The federal banking agencies and the CFPB have issued guidance to insured depository institutions advising them that the repeal of the banking agencies’ consumer credit practices rules does not indicate that the unfair or deceptive practices described in the repealed rules are now permissible. The new interagency guidance released on August 22 explains that the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) repealed the rulemaking authority granted to some of the banking agencies under the Federal Trade Commission (“FTC”) Act, and required the agencies that had issued rules prohibiting certain unfair and deceptive consumer credit practices under the FTC Act to repeal those rules. However, according to the guidance, the credit practices described in the repealed rules could still constitute violations of Section 5 of the FTC Act, which prohibits ‘‘unfair or deceptive acts or practices in or affecting commerce.” The credit practices described in the repealed rules also could constitute violations of Sections 1031 and 1036 of the Dodd-Frank Act, according to the guidance. Section 1031 of the Dodd-Frank Act empowers the CFPB to take action against unfair, deceptive or abusive acts or practices involving consumer financial products and services, and Section 1036 generally prohibits covered businesses, including insured depository institutions, from engaging in any deceptive or abusive act or practice.
Nutter Notes: The FTC Act authorizes the FTC to adopt rules that specifically define the types of acts or practices that are unfair or deceptive, including requirements for the purpose of preventing such acts or practices. The FTC has exercised this rulemaking authority to issue its Credit Practices Rule. However, the Credit Practices Rule is only applicable to creditors that are within the FTC’s jurisdiction, and not to insured depository institutions. The FTC Act also granted similar rulemaking authority to certain federal banking agencies, which subsequently issued rules that were substantially similar to the FTC’s Credit Practices Rule. The practices prohibited by the banking agencies’ rules included misrepresenting the nature or extent of cosigner liability, pyramiding late fees and unfair credit contract provisions, such as confessions of judgment and waivers of exemptions. The guidance emphasizes that, despite the repeal of the banking agencies’ rules, the prohibited credit practices described in those rules reflect extensive findings by the agencies identifying unfair or deceptive practices. Depending on the facts and circumstances, if an insured depository institution engages in practices described in the repealed rules, its primary federal regulator may bring an enforcement action against it for a violation of Section 5 of the FTC Act or Sections 1031 or 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, according to the guidance.