The Federal Reserve Board (Board) is repealing Regulation AA, which includes the Board's credit practices rule, effective March 21, 2016. The Board is also proposing to repeal its Regulation C, which historically implemented the Home Mortgage Disclosure Act (HMDA).

The repeal of Regulation AA results from the Dodd-Frank Act's repeal of Section 18(f)(1) of the Federal Trade Commission (FTC) Act. Section 18(f)(1) gave rulewriting authority to the Board and directed it to issue rules applicable to banks that were substantially similar to rules issued by the FTC to prohibit unfair or deceptive acts or practices by nonbanks. (The FTC's credit practices rule continues to be effective. However, the credit practices rules of the other banking agencies with Section 18(f)(1) rulewriting authority (Office of Thrift Supervision and National Credit Union Administration) were previously repealed.)

Regulation AA applied to all banks, other than federal savings associations, federal savings banks, and state savings associations and was patterned on the FTC’s credit practices rule (FTC Rule). The Board adopted Regulation AA in 1985 in reliance on the FTC’s findings that the prohibited practices were unfair or deceptive. Such prohibited practices are: using certain provisions in consumer contracts such as confessions of judgment and security interests in household goods (other than purchase money security interests); misrepresenting the nature and extent of a cosigner’s liability and failing to inform a cosigner of the nature of such liability prior to becoming obligated; and pyramiding late fees.

Unlike its authority for other consumer financial protection regulations, the Board's Regulation AA authority did not transfer to the Consumer Financial Protection Bureau (CFPB) under the Dodd-Frank Act. However, Dodd-Frank gave the CFPB independent authority to issue rules prohibiting unfair, deceptive, or abusive acts or practices. In addition, the Board retains its authority to enforce the prohibition of unfair or deceptive acts or practices in Section 5 of the FTC Act. In the supplementary information accompanying its final rule repealing Regulation AA, the Board warned that it "will continue to monitor developments with respect to unfair or deceptive acts or practices and assess whether to issue additional supervisory guidance."

This warning follows an earlier warning issued by the Board, CFPB, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and the National Credit Union Administration (Agencies) in August 2014 interagency guidance (Guidance) that the repeal of Regulation AA and credit practices rules of other Agencies ''should not be construed as a determination by the Agencies that the credit practices described in these former regulations are permissible.'' The Guidance stated that the Agencies ''believe that, depending on the facts and circumstances, if banks, savings associations and Federal credit unions engage in the unfair or deceptive practices described in the former credit practices rules, such conduct may violate the prohibition against unfair or deceptive practices in Section 5 of the FTC Act and Sections 1031 and 1036 of the Dodd-Frank Act. The Agencies may determine that statutory violations exist even in the absence of a specific regulation governing the conduct.''

The Board is also proposing to repeal its Regulation C, which historically implemented HMDA. The proposal resulted from the Dodd-Frank Act's transfer of the Board's HMDA rulemaking authority to the CFPB. The CFPB has issued its own Regulation C to implement HMDA. Comments on the proposal are due on or before April 22, 2016.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). Ballard Spahr's Mortgage Banking Group combines broad regulatory experience assisting clients in both the residential and commercial mortgage industries with formidable skill in litigation and depth in enforcement actions and transactions.


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