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09.04.2014 FRB Issues Proposed Rules to Repeal Regulation AA, as Required by Dodd-Frank By: Edmund D. "Ed" Harllee

On Wednesday, August 27, the Board of Governors of the Federal Reserve System (the “Board”) published in the Federal Register proposed rules and a request for public comment to repeal its Regulation AA (Unfair or Deceptive Acts or Practices).

The Federal Trade Commission Act (the “FTC Act”) directs the Federal Trade Commission (the “FTC”) to promulgate rules that define and proscribe certain unfair or deceptive acts or practices regarding credit extended by persons other than banks, savings and loans and Federal credit unions.  The FTC issued its “Credit Practices Rule” in 1984 in compliance with this requirement.  The FTC Act also directed the Board to promulgate similar rules for banks, and, in 1985, the Board adopted its Regulation AA (12 CFR Part 227).   

In general, Regulation AA prohibits such lending practices as confession of judgment, assignment of wages, certain security interests in household goods and waivers of exemptions, in consumer credit.  The regulation also regulates the liability of co-signers and the pyramiding of late fees in these types of transactions. There are also consumer complaint procedures in the regulation.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) transferred rulemaking authority for “Federal consumer financial laws” from the Board to the Consumer Financial Protection Bureau (the “Bureau”), but the FTC Act was not included in the list of “Federal consumer financial laws” in the Dodd-Frank Act.  In addition, the Dodd-Frank Act repealed the rulemaking authority of the Board under the FTC Act.  The result was that the rulemaking authority of the Board with respect to the FTC Act did not transfer to the Bureau, and neither the Board nor the Bureau now has such authority with respect to the FTC Act.  Since the Board’s authority was repealed by the Dodd-Frank Act, it now proposes to repeal its regulation.

The Board continues to have supervisory and enforcement authority over unfair or deceptive acts or practices under the FTC Act and the Dodd-Frank Act.  Concurrent with this repeal of Regulation AA, the federal banking agencies are issuing interagency guidelines to clarify that a violation of any of the former Regulation AA requirements could be considered a violation of the statutory provisions regarding unfair credit practices, even though there is no specific regulation.

The comment period ends October 27, 2014.

Banks and others may comment, and should do so if they think that these changes, or the specifics of the implementation of these changes as published in the notice, will have an adverse effect on their businesses.  Comments must be identified by Docket Number R-1490 and RIN 7100 AE-19.  The options available for sending the comments are set forth in the notice, which is published in the Federal Register of August 27, 2014 (Volume 79, No. 166) at page 51115.

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