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Agencies
Propose Rule on Unfair and Deceptive Practices
The National
Credit Union Administration (NCUA) has joined with the Federal
Reserve Board (FRB) and the Office
of Thrift Supervision (OTS) in proposing to exercise their
authority under 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 card accounts and
overdraft services for deposit accounts.
Background
The FRB issued a request for comment on
proposed amendments to the open-end credit provisions of Regulation
Z (Truth in Lending) and
the Commentary to Regulation Z on
June 14, 2007
. The goal was to improve the effectiveness of disclosures consumers
receive at application and through the life of an open-end loan (not
home-secured). Among the more than 2,500 comments it received, the
FRB found many comments urging it 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 (APR), application of increased APRs to pre-existing balances,
and the so-called two-cycle method of computing interest.
The OTS issued its request for comments on
August 6, 2007
, addressing whether it should expand on its current prohibitions
against unfair and deceptive acts or practices in its Credit
Practices Rule. In the comments it received OTS was encouraged
to adopt the same principles-based standards for unfairness and
deception used by the FTC, the other federal banking agencies, and
the NCUA. Others urged in their comments that the OTS move forward
in adopting comprehensive regulations on unfair and deceptive acts
or practices. The OTS also received comments on some of the same
issues mentioned above in the comments FRB received.
In addition to receiving information via
comment, the Agencies also conducted outreach regarding credit card
practices, including meetings and discussions with consumer group
representatives, industry representatives, federal and state banking
agencies, and the FTC.
The Agencies also received comments regarding
overdraft services. Commenters were particularly concerned about the
coverage being “automatically” provided to consumers without
their being given an opportunity to opt-in. Consumers are also
concerned because available balances shown on ATM receipts sometimes
include the overdraft balance available. This is perceived to be
misleading at least and deceptive at most. In February 2005, the
Agencies issued Joint Guidance to address overdraft protection
programs, focusing on safety and soundness considerations, legal
risks, and best practices. OTS’ guidance did not focus on the
legal risks. In May 2005, the FRB separately issued revisions to
Regulation DD (Truth in
Savings) to address discrepancies in the disclosure of overdraft
fees generally and advertisement of overdraft services specifically.
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