Unfair or Deceptive Acts or Practices, 43570-43576 [E7-15179]
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Federal Register / Vol. 72, No. 150 / Monday, August 6, 2007 / Proposed Rules
You may submit comments
by any one of the following methods.
If you are commenting on the
proposed rule, please include the
following number RIN 3150–AI08 in the
subject line of your comments.
Mail comments to: Secretary, U.S.
Nuclear Regulatory Commission,
Washington, DC 20555–0001, ATTN:
Rulemakings and Adjudications Staff.
E-mail comments to: SECY@nrc.gov. If
you do not receive a reply e-mail
confirming that we have received your
comments, contact us directly at 301–
415–1966. You may also submit
comments via the NRC’s rulemaking
Web site at https://ruleforum.llnl.gov.
Address questions about our rulemaking
Web site to Carol Gallagher 301–415–
5905; e-mail cag@nrc.gov. Comments
can also be submitted via the Federal
eRulemaking Portal https://
www.regulations.gov.
Hand deliver comments to: 11555
Rockville Pike, Rockville, Maryland
20852, between 7:30 a.m. and 4:15 p.m.
Federal workdays. (Telephone 301–415–
1966).
Fax comments to: Secretary, U.S.
Nuclear Regulatory Commission at 301–
415–1101.
Publicly available documents related
to this rulemaking may be viewed
electronically on the public computers
located at the NRC’s Public Document
Room (PDR), O1 F21, One White Flint
North, 11555 Rockville Pike, Rockville,
Maryland. The PDR reproduction
contractor will copy documents for a
fee.
If you are commenting on the
proposed procedures please include the
following phrase ‘‘proposed SUNSI/SGI
access procedures’’ in the subject line of
your comments. The proposed
procedures can be viewed and
downloaded electronically via the
NRC’s public Web site at https://
ruleforum.llnl.gov/cgi-bin/
rulelist?type=ipcr. The proposed
procedures also may be viewed
electronically on the public computers
located at the NRC’s PDR, O1 F21, One
White Flint North, 11555 Rockville
Pike, Rockville, Maryland.
Mail comments to: U.S. Nuclear
Regulatory Commission, Washington,
DC 20555–0001, Attn: Michael T. Lesar,
Chief, Rulemaking, Directives, and
Editing Branch, Office of
Administration. E-mail comments to:
nrcrep@nrc.gov. Hand deliver comments
to: 11555 Rockville Pike, Rockville,
Maryland 20852, between 7:30 a.m. and
4:15 p.m. Federal workdays. Fax
comments to: 301–415–5144.
Comments submitted in writing or in
electronic form will be made available
for public inspection. Because your
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comments will not be edited to remove
any identifying or contact information,
the NRC cautions you against including
any information in your submission that
you do not want to be publicly
disclosed.
Publicly available documents created
or received at the NRC after November
1, 1999, are available electronically at
the NRC’s Electronic Reading Room at
https://www.nrc.gov/reading-rm/
adams.html. From this site, the public
can gain entry into the NRC’s
Agencywide Document Access and
Management System (ADAMS), which
provides text and image files of NRC’s
public documents. If you do not have
access to ADAMS or if there are
problems in accessing the documents
located in ADAMS, contact the NRC
PDR Reference staff at 1–800–397–4209,
301–415–4737 or by e-mail to
pdr@nrc.gov.
The ADAMS accession number for the
procedures is ML071910149.
FOR FURTHER INFORMATION CONTACT:
Patrick Moulding, Attorney, Office of
the General Counsel, U.S. Nuclear
Regulatory Commission, Washington,
DC 20555–0001, telephone 301–415–
2549, e-mail pam3@nrc.gov.
SUPPLEMENTARY INFORMATION: On June
11, 2007 (72 FR 32018), the NRC
published for public comment a
proposed rule that would provide for
expedited review by the Commission on
orders on requests by potential parties
for access to certain SUNSI and SGI. A
30-day comment period was provided
for the proposed rule. The original
comment period for the proposed rule
expired on July 11, 2007. The NRC has
reopened the comment period, which
now expires on August 10, 2007.
Commission regulations in 10 CFR
part 2, ‘‘Rules of Practice for Domestic
Licensing Proceedings and Issuance of
Orders’’ govern the conduct of NRC
adjudicatory proceedings. Potential
parties who have requested or who may
request a hearing or petition to
intervene in a hearing under 10 CFR
part 2 may need access to SUNSI
(including, but not limited to,
proprietary, confidential commercial,
and security-related information) or SGI
as defined in 10 CFR 73.2 to meet
Commission requirements for hearing
requests or for intervention. The
Commission is seeking comment on
proposed procedures to allow potential
parties to submit information requests
and enter into protective agreements
prior to becoming a party to a
proceeding so that those who
demonstrate a legitimate need for
SUNSI or SGI can receive relevant
documents to prepare a valid
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contention. The proposed procedures
reflect the longstanding practice of staff
access determinations in the first
instance, subject to review by a
presiding officer if contested. The
proposed procedures also describe how
the public will be informed of this
process. The proposed procedures
address:
(1) When and where to submit
requests for access to SUNSI and SGI
that is possessed by the NRC; 1
(2) Who will assess initially whether
the proposed recipient has shown a
need for SUNSI (or need to know for
SGI) and a likelihood of establishing
standing;
(3) Who will decide initially whether
the proposed recipient is qualified (i.e.,
trustworthy and reliable) to receive SGI;
(4) Use of nondisclosure affidavits/
agreements and protective orders; and
(5) Time periods for making standing,
need, and access determinations,
producing documents, submitting
contentions, and seeking review of
adverse determinations.
These proposed procedures also
include a ‘‘pre-clearance’’ process that
would permit a potential party who may
seek access to SGI to initiate the
necessary background check in advance
of a notice of opportunity for hearing.
Dated at Rockville, Maryland, this 30th day
of July 2007.
For the Nuclear Regulatory Commission.
Annette L. Vietti-Cook,
Secretary of the Commission.
[FR Doc. E7–15189 Filed 8–3–07; 8:45 am]
BILLING CODE 7590–01–P
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 535
[Docket ID OTS–2007–0015]
RIN 1550–AC17
Unfair or Deceptive Acts or Practices
Office of Thrift Supervision,
Treasury (OTS).
ACTION: Advance notice of proposed
rulemaking (ANPR).
AGENCY:
SUMMARY: OTS is reviewing its
regulations relating to unfair or
deceptive acts or practices to determine
whether and, if so, to what extent,
additional regulation is needed to
ensure customers of OTS-regulated
entities are treated fairly. This ANPR
1 The proposed procedures do not address
information possessed solely by a licensee or
applicant.
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Federal Register / Vol. 72, No. 150 / Monday, August 6, 2007 / Proposed Rules
seeks input and information on issues
OTS is considering as part of this
review.
Comments must be submitted by
November 5, 2007.
ADDRESSES: You may submit comments,
identified by OTS–2007–0015, by any of
the following methods:
• Federal eRulemaking Portal: Go to
http:www.regulations.gov, select ‘‘Office
of Thrift Supervision’’ from the agency
drop-down menu, then click submit.
Select Docket ID ‘‘OTS–2007–0015’’ to
submit or view public comments and to
view supporting and related materials
for this advance notice of proposed
rulemaking. The ‘‘User Tips’’ link at the
top of the 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–
2007–0015.
• 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–2007–0015.
• 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 https://www.regulations.gov, select
‘‘Office of Thrift Supervision’’ from the
agency drop-down menu, then click
‘‘Submit.’’ Select Docket ID ‘‘OTS–
2007–0015’’ to view public comments
for this advance 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
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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.
FOR FURTHER INFORMATION CONTACT:
Glenn Gimble, Senior Project Manager,
Compliance and Consumer Protection
Division, (202) 906–7158; Suzanne
McQueen, Consumer Regulations
Analyst, Compliance and Consumer
Protection Division, (202) 906–6459; or
Richard Bennett, Compliance Counsel,
Regulations and Legislation Division,
(202) 906–7409, Office of Thrift
Supervision, 1700 G Street, NW.,
Washington, DC 20552.
SUPPLEMENTARY INFORMATION:
I. Purpose and Goals of This ANPR
The mission of OTS is ‘‘to supervise
savings associations and their holding
companies in order to maintain their
safety and soundness and compliance
with consumer protection laws, and to
encourage a competitive industry that
meets America’s financial services
needs.’’ 1 Consistent with our mission,
OTS is issuing this ANPR to determine
whether the agency should expand its
current prohibitions against unfair or
deceptive acts or practices.
The ANPR identifies some of the
issues that may warrant OTS’s review.
The discussion is not exhaustive of all
the issues that could be raised. OTS
invites commenters to respond to the
questions presented and to offer
comments or suggestions on any other
issues related to unfair or deceptive acts
or practices, including what other steps,
OTS might undertake instead of or in
addition to further rulemaking in this
area. OTS recognizes that the financial
services industry and consumers have
benefited from consistency in rules and
guidance as the federal banking agencies
have adopted uniform or very similar
rules in many areas. OTS is mindful of
the goal of consistent interagency
standards as it considers issues relating
to unfair or deceptive acts and practices.
II. Legal Background
The primary legal bases for this
rulemaking are the Federal Trade
Commission Act (FTC Act), 15 U.S.C.
41–58, and the Home Owners’ Loan Act
(HOLA), 12 U.S.C. 1461 et seq.
A. The FTC Act
1. Statutory Provisions
Under section 18(f)(1) of the FTC Act,
15 U.S.C. 57a(f)(1), OTS is responsible
for prescribing regulations to prevent
1 OTS Mission Statement, available at https://
www.ots.treas.gov/mission.cfm?catNumber=39.
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unfair or deceptive acts or practices by
savings associations in or affecting
commerce, including acts or practices
that are unfair or deceptive to
consumers.2 In granting this authority,
Congress allowed OTS great flexibility
in determining the appropriate
regulatory approach.
Section 18(f)(1) also provides that
OTS’s regulations may take a variety of
approaches ‘‘including’’ (but not limited
to) regulations ‘‘defining with
specificity’’ which acts or practices are
unfair or deceptive, as well as
regulations ‘‘containing requirements
prescribed for the purposes of
preventing such acts or practices.’’
Thus, in addition to listing specific acts
or practices that are unfair or deceptive
OTS may also impose measures
designed to prevent such acts or
practices from occurring.3 The use of
the word ‘‘including’’ reveals that even
these two regulatory approaches are not
meant to be the only options for OTS
rulemaking. For example, OTS could
issue principles-based regulations that
articulate general principles and
standards for evaluating whether acts or
practices are unfair or deceptive, similar
to OTS’s principles-based Advertising
rule (12 CFR 563.27). This provision of
the FTC Act assigns the same
rulemaking authority to the Board of
Governors of the Federal Reserve
System (Board) with respect to banks
and to the National Credit Union
Administration (NCUA) with respect to
federal credit unions.
Separately and additionally, section
18(f)(1) provides that whenever the
Federal Trade Commission (FTC) uses
its authority in section 18(a)(1)(B) to
prescribe a rule defining with specificity
which acts or practices are unfair or
deceptive, within 60 days after such
rule takes effect OTS generally must
promulgate substantially similar
regulations prohibiting savings
associations from engaging in
2 We note some outdated language in the statute,
but find that it has no bearing on OTS’s rulemaking
authority. First, the statute refers to OTS’s
predecessor agency, the Federal Home Loan Bank
Board (FHLBB), rather than to OTS. However, in
section 3(e) of the HOLA, Congress transferred this
rulemaking power of the FHLBB among others to
the Director of OTS. 12 U.S.C. 1462a(e). Second, the
statute 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.
3 The legislative history gives as an example an
FTC rule that mandates certain testing procedures
to determine the octane rating of gasoline to avoid
unfair or deceptive octane ratings being posted on
gasoline pumps. Senate Conference Report No. 93–
1408, December 18, 1974 (to accompany S. 356),
reprinted in 1974 U.S.C.C.A.N. 7702, 7764.
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substantially similar acts or practices
and imposing similar requirements.
Thus, this provision specifies
procedures to ensure that the
regulations of the OTS—at a
minimum—are consistent with
regulations the FTC may prescribe. It
does not limit OTS’s rulemaking
authority or set a ceiling on the acts or
practices that OTS can address in its
regulations. However, it does set a floor
for OTS’s regulation, subject to two
exceptions.4 Section 18(f)(1) assigns the
same rulemaking authority to the Board
with respect to banks and to the NCUA
with respect to federal credit unions.
The two grants of rulemaking
authority to OTS in section 18(f)(1) give
OTS exclusive authority to promulgate
unfair or deceptive acts or practices
regulations applicable to savings
associations. Section 5(a)(2) of the FTC
Act, 15 U.S.C. 45(a)(2), expressly
provides that the FTC’s power to
prevent unfair or deceptive acts or
practices in or affecting commerce does
not apply to savings associations, banks,
or federal credit unions among others.
Section 18(f)(3) expressly provides
that OTS is to enforce the regulations it
promulgates under section 18(f) through
section 8 of the Federal Deposit
Insurance Act (FDIA), 12 U.S.C. 1818.
Section 8 of the FDIA authorizes OTS to
take appropriate enforcement actions
against savings associations for
violations of any ‘‘law, rule, or
regulation.’’ This enforcement authority
includes enforcement actions for
violations of section 5 of the FTC Act.5
Section 18(f)(6) clarifies that OTS may
use other authority it possesses to issue
rules governing enforcement of the
4 One exception is if OTS finds that such acts or
practices are not unfair or deceptive. This portion
of section 18(f)(1) assigns the Board (with respect
to banks) and the NCUA (with respect to federal
credit unions) the same ability to make findings
creating exceptions. The second exception is if the
Board finds that implementation of similar
regulations by banks, savings associations, or
federal credit unions would seriously conflict with
essential monetary and payments systems policies
and the Board publishes such a finding and the
reasons for it in the Federal Register.
5 OTS Op. Chief Counsel (June 9, 2006) at 11 n.52,
available at https:// www.ots.treas.gov/docs/5/
56218.pdf and OTS Op. Chief Counsel (October 25,
2004) at 10 n.37, available at https://
www.ots.treas.gov/docs/5/560404.pdf.
Section 18(f)(5), 15 U.S.C. 57a(f)(2), clarifies that
the Office of the Comptroller of the Currency, the
Board, and the Federal Deposit Insurance
Corporation may exercise, in addition to section 8
of the FDIA, any other authority conferred on them
by law and that, with respect to these agencies, a
violation of any regulation prescribed under section
18(f) constitutes not just a regulatory violation, but
a statutory violation as well. While this language
does not reference OTS, section 8 itself authorizes
OTS to take enforcement action for a violation of
regulations, including applicable FTC Act
regulations.
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regulations it prescribes under section
18(f) regardless of any FTC Act rules
issued by the Board.
2. OTS Unfair or Deceptive Acts or
Practices Rulemaking Under the FTC
Act to Date
OTS has exercised its rulemaking
authority in the area of unfair or
deceptive acts or practices to parallel
the FTC’s rulemakings. The FTC issued
its Credit Practices Rule over 20 years
ago. 49 FR 7740 (March 1, 1984). The
FTC’s rule took effect on March 1, 1985.
Shortly after that effective date, the
FHLBB (OTS’s predecessor agency)
issued a substantially similar rule. 50
FR 19325 (May 8, 1985). OTS’s Credit
Practices Rule (12 CFR part 535) is also
similar to that of the Board (12 CFR part
227) and the NCUA (12 CFR part 706).
OTS’s Credit Practices Rule protects
consumers by prohibiting certain unfair
or deceptive acts and practices by a
savings association in connection with
consumer credit: 6
1. Entering into, or enforcing
provisions in a consumer credit
obligation a savings association
purchases, containing any of the
following unfair credit practices (subject
to certain exceptions): (a) A cognovit or
confession of judgment; (b) an executory
waiver or limitation of exemption from
attachment on real or personal property;
(c) an assignment of wages or other
earnings; or (d) a nonpossessory security
interests in household goods other than
a purchase-money security interest.
2. Misrepresenting the nature or
extent of cosigner liability or entering
6 The rule also applies to an operating subsidiary
of a federal savings association. See 12 CFR
559.3(h)(1).
‘‘The term ‘consumer’ means a natural person
who seeks or acquires goods, services, or money for
personal, family, or household purposes, and who
applies for or is extended ’consumer credit’ as
defined in § 561.12 of [OTS’s regulations].’’ 12 CFR
535.1(b) (definition of a consumer). In turn, OTS’s
section 561.12 regulation provides:
‘‘The term consumer credit means credit
extended to a natural person for personal, family,
or household purposes, including loans secured by
liens on real estate and chattel liens secured by
mobile homes and leases of personal property to
consumers that may be considered the functional
equivalent of loans on personal security: Provided,
the savings association relies substantially upon
other factors, such as the general credit standing of
the borrower, guaranties, or security other than the
real estate or mobile home, as the primary security
for the loan. Appropriate evidence to demonstrate
justification for such reliance should be retained in
a savings association’s files. Among the types of
credit included within this term are consumer
loans; educational loans; unsecured loans for real
property alteration, repair or improvement, or for
the equipping of real property; loans in the nature
of overdraft protection; and credit extended in
connection with credit cards.’’
For further information about OTS’s Credit
Practices rule see OTS Examination Handbook
section 1355 (December 1999), available at https://
www.ots.treas.gov/docs/4/422242.pdf.
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into a consumer credit transaction prior
to notifying any cosigner about the
extent of the cosigner’s liability; and
3. Imposing a delinquency charge on
a payment, when the only delinquency
is due to late fees and delinquency
charges on a prior payment, and the
payment otherwise qualifies as a full
and timely payment of any principal
and interest owed.7
B. HOLA
1. Statutory Provisions
While the FTC Act grants OTS
exclusive authority to promulgate unfair
or deceptive acts or practices
regulations applicable to savings
associations, HOLA gives OTS authority
to promulgate regulations, including
regulations on unfair or deceptive acts
or practices, applicable to a variety of
other entities within the savings
association and savings and loan
holding company structure. These other
entities would also be subject to FTC
rules on unfair or deceptive acts or
practices.8
Under HOLA, OTS has the authority
to regulate and examine savings
associations, subsidiaries owned in
whole or part by a savings association,
service corporations owned in whole or
in part by a savings association, savings
and loan holding companies,
subsidiaries of savings and loan holding
companies other than a bank or
subsidiary of a bank, and certain service
providers.9 However, regulation of
7 OTS’s Credit Practices Rule allows OTS to
determine, upon application by an appropriate state
agency, that provisions of the rule will not be in
effect in a state that administers and enforces a state
requirement or prohibition that affords a level of
protection to consumers that is substantially
equivalent to, or greater than, the protection
afforded by the rule. 12 CFR 535.5. According to
OTS records, it has granted one such application,
to the State of Wisconsin. 51 FR 45879 (December
23, 1986).
8 Section 133(a)–(b) of the Gramm-Leach-Bliley
Act, Pub. L. 106–102 (Nov. 12, 1999), clarified that
while certain subsidiaries and affiliates of savings
associations would not be deemed to be savings
associations for purposes of the FTC Act, OTS
could exercise its other authority over these entities
under federal banking law. 15 U.S.C. 41 note.
9 12 U.S.C. 1462a(b)(2), 1463(a), 1464(a),
1464(d)(7)(A), 1464(d)(7)(D), 1467a(b), 1467a(g),
1467a(o)(7), and 1820(d); 12 CFR 559.3(o)(1),
559.3(o)(2), 563.170, and 584.1(g). OTS exercises
enforcement authority over these entities under 12
U.S.C. 1464(d), 1464(d)(7)(C), 1467a(g), 1467a(o),
1813(q)(4), 1818 and 12 CFR 559.3(h)(1).
Service providers are subject to OTS regulation
and examination to the extent they perform
authorized services for: (1) A savings association;
(2) a subsidiary of a savings association; or (3) a
‘‘savings and loan affiliate or entity’’ (i.e., a savings
and loan holding company or a subsidiary other
than a bank or subsidiary of that bank that is
wholly-or partially-owned by a savings and loan
holding company) that is regularly examined or
subject to examination by the Director of OTS. 12
U.S.C. 1464(d)(7)(D). Some service providers are
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functionally regulated subsidiaries is
subject to the functional regulation
principles in the Gramm-Leach-Bliley
Act.10
OTS is considering using its
rulemaking authority under HOLA to
issue regulations on unfair or deceptive
acts or practices that would cover
savings associations, non-functionally
regulated subsidiaries owned in whole
or part by a savings association, service
corporations owned in whole or in part
by a savings association, savings and
loan holding companies, and nonfunctionally regulated subsidiaries of
savings and loan holding companies
other than a bank or subsidiary of a
bank. OTS is not contemplating
covering service providers directly with
such a rulemaking at this time. Of
course, savings associations and others
covered directly by the rule would
remain responsible for compliance with
the rule, even if they outsource
operations to a third party.
Exercising HOLA authority in this
manner would be consistent with
HOLA’s mandate that OTS ensure safety
and soundness, since engaging in unfair
or deceptive acts or practices can pose
risk, including reputation risk,
compliance risk, and legal risk. HOLA
also assigns the Director of OTS a broad
mandate to prescribe such regulations as
he may determine necessary for carrying
out the HOLA and all other laws within
his jurisdiction. 12 U.S.C. 1462a(b)(2)
(emphasis added). The other laws
within OTS’s jurisdiction include over
thirty federal consumer protection
statutes and regulations. OTS has
jurisdiction to examine for compliance
with and enforce these statutes and
regulations, including section 5 of the
FTC Act.
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2. OTS Consumer Protection
Rulemaking Under HOLA to Date
In recognition of OTS’s consumer
protection mission and the mandate that
the Director give primary consideration
to the best practices of thrift institutions
in the United States (12 U.S.C. 1464(a)),
the agency has supplemented its Credit
Practices Rule with other regulations
issued under HOLA and other statutes.
These rules are unique among the
federal banking agencies in the way they
protect consumers.
One example is OTS’s long-standing
Advertising Rule, which prohibits
institution-affiliated parties (e.g., certain agents or
independent contractors) for purposes of OTS
enforcement authority. See 12 U.S.C. 1813(u) and
1818.
10 Section 45 of FDIA, 12 U.S.C. 1831v, and
section 10 of the Bank Holding Company Act, 12
U.S.C. 1848a, as added and amended by sections
112 and 113 of GLBA.
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savings associations from using
advertising or making any
representation that is inaccurate in any
particular manner or that in any way
misrepresents a savings association’s
services, contracts, investments, or
financial condition. The rule
encompasses all forms of advertising,
including print or broadcast media,
displays or signs, stationery, and all
other promotional materials.11 OTS
enforces its Advertising rule under
section 8 of the FDIA.12
OTS has also used HOLA to impose
consumer protections not otherwise
mandated by federal law for home loans
made by federal savings associations.
These protections encompass regulation
of late charges, prepayment penalties,
and adjustments to the interest rate,
payment, balance or term to maturity.
For example, a federal savings
association may not assess a late charge
on a home loan for any payment
received within 15 days of the due date.
OTS has also issued a
Nondiscrimination Rule (12 CFR part
528), which extends beyond the federal
fair lending laws by prohibiting
discrimination not covered by those
laws. For example, OTS’s
Nondiscrimination Rule covers all
services offered by a savings association,
not just lending. 12 CFR 528.2. OTS’s
Nondiscrimination Rule also prohibits
discrimination in lending on the basis of
handicap and familial status regardless
of whether or not the loan is residential
real estate-related, whereas the Equal
Credit Opportunity Act does not
prohibit discrimination on these bases
and the Fair Housing Act, while it
prohibits discrimination on these bases,
only covers residential real estaterelated transactions. 12 CFR 528.2.
Further, the rule imposes a requirement
prescribed for the purposes of
preventing lending discrimination by
aiding in assessing fair lending
compliance; it requires savings
association and other lenders who file
Home Mortgage Disclosure Act (HMDA)
Loan Application Registers with OTS to
enter the reason for denials, whereas
this information is otherwise optional
under HMDA. Compare 12 CFR 528.6
with 12 CFR 203.5(c)(1).
OTS recognizes that acts or practices
that are unfair or deceptive might also
violate other statutes or regulations
addressing similar conduct. Conversely,
an act or practice may be unfair or
deceptive even though it does not
11 This rule dates back nearly 50 years. See 23 FR
9917 (December 23, 1958).
12 OTS Op. Acting Chief Counsel (September 3,
1993), available at 1993 OTS LEXIS 34.
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43573
violate other statutes or regulations
addressing similar conduct.
C. Issues
Issue 1. Should OTS consider further
rulemaking on unfair or deceptive acts
or practices that would cover products
and services in addition to consumer
credit? If so, should the rule be limited
to financial products and services and
how should that scope be defined?
Issue 2. Should OTS consider further
rulemaking on unfair or deceptive acts
or practices that would cover more than
just the savings association, but related
entities as well?
III. Principles in Defining Unfair or
Deceptive Acts or Practices
Part 535 of OTS’s regulations address
prohibited consumer credit practices.
However, to date, OTS has not provided
comprehensive guidance explaining
which principles define unfair or
deceptive acts or practices. Similarly,
OTS has not provided comprehensive
guidance on which specific acts or
practices it considers unfair or
deceptive other than those articulated in
the Credit Practices rule. OTS is
considering a variety of approaches to
provide further definition, including the
following, either individually or by
combining two or more approaches.
A. FTC Model
OTS could adopt guidance issued by
the FTC as OTS’s standard and
incorporate it into an OTS regulation.13
We note that other federal banking
agencies have used the FTC guidance in
developing guidance on unfair or
deceptive acts or practices for entities
they regulate.14
In sum, the FTC guidance provides
that acts or practices are unfair where:
(1) The act or practice causes or is likely
to cause substantial injury to
consumers; (2) consumers cannot
reasonably avoid the injury; and (3) the
injury is not outweighed by
countervailing benefits to consumers or
to competition. Public policy is also
considered in analyzing whether a
particular act or practice is unfair. Acts
or practices are deceptive where the act
or practice involves a representation,
13 See FTC’s Policy Statement on Unfairness,
issued on December 17, 1980, available at https://
www.ftc.gov/policystmt/ad-unfair.htm; FTC’s Policy
Statement on Deception, issued on October 14,
1983, available at https://www.ftc.gov/bcp/
policystmet/ad-decept.htm.
14 See Board and FDIC guidance entitled, ‘‘Unfair
or Deceptive Act or Practices by State-Chartered
Banks,’’ issued on March 11, 2004, available at
https://www.fdic.gov/news/news/financial/2004/
fil2604a.html and OCC guidance in Advisory Letter
2002–3, ‘‘Guidance on Unfair or Deceptive Acts or
Practices’’ issued on March 22, 2002, available at
https://www.occ.treas.gov/ftp/advisory/2002–3.doc.
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omission, or other practice that (1)
misleads or is likely to mislead the
consumer; (2) the consumer reasonably
interprets under the circumstances; and
(3) is material.
B. Converting Guidance Into Rules
OTS, both individually and on an
interagency basis, has issued several
important pieces of guidance to the
industry on consumer protection issues.
OTS could convert all or portions of this
guidance into regulatory requirements
under the rubric of unfair or deceptive
acts or practices. For example, the
recently issued interagency Statement
on Working with Mortgage Borrowers
encourages institutions to consider
prudent workout arrangements that
increase the potential for financially
stressed residential borrowers to keep
their homes for those borrowers who
have demonstrated a prior willingness
and ability to repay the loan according
to its terms.15 OTS could identify, as a
principle, that failing to consider and
implement reasonable workout
arrangements is an unfair practice and
incorporate such a finding into a
rulemaking.
Other recent guidance OTS could
similarly draw from includes:
• Interagency Guidance on
Nontraditional Mortgage Product Risks,
71 FR 58609 (October 4, 2006).
• Interagency Statement on Subprime
Mortgage Lending, 72 FR 37569 (July 10,
2007).
• OTS Guidance on Overdraft
Protection Programs, 70 FR 8428
(February 18, 2005).
• OTS Guidance on Gift Card
Programs, OTS CEO Memorandum 254
(February 28, 2007).
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C. Other Federal Agency Models
OTS could consider issuing
guidelines along the lines of the OCC’s
Guidelines Establishing Standards for
Residential Mortgage Lending
Practices.16 These Guidelines advise
national banks against becoming
involved, directly or indirectly, in
residential mortgage lending activities
involving abusive, predatory, unfair or
deceptive lending practices. The
Guidelines list as examples equity
stripping, fee packing, loan flipping,
refinancing special mortgages, and
encouragement of default. Other
sections of the guidelines discuss
prudent consideration of certain loan
terms, conditions and features that may,
under particular circumstances, be
15 OTS CEO Memorandum # 255 (April 17, 2007,)
available at https://www.ots.treas.gov/docs/2/
25255.pdf.
16 12 CFR part 30, Appendix C.
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susceptible to abusive, predatory, unfair
or deceptive practices. Among the
practices listed are financing single
premium credit insurance, negative
amortization, balloon payments in
short-term transactions, and prepayment
penalties that are not limited to the
early years of the loan, particularly in
subprime loans.
OTS could also consider the approach
the Department of Housing and Urban
Development (HUD) has taken in
connection with setting housing goals
for secondary market mortgage
purchases by Government Sponsored
Enterprises (GSEs) Fannie Mae and
Freddie Mac.17 HUD defines ‘‘HOEPA
mortgages’’ to mean mortgage loans
above the HOEPA thresholds but
including loans to finance the
acquisition or initial construction of a
consumer’s principal dwelling and
open-end credit plans, which are both
otherwise excluded from HOEPA.18
HUD defines ‘‘mortgages with
unacceptable terms and conditions’’ to
include loans with excessive fees
(generally total points and fees charged
to a borrower exceeding the greater of
five percent of the loan amount or
$1,000), prepayment penalties except in
limited circumstances, prepaid single
premium credit life insurance, or failure
of the lender to adequately consider the
borrower’s ability to make payments.19
HUD’s regulations provide that GSE
purchases of mortgages in either
category do not count toward meeting
the GSEs’ goals for purchasing
mortgages.20 OTS could consider
restricting OTS-regulated entities from
originating (or purchasing) such loans as
unfair or deceptive.
D. State Law Models
OTS could prohibit specific unfair or
deceptive acts or practices of the types
listed in various state unfair or
deceptive acts or practices statutes. For
example, the Michigan Consumer
Protection Act prohibits dozens of
specific acts or practices such as causing
a probability of confusion or
17 It
is the duty of an independent office within
HUD, the Office of Federal Housing Enterprise
Oversight (OFHEO), to ensure that these GSEs are
adequately capitalized and operating in a safe and
sound manner. 12 U.S.C. 4511 and 4513; 12 CFR
1700.1. Except for that authority of OFHEO and
other matters relating to safety and soundness, the
Secretary of HUD has general regulatory power over
these GSEs to ensure that the purposes of their
chartering acts and the Federal Housing Enterprises
Financial Safety and Soundness Act of 1992 (Pub.
L. 102–550) are accomplished. 12 U.S.C. 4541; 24
CFR 81.1. See also HUD’s Regulation of Fannie Mae
and Freddie Mac, available at https://www.hud.gov/
offices/hsg/gse/gse.cfm.
18 24 CFR 81.2(b).
19 24 CFR 81.2(b).
20 CFR 81.16(c)(12).
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misunderstanding as to the legal rights,
obligations, or remedies of a party to a
transaction or gross discrepancies
between the oral representations of the
seller and the written agreement
covering the same transaction or failure
of the other party to the transaction to
provide the promised benefits.21
For mortgage lending, OTS could also
prohibit specific unfair or deceptive acts
or practices of the types listed in various
state predatory lending laws. For
example, North Carolina’s predatory
lending law 22 covers all consumer
home loans (first and second liens and
manufactured housing). It limits
prepayment penalties, financing credit
insurance, flipping, and default
incentives. It describes a class of high
cost home loans with high points and
fees or annual percentage rate (APR),
and for those loans it requires consumer
counseling and prohibits financing fees
and points in the loans.23 The North
Carolina law expressly provides that
making a loan in violation of the law
constitutes an unfair or deceptive act or
practice under North Carolina law.24
E. Targeted Practices Approach
Under this approach, OTS could
simply list a number of specific
practices that it would prohibit as unfair
or deceptive, such as in the area of
credit card lending, residential mortgage
lending, gift cards, and deposit
accounts. For example, OTS could
consider listing the following under this
approach:
1. Credit Card Lending
a. Imposing an interest rate increase
that is triggered by adverse information
unrelated to the credit card account or
card issuer. This practice is commonly
referred to as ‘‘universal default’’ or,
more recently as, adverse action pricing
in contrast to long-established risk
based pricing.
b. Imposing an over-the-limit-fee that
is triggered by the imposition of a
penalty fee, such as a late fee.
21 MCLS
§ 445.902 (2007).
N.C. Sess. Laws 332 as amended by 2003
N.C. Sess. Laws 401, available at https://
www.ncga.state.nc.us/EnactedLegislation/
SessionLaws/PDF/1999–2000/SL1999–332.pdf and
https://www.ncga.state.nc.us/EnactedLegislation/
SessionLaws/PDF/2003–2004/SL2003–401.pdf.
23 OTS notes, however, that the impact of the
North Carolina law and other state predatory
lending laws is a matter of some disagreement.
Among many studies is one from the Government
Accountability Office (GAO), which reported in
2004 that the impact of North Carolina’s laws on
high cost loans and licensing of brokers was
uncertain. GAO, Consumer Protection: Federal and
State Agencies Face Challenges in Combating
Predatory Lending, GAO–04–280 (January 2004),
available at https://www.gao.gov/new.items/
d04280.pdf.
24 N.C. Gen. Stat. section 24–10.2(e)(2007).
22 1999
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c. Charging penalty fees in
consecutive months based on previous
late or over the limit transactions, not
on a new or additional transaction
offense.
d. Requiring as a condition of a credit
card account, a consumer’s waiver of his
or her right to a court trial and consent
to binding mandatory arbitration.
e. Applying payments first to balances
subject to a lower rate of interest before
applying to balances subject to higher
rates of interest or applying payments
first to fees, penalties, or other charges
before applying them to principal and
interest.
2. Residential Mortgage Lending
a. Repetitive refinancing of the same
mortgage loan by the same lender
whereby the consumer’s equity is used
to finance the refinancing and from
which transaction fees are paid and
whereby the consumer does not
financially benefit from the terms of the
new loan over the terms of the old loan.
b. Encouraging a consumer to default
on a loan as a prerequisite to refinancing
the loan.
c. Imposing changes in loan terms
upon default, such as imposing
significant interest rate increases or a
balloon payment.
d. Layering discretionary pricing on
top of pricing that has already taken risk
into account, for example, where a
branch or loan officer charges more
points than called for by the rate sheet
provided by the institution’s central
office.
e. Force placing hazard insurance
without first giving reasonable notice to
borrowers to cure a deficiency.
f. Failing to employ reasonable loss
mitigation measures prior to initiating
foreclosure.
3. Gift Cards
a. Imposing fees that exceed a certain
amount or percentage of the original gift
amount.
b. Setting an expiration date less than
one year from the date of issuance.
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4. Deposit Accounts
Freezing accounts containing federal
benefit payments upon receipt of
attachment or garnishment orders and
setting off of debts owed to the financial
institution from federal benefit
payments deposited in accounts.25
25 House Committee on Financial Services
Chairman Frank has expressed concerns about these
practices and certain interstate debt collection
practices. See Letter from Chairman Frank to OTS
et al., June 21, 2007, available at https://
www.house.gov/apps/list/press/financialsvcs_dem/
press2062707.shtml.
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F. Issues on Alternative Models and
Approaches
Issue 3. What would be the impact on
the industry and consumers of any of
the various models and approaches
discussed?
Issue 4. OTS’s current Credit Practices
rule lists specific acts or practices that
are unfair or deceptive per se; it
prohibits such practices regardless of
the specific facts or circumstances.
Would it be appropriate for OTS to
determine that additional acts or
practices are unfair or deceptive per se
regardless of the specific facts or
circumstances?
Issue 5. Should OTS consider a
principles-based approach to a potential
rulemaking that can evolve as products,
practices and services change? If so,
what principles should OTS consider in
determining that a specific act or
practice is unfair or deceptive? Please
provide examples.
Issue 6. Are the principles in the FTC
guidance appropriate for the thrift
industry? Should OTS consider
adopting and incorporating them as part
of an enhanced rule on unfair or
deceptive acts or practices that includes
standards to determine whether a
particular act or practice is unfair or
deceptive? Are any of the other models
or approaches discussed in part III of
this SUPPLEMENTARY INFORMATION
appropriate for OTS to consider? What
other models, approaches, or principles
should OTS consider?
Issue 7. Can the acts or practices
encompassed within any particular
model or approach described in part III
of this SUPPLEMENTARY INFORMATION be
conducted in a manner that is not unfair
or deceptive to the consumer? If so,
how?
Issue 8. The FTC has taken
enforcement actions for violations of
section 5 of the FTC Act. Should OTS
draw specific examples of unfair or
deceptive practices from FTC
enforcement actions? If so, which
examples?
Issue 9. How would the practices in
OTS’s current Credit Practices rule and
those identified in part III of this
SUPPLEMENTARY INFORMATION fit into any
of those approaches?
Issue 10. Are the acts or practices
currently listed in the Credit Practices
rule the only ones that are capable of
targeting specific conduct without
allowing for easy circumvention or
having unintended consequences?
Issue 11. Has the current rule been
easy to circumvent or created
unintended consequences? What would
be the impact, in this regard, of
including additional acts or practices in
the rule?
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43575
IV. Advertising
As referenced in Part II.B.2 of this
SUPPLEMENTARY INFORMATION, OTS’s
Advertising Rule (12 CFR 563.27)
prohibits savings associations from
using advertising or making any
representation that is inaccurate in any
particular manner or that in any way
misrepresents a savings association’s
services, contracts, investments, or
financial condition. The rule
encompasses all forms of advertising,
including print or broadcast media,
displays or signs, stationery, and all
other promotional materials. OTS has
previously articulated two principles in
interpreting its Advertising rule:
1. The rule prohibits both misstatements of
material facts and omissions of material
facts.26 For example, it prohibits false
representations to the public about a savings
association’s deposit accounts, including
misrepresentations regarding the extent of
FDIC insurance coverage.27
2. The rule prohibits statements that, while
technically accurate, would mislead a
consumer. For example, it prohibits stating
that money can be withdrawn from a
passbook account at any time without also
indicating that such withdrawals will result
in a loss of interest.28
OTS is considering whether to expand
its advertising rule by providing more
comprehensive guidance. One approach
OTS is considering would be to
incorporate materials from FTC
advertising guides. FTC has issued
advertising guides related to bait
advertising (16 CFR part 238), the use of
the word ‘‘free’’ and similar
representations (16 CFR part 251),
deceptive pricing (16 CFR part 233),
advertising warranties and guarantees
(16 CFR part 239), and endorsements
and testimonials (16 CFR part 255).29
OTS recognizes, however, that parts of
these guides may not directly relate to
the provision of financial products and
services or be appropriate for a rule.
Issues
Issue 12. Should OTS expand its
regulations on advertising to incorporate
guides on advertising the FTC has
26 FHLBB Memorandum R–51a (September 9,
1981), available at 1981 FHLBB LEXIS 33.
27 OTS Op. Acting Chief Counsel (September 3,
1993), available at 1993 OTS LEXIS 34.
28 FHLBB Inter-Office Communication (January
18, 1977), available at 1977 FHLBB LEXIS 219. For
more information about this rule see OTS
Examination Handbook section 1355 (December
1999), available at https://www.ots.treas.gov/docs/4/
422261.pdf.
29 These FTC guides and other FTC guidance on
unfair or deceptive advertising are summarized in
a useful FTC publication entitled Advertising
Practices, Frequently Asked Questions: Answers for
Small Business (April 2001), available at https://
www.ftc.gov/bcp/conline/pubs/buspubs/adfaqs.pdf.
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issued under the FTC Act? If so, which
examples or principles should OTS
consider?
Issue 13. What other acts or practices
that may not currently be covered by
OTS’s advertising regulation should
OTS consider prohibiting as unfair or
deceptive in the advertising or
marketing of products or services
offered by OTS supervised entities?
Issue 14. What would be the impact
on the industry and consumers of
expanding OTS’s advertising regulation?
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V. Process for Resolving Questions
Concerning Unfair Acts or Practices
OTS recognizes that: (1) No set of
principles or standards, no matter how
effectively crafted, will lend themselves
to an easy determination in every case
as to whether a practice would violate
a regulation on unfair or deceptive acts
or practices; and (2) no established list
of acts or practices deemed unfair or
deceptive per se will ever be complete
or current. OTS also recognizes that the
overwhelming majority of institutions
and the individuals employed by those
institutions wish and seek to operate
fairly with respect to the products and
services they offer to their customers
and other consumers.
Furthermore, OTS is keenly aware of
the subjectivity and burden involved in
applying a set of principals or standards
to a set of particular facts in any given
case. For this reason, OTS has a
longstanding practice whereby
institutions (primarily through OTS
regional offices) or consumers
(primarily through OTS’s Consumer
Affairs or External Affairs functions)
confer with OTS about a particular
practice or a program about which they
have questions. We expect this process
to continue with respect to unfair or
deceptive acts and practices questions
or concerns.
Executive Order 12866
OTS does not know now whether it
will propose changes to its regulations
and, if so, whether these changes will
constitute a significant regulatory action
under Executive Order 12866. This
ANPR neither establishes nor proposes
any regulatory requirements. OTS has
submitted a notice of planned regulatory
action to OMB for review. Because this
ANPR does not contain a specific
proposal, information is not available
with which to prepare a regulatory
analysis. OTS will prepare a
preliminary regulatory analysis if it
proceeds with a proposed rule that
constitutes a significant regulatory
action.
Accordingly, OTS solicits comment,
information, and data on the potential
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16:16 Aug 03, 2007
Jkt 211001
effects on the economy of changes to its
regulations that commenters may
recommend. OTS will carefully
consider the costs and benefits
associated with this rulemaking.
Dated: July 31, 2007.
By the Office of Thrift Supervision.
John M. Reich,
Director.
[FR Doc. E7–15179 Filed 8–3–07; 8:45 am]
BILLING CODE 6720–01–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. FAA–2007–28882; Directorate
Identifier 2007–NM–035–AD]
RIN 2120–AA64
Airworthiness Directives; Goodrich
Evacuation Systems Approved Under
Technical Standard Order (TSO) TSO–
C69b and Installed on Airbus Model
A330–200 and –300 Series Airplanes,
Model A340–200 and –300 Series
Airplanes, and Model A340–541 and
–642 Airplanes
Federal Aviation
Administration (FAA), Department of
Transportation (DOT).
ACTION: Notice of proposed rulemaking
(NPRM).
AGENCY:
SUMMARY: The FAA proposes to
supersede an existing airworthiness
directive (AD) that applies to Goodrich
evacuation systems approved under
TSO–C69b and installed on certain
Airbus Model A330–200 and –300 series
airplanes, Model A340–200 and –300
series airplanes, and Model A340–541
and –642 airplanes. The existing AD
currently requires inspecting to
determine the part number of the
pressure relief valves on the affected
Goodrich evacuation systems, and
corrective action if necessary. For
certain airplanes, this proposed AD
would require an additional inspection
to determine the part number of the
pressure relief valves, and corrective
action if necessary. This proposed AD
results from a report indicating that,
during maintenance testing, the
pressure relief valves on the affected
Goodrich evacuation systems did not
seal when activated, which caused the
pressure in the escape slide/raft to drop
below the minimum allowable raft
mode pressure. We are proposing this
AD to prevent loss of pressure in the
escape slides/rafts after an emergency
evacuation, which could result in
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inadequate buoyancy to support the
raft’s passenger capacity during
ditching, and increase the chance for
injury to raft passengers.
DATES: We must receive comments on
this proposed AD by September 20,
2007.
ADDRESSES: Use one of the following
addresses to submit comments on this
proposed AD.
• DOT Docket Web site: Go to
https://dms.dot.gov and follow the
instructions for sending your comments
electronically.
• Government-wide rulemaking Web
site: Go to https://www.regulations.gov
and follow the instructions for sending
your comments electronically.
• Mail: U.S. Department of
Transportation, Docket Operations, M–
30, West Building Ground Floor, Room
W12–140, 1200 New Jersey Avenue, SE.,
Washington, DC 20590.
• Fax: (202) 493–2251.
• Hand Delivery: Room W12–140 on
the ground floor of the West Building,
1200 New Jersey Avenue, SE.,
Washington, DC, between 9 a.m. and 5
p.m., Monday through Friday, except
Federal holidays.
Contact Goodrich, Aircraft Interior
Products, ATTN: Technical
Publications, 3414 South Fifth Street,
Phoenix, AZ 85040, for service
information identified in this proposed
AD.
FOR FURTHER INFORMATION CONTACT:
Tracy Ton, Aerospace Engineer, Cabin
Safety/Mechanical and Environmental
Systems Branch, ANM–150L, FAA, Los
Angeles Aircraft Certification Office,
3960 Paramount Boulevard, Lakewood,
California 90712–4137; telephone (562)
627–5352; fax (562) 627–5210.
SUPPLEMENTARY INFORMATION:
Comments Invited
We invite you to submit any relevant
written data, views, or arguments
regarding this proposed AD. Send your
comments to an address listed in the
ADDRESSES section. Include the docket
number ‘‘Docket No. FAA–2007–28882;
Directorate Identifier 2007–NM–035–
AD’’ at the beginning of your comments.
We specifically invite comments on the
overall regulatory, economic,
environmental, and energy aspects of
the proposed AD. We will consider all
comments received by the closing date
and may amend the proposed AD in
light of those comments.
We will post all comments we
receive, without change, to https://
dms.dot.gov, including any personal
information you provide. We will also
post a report summarizing each
substantive verbal contact with FAA
E:\FR\FM\06AUP1.SGM
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]]>Agencies
[Federal Register Volume 72, Number 150 (Monday, August 6, 2007)]
[Proposed Rules]
[Pages 43570-43576]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-15179]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 535
[Docket ID OTS-2007-0015]
RIN 1550-AC17
Unfair or Deceptive Acts or Practices
AGENCY: Office of Thrift Supervision, Treasury (OTS).
ACTION: Advance notice of proposed rulemaking (ANPR).
-----------------------------------------------------------------------
SUMMARY: OTS is reviewing its regulations relating to unfair or
deceptive acts or practices to determine whether and, if so, to what
extent, additional regulation is needed to ensure customers of OTS-
regulated entities are treated fairly. This ANPR
[[Page 43571]]
seeks input and information on issues OTS is considering as part of
this review.
DATES: Comments must be submitted by November 5, 2007.
ADDRESSES: You may submit comments, identified by OTS-2007-0015, by any
of the following methods:
Federal eRulemaking Portal: Go to
http:www.regulations.gov, select ``Office of Thrift Supervision'' from
the agency drop-down menu, then click submit. Select Docket ID ``OTS-
2007-0015'' to submit or view public comments and to view supporting
and related materials for this advance notice of proposed rulemaking.
The ``User Tips'' link at the top of the 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-2007-0015.
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-2007-0015.
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 https://
www.regulations.gov, select ``Office of Thrift Supervision'' from the
agency drop-down menu, then click ``Submit.'' Select Docket ID ``OTS-
2007-0015'' to view public comments for this advance 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.
FOR FURTHER INFORMATION CONTACT: Glenn Gimble, Senior Project Manager,
Compliance and Consumer Protection Division, (202) 906-7158; Suzanne
McQueen, Consumer Regulations Analyst, Compliance and Consumer
Protection Division, (202) 906-6459; or Richard Bennett, Compliance
Counsel, Regulations and Legislation Division, (202) 906-7409, Office
of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.
SUPPLEMENTARY INFORMATION:
I. Purpose and Goals of This ANPR
The mission of OTS is ``to supervise savings associations and their
holding companies in order to maintain their safety and soundness and
compliance with consumer protection laws, and to encourage a
competitive industry that meets America's financial services needs.''
\1\ Consistent with our mission, OTS is issuing this ANPR to determine
whether the agency should expand its current prohibitions against
unfair or deceptive acts or practices.
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\1\ OTS Mission Statement, available at https://
www.ots.treas.gov/mission.cfm?catNumber=39.
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The ANPR identifies some of the issues that may warrant OTS's
review. The discussion is not exhaustive of all the issues that could
be raised. OTS invites commenters to respond to the questions presented
and to offer comments or suggestions on any other issues related to
unfair or deceptive acts or practices, including what other steps, OTS
might undertake instead of or in addition to further rulemaking in this
area. OTS recognizes that the financial services industry and consumers
have benefited from consistency in rules and guidance as the federal
banking agencies have adopted uniform or very similar rules in many
areas. OTS is mindful of the goal of consistent interagency standards
as it considers issues relating to unfair or deceptive acts and
practices.
II. Legal Background
The primary legal bases for this rulemaking are the Federal Trade
Commission Act (FTC Act), 15 U.S.C. 41-58, and the Home Owners' Loan
Act (HOLA), 12 U.S.C. 1461 et seq.
A. The FTC Act
1. Statutory Provisions
Under section 18(f)(1) of the FTC Act, 15 U.S.C. 57a(f)(1), OTS is
responsible for prescribing regulations to prevent unfair or deceptive
acts or practices by savings associations in or affecting commerce,
including acts or practices that are unfair or deceptive to
consumers.\2\ In granting this authority, Congress allowed OTS great
flexibility in determining the appropriate regulatory approach.
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\2\ We note some outdated language in the statute, but find that
it has no bearing on OTS's rulemaking authority. First, the statute
refers to OTS's predecessor agency, the Federal Home Loan Bank Board
(FHLBB), rather than to OTS. However, in section 3(e) of the HOLA,
Congress transferred this rulemaking power of the FHLBB among others
to the Director of OTS. 12 U.S.C. 1462a(e). Second, the statute
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.
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Section 18(f)(1) also provides that OTS's regulations may take a
variety of approaches ``including'' (but not limited to) regulations
``defining with specificity'' which acts or practices are unfair or
deceptive, as well as regulations ``containing requirements prescribed
for the purposes of preventing such acts or practices.'' Thus, in
addition to listing specific acts or practices that are unfair or
deceptive OTS may also impose measures designed to prevent such acts or
practices from occurring.\3\ The use of the word ``including'' reveals
that even these two regulatory approaches are not meant to be the only
options for OTS rulemaking. For example, OTS could issue principles-
based regulations that articulate general principles and standards for
evaluating whether acts or practices are unfair or deceptive, similar
to OTS's principles-based Advertising rule (12 CFR 563.27). This
provision of the FTC Act assigns the same rulemaking authority to the
Board of Governors of the Federal Reserve System (Board) with respect
to banks and to the National Credit Union Administration (NCUA) with
respect to federal credit unions.
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\3\ The legislative history gives as an example an FTC rule that
mandates certain testing procedures to determine the octane rating
of gasoline to avoid unfair or deceptive octane ratings being posted
on gasoline pumps. Senate Conference Report No. 93-1408, December
18, 1974 (to accompany S. 356), reprinted in 1974 U.S.C.C.A.N. 7702,
7764.
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Separately and additionally, section 18(f)(1) provides that
whenever the Federal Trade Commission (FTC) uses its authority in
section 18(a)(1)(B) to prescribe a rule defining with specificity which
acts or practices are unfair or deceptive, within 60 days after such
rule takes effect OTS generally must promulgate substantially similar
regulations prohibiting savings associations from engaging in
[[Page 43572]]
substantially similar acts or practices and imposing similar
requirements. Thus, this provision specifies procedures to ensure that
the regulations of the OTS--at a minimum--are consistent with
regulations the FTC may prescribe. It does not limit OTS's rulemaking
authority or set a ceiling on the acts or practices that OTS can
address in its regulations. However, it does set a floor for OTS's
regulation, subject to two exceptions.\4\ Section 18(f)(1) assigns the
same rulemaking authority to the Board with respect to banks and to the
NCUA with respect to federal credit unions.
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\4\ One exception is if OTS finds that such acts or practices
are not unfair or deceptive. This portion of section 18(f)(1)
assigns the Board (with respect to banks) and the NCUA (with respect
to federal credit unions) the same ability to make findings creating
exceptions. The second exception is if the Board finds that
implementation of similar regulations by banks, savings
associations, or federal credit unions would seriously conflict with
essential monetary and payments systems policies and the Board
publishes such a finding and the reasons for it in the Federal
Register.
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The two grants of rulemaking authority to OTS in section 18(f)(1)
give OTS exclusive authority to promulgate unfair or deceptive acts or
practices regulations applicable to savings associations. Section
5(a)(2) of the FTC Act, 15 U.S.C. 45(a)(2), expressly provides that the
FTC's power to prevent unfair or deceptive acts or practices in or
affecting commerce does not apply to savings associations, banks, or
federal credit unions among others.
Section 18(f)(3) expressly provides that OTS is to enforce the
regulations it promulgates under section 18(f) through section 8 of the
Federal Deposit Insurance Act (FDIA), 12 U.S.C. 1818. Section 8 of the
FDIA authorizes OTS to take appropriate enforcement actions against
savings associations for violations of any ``law, rule, or
regulation.'' This enforcement authority includes enforcement actions
for violations of section 5 of the FTC Act.\5\ Section 18(f)(6)
clarifies that OTS may use other authority it possesses to issue rules
governing enforcement of the regulations it prescribes under section
18(f) regardless of any FTC Act rules issued by the Board.
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\5\ OTS Op. Chief Counsel (June 9, 2006) at 11 n.52, available
at https://www.ots.treas.gov/docs/5/56218.pdf and OTS Op. Chief
Counsel (October 25, 2004) at 10 n.37, available at https://
www.ots.treas.gov/docs/5/560404.pdf.
Section 18(f)(5), 15 U.S.C. 57a(f)(2), clarifies that the Office
of the Comptroller of the Currency, the Board, and the Federal
Deposit Insurance Corporation may exercise, in addition to section 8
of the FDIA, any other authority conferred on them by law and that,
with respect to these agencies, a violation of any regulation
prescribed under section 18(f) constitutes not just a regulatory
violation, but a statutory violation as well. While this language
does not reference OTS, section 8 itself authorizes OTS to take
enforcement action for a violation of regulations, including
applicable FTC Act regulations.
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2. OTS Unfair or Deceptive Acts or Practices Rulemaking Under the FTC
Act to Date
OTS has exercised its rulemaking authority in the area of unfair or
deceptive acts or practices to parallel the FTC's rulemakings. The FTC
issued its Credit Practices Rule over 20 years ago. 49 FR 7740 (March
1, 1984). The FTC's rule took effect on March 1, 1985. Shortly after
that effective date, the FHLBB (OTS's predecessor agency) issued a
substantially similar rule. 50 FR 19325 (May 8, 1985). OTS's Credit
Practices Rule (12 CFR part 535) is also similar to that of the Board
(12 CFR part 227) and the NCUA (12 CFR part 706).
OTS's Credit Practices Rule protects consumers by prohibiting
certain unfair or deceptive acts and practices by a savings association
in connection with consumer credit: \6\
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\6\ The rule also applies to an operating subsidiary of a
federal savings association. See 12 CFR 559.3(h)(1).
``The term `consumer' means a natural person who seeks or
acquires goods, services, or money for personal, family, or
household purposes, and who applies for or is extended 'consumer
credit' as defined in Sec. 561.12 of [OTS's regulations].'' 12 CFR
535.1(b) (definition of a consumer). In turn, OTS's section 561.12
regulation provides:
``The term consumer credit means credit extended to a natural
person for personal, family, or household purposes, including loans
secured by liens on real estate and chattel liens secured by mobile
homes and leases of personal property to consumers that may be
considered the functional equivalent of loans on personal security:
Provided, the savings association relies substantially upon other
factors, such as the general credit standing of the borrower,
guaranties, or security other than the real estate or mobile home,
as the primary security for the loan. Appropriate evidence to
demonstrate justification for such reliance should be retained in a
savings association's files. Among the types of credit included
within this term are consumer loans; educational loans; unsecured
loans for real property alteration, repair or improvement, or for
the equipping of real property; loans in the nature of overdraft
protection; and credit extended in connection with credit cards.''
For further information about OTS's Credit Practices rule see
OTS Examination Handbook section 1355 (December 1999), available at
https://www.ots.treas.gov/docs/4/422242.pdf.
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1. Entering into, or enforcing provisions in a consumer credit
obligation a savings association purchases, containing any of the
following unfair credit practices (subject to certain exceptions): (a)
A cognovit or confession of judgment; (b) an executory waiver or
limitation of exemption from attachment on real or personal property;
(c) an assignment of wages or other earnings; or (d) a nonpossessory
security interests in household goods other than a purchase-money
security interest.
2. Misrepresenting the nature or extent of cosigner liability or
entering into a consumer credit transaction prior to notifying any
cosigner about the extent of the cosigner's liability; and
3. Imposing a delinquency charge on a payment, when the only
delinquency is due to late fees and delinquency charges on a prior
payment, and the payment otherwise qualifies as a full and timely
payment of any principal and interest owed.\7\
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\7\ OTS's Credit Practices Rule allows OTS to determine, upon
application by an appropriate state agency, that provisions of the
rule will not be in effect in a state that administers and enforces
a state requirement or prohibition that affords a level of
protection to consumers that is substantially equivalent to, or
greater than, the protection afforded by the rule. 12 CFR 535.5.
According to OTS records, it has granted one such application, to
the State of Wisconsin. 51 FR 45879 (December 23, 1986).
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B. HOLA
1. Statutory Provisions
While the FTC Act grants OTS exclusive authority to promulgate
unfair or deceptive acts or practices regulations applicable to savings
associations, HOLA gives OTS authority to promulgate regulations,
including regulations on unfair or deceptive acts or practices,
applicable to a variety of other entities within the savings
association and savings and loan holding company structure. These other
entities would also be subject to FTC rules on unfair or deceptive acts
or practices.\8\
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\8\ Section 133(a)-(b) of the Gramm-Leach-Bliley Act, Pub. L.
106-102 (Nov. 12, 1999), clarified that while certain subsidiaries
and affiliates of savings associations would not be deemed to be
savings associations for purposes of the FTC Act, OTS could exercise
its other authority over these entities under federal banking law.
15 U.S.C. 41 note.
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Under HOLA, OTS has the authority to regulate and examine savings
associations, subsidiaries owned in whole or part by a savings
association, service corporations owned in whole or in part by a
savings association, savings and loan holding companies, subsidiaries
of savings and loan holding companies other than a bank or subsidiary
of a bank, and certain service providers.\9\ However, regulation of
[[Page 43573]]
functionally regulated subsidiaries is subject to the functional
regulation principles in the Gramm-Leach-Bliley Act.\10\
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\9\ 12 U.S.C. 1462a(b)(2), 1463(a), 1464(a), 1464(d)(7)(A),
1464(d)(7)(D), 1467a(b), 1467a(g), 1467a(o)(7), and 1820(d); 12 CFR
559.3(o)(1), 559.3(o)(2), 563.170, and 584.1(g). OTS exercises
enforcement authority over these entities under 12 U.S.C. 1464(d),
1464(d)(7)(C), 1467a(g), 1467a(o), 1813(q)(4), 1818 and 12 CFR
559.3(h)(1).
Service providers are subject to OTS regulation and examination
to the extent they perform authorized services for: (1) A savings
association; (2) a subsidiary of a savings association; or (3) a
``savings and loan affiliate or entity'' (i.e., a savings and loan
holding company or a subsidiary other than a bank or subsidiary of
that bank that is wholly-or partially-owned by a savings and loan
holding company) that is regularly examined or subject to
examination by the Director of OTS. 12 U.S.C. 1464(d)(7)(D). Some
service providers are institution-affiliated parties (e.g., certain
agents or independent contractors) for purposes of OTS enforcement
authority. See 12 U.S.C. 1813(u) and 1818.
\10\ Section 45 of FDIA, 12 U.S.C. 1831v, and section 10 of the
Bank Holding Company Act, 12 U.S.C. 1848a, as added and amended by
sections 112 and 113 of GLBA.
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OTS is considering using its rulemaking authority under HOLA to
issue regulations on unfair or deceptive acts or practices that would
cover savings associations, non-functionally regulated subsidiaries
owned in whole or part by a savings association, service corporations
owned in whole or in part by a savings association, savings and loan
holding companies, and non-functionally regulated subsidiaries of
savings and loan holding companies other than a bank or subsidiary of a
bank. OTS is not contemplating covering service providers directly with
such a rulemaking at this time. Of course, savings associations and
others covered directly by the rule would remain responsible for
compliance with the rule, even if they outsource operations to a third
party.
Exercising HOLA authority in this manner would be consistent with
HOLA's mandate that OTS ensure safety and soundness, since engaging in
unfair or deceptive acts or practices can pose risk, including
reputation risk, compliance risk, and legal risk. HOLA also assigns the
Director of OTS a broad mandate to prescribe such regulations as he may
determine necessary for carrying out the HOLA and all other laws within
his jurisdiction. 12 U.S.C. 1462a(b)(2) (emphasis added). The other
laws within OTS's jurisdiction include over thirty federal consumer
protection statutes and regulations. OTS has jurisdiction to examine
for compliance with and enforce these statutes and regulations,
including section 5 of the FTC Act.
2. OTS Consumer Protection Rulemaking Under HOLA to Date
In recognition of OTS's consumer protection mission and the mandate
that the Director give primary consideration to the best practices of
thrift institutions in the United States (12 U.S.C. 1464(a)), the
agency has supplemented its Credit Practices Rule with other
regulations issued under HOLA and other statutes. These rules are
unique among the federal banking agencies in the way they protect
consumers.
One example is OTS's long-standing Advertising Rule, which
prohibits savings associations from using advertising or making any
representation that is inaccurate in any particular manner or that in
any way misrepresents a savings association's services, contracts,
investments, or financial condition. The rule encompasses all forms of
advertising, including print or broadcast media, displays or signs,
stationery, and all other promotional materials.\11\ OTS enforces its
Advertising rule under section 8 of the FDIA.\12\
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\11\ This rule dates back nearly 50 years. See 23 FR 9917
(December 23, 1958).
\12\ OTS Op. Acting Chief Counsel (September 3, 1993), available
at 1993 OTS LEXIS 34.
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OTS has also used HOLA to impose consumer protections not otherwise
mandated by federal law for home loans made by federal savings
associations. These protections encompass regulation of late charges,
prepayment penalties, and adjustments to the interest rate, payment,
balance or term to maturity. For example, a federal savings association
may not assess a late charge on a home loan for any payment received
within 15 days of the due date.
OTS has also issued a Nondiscrimination Rule (12 CFR part 528),
which extends beyond the federal fair lending laws by prohibiting
discrimination not covered by those laws. For example, OTS's
Nondiscrimination Rule covers all services offered by a savings
association, not just lending. 12 CFR 528.2. OTS's Nondiscrimination
Rule also prohibits discrimination in lending on the basis of handicap
and familial status regardless of whether or not the loan is
residential real estate-related, whereas the Equal Credit Opportunity
Act does not prohibit discrimination on these bases and the Fair
Housing Act, while it prohibits discrimination on these bases, only
covers residential real estate-related transactions. 12 CFR 528.2.
Further, the rule imposes a requirement prescribed for the purposes of
preventing lending discrimination by aiding in assessing fair lending
compliance; it requires savings association and other lenders who file
Home Mortgage Disclosure Act (HMDA) Loan Application Registers with OTS
to enter the reason for denials, whereas this information is otherwise
optional under HMDA. Compare 12 CFR 528.6 with 12 CFR 203.5(c)(1).
OTS recognizes that acts or practices that are unfair or deceptive
might also violate other statutes or regulations addressing similar
conduct. Conversely, an act or practice may be unfair or deceptive even
though it does not violate other statutes or regulations addressing
similar conduct.
C. Issues
Issue 1. Should OTS consider further rulemaking on unfair or
deceptive acts or practices that would cover products and services in
addition to consumer credit? If so, should the rule be limited to
financial products and services and how should that scope be defined?
Issue 2. Should OTS consider further rulemaking on unfair or
deceptive acts or practices that would cover more than just the savings
association, but related entities as well?
III. Principles in Defining Unfair or Deceptive Acts or Practices
Part 535 of OTS's regulations address prohibited consumer credit
practices. However, to date, OTS has not provided comprehensive
guidance explaining which principles define unfair or deceptive acts or
practices. Similarly, OTS has not provided comprehensive guidance on
which specific acts or practices it considers unfair or deceptive other
than those articulated in the Credit Practices rule. OTS is considering
a variety of approaches to provide further definition, including the
following, either individually or by combining two or more approaches.
A. FTC Model
OTS could adopt guidance issued by the FTC as OTS's standard and
incorporate it into an OTS regulation.\13\ We note that other federal
banking agencies have used the FTC guidance in developing guidance on
unfair or deceptive acts or practices for entities they regulate.\14\
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\13\ See FTC's Policy Statement on Unfairness, issued on
December 17, 1980, available at https://www.ftc.gov/policystmt/ad-
unfair.htm; FTC's Policy Statement on Deception, issued on October
14, 1983, available at https://www.ftc.gov/bcp/policystmet/ad-
decept.htm.
\14\ See Board and FDIC guidance entitled, ``Unfair or Deceptive
Act or Practices by State-Chartered Banks,'' issued on March 11,
2004, available at https://www.fdic.gov/news/news/financial/2004/
fil2604a.html and OCC guidance in Advisory Letter 2002-3, ``Guidance
on Unfair or Deceptive Acts or Practices'' issued on March 22, 2002,
available at https://www.occ.treas.gov/ftp/advisory/2002-3.doc.
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In sum, the FTC guidance provides that acts or practices are unfair
where: (1) The act or practice causes or is likely to cause substantial
injury to consumers; (2) consumers cannot reasonably avoid the injury;
and (3) the injury is not outweighed by countervailing benefits to
consumers or to competition. Public policy is also considered in
analyzing whether a particular act or practice is unfair. Acts or
practices are deceptive where the act or practice involves a
representation,
[[Page 43574]]
omission, or other practice that (1) misleads or is likely to mislead
the consumer; (2) the consumer reasonably interprets under the
circumstances; and (3) is material.
B. Converting Guidance Into Rules
OTS, both individually and on an interagency basis, has issued
several important pieces of guidance to the industry on consumer
protection issues. OTS could convert all or portions of this guidance
into regulatory requirements under the rubric of unfair or deceptive
acts or practices. For example, the recently issued interagency
Statement on Working with Mortgage Borrowers encourages institutions to
consider prudent workout arrangements that increase the potential for
financially stressed residential borrowers to keep their homes for
those borrowers who have demonstrated a prior willingness and ability
to repay the loan according to its terms.\15\ OTS could identify, as a
principle, that failing to consider and implement reasonable workout
arrangements is an unfair practice and incorporate such a finding into
a rulemaking.
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\15\ OTS CEO Memorandum 255 (April 17, 2007,)
available at https://www.ots.treas.gov/docs/2/25255.pdf.
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Other recent guidance OTS could similarly draw from includes:
Interagency Guidance on Nontraditional Mortgage Product
Risks, 71 FR 58609 (October 4, 2006).
Interagency Statement on Subprime Mortgage Lending, 72 FR
37569 (July 10, 2007).
OTS Guidance on Overdraft Protection Programs, 70 FR 8428
(February 18, 2005).
OTS Guidance on Gift Card Programs, OTS CEO Memorandum 254
(February 28, 2007).
C. Other Federal Agency Models
OTS could consider issuing guidelines along the lines of the OCC's
Guidelines Establishing Standards for Residential Mortgage Lending
Practices.\16\ These Guidelines advise national banks against becoming
involved, directly or indirectly, in residential mortgage lending
activities involving abusive, predatory, unfair or deceptive lending
practices. The Guidelines list as examples equity stripping, fee
packing, loan flipping, refinancing special mortgages, and
encouragement of default. Other sections of the guidelines discuss
prudent consideration of certain loan terms, conditions and features
that may, under particular circumstances, be susceptible to abusive,
predatory, unfair or deceptive practices. Among the practices listed
are financing single premium credit insurance, negative amortization,
balloon payments in short-term transactions, and prepayment penalties
that are not limited to the early years of the loan, particularly in
subprime loans.
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\16\ 12 CFR part 30, Appendix C.
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OTS could also consider the approach the Department of Housing and
Urban Development (HUD) has taken in connection with setting housing
goals for secondary market mortgage purchases by Government Sponsored
Enterprises (GSEs) Fannie Mae and Freddie Mac.\17\ HUD defines ``HOEPA
mortgages'' to mean mortgage loans above the HOEPA thresholds but
including loans to finance the acquisition or initial construction of a
consumer's principal dwelling and open-end credit plans, which are both
otherwise excluded from HOEPA.\18\ HUD defines ``mortgages with
unacceptable terms and conditions'' to include loans with excessive
fees (generally total points and fees charged to a borrower exceeding
the greater of five percent of the loan amount or $1,000), prepayment
penalties except in limited circumstances, prepaid single premium
credit life insurance, or failure of the lender to adequately consider
the borrower's ability to make payments.\19\
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\17\ It is the duty of an independent office within HUD, the
Office of Federal Housing Enterprise Oversight (OFHEO), to ensure
that these GSEs are adequately capitalized and operating in a safe
and sound manner. 12 U.S.C. 4511 and 4513; 12 CFR 1700.1. Except for
that authority of OFHEO and other matters relating to safety and
soundness, the Secretary of HUD has general regulatory power over
these GSEs to ensure that the purposes of their chartering acts and
the Federal Housing Enterprises Financial Safety and Soundness Act
of 1992 (Pub. L. 102-550) are accomplished. 12 U.S.C. 4541; 24 CFR
81.1. See also HUD's Regulation of Fannie Mae and Freddie Mac,
available at https://www.hud.gov/offices/hsg/gse/gse.cfm.
\18\ 24 CFR 81.2(b).
\19\ 24 CFR 81.2(b).
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HUD's regulations provide that GSE purchases of mortgages in either
category do not count toward meeting the GSEs' goals for purchasing
mortgages.\20\ OTS could consider restricting OTS-regulated entities
from originating (or purchasing) such loans as unfair or deceptive.
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\20\ CFR 81.16(c)(12).
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D. State Law Models
OTS could prohibit specific unfair or deceptive acts or practices
of the types listed in various state unfair or deceptive acts or
practices statutes. For example, the Michigan Consumer Protection Act
prohibits dozens of specific acts or practices such as causing a
probability of confusion or misunderstanding as to the legal rights,
obligations, or remedies of a party to a transaction or gross
discrepancies between the oral representations of the seller and the
written agreement covering the same transaction or failure of the other
party to the transaction to provide the promised benefits.\21\
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\21\ MCLS Sec. 445.902 (2007).
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For mortgage lending, OTS could also prohibit specific unfair or
deceptive acts or practices of the types listed in various state
predatory lending laws. For example, North Carolina's predatory lending
law \22\ covers all consumer home loans (first and second liens and
manufactured housing). It limits prepayment penalties, financing credit
insurance, flipping, and default incentives. It describes a class of
high cost home loans with high points and fees or annual percentage
rate (APR), and for those loans it requires consumer counseling and
prohibits financing fees and points in the loans.\23\ The North
Carolina law expressly provides that making a loan in violation of the
law constitutes an unfair or deceptive act or practice under North
Carolina law.\24\
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\22\ 1999 N.C. Sess. Laws 332 as amended by 2003 N.C. Sess. Laws
401, available at https://www.ncga.state.nc.us/EnactedLegislation/
SessionLaws/PDF/1999-2000/SL1999-332.pdf and https://
www.ncga.state.nc.us/EnactedLegislation/SessionLaws/PDF/2003-2004/
SL2003-401.pdf.
\23\ OTS notes, however, that the impact of the North Carolina
law and other state predatory lending laws is a matter of some
disagreement. Among many studies is one from the Government
Accountability Office (GAO), which reported in 2004 that the impact
of North Carolina's laws on high cost loans and licensing of brokers
was uncertain. GAO, Consumer Protection: Federal and State Agencies
Face Challenges in Combating Predatory Lending, GAO-04-280 (January
2004), available at https://www.gao.gov/new.items/d04280.pdf.
\24\ N.C. Gen. Stat. section 24-10.2(e)(2007).
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E. Targeted Practices Approach
Under this approach, OTS could simply list a number of specific
practices that it would prohibit as unfair or deceptive, such as in the
area of credit card lending, residential mortgage lending, gift cards,
and deposit accounts. For example, OTS could consider listing the
following under this approach:
1. Credit Card Lending
a. Imposing an interest rate increase that is triggered by adverse
information unrelated to the credit card account or card issuer. This
practice is commonly referred to as ``universal default'' or, more
recently as, adverse action pricing in contrast to long-established
risk based pricing.
b. Imposing an over-the-limit-fee that is triggered by the
imposition of a penalty fee, such as a late fee.
[[Page 43575]]
c. Charging penalty fees in consecutive months based on previous
late or over the limit transactions, not on a new or additional
transaction offense.
d. Requiring as a condition of a credit card account, a consumer's
waiver of his or her right to a court trial and consent to binding
mandatory arbitration.
e. Applying payments first to balances subject to a lower rate of
interest before applying to balances subject to higher rates of
interest or applying payments first to fees, penalties, or other
charges before applying them to principal and interest.
2. Residential Mortgage Lending
a. Repetitive refinancing of the same mortgage loan by the same
lender whereby the consumer's equity is used to finance the refinancing
and from which transaction fees are paid and whereby the consumer does
not financially benefit from the terms of the new loan over the terms
of the old loan.
b. Encouraging a consumer to default on a loan as a prerequisite to
refinancing the loan.
c. Imposing changes in loan terms upon default, such as imposing
significant interest rate increases or a balloon payment.
d. Layering discretionary pricing on top of pricing that has
already taken risk into account, for example, where a branch or loan
officer charges more points than called for by the rate sheet provided
by the institution's central office.
e. Force placing hazard insurance without first giving reasonable
notice to borrowers to cure a deficiency.
f. Failing to employ reasonable loss mitigation measures prior to
initiating foreclosure.
3. Gift Cards
a. Imposing fees that exceed a certain amount or percentage of the
original gift amount.
b. Setting an expiration date less than one year from the date of
issuance.
4. Deposit Accounts
Freezing accounts containing federal benefit payments upon receipt
of attachment or garnishment orders and setting off of debts owed to
the financial institution from federal benefit payments deposited in
accounts.\25\
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\25\ House Committee on Financial Services Chairman Frank has
expressed concerns about these practices and certain interstate debt
collection practices. See Letter from Chairman Frank to OTS et al.,
June 21, 2007, available at https://www.house.gov/apps/list/press/
financialsvcs_dem/press2062707.shtml.
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F. Issues on Alternative Models and Approaches
Issue 3. What would be the impact on the industry and consumers of
any of the various models and approaches discussed?
Issue 4. OTS's current Credit Practices rule lists specific acts or
practices that are unfair or deceptive per se; it prohibits such
practices regardless of the specific facts or circumstances. Would it
be appropriate for OTS to determine that additional acts or practices
are unfair or deceptive per se regardless of the specific facts or
circumstances?
Issue 5. Should OTS consider a principles-based approach to a
potential rulemaking that can evolve as products, practices and
services change? If so, what principles should OTS consider in
determining that a specific act or practice is unfair or deceptive?
Please provide examples.
Issue 6. Are the principles in the FTC guidance appropriate for the
thrift industry? Should OTS consider adopting and incorporating them as
part of an enhanced rule on unfair or deceptive acts or practices that
includes standards to determine whether a particular act or practice is
unfair or deceptive? Are any of the other models or approaches
discussed in part III of this Supplementary Information appropriate for
OTS to consider? What other models, approaches, or principles should
OTS consider?
Issue 7. Can the acts or practices encompassed within any
particular model or approach described in part III of this
Supplementary Information be conducted in a manner that is not unfair
or deceptive to the consumer? If so, how?
Issue 8. The FTC has taken enforcement actions for violations of
section 5 of the FTC Act. Should OTS draw specific examples of unfair
or deceptive practices from FTC enforcement actions? If so, which
examples?
Issue 9. How would the practices in OTS's current Credit Practices
rule and those identified in part III of this Supplementary Information
fit into any of those approaches?
Issue 10. Are the acts or practices currently listed in the Credit
Practices rule the only ones that are capable of targeting specific
conduct without allowing for easy circumvention or having unintended
consequences?
Issue 11. Has the current rule been easy to circumvent or created
unintended consequences? What would be the impact, in this regard, of
including additional acts or practices in the rule?
IV. Advertising
As referenced in Part II.B.2 of this Supplementary Information,
OTS's Advertising Rule (12 CFR 563.27) prohibits savings associations
from using advertising or making any representation that is inaccurate
in any particular manner or that in any way misrepresents a savings
association's services, contracts, investments, or financial condition.
The rule encompasses all forms of advertising, including print or
broadcast media, displays or signs, stationery, and all other
promotional materials. OTS has previously articulated two principles in
interpreting its Advertising rule:
1. The rule prohibits both misstatements of material facts and
omissions of material facts.\26\ For example, it prohibits false
representations to the public about a savings association's deposit
accounts, including misrepresentations regarding the extent of FDIC
insurance coverage.\27\
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\26\ FHLBB Memorandum R-51a (September 9, 1981), available at
1981 FHLBB LEXIS 33.
\27\ OTS Op. Acting Chief Counsel (September 3, 1993), available
at 1993 OTS LEXIS 34.
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2. The rule prohibits statements that, while technically
accurate, would mislead a consumer. For example, it prohibits
stating that money can be withdrawn from a passbook account at any
time without also indicating that such withdrawals will result in a
loss of interest.\28\
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\28\ FHLBB Inter-Office Communication (January 18, 1977),
available at 1977 FHLBB LEXIS 219. For more information about this
rule see OTS Examination Handbook section 1355 (December 1999),
available at https://www.ots.treas.gov/docs/4/422261.pdf.
OTS is considering whether to expand its advertising rule by
providing more comprehensive guidance. One approach OTS is considering
would be to incorporate materials from FTC advertising guides. FTC has
issued advertising guides related to bait advertising (16 CFR part
238), the use of the word ``free'' and similar representations (16 CFR
part 251), deceptive pricing (16 CFR part 233), advertising warranties
and guarantees (16 CFR part 239), and endorsements and testimonials (16
CFR part 255).\29\ OTS recognizes, however, that parts of these guides
may not directly relate to the provision of financial products and
services or be appropriate for a rule.
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\29\ These FTC guides and other FTC guidance on unfair or
deceptive advertising are summarized in a useful FTC publication
entitled Advertising Practices, Frequently Asked Questions: Answers
for Small Business (April 2001), available at https://www.ftc.gov/
bcp/conline/pubs/buspubs/ad-faqs.pdf.
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Issues
Issue 12. Should OTS expand its regulations on advertising to
incorporate guides on advertising the FTC has
[[Page 43576]]
issued under the FTC Act? If so, which examples or principles should
OTS consider?
Issue 13. What other acts or practices that may not currently be
covered by OTS's advertising regulation should OTS consider prohibiting
as unfair or deceptive in the advertising or marketing of products or
services offered by OTS supervised entities?
Issue 14. What would be the impact on the industry and consumers of
expanding OTS's advertising regulation?
V. Process for Resolving Questions Concerning Unfair Acts or Practices
OTS recognizes that: (1) No set of principles or standards, no
matter how effectively crafted, will lend themselves to an easy
determination in every case as to whether a practice would violate a
regulation on unfair or deceptive acts or practices; and (2) no
established list of acts or practices deemed unfair or deceptive per se
will ever be complete or current. OTS also recognizes that the
overwhelming majority of institutions and the individuals employed by
those institutions wish and seek to operate fairly with respect to the
products and services they offer to their customers and other
consumers.
Furthermore, OTS is keenly aware of the subjectivity and burden
involved in applying a set of principals or standards to a set of
particular facts in any given case. For this reason, OTS has a
longstanding practice whereby institutions (primarily through OTS
regional offices) or consumers (primarily through OTS's Consumer
Affairs or External Affairs functions) confer with OTS about a
particular practice or a program about which they have questions. We
expect this process to continue with respect to unfair or deceptive
acts and practices questions or concerns.
Executive Order 12866
OTS does not know now whether it will propose changes to its
regulations and, if so, whether these changes will constitute a
significant regulatory action under Executive Order 12866. This ANPR
neither establishes nor proposes any regulatory requirements. OTS has
submitted a notice of planned regulatory action to OMB for review.
Because this ANPR does not contain a specific proposal, information is
not available with which to prepare a regulatory analysis. OTS will
prepare a preliminary regulatory analysis if it proceeds with a
proposed rule that constitutes a significant regulatory action.
Accordingly, OTS solicits comment, information, and data on the
potential effects on the economy of changes to its regulations that
commenters may recommend. OTS will carefully consider the costs and
benefits associated with this rulemaking.
Dated: July 31, 2007.
By the Office of Thrift Supervision.
John M. Reich,
Director.
[FR Doc. E7-15179 Filed 8-3-07; 8:45 am]
BILLING CODE 6720-01-P
