Repeal of Regulation AA – Gone
The Federal Reserve published a final rule to repeal it’s Regulation AA – Unfair or Deceptive Acts or Practices effective March 21, 2016. Adopted in 1985, the regulation consisted of two subparts: Subpart A described the Federal Reserve’s internal procedures for responding to consumer complaints and Subpart B, the credit practices rule, which mirrored the FTC’s rule of the same name that prohibited banks from using or including in credit contracts specified remedies to enforce consumer credit obligations and required banks to provide a clear and conspicuous notice to cosigners prior to becoming obligated in a credit transaction.
The Regulation AA repeal is a direct result of the Dodd-Frank Act’s repeal of the banking agencies’ rulemaking authority under the FTC Act and the exclusion of this rule from those transferred from the FRB to the CFPB. The FTC credit practices rule remains in force for creditors under its purview, and the CFPB has the authority to enforce the FTC’s rule with respect to non-bank creditors. Although Dodd-Frank provides authority to the CFPB to issue rules to prohibit unfair, deceptive or abusive acts or practices, it has yet to do so.
Unfair Credit Practices – Not Forgotten
Concurrent with the August 2014 initial proposal to repeal Regulation AA, the CFPB, and the federal banking agencies issued the Interagency Guidance Regarding Unfair or Deceptive Credit Practices. This guidance was issued “to clarify that the repeal of the credit practices rules applicable to banks, savings associations, and Federal credit unions should not be construed as a determination by the Agencies that the credit practices described in these former regulations are permissible.” Further, the guidance indicates that “the Agencies believe that creditors have properly disclosed a cosigner’s liability if, prior to obligation, they continue to provide a ‘Notice to Cosigner’.” Finally, the guidance states that financial institutions engaging in the practices described in the former rules may, depending on specific facts and circumstances, be cited for statutory violations even in the absence of a specific regulation governing the conduct.
The Bottom Line
The repeal of Regulation AA is basically a non-event for the industry. The CFPB and the federal banking agencies expect regulated entities to continue to abide by the prohibitions and requirements contained in the repealed regulation, and the FRB’s consumer complaint process is unchanged except for the fact that it is on the board’s public website rather than in Regulation AA.