Unfair or Deceptive Acts or Practices, 28904-28964 [E8-10247]

Agencies

• National Credit Union Administration
• DEPARTMENT OF THE TREASURY
• Office of Thrift Supervision
• FEDERAL RESERVE SYSTEM

[Federal Register Volume 73, Number 97 (Monday, May 19, 2008)]
[Proposed Rules]
[Pages 28904-28964]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-10247]



[[Page 28903]]

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Part III

Federal Reserve System



12 CFR Part 227



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Department of the Treasury



Office of Thrift Supervision

12 CFR Part 535



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National Credit Union Administration

12 CFR Part 706



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Unfair or Deceptive Acts or Practices; Proposed Rule

Federal Register / Vol. 73, No. 97 / Monday, May 19, 2008 / Proposed 
Rules

[[Page 28904]]



FEDERAL RESERVE SYSTEM

12 CFR Part 227

[Regulation AA; Docket No. R-1314]

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 535

[Docket ID. OTS-2008-0004]
RIN 1550-AC17

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 706

RIN 3133-AD47


Unfair or Deceptive Acts or Practices

AGENCIES: Board of Governors of the Federal Reserve System (Board); 
Office of Thrift Supervision, Treasury (OTS); and National Credit Union 
Administration (NCUA).

ACTION: Proposed rule; request for public comment.

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SUMMARY: The Board, OTS, and NCUA (collectively, the Agencies) are 
proposing to exercise their authority under section 5(a) of the Federal 
Trade Commission Act to prohibit unfair or deceptive acts or practices. 
The proposed rule would prohibit institutions from engaging in certain 
acts or practices in connection with consumer credit cards accounts and 
overdraft services for deposit accounts. This proposal evolved from the 
Board's June 2007 Notice of Proposed Rule under the Truth in Lending 
Act and OTS's August 2007 Advance Notice of Proposed Rulemaking under 
the Federal Trade Commission Act. The proposed rule relates to other 
Board proposals under the Truth in Lending Act and the Truth in Savings 
Act, which are published elsewhere in today's Federal Register.

DATES: Comments must be received on or before August 4, 2008.

ADDRESSES: Because paper mail in the Washington DC area and at the 
Agencies is subject to delay, we encourage commenters to submit 
comments by e-mail, if possible. We also encourage commenters to use 
the title ``Unfair or Deceptive Acts or Practices'' to facilitate our 
organization and distribution of the comments. Comments submitted to 
one or more of the Agencies will be made available to all of the 
Agencies. Interested parties are invited to submit comments as follows:
    Board: You may submit comments, identified by Docket No. R-1314, by 
any of the following methods:
     Agency Web site: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: regs.comments@federalreserve.gov. Include the 
docket number in the subject line of the message.
     Facsimile: (202) 452-3819 or (202) 452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper form in Room MP-500 of the Board's Martin Building (20th and C 
Streets, NW) between 9 a.m. and 5 p.m. on weekdays.
    OTS: You may submit comments, identified by OTS-2008-0004, by any 
of the following methods:
     Federal eRulemaking Portal- ``Regulations.gov'': Go to 
https://www.regulations.gov, under the ``more Search Options'' tab click 
next to the ``Advanced Docket Search'' option where indicated, select 
``Office of Thrift Supervision'' from the agency drop-down menu, then 
click ``Submit.'' In the ``Docket ID'' column, select ``OTS-2008-0004'' 
to submit or view public comments and to view supporting and related 
materials for this proposed rulemaking. The ``How to Use This Site'' 
link on the Regulations.gov home page provides information on using 
Regulations.gov, including instructions for submitting or viewing 
public comments, viewing other supporting and related materials, and 
viewing the docket after the close of the comment period.
     Mail: Regulation Comments, Chief Counsel's Office, Office 
of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, 
Attention: OTS-2008-0004.
     Facsimile: (202) 906-6518.
     Hand Delivery/Courier: Guard's Desk, East Lobby Entrance, 
1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, Attention: 
Regulation Comments, Chief Counsel's Office, Attention: OTS-2008-0004.
     Instructions: All submissions received must include the 
agency name and docket number for this rulemaking. All comments 
received will be entered into the docket and posted on Regulations.gov 
without change, including any personal information provided. Comments, 
including attachments and other supporting materials received are part 
of the public record and subject to public disclosure. Do not enclose 
any information in your comment or supporting materials that you 
consider confidential or inappropriate for public disclosure.
     Viewing Comments Electronically: Go to https://
www.regulations.gov, select ``Office of Thrift Supervision'' from the 
agency drop-down menu, then click ``Submit.'' Select Docket ID ``OTS-
2008-0004'' to view public comments for this notice of proposed 
rulemaking.
     Viewing Comments On-Site: You may inspect comments at the 
Public Reading Room, 1700 G Street, NW., by appointment. To make an 
appointment for access, call (202) 906-5922, send an e-mail to 
public.info@ots.treas.gov, or send a facsimile transmission to (202) 
906-6518. (Prior notice identifying the materials you will be 
requesting will assist us in serving you.) We schedule appointments on 
business days between 10 a.m. and 4 p.m. In most cases, appointments 
will be available the next business day following the date we receive a 
request.
    NCUA: You may submit comments, identified by number RIN 3133-AD47, 
by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web site: https://www.ncua.gov/news/proposed_regs/
proposed_regs.html. Follow the instructions for submitting comments.
     E-mail: Address to regcomments@ncua.gov. Include ``[Your 
name] Comments on Proposed Rule Part 706'' in the e-mail subject line.
     Facsimile: (703) 518-6319. Use the subject line described 
above for e-mail.
     Mail: Address to Mary Rupp, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, VA 
22314-3428.
     Hand Delivery/Courier: Same as mail address.

FOR FURTHER INFORMATION CONTACT: 
    Board: Benjamin K. Olson, Attorney, or Ky Tran-Trong, Counsel, 
Division of Consumer and Community Affairs, at (202) 452-2412 or (202) 
452-3667, Board of Governors of the Federal Reserve System, 20th and C 
Streets,

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NW., Washington, DC 20551. For users of Telecommunications Device for 
the Deaf (TDD) only, contact (202) 263-4869.
    OTS: April Breslaw, Director, Consumer Regulations, (202) 906-6989; 
Suzanne McQueen, Consumer Regulations Analyst, Compliance and Consumer 
Protection Division, (202) 906-6459; Glenn Gimble, Senior Project 
Manager, Compliance and Consumer Protection Division, (202) 906-7158; 
or Richard Bennett, Senior Compliance Counsel, Regulations and 
Legislation Division, (202) 906-7409, at Office of Thrift Supervision, 
1700 G Street, NW., Washington, DC 20552.
    NCUA: Matthew J. Biliouris, Program Officer, Office of Examination 
and Insurance, (703) 518-6360; or Moisette I. Green or Ross P. Kendall, 
Staff Attorneys, Office of General Counsel, (703) 518-6540, National 
Credit Union Administration, 1775 Duke Street, Alexandria, VA 22314-
3428.

SUPPLEMENTARY INFORMATION: The Federal Reserve Board (Board), the 
Office of Thrift Supervision (OTS), and the National Credit Union 
Administration (NCUA) (collectively, the Agencies) are proposing 
several new provisions intended to protect consumers against unfair or 
deceptive acts or practices with respect to consumer credit card 
accounts and overdraft services for deposit accounts. These proposals 
are promulgated pursuant to section 18(f)(1) of the Federal Trade 
Commission Act (FTC Act), which makes the Agencies responsible for 
prescribing regulations that prevent unfair or deceptive acts or 
practices in or affecting commerce within the meaning of section 5(a) 
of the FTC Act. See 15 U.S.C. 57a(f)(1), 45(a).

I. Background

A. The Board's June 2007 Regulation Z Proposal on Open-End (Non-Home 
Secured) Credit

    On June 14, 2007, the Board requested public comment on proposed 
amendments to the open-end credit (not home-secured) provisions of 
Regulation Z, which implements the Truth in Lending Act (TILA), as well 
as proposed amendments to the corresponding staff commentary to 
Regulation Z. 72 FR 32948 (June 2007 Proposal). The purpose of TILA is 
to promote the informed use of consumer credit by providing disclosures 
about its costs and terms. See 15 U.S.C. 1601 et seq. TILA's 
disclosures differ depending on whether the consumer credit is an open-
end (revolving) plan or a closed-end (installment) loan. The goal of 
the proposed amendments was to improve the effectiveness of the 
disclosures that creditors provide to consumers at application and 
throughout the life of an open-end (not home-secured) account.
    As part of this effort, the Board retained a research and 
consulting firm (Macro International) to assist the Board in conducting 
extensive consumer testing in order to develop improved disclosures 
that consumers would be more likely to pay attention to, understand, 
and use in their decisions, while at the same time not creating undue 
burdens for creditors. While the testing assisted the Board in 
developing improved disclosures, the testing also identified the 
limitations of disclosure, in certain circumstances, as a means of 
enabling consumers to make decisions effectively. See 72 FR at 32948-
52.
    In response to the June 2007 Proposal, the Board received more than 
2,500 comments, including approximately 2,100 comments from individual 
consumers. Comments from consumers, consumer groups, a member of 
Congress, other government agencies, and some creditors were generally 
supportive of the proposed revisions to Regulation Z. A number of 
comments, however, urged the Board to take additional action with 
respect to a number of credit card practices, including late fees and 
other penalties resulting from perceived reductions in the amount of 
time consumers are given to make timely payments, allocation of 
payments to balances with the lowest annual percentage rate, 
application of increased annual percentage rates to pre-existing 
balances, and the so-called two-cycle method of computing interest.

B. The OTS's August 2007 FTC Act Advance Notice of Proposed Rulemaking

    On August 6, 2007, OTS issued an ANPR requesting comment on its 
rules under section 5 of the FTC Act. See 72 FR 43570 (OTS ANPR). The 
purpose of OTS's ANPR was to determine whether OTS should expand on its 
current prohibitions against unfair and deceptive acts or practices in 
its Credit Practices Rule (12 CFR part 535).
    OTS's ANPR discussed a very broad array of issues including:
     The legal background on OTS's authority under the FTC Act 
and the Home Owners' Loan Act (HOLA);
     OTS's existing Credit Practices Rule;
     Possible principles OTS could use to define unfair and 
deceptive acts or practices, including looking to standards the FTC and 
states follow;
     Practices that OTS, individually or on an interagency 
basis, has addressed through guidance;
     Practices that other federal agencies have addressed 
through rulemaking;
     Practices that states have addressed statutorily;
     Acts or practices OTS might target involving products such 
as credit cards, residential mortgages, gift cards, and deposit 
accounts; and
     OTS's existing Advertising Rule (12 CFR 563.27).
    OTS recognized in its ANPR that the financial services industry and 
consumers have benefited from consistency in rules and guidance as the 
federal banking agencies and the NCUA have adopted uniform or very 
similar rules in many areas. 72 FR at 43571. OTS emphasized in its ANPR 
that it would be mindful of the goal of consistent interagency 
standards as it considered issues relating to unfair and deceptive acts 
or practices. Id.
    OTS received 29 comment letters on its ANPR, including thirteen 
from financial institutions and their trade associations, three from 
consumer advocacy organizations, two from members of Congress, one from 
the FTC, and ten from others. Generally speaking, the commenters agreed 
on only one point . . . that OTS should adopt the same principles-based 
standards for unfairness and deception used by the FTC, the other 
federal banking agencies, and the NCUA.
    Financial industry commenters opposed OTS taking any further action 
beyond issuing guidance along those lines. They argued that OTS must 
not create an unlevel playing field for OTS-regulated institutions and 
that uniformity among the federal banking agencies and the NCUA is 
essential. They questioned the need for any new OTS rules. They 
challenged the list of practices OTS had indicated it could consider 
targeting, arguing that the practices listed were neither unfair nor 
deceptive under the FTC standards. They explained the reasons they use 
the particular practices listed and how some benefit consumers. Some 
commenters urged OTS to await the Board's rulemaking under the Home 
Ownership and Equity Protection Act (HOEPA) on unfair or deceptive acts 
or practices and then follow the Board's lead.\1\ They also opposed 
using state laws as a model or converting guidance to rules. Further, 
they opposed OTS expanding its advertising rules.
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    \1\ The Board issued its HOEPA proposed in January 2008. See 73 
FR 1672 (Jan. 9, 2008).
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    In contrast, the consumer commenters urged OTS to move ahead with a 
rule that would combine the FTC's principles-based standards with 
prohibitions on specific practices. They

[[Page 28906]]

urged OTS to ban numerous practices, including but not limited to those 
the ANPR indicated OTS might target. One emphasized that whatever OTS 
does must not preempt state laws on unfair and deceptive acts or 
practices.
    A joint comment from House Financial Services Committee Chairman 
Barney Frank and Subcommittee on Financial Institutions and Consumer 
Credit Chairman Carolyn Maloney urged OTS to proceed promptly to adopt 
comprehensive regulations on unfair and deceptive acts or practices. A 
comment from Senator Carl Levin urged OTS to move ahead with 
rulemaking; he focused his comment on unfair or deceptive credit card 
practices.
    A comment from the FTC summarized the FTC's interest and experience 
with respect to financial services, described how the FTC has used its 
unfairness and deception authority in rulemaking and law enforcement 
actions, and recommended that OTS consider the FTC's experience in 
determining whether to impose rules prohibiting or restricting 
particular acts and practices.
    OTS received comments on several practices relevant to the specific 
credit card practices addressed in today's proposal:
     OTS received comments on the practice of ``universal 
default'' or ``adverse action pricing,'' which the OTS ANPR described 
as imposing an interest rate increase that is triggered by adverse 
information unrelated to the credit card account. The OTS ANPR 
contrasted this practice to long-established risk based pricing. 
Consumer groups supported prohibiting these practices as abusive and 
unfair to consumers. They cited inaccuracies in the credit reporting 
system and disparate racial impact as reasons to prohibit using credit 
reports or credit scores to impose penalty rates. On the other hand, 
several industry commenters defended these practices. They commented 
that credit cards should be priced to reflect their current risk. They 
argued that otherwise, credit card issuers would build a risk premium 
into all rates to the detriment of other customers.
     OTS received comments on the practice of applying payments 
first to balances subject to a lower rate of interest before applying 
payments to balances subject to higher rates of interest, as well as 
the practice of applying payments first to fees, penalties, or other 
charges before applying them to principal and interest. Consumer groups 
supported prohibiting these practices as abusive and unfair to 
consumers. On the other hand, several industry commenters defended 
these practices. They commented that if these practices were prohibited 
fewer products would be available to consumers such as zero or low-cost 
balance transfers. Some commented that applying payments in this manner 
was fundamental and would impose significant implementation costs to 
change.
     OTS received comments on the practice of imposing an over-
the-credit-limit fee that is triggered by the imposition of a penalty 
fee (such as a late fee) and the practice of charging penalty fees in 
consecutive months based on previous late or over-the-credit-limit 
transactions, not on new actions. Consumer groups supported prohibiting 
these practices and prohibiting any over-the-credit-limit fee where the 
creditor approved the transaction or padded the credit limit, as 
abusive and unfair to consumers. On the other hand, several industry 
commenters defended these practices. They commented that the practices 
deter future defaults and are a way to charge a little more to a 
customer who has demonstrated higher risk without permanently raising 
the customer's borrowing costs. They argued that otherwise, these costs 
would be passed on to borrowers who do not go over their credit limit 
or pay late.
    Consumer groups also commented on additional credit card practices 
of concern that are relevant to the practices addressed in today's 
proposal. They urged that payment cut-off times be prohibited and that 
payments be treated as timely if they are postmarked as of the due 
date. They also urged that subprime credit cards be prohibited if less 
than $300 of available credit is left after initial fees are subtracted 
or initial fees total more than 10% of the overall credit line.

C. Related Action by the Agencies

    In addition to receiving information via comments, the Agencies 
have conducted outreach regarding credit card practices, including 
meetings and discussions with consumer group representatives, industry 
representatives, other federal and state banking agencies, and the FTC. 
On April 8, 2008, the Board hosted a forum on credit cards in which 
card issuers and payment network operators, consumer advocates, 
counseling agencies, and other regulatory agencies met to discuss 
relevant industry trends and identify areas that may warrant action or 
further study. Among the topics discussed were the Board's previously 
announced plan to issue a proposal under the FTC Act and the Board's 
June 2007 Proposal. In addition, the Agencies have reviewed consumer 
complaints received by each of the federal banking agencies and several 
studies of the credit card industry.\2\ The Agencies' understanding of 
credit card practices and consumer behavior has also been informed by 
the results of consumer testing conducted on behalf of the Board in 
connection with its June 2007 Proposal under Regulation Z. Based on 
this and other information discussed below, the Agencies have developed 
proposed rules under the FTC Act prohibiting specific unfair acts or 
practices regarding consumer credit card accounts.
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    \2\ See, e.g., Am. Bankers Assoc., Likely Impact of Proposed 
Credit Card Legislation: Survey Results of Credit Card Issuers 
(Spring 2008); Darryl E. Getter, Cong. Research Srvc., The Credit 
Card Market: Recent Trends, Funding Cost Issues, and Repricing 
Practices (Feb. 2008); Tim Westrich & Christian E. Weller, Ctr. for 
Am. Progress, House of Cards: Consumers Turn to Credit Cards Amid 
the Mortgage Crisis, Delaying Inevitable Defaults (Feb. 2008) 
(available at https://www.americanprogress.org/issues/2008/02/pdf/
house_of_cards.pdf); Jose A. Garcia, Demos, Borrowing to Make Ends 
Meet: The Rapid Growth of Credit Card Debt in America (Nov. 2007) 
(available at https://www.demos.org/pubs/borrowing.pdf ); Nat'l 
Consumer Law Ctr., Fee-Harvesters: Low-Credit, High-Cost Cards Bleed 
Consumers (Nov. 2007) (available at https://www.consumerlaw.org/
issues/credit_cards/content/FEE-HarvesterFinal.pdf); Jonathan M. 
Orszag & Susan H. Manning, Am. Bankers Assoc., An Economic 
Assessment of Regulating Credit Card Fees and Interest Rates (Oct. 
2007) (available at https://www.aba.com/aba/documents/press/
regulating_creditcard_fees_interest_rates92507.pdf); Cindy 
Zeldin & Mark Rukavia, Demos, Borrowing to Stay Healthy: How Credit 
Card Debt Is Related to Medical Expenses (Jan. 2007) (available at 
https://www.demos.org/pubs/healthy_web.pdf); U.S. Gov't 
Accountability Office, Credit Cards: Increased Complexity in Rates 
and Fees Heightens Need for More Effective Disclosures to Consumers 
(Sept. 2006) (``GAO Credit Card Report'') (available at https://
www.gao.gov/new.items/d06929.pdf ); Board of Governors of the 
Federal Reserve System, Report to Congress on Practices of the 
Consumer Credit Industry in Soliciting and Extending Credit and 
their Effects on Consumer Debt and Insolvency (June 2006) (available 
at https://www.federalreserve.gov/boarddocs/rptcongress/bankruptcy/
bankruptcybillstudy200606.pdf ); Demos & Ctr. for Responsible 
Lending, The Plastic Safety Net: The Reality Behind Debt in America 
(Oct. 2005) (available at https://www.demos.org/pubs/PSN_low.pdf).
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    Finally, the Agencies have also gathered information from a number 
of recent Congressional hearings on consumer protection issues 
regarding credit cards.\3\ In these hearings, members of Congress heard 
testimony from individual consumers,

[[Page 28907]]

representatives of consumer groups, representatives of financial and 
credit card industry groups, and others. Consumer and community group 
representatives generally testified that certain credit card practices 
(including those discussed above) unfairly increase the cost of credit 
after the consumer has committed to a particular transaction. These 
witnesses further testified that these practices should be prohibited 
because they lead consumers to underestimate the costs of using credit 
cards and that disclosure of these practices under Regulation Z is 
ineffective. Financial services and credit card industry 
representatives agreed that consumers need better disclosures of credit 
card terms but testified that substantive restrictions on specific 
terms would lead to higher interest rates for all borrowers as well as 
reduced access to credit for some. Members of Congress have proposed 
several bills addressing consumer protection issues regarding credit 
cards.\4\
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    \3\ See, e.g., The Credit Cardholders' Bill of Rights: Providing 
New Protections for Consumers: Hearing before the H. Subcomm. on 
Fin. Instits. & Consumer Credit, 110th Cong. (2007); Credit Card 
Practices: Unfair Interest Rate Increases: Hearing before the S. 
Permanent Subcomm. on Investigations, 110th Cong. (2007); Credit 
Card Practices: Current Consumer and Regulatory Issues: Hearing 
before H. Comm. on Fin. Servs., 110th Cong. (2007); Credit Card 
Practices: Fees, Interest Rates, and Grace Periods: Hearing before 
the S. Permanent Subcomm. on Investigations, 110th Cong. (2007).
    \4\ See, e.g., The Credit Card Reform Act of 2008, S. 2753, 
110th Cong. (Mar. 12, 2008); The Credit Cardholders' Bill of Rights 
Act of 2008, H.R. 5244, 110th Cong. (Feb. 7, 2008); The Stop Unfair 
Practices in Credit Cards Act of 2007, H.R. 5280, 110th Cong. (Feb. 
7, 2008); The Stop Unfair Practices in Credit Cards Act of 2007, S. 
1395, 110th Cong. (May 15, 2007); The Universal Default Prohibition 
Act of 2007, H.R. 2146, 110th Cong. (May 3, 2007); The Credit Card 
Accountability Responsibility and Disclosure Act of 2007, H.R. 1461, 
110th Cong. (Mar. 9, 2007).
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D. Agency Actions on Overdraft Services

    Overdraft services are sometimes offered to transaction account 
customers as an alternative to traditional ways of covering overdrafts 
(e.g., overdraft lines of credit or linked accounts). Coverage is 
generally ``automatically'' provided to consumers that meet a 
depository institution's criteria, and the service may extend to check 
as well as other transactions, such as automated teller machine (ATM) 
withdrawals, debit card transactions and automated clearinghouse (ACH) 
transactions. Most institutions state that payment of an overdraft is 
at their discretion. If an overdraft is paid, the consumer will be 
charged a flat fee for each item. A daily fee also may apply for each 
day the account remains overdrawn.
    In response to the increased availability and customer use of these 
overdraft protection services, the FDIC, Board, OCC, OTS, and NCUA 
published guidance on overdraft protection programs in February 
2005.\5\ The Joint Guidance addresses three primary areas--safety and 
soundness considerations, legal risks, and best practices--while the 
OTS guidance focuses on safety and soundness considerations and best 
practices. The best practices focus on the marketing and communications 
that accompany the offering of overdraft services, as well as the 
disclosure and operation of program features, including the provision 
of a consumer election or opt-out of the overdraft service. The 
Agencies have also published a consumer brochure on overdraft 
services.\6\
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    \5\ See Interagency Guidance on Overdraft Protection Programs 
(Joint Guidance), 70 FR 9127 (Feb. 24, 2005) and OTS Guidance on 
Overdraft Protection Programs, 70 FR 8428 (Feb. 18, 2005).
    \6\ The brochure, entitled ``Protecting Yourself from Overdraft 
and Bounced-Check Fees,'' can be found at: https://
www.federalreserve.gov/pubs/bounce/default.htm.
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    In May 2005, the Board separately issued revisions to Regulation DD 
and the staff commentary pursuant to its authority under the Truth in 
Savings Act (TISA) to address concerns about the uniformity and 
adequacy of institutions' disclosure of overdraft fees generally, and 
to address concerns about advertised overdraft services in 
particular.\7\ The goal of the final rule was to improve the uniformity 
and adequacy of disclosures provided to consumers about overdraft and 
returned-item fees to assist consumers in better understanding the 
costs associated with the payment of overdrafts. In addition, the final 
rule addressed some of the Board's concerns about institutions' 
marketing practices with respect to overdraft services.
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    \7\ 70 FR 29582 (May 24, 2005). A substantively similar rule 
applying to credit unions was issued separately by the NCUA. 71 FR 
24568 (Apr. 26, 2006). The NCUA issued an interim final rule in 
2005. 70 FR 72895 (Dec. 8, 2005).
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    In addition to regulatory actions, there has also been significant 
Congressional interest in overdraft services, with legislation 
introduced seeking to curb some of the perceived abusive practices 
associated with these services. In June 2007, a hearing was held to 
discuss the proposed legislation with testimony from consumer advocates 
and industry representatives.\8\
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    \8\ H.R. 946, ``The Consumer Overdraft Protection Fair Practices 
Act.'' See also Overdraft Protection: Fair Practices for Consumers: 
Hearing Before the House Subcomm. on Financial Institutions and 
Consumer Credit, 110th Cong. (2007).
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II. Statutory Authority Under the Federal Trade Commission Act To 
Address Unfair or Deceptive Acts or Practices

A. Rulemaking and Enforcement Authority Under the FTC Act

    Section 18(f)(1) of the FTC Act provides that the Board (with 
respect to banks), OTS (with respect to savings associations), and the 
NCUA (with respect to federal credit unions) are responsible for 
prescribing ``regulations defining with specificity * * * unfair or 
deceptive acts or practices, and containing requirements prescribed for 
the purpose of preventing such acts or practices.'' 15 U.S.C. 
57a(f)(1).\9\
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    \9\ The FTC Act refers to OTS's predecessor agency, the Federal 
Home Loan Bank Board (FHLBB), rather than to OTS. However, in 
section 3(e) of HOLA, Congress transferred this rulemaking power of 
the FHLBB, among others, to the Director of OTS. 12 U.S.C. 1462a(e). 
The FTC Act refers to ``savings and loan institutions'' in some 
provisions and ``savings associations'' in other provisions. 
Although ``savings associations'' is the term currently used in the 
HOLA, see, e.g., 12 U.S.C. 1462(4), the terms ``savings and loan 
institutions'' and ``savings associations'' can be and are used 
interchangeably. OTS has determined that the outdated language does 
not affect OTS's rulemaking authority under the FTC Act.
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    The FTC Act allocates responsibility for enforcing compliance with 
regulations prescribed under section 18 with respect to banks, savings 
associations, and federal credit unions among the Board, OTS, and NCUA, 
as well as the Office of the Comptroller of the Currency (OCC) and the 
Federal Deposit Insurance Corporation (FDIC). See 15 U.S.C. 57a(f)(2)-
(4). The FTC Act grants the FTC rulemaking and enforcement authority 
with respect to other persons and entities, subject to certain 
exceptions and limitations. See 15 U.S.C. 45(a)(2); 15 U.S.C. 57a(a). 
The FTC Act, however, sets forth specific rulemaking procedures for the 
FTC that do not apply to the Agencies. See 15 U.S.C. 57a(b)-(e), (g)-
(j); 15 U.S.C. 57a-3.

B. Standards for Unfairness Under the FTC Act

    Congress has codified standards developed by the Federal Trade 
Commission (FTC) for the FTC to use in determining whether acts or 
practices are unfair under section 5(a) of the FTC Act.\10\ 
Specifically, the FTC Act provides that the FTC has no authority to 
declare an act or practice is unfair unless: (1) It causes or is likely 
to cause substantial injury to consumers; (2) the injury is not 
reasonably avoidable by consumers themselves; and (3) the injury is not 
outweighed by countervailing benefits to consumers or to competition. 
In addition, the FTC may consider established public policy, but public 
policy may not serve as the primary basis for its determination that an 
act or practice is unfair. See 15 U.S.C. 45(n).
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    \10\ See 15 U.S.C. 45(n); FTC Policy Statement on Unfairness, 
Letter from the FTC to the Hon. Wendell H. Ford and the Hon. John C. 
Danforth, S. Comm. on Commerce, Science & Transp. (Dec. 17, 1980) 
(FTC Policy Statement on Unfairness) (available at https://
www.ftc.gov/bcp/policystmt/ad-unfair.htm).

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[[Page 28908]]

    In proposing rules under section 18(f)(1) of the FTC Act, the 
Agencies have applied the statutory elements consistent with the 
standards articulated by the FTC. The Board, FDIC, and OCC have issued 
guidance generally adopting these standards for purposes of enforcing 
the FTC Act's prohibition on unfair or deceptive acts or practices.\11\ 
Although the OTS has not taken similar action in generally applicable 
guidance,\12\ the commenters on OTS's ANPR who addressed this issue 
overwhelmingly urged OTS to be consistent with the FTC's standards for 
unfairness.
---------------------------------------------------------------------------

    \11\ See Board and FDIC, Unfair or Deceptive Acts or Practices 
by State-Chartered Banks (Mar. 11, 2004) (available at https://
www.federalreserve.gov/boarddocs/press/bcreg/2004/20040311/
attachment.pdf ); OCC Advisory Letter 2002-3, Guidance on Unfair or 
Deceptive Acts or Practices (Mar. 22, 2002) (available at https://
www.occ.treas.gov/ftp/advisory/2002-3.doc).
    \12\ See OTS ANPR, 72 FR at 43573.
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    According to the FTC, an unfair act or practice will almost always 
represent a market failure or imperfection that prevents the forces of 
supply and demand from maximizing benefits and minimizing costs.\13\ 
Not all market failures or imperfections constitute unfair acts or 
practices, however. Instead, the central focus of the FTC's unfairness 
analysis is whether the act or practice causes substantial consumer 
injury.\14\
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    \13\ Statement of Basis and Purpose and Regulatory Analysis for 
Federal Trade Commission Credit Practices Rule (Statement for FTC 
Credit Practices Rule), 49 FR 7740, 7744 (Mar. 1, 1984).
    \14\ Id. at 7743.
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    First, the FTC has stated that a substantial consumer injury 
generally consists of monetary, economic, or other tangible harm.\15\ 
Trivial or speculative harms do not constitute substantial consumer 
injury.\16\ Consumer injury may be substantial, however, if it imposes 
a small harm on a large number of consumers or if it raises a 
significant risk of concrete harm.\17\
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    \15\ See id.; FTC Policy Statement on Unfairness at 3.
    \16\ See Statement for FTC Credit Practices Rule, 49 FR at 7743 
(``[E]xcept in aggravated cases where tangible injury can be clearly 
demonstrated, subjective types of harm--embarrassment, emotional 
distress, etc.--will not be enough to warrant a finding of 
unfairness.''); FTC Unfairness Policy Statement at 3 (``Emotional 
impact and other more subjective types of harm * * * will not 
ordinarily make a practice unfair.'').
    \17\ See Statement for FTC Credit Practices Rules, 49 FR at 
7743; FTC Policy Statement on Unfairness at 3 & n.12.
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    Second, the FTC has stated that an injury is not reasonably 
avoidable when consumers are prevented from effectively making their 
own decisions about whether to incur that injury.\18\ The marketplace 
is normally expected to be self-correcting because consumers are relied 
upon to survey the available alternatives, choose those that are most 
desirable, and avoid those that are inadequate or unsatisfactory.\19\ 
Accordingly, the test is not whether the consumer could have made a 
wiser decision but whether an act or practice unreasonably creates or 
takes advantage of an obstacle to the consumer's ability to make that 
decision freely.\20\
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    \18\ See FTC Policy Statement on Unfairness at 3.
    \19\ See Statement for FTC Credit Practices Rule, 49 FR at 7744 
(``Normally, we can rely on consumer choice to govern the 
market.''); FTC Policy Statement on Unfairness at 3.
    \20\ See Statement for FTC Credit Practices Rule, 49 FR at 7744 
(``In considering whether an act or practice is unfair, we look to 
whether free market decisions are unjustifiably hindered.''); FTC 
Policy Statement on Unfairness at 3 & n.19 (``In some senses any 
injury can be avoided--for example, by hiring independent experts to 
test all products in advance, or by private legal actions for 
damages--but these courses may be too expensive to be practicable 
for individual consumers to pursue.'').
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    Third, the FTC has stated that the act or practice causing the 
injury must not also produce benefits to consumers or competition that 
outweigh the injury.\21\ Generally, it is important to consider both 
the costs of imposing a remedy and any benefits that consumers enjoy as 
a result of the practice.\22\ The FTC has stated that both consumers 
and competition benefit from prohibitions on unfair or deceptive acts 
or practices because prices may better reflect actual transaction costs 
and merchants who do not rely on unfair or deceptive acts or practices 
are no longer required to compete with those who do.\23\
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    \21\ See Statement for FTC Credit Practices Rule, 49 FR at 7744; 
FTC Policy Statement on Unfairness at 3; see also S. Rep. 103-130, 
at 13 (1994), reprinted in 1994 U.S.C.C.A.N. 1776, 1788 (``In 
determining whether a substantial consumer injury is outweighed by 
the countervailing benefits of a practice, the Committee does not 
intend that the FTC quantify the detrimental and beneficial effects 
of the practice in every case. In many instances, such a numerical 
benefit-cost analysis would be unnecessary; in other cases, it may 
be impossible. This section would require, however, that the FTC 
carefully evaluate the benefits and costs of each exercise of its 
unfairness authority, gathering and considering reasonably available 
evidence.'').
    \22\ See FTC Public Comment on OTS-2007-0015, at 6 (Dec. 12, 
2007) (available at https://www.ots.treas.gov/docs/9/963034.pdf ).
    \23\ See FTC Public Comment on OTS-2007-0015, at 8 (citing 
Preservation of Consumers' Claims and Defenses, Statement of Basis 
and Purpose, 40 FR 53506, 53523 (Nov. 18, 1975) (codified at 16 CFR 
433)); see also FTC Policy Statement on Deception, Letter from the 
FTC to the Hon. John H. Dingell, H. Comm. on Energy & Commerce (Oct. 
14, 1983) (FTC Policy Statement on Deception) (available at https://
www.ftc.gov/bcp/policystmt/ad-decept.htm) (``Deceptive practices 
injure both competitors and consumers because consumers who 
preferred the competitor's product are wrongly diverted.'').
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C. Standards for Deception Under the FTC Act

    The FTC has also adopted standards for determining whether an act 
or practice is deceptive under the FTC Act.\24\ Under the FTC's 
standards, an act or practice is deceptive where: (1) There is a 
representation or omission of information that is likely to mislead 
consumers acting reasonably under the circumstances; and (2) that 
information is material to consumers.\25\ Although these standards have 
not been codified, they have been applied by numerous courts.\26\ 
Accordingly, in proposing rules under section 18(f)(1) of the FTC Act, 
the Agencies have applied the standards articulated by the FTC for 
determining whether an act or practice is deceptive.\27\
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    \24\ FTC Policy Statement on Deception.
    \25\ Id. at 1-2. The FTC views deception as a subset of 
unfairness but does not apply the full unfairness analysis because 
deception is very unlikely to benefit consumers or competition and 
consumers cannot reasonably avoid being harmed by deception. Id.
    \26\ See, e.g., FTC v. Tashman, 318 F.3d 1273, 1277 (11th Cir. 
2003); FTC v. Gill, 265 F.3d 944, 950 (9th Cir. 2001); FTC v. QT, 
Inc., 448 F. Supp. 2d 908, 957 (N.D. Ill. 2006); FTC v. Think 
Achievement, 144 F. Supp. 2d 993, 1009 (N.D. Ind. 2000); FTC v. 
Minuteman Press, 53 F. Supp. 2d 248, 258 (E.D.N.Y. 1998).
    \27\ As noted above, the Board, FDIC, and OCC have issued 
guidance generally adopting these standards for purposes of 
enforcing the FTC Act's prohibition on unfair or deceptive acts or 
practices. As with the unfairness standard, comments on OTS's ANPR 
addressing this issue overwhelmingly urged the OTS to adopt the same 
deception standard as the FTC.
---------------------------------------------------------------------------

    A representation or omission is deceptive if the overall net 
impression created is likely to mislead consumers.\28\ The FTC conducts 
its own analysis to determine whether a representation or omission is 
likely to mislead consumers acting reasonably under the 
circumstances.\29\ When evaluating the reasonableness of an 
interpretation, the FTC considers the sophistication and understanding 
of consumers in the group to whom the act or practice is targeted.\30\ 
If a representation is susceptible to more than one reasonable 
interpretation, and if one such interpretation is misleading, then the 
representation is deceptive even if other, non-deceptive 
interpretations are possible.\31\
---------------------------------------------------------------------------

    \28\ See, e.g., FTC v. Cyberspace.com, 453 F.3d 1196, 1200 (9th 
Cir. 2006); Gill, 265 F.3d at 956; Removatron Int'l Corp. v. FTC, 
884 F.2d 1489, 1497 (1st Cir. 1989).
    \29\ See FTC v. Kraft, Inc., 970 F.2d 311, 319 (7th Cir. 1992); 
QT, Inc., 448 F. Supp. 2d at 958.
    \30\ FTC Policy Statement on Deception at 3.
    \31\ Id.
---------------------------------------------------------------------------

    A representation or omission is material if it is likely to affect 
the consumer's conduct or decision regarding a product or service.\32\ 
Certain types of claims are presumed to be material, including express 
claims and

[[Page 28909]]

claims regarding the cost of a product or service.\33\
---------------------------------------------------------------------------

    \32\ Id. at 2, 6-7.
    \33\ See FTC Public Comment on OTS-2007-0015, at 21; FTC Policy 
Statement on Deception at 6; see also FTC v. Pantron I Corp., 33 
F.3d 1088, 1095-96 (9th Cir. 1994); In re Peacock Buick, 86 F.T.C. 
1532, 1562 (1975), aff'd 553 F.2d 97 (4th Cir. 1977).
---------------------------------------------------------------------------

D. Choice of Remedy

    The Agencies have wide latitude to determine what remedy is 
necessary to prevent an unfair or deceptive act or practice so long as 
that remedy has a reasonable relation to the act or practice.\34\ Thus, 
the Agencies are not required to adopt the most restrictive means of 
preventing the act or practice, nor are they required to adopt the 
least restrictive means.
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    \34\ See Am. Fin. Servs. Assoc. v. FTC, 767 F.2d 957, 988-89 (DC 
Cir. 1985) (citing Jacob Siegel Co. v. FTC, 327 U.S. 608, 612-13 
(1946)).
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III. Summary of Proposed Revisions

    In order to best ensure that all entities that offer the products 
addressed in the proposed rule are treated in a like manner, the Board, 
OTS, and NCUA have joined together to issue today's proposal. This 
interagency approach is consistent with section 303 of the Riegle 
Community Development and Regulatory Improvement Act of 1994. See 12 
U.S.C. 4803. Section 303(a)(3), 12 U.S.C. 4803(a)(3), directs the 
federal banking agencies to work jointly to make uniform all 
regulations and guidelines implementing common statutory or supervisory 
policies. In today's proposal, two federal banking agencies--the Board 
and OTS--are primarily implementing the same statutory provision, 
section 18(f) of the FTC Act, as is the NCUA. Accordingly, the Agencies 
have endeavored to propose rules that are as uniform as possible. The 
Agencies also consulted with the two other federal banking agencies, 
OCC and FDIC, as well as with the FTC.
    The effort to achieve an even playing field is also furthered by 
the Agencies' focus on unfair and deceptive acts or practices involving 
credit cards and overdraft services, which are generally provided only 
by depository institutions such as banks, savings associations, and 
credit unions. The Agencies recognize that state-chartered credit 
unions and any entities providing consumer credit card accounts 
independent of a depository institution fall within the FTC's 
jurisdiction and therefore would not be subject to these rules. The 
Agencies believe, however, that FTC-regulated entities represent a 
small percentage of the market for consumer credit card accounts and 
overdraft services. For OTS, addressing certain deceptive credit card 
practices in today's proposal, rather than through an interpretation or 
expansion of its Advertising Rule, also fosters consistency because the 
other Agencies do not have comparable advertising regulations.

Credit Practices Rule

    The Agencies are proposing to make non-substantive, organizational 
changes to the Credit Practices Rule. Specifically, in order to avoid 
repetition, the Agencies would move the statement of authority, 
purpose, and scope out of the Credit Practices Rule and revise it to 
apply not only to the Credit Practices Rule but also to the proposed 
rules regarding consumer credit card accounts and overdraft services. 
OTS and NCUA have made additional, non-substantive changes to the 
organization of their versions of the Credit Practices Rule.

Consumer Credit Card Accounts

    The Agencies are proposing seven provisions under the FTC Act 
regarding consumer credit card accounts. These provisions are intended 
to ensure that consumers have the ability to make informed decisions 
about the use of credit card accounts without being subjected to unfair 
or deceptive acts or practices.
    First, institutions would be prohibited from treating a payment as 
late for any purpose unless consumers have been provided a reasonable 
amount of time to make that payment. The proposed rule would create a 
safe harbor for institutions that adopt reasonable procedures designed 
to ensure that periodic statements (which provide payment information) 
are mailed or delivered at least 21 days before the payment due date. 
Elsewhere in today's Federal Register, the Board has made two 
additional proposals under Regulation Z that would further ensure that 
consumers receive a reasonable amount of time to make payment. 
Specifically, the Board is proposing to revise 12 CFR 226.10(b) to 
prohibit creditors from setting a cut-off time for mailed payments that 
is earlier than 5 p.m. at the location specified by the creditor for 
receipt of such payments. The Board is also proposing to add 12 CFR 
226.10(d), which would require that, if the due date for payment is a 
day on which the U.S. Postal Service does not deliver mail or the 
creditor does not accept payment by mail, the creditor may not treat a 
payment received by mail the next business day as late for any purpose.
    Second, when different annual percentage rates apply to different 
balances, institutions would be required to allocate amounts paid in 
excess of the minimum payment using one of three specified methods or a 
method that is no less beneficial to consumers. The specified methods 
are applying the entire amount first to the balance with the highest 
annual percentage rate, splitting the amount equally among the 
balances, or splitting the amount pro rata among the balances. 
Furthermore, when an account has a discounted promotional rate balance 
or a balance on which interest is deferred, institutions would be 
required to give consumers the full benefit of that discounted rate or 
deferred interest plan by allocating amounts in excess of the minimum 
payment first to balances on which the rate is not discounted or 
interest is not deferred (except, in the case of a deferred interest 
plan, for the last two billing cycles during which interest is 
deferred). Institutions would also be prohibited from denying consumers 
a grace period on purchases (if one is offered) solely because they 
have not paid off a balance at a promotional rate or a balance on which 
interest is deferred.
    Third, institutions would be prohibited from increasing the annual 
percentage rate on an outstanding balance. This prohibition would not 
apply, however, where a variable rate increases due to the operation of 
an index, where a promotional rate has expired or is lost (provided the 
rate is not increased to a penalty rate), or where the minimum payment 
has not been received within 30 days after the due date.
    Fourth, institutions would be prohibited from assessing a fee if a 
consumer exceeds the credit limit on an account solely due to a hold 
placed on the available credit. If, however, the actual amount of the 
transaction would have exceeded the credit limit, then a fee may be 
assessed.
    Fifth, institutions would be prohibited from imposing finance 
charges on balances based on balances for days in billing cycles that 
precede the most recent billing cycle. The proposed rule would prohibit 
institutions from reaching back to earlier billing cycles when 
calculating the amount of interest charged in the current cycle, a 
practice that is sometimes referred to as two-or double-cycle billing.
    Sixth, institutions would be prohibited from financing security 
deposits or fees for the issuance or availability of credit (such as 
account-opening fees or membership fees) if those deposits or fees 
utilize the majority of the available credit on the

[[Page 28910]]

account. The proposal would also require security deposits and fees 
exceeding 25 percent of the credit limit to be spread over the first 
year, rather than charged as a lump sum during the first billing cycle. 
In addition, elsewhere in today's Federal Register, the Board is 
proposing to revise Regulation Z to provide that a creditor that 
collects or obtains a consumer's agreement to pay a fee before 
providing account-opening disclosures must permit that consumer to 
reject the plan after receiving the disclosures and, if the consumer 
does so, must refund any fee collected or take any other action 
necessary to ensure the consumer is not obligated to pay the fee.
    Seventh, institutions making firm offers of credit advertising 
multiple annual percentage rates or credit limits would be required to 
disclose in the solicitation the factors that determine whether a 
consumer will qualify for the lowest annual percentage rate and highest 
credit limit advertised.

Overdraft Services

    The Agencies are proposing two provisions prohibiting unfair acts 
or practices related to overdraft services in connection with consumer 
deposit accounts. The proposed provisions are intended to ensure that 
consumers understand overdraft services and have the choice to avoid 
the associated costs where such services do not meet their needs.
    The first would provide that it is an unfair act or practice for an 
institution to assess a fee or charge on a consumer's account for 
paying an overdraft unless the institution provides the consumer with 
the right to opt out of the institution's payment of overdrafts and a 
reasonable opportunity to exercise the opt out, and the consumer does 
not opt out. The proposed opt-out right would apply to all transactions 
that overdraw an account regardless of whether the transaction is, for 
example, a check, an ACH transaction, an ATM withdrawal, a recurring 
payment, or a debit card purchase at a point of sale.
    The second proposal would prohibit certain acts or practices 
associated with assessing overdraft fees in connection with debit 
holds. Specifically, the proposal would prohibit an institution from 
assessing an overdraft fee if the overdraft is caused solely by a hold 
placed on funds that exceeds the actual purchase amount of the 
transaction, unless this purchase amount would have caused the 
overdraft.
    Elsewhere in today's Federal Register, the Board is also proposing 
to address potentially misleading balance disclosures by generally 
requiring depository institutions to provide only balances that reflect 
the consumer's own funds (without funds added by the institution to 
cover overdrafts) in response to consumer inquiries received through an 
automated system such as a telephone response system, ATM, or an 
institution's Web site.

IV. Section-by-Section Analysis of the Credit Practices Subpart

    On March 1, 1984, the FTC adopted its Credit Practices Rule 
pursuant to its authority under the FTC Act to promulgate rules that 
define and prevent unfair or deceptive acts or practices in or 
affecting commerce.\35\ The FTC Act provides that, whenever the FTC 
promulgates a rule prohibiting specific unfair or deceptive practices, 
the Board, OTS (as the successor to the Federal Home Loan Bank Board), 
and NCUA must adopt substantially similar regulations imposing 
substantially similar requirements with respect to banks, savings and 
loan institutions, and federal credit unions within 60 days of the 
effective date of the FTC's rule unless the agency finds that such acts 
or practices by banks, savings associations, or federal credit unions 
are not unfair or deceptive or the Board finds that the adoption of 
similar regulations for banks, savings associations, or federal credit 
unions would seriously conflict with essential monetary and payment-
systems policies of the Board. The Agencies have adopted rules 
substantially similar to the FTC's Credit Practices Rule.\36\
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    \35\ See 42 FR 7740 (Mar. 1, 1984) (codified at 16 CFR part 
444); see also 15 U.S.C. 57a(a)(1)(B), 45(a)(1).
    \36\ See 12 CFR part 227, subpart B (Board); 12 CFR 535 (OTS); 
12 CFR 706 (NCUA).
---------------------------------------------------------------------------

    As part of this rulemaking, the Agencies are proposing to 
reorganize aspects of their respective Credit Practices Rules. Although 
the Agencies have approached these revisions differently in some 
respects, the Agencies do not intend to create any substantive 
difference among their respective rules.

Proposal

Subpart A--General Provisions

    Subpart A contains general provisions that apply to the entire 
part. As discussed below, there are some differences among the 
Agencies' proposals.

----.1 Authority, Purpose, and Scope 37
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    \37\ The Board, OTS, and NCUA would place the proposed rules in, 
respectively, parts 227, 535, and 706 of title 12 of the Code of 
Federal Regulations. For each of reference, the discussion in this 
Supplementary Information uses the shared numerical suffix of each 
agency's rule. For example, proposed Sec.  ----.1 would be codified 
at 12 CFR 227.1 by the Board, 12 CFR 535.1 by OTS, and 12 CFR 706.1 
by NCUA.
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    The provisions in proposed Sec.  ----.1 are largely drawn from the 
current authority, purpose, and scope provisions in the Agencies' 
respective Credit Practices Rules.
----.1(a) Authority
    Proposed Sec.  ----.1(a) provides that the Agencies have issued 
this part under section 18(f) of the FTC Act. In OTS's proposed rule, 
this provision further provides that OTS is also exercising its 
authority under various provisions of HOLA, although the FTC Act is the 
primary authority for OTS's rule.
----.1(b) Purpose
    Proposed Sec.  ----.1(b) provides that the purpose of the part is 
to prohibit unfair or deceptive acts or practices in violation of 
section 5(a)(1) of the FTC Act, 15 U.S.C. 45(a)(1). It further provides 
that the part contains provisions that define and set forth 
requirements prescribed for the purpose of preventing specific unfair 
or deceptive acts or practices. The Agencies note that these provisions 
define and prohibit specific unfair or deceptive acts or practices 
within a single provision, rather than setting forth the definitions 
and remedies separately. Finally, it clarifies that the prohibitions in 
subparts B, C, and D do not limit the Agencies' authority to enforce 
the FTC Act with respect to other unfair or deceptive acts or 
practices.
----.1(c) Scope
    Proposed Sec.  ----.1(c) describes the scope of each agency's 
rules. The Agencies have each tailored this paragraph to describe those 
entities to which their part applies. The Board's provision states that 
its rules would apply to banks and their subsidiaries, except savings 
associations as defined in 12 U.S.C. 1813(b). The Board's provision 
further explains that enforcement of its rules is allocated among the 
Board, OCC, and FDIC, depending on the type of institution. This 
provision has been updated to reflect intervening changes in law. The 
Board's Staff Guidelines to the Credit Practices Rule would be revised 
to remove questions 11(c)-1 and 11(c)-2 and the substance of the 
Board's answers would be updated and published as commentary under 
proposed Sec.  227.1(c). See proposed Board comments 227.1(c)-1 and -2. 
The remaining questions and answers in the

[[Page 28911]]

Board's Staff Guidelines would remain in place.
    OTS's provision would state that its rules apply to savings 
associations and subsidiaries owned in whole or in part by a savings 
association. OTS also enforces compliance with respect to these 
institutions. The entire OTS part would have the same scope. OTS notes 
that this scope is somewhat different from the scope of its existing 
Credit Practices Rule. OTS's Credit Practices Rule currently applies to 
savings associations and service corporations that are wholly owned by 
one or more savings associations, which engage in the business of 
providing credit to consumers. Since the proposed rules would cover 
more practices than consumer credit, the reference to engaging in the 
business of providing credit to consumers would be deleted. The 
reference to wholly owned service corporations would be updated to 
refer instead to subsidiaries, to reflect the current terminology used 
in OTS's Subordinate Organizations Rule.\38\
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    \38\ 12 CFR part 559. OTS has substantially revised this rule 
since promulgating its Credit Practices Rule. See, e.g., 
Subsidiaries and Equity Investments: Final Rule, 61 FR 66561 (Dec. 
18, 1996).
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    The NCUA's provision would state that its rules apply to federal 
credit unions.
227.1(d) Definitions
    Proposed Sec.  ----.1(d) of the Board's rule would clarify that, 
unless otherwise noted, the terms used in the Board's proposed Sec.  --
--.1(c) that are not defined in the FTC Act or in section 3(s) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813(s)) have the meaning 
given to them in section 1(b) of the International Banking Act of 1978 
(12 U.S.C. 3101). OTS and NCUA do not have a need for a comparable 
subsection so none is included in their proposed rules.

227.2 Consumer-Complaint Procedure

    In order to accommodate the revisions discussed above, the Board 
would consolidate the consumer complaint provisions currently located 
in 12 CFR 227.1 and 227.2 in proposed Sec.  227.2. OTS and NCUA do not 
currently have and do not propose to add comparable provisions.

Subpart B--Credit Practices

    Each agency would place the substantive provisions of their current 
Credit Practices Rule in Subpart B. In order to retain the current 
numbering in its Credit Practices Rule, the Board would reserve 12 CFR 
227.11, which currently contains the Board's statement of authority, 
purpose, and scope. The other provisions of the Board's Credit 
Practices Rule (Sec. Sec.  227.12 through 227.16) would not be revised.
    OTS is proposing the following notable changes to its version of 
Subpart B:

Section 535.11 Definitions (Existing Section 535.1)

    OTS would delete the definitions of ``Act,'' ``creditor,'' and 
``savings association'' as unnecessary. For the convenience of the 
user, OTS would incorporate the definition of ``consumer credit'' into 
this section, instead of using a cross-reference to a definition 
contained in a different part of OTS's rules. OTS would move the 
definition of ``cosigner'' to the section on unfair or deceptive 
cosigner practices. OTS would merge the definition of ``debt'' into the 
definition of ``collecting a debt'' contained in the section on late 
charges. OTS would move the definition of ``household goods'' to the 
section on unfair credit contract provisions.

Section 535.12 Unfair Credit Contract Provisions (Existing Section 
535.2)

    OTS would revise the title of this section to reflect its focus on 
credit contract provisions. OTS would delete the obsolete reference to 
extensions of credit after January 1, 1986.

Section 535.13 Unfair or Deceptive Cosigner Practices (Existing Section 
535.3)

    OTS would delete the obsolete reference to extensions of credit 
after January 1, 1986. OTS would substitute the term ``substantially 
similar'' for the term ``substantially equivalent'' in referencing a 
document that equates to the cosigner notice for consistency with the 
Board's rule and to avoid confusion with the term of art ``substantial 
equivalency'' used in the section on state exemptions. OTS would also 
clarify that the date that may be stated on the cosigner notice is the 
date of the transaction. NCUA would make similar amendments to its rule 
in Sec.  706.13 (existing Sec.  706.3).

Section 535.14 Unfair Late Charges (Existing Section 535.4)

    OTS would revise the title of this section to reflect its focus on 
unfair late charges. OTS would delete the obsolete reference to 
extensions of credit after January 1, 1986. Similarly, NCUA would 
propose revisions to Sec.  706.14 (existing Sec.  706.4).

Section 535.15 State Exemptions (Existing Section 535.5)

    OTS would revise the subsection on delegated authority to update 
the current title of the OTS official with delegated a