register, the Board is proposing to revise Regulation Z to provide that a creditor that collects or obtains a consumer's agreement to pay a fee before providing account-opening disclosures must permit that consumer to reject the plan after receiving the disclosures and, if the consumer does so, must refund any fee collected or take any other action necessary to ensure the consumer is not obligated to pay the fee. Seventh, institutions making firm offers of credit advertising multiple annual percentage rates or credit limits would be required to disclose in the solicitation the factors that determine whether a consumer will qualify for the lowest annual percentage rate and highest credit limit advertised. Overdraft Services The Agencies are proposing two provisions prohibiting unfair acts or practices related to overdraft services in connection with consumer deposit accounts. The proposed provisions are intended to ensure that consumers understand overdraft services and have the choice to avoid the associated costs where such services do not meet their needs. The first would provide that it is an unfair act or practice for an institution to assess a fee or charge on a consumer's account for paying an overdraft unless the institution provides the consumer with the right to opt out of the institution's payment of overdrafts and a reasonable opportunity to exercise the opt out, and the consumer does not opt out. The proposed opt-out right would apply to all transactions that overdraw an account regardless of whether the transaction is, for example, a check, an ACH transaction, an ATM withdrawal, a recurring payment, or a debit card purchase at a point of sale. The second proposal would prohibit certain acts or practices associated with assessing overdraft fees in connection with debit holds. Specifically, the proposal would prohibit an institution from assessing an overdraft fee if the overdraft is caused solely by a hold placed on funds that exceeds the actual purchase amount of the transaction, unless this purchase amount would have caused the overdraft. Elsewhere in today's Federal Register, the Board is also proposing to address potentially misleading balance disclosures by generally requiring depository institutions to provide only balances that reflect the consumer's own funds (without funds added by the institution to cover overdrafts) in response to consumer inquiries received through an automated system such as a telephone response system, ATM, or an institution's Web site. IV. Section-by-Section Analysis of the Credit Practices Subpart On March 1, 1984, the FTC adopted its Credit Practices Rule pursuant to its authority under the FTC Act to promulgate rules that define and prevent unfair or deceptive acts or practices in or affecting commerce.\35\ The FTC Act provides that, whenever the FTC promulgates a rule prohibiting specific unfair or deceptive practices, the Board, OTS (as the successor to the Federal Home Loan Bank Board), and NCUA must adopt substantially similar regulations imposing substantially similar requirements with respect to banks, savings and loan institutions, and federal credit unions within 60 days of the effective date of the FTC's rule unless the agency finds that such acts or practices by banks, savings associations, or federal credit unions are not unfair or deceptive or the Board finds that the adoption of similar regulations for banks, savings associations, or federal credit unions would seriously conflict with essential monetary and payment- systems policies of the Board. The Agencies have adopted rules substantially similar to the FTC's Credit Practices Rule.\36\ --------------------------------------------------------------------------- \35\ See 42 FR 7740 (Mar. 1, 1984) (codified at 16 CFR part 444); see also 15 U.S.C. 57a(a)(1)(B), 45(a)(1). \36\ See 12 CFR part 227, subpart B (Board); 12 CFR 535 (OTS); 12 CFR 706 (NCUA). --------------------------------------------------------------------------- As part of this rulemaking, the Agencies are proposing to reorganize aspects of their respective Credit Practices Rules. Although the Agencies have approached these revisions differently in some respects, the Agencies do not intend to create any substantive difference among their respective rules. Proposal Subpart A--General Provisions Subpart A contains general provisions that apply to the entire part. As discussed below, there are some differences among the Agencies' proposals. ----.1 Authority, Purpose, and Scope 37 --------------------------------------------------------------------------- \37\ The Board, OTS, and NCUA would place the proposed rules in, respectively, parts 227, 535, and 706 of title 12 of the Code of Federal Regulations. For each of reference, the discussion in this Supplementary Information uses the shared numerical suffix of each agency's rule. For example, proposed Sec. ----.1 would be codified at 12 CFR 227.1 by the Board, 12 CFR 535.1 by OTS, and 12 CFR 706.1 by NCUA. --------------------------------------------------------------------------- The provisions in proposed Sec. ----.1 are largely drawn from the current authority, purpose, and scope provisions in the Agencies' respective Credit Practices Rules. ----.1(a) Authority Proposed Sec. ----.1(a) provides that the Agencies have issued this part under section 18(f) of the FTC Act. In OTS's proposed rule, this provision further provides that OTS is also exercising its authority under various provisions of HOLA, although the FTC Act is the primary authority for OTS's rule. ----.1(b) Purpose Proposed Sec. ----.1(b) provides that the purpose of the part is to prohibit unfair or deceptive acts or practices in violation of section 5(a)(1) of the FTC Act, 15 U.S.C. 45(a)(1). It further provides that the part contains provisions that define and set forth requirements prescribed for the purpose of preventing specific unfair or deceptive acts or practices. The Agencies note that these provisions define and prohibit specific unfair or deceptive acts or practices within a single provision, rather than setting forth the definitions and remedies separately. Finally, it clarifies that the prohibitions in subparts B, C, and D do not limit the Agencies' authority to enforce the FTC Act with respect to other unfair or deceptive acts or practices. ----.1(c) Scope Proposed Sec. ----.1(c) describes the scope of each agency's rules. The Agencies have each tailored this paragraph to describe those entities to which their part applies. The Board's provision states that its rules would apply to banks and their subsidiaries, except savings associations as defined in 12 U.S.C. 1813(b). The Board's provision further explains that enforcement of its rules is allocated among the Board, OCC, and FDIC, depending on the type of institution. This provision has been updated to reflect intervening changes in law. The Board's Staff Guidelines to the Credit Practices Rule would be revised to remove questions 11(c)-1 and 11(c)-2 and the substance of the Board's answers would be updated and published as commentary under proposed Sec. 227.1(c). See proposed Board comments 227.1(c)-1 and -2. The remaining questions and answers in the [[Page 28911]] Board's Staff Guidelines would remain in place. OTS's provision would state that its rules apply to savings associations and subsidiaries owned in whole or in part by a savings association. OTS also enforces compliance with respect to these institutions. The entire OTS part would have the same scope. OTS notes that this scope is somewhat different from the scope of its existing Credit Practices Rule. OTS's Credit Practices Rule currently applies to savings associations and service corporations that are wholly owned by one or more savings associations, which engage in the business of providing credit to consumers. Since the proposed rules would cover more practices than consumer credit, the reference to engaging in the business of providing credit to consumers would be deleted. The reference to wholly owned service corporations would be updated to refer instead to subsidiaries, to reflect the current terminology used in OTS's Subordinate Organizations Rule.\38\ --------------------------------------------------------------------------- \38\ 12 CFR part 559. OTS has substantially revised this rule since promulgating its Credit Practices Rule. See, e.g., Subsidiaries and Equity Investments: Final Rule, 61 FR 66561 (Dec. 18, 1996). --------------------------------------------------------------------------- The NCUA's provision would state that its rules apply to federal credit unions. 227.1(d) Definitions Proposed Sec. ----.1(d) of the Board's rule would clarify that, unless otherwise noted, the terms used in the Board's proposed Sec. -- --.1(c) that are not defined in the FTC Act or in section 3(s) of the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) have the meaning given to them in section 1(b) of the International Banking Act of 1978 (12 U.S.C. 3101). OTS and NCUA do not have a need for a comparable subsection so none is included in their proposed rules. 227.2 Consumer-Complaint Procedure In order to accommodate the revisions discussed above, the Board would consolidate the consumer complaint provisions currently located in 12 CFR 227.1 and 227.2 in proposed Sec. 227.2. OTS and NCUA do not currently have and do not propose to add comparable provisions. Subpart B--Credit Practices Each agency would place the substantive provisions of their current Credit Practices Rule in Subpart B. In order to retain the current numbering in its Credit Practices Rule, the Board would reserve 12 CFR 227.11, which currently contains the Board's statement of authority, purpose, and scope. The other provisions of the Board's Credit Practices Rule (Sec. Sec. 227.12 through 227.16) would not be revised. OTS is proposing the following notable changes to its version of Subpart B: Section 535.11 Definitions (Existing Section 535.1) OTS would delete the definitions of ``Act,'' ``creditor,'' and ``savings association'' as unnecessary. For the convenience of the user, OTS would incorporate the definition of ``consumer credit'' into this section, instead of using a cross-reference to a definition contained in a different part of OTS's rules. OTS would move the definition of ``cosigner'' to the section on unfair or deceptive cosigner practices. OTS would merge the definition of ``debt'' into the definition of ``collecting a debt'' contained in the section on late charges. OTS would move the definition of ``household goods'' to the section on unfair credit contract provisions. Section 535.12 Unfair Credit Contract Provisions (Existing Section 535.2) OTS would revise the title of this section to reflect its focus on credit contract provisions. OTS would delete the obsolete reference to extensions of credit after January 1, 1986. Section 535.13 Unfair or Deceptive Cosigner Practices (Existing Section 535.3) OTS would delete the obsolete reference to extensions of credit after January 1, 1986. OTS would substitute the term ``substantially similar'' for the term ``substantially equivalent'' in referencing a document that equates to the cosigner notice for consistency with the Board's rule and to avoid confusion with the term of art ``substantial equivalency'' used in the section on state exemptions. OTS would also clarify that the date that may be stated on the cosigner notice is the date of the transaction. NCUA would make similar amendments to its rule in Sec. 706.13 (existing Sec. 706.3). Section 535.14 Unfair Late Charges (Existing Section 535.4) OTS would revise the title of this section to reflect its focus on unfair late charges. OTS would delete the obsolete reference to extensions of credit after January 1, 1986. Similarly, NCUA would propose revisions to Sec. 706.14 (existing Sec. 706.4). Section 535.15 State Exemptions (