10 February 2010

[Federal Register: February 10, 2010 (Volume 75, Number 27)]
[Rules and Regulations]               
[Page 6558-6560]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10fe10-3]                         

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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 706

RIN 3133-AD47

 
Unfair or Deceptive Acts or Practices

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule; withdrawal.

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SUMMARY: On January 29, 2009, jointly with the Federal Reserve System 
Board of Governors (FRB) and the Office of Thrift Supervision (OTS), 
the NCUA Board (Board) published a final rule and staff commentary 
amending its credit practices regulations (UDAP Rule). The UDAP Rule 
also included technical clarifications and was scheduled to become 
effective on July 1, 2010. The Board is now revising the UDAP Rule 
because its stipulations became unnecessary due to the enactment of the 
Credit Card Accountability, Responsibility, and Disclosure Act of 2009 
(Credit CARD Act) on May 22, 2009, and amendments to Regulation Z 
implementing the Credit CARD Act that will become effective on February 
22, 2010. For procedural reasons, the substantive requirements of the 
UDAP Rule will be removed effective July 1, 2010, but it is the Board's 
intent that only the technical clarifications become effective and that 
the substantive requirements will not take effect. This final rule 
applies only to the NCUA Board's regulations and does not affect the 
rules issued by the OTS and FRB.

DATES: This rule is effective July 1, 2010.

FOR FURTHER INFORMATION CONTACT: Moisette I. Green, Staff Attorney, 
Office of General Counsel, National Credit Union Administration, 1775 
Duke Street, Alexandria, Virginia 22314-3428, or telephone: (703) 518-
6540.

SUPPLEMENTARY INFORMATION: On December 18, 2008, NCUA, along with the 
Federal Reserve Board (FRB) and the Office of Thrift Supervision, 
exercised its authority under the Federal Trade Commission Act (FTC 
Act) to issue a final rule prohibiting unfair acts or practices 
regarding consumer credit card accounts. The rule was published in the 
Federal Register on January 29, 2009, and the effective date for the 
amendments was July 1, 2010. 74 FR 5498 (January 29, 2009) (UDAP Rule).
    The Credit CARD Act, enacted on May 22, 2009, amended the Truth in 
Lending Act (TILA) and established new substantive and disclosure 
requirements to establish fair and transparent practices pertaining to 
open-end consumer credit plans, including credit card accounts. Public 
Law 111-24, 123 Stat. 1734 (2009). After consultation with NCUA and 
other Federal financial regulators, the FRB amended 12 CFR Part 226 and 
the staff commentary (Regulation Z) to implement the Credit CARD Act. 
The Credit CARD Act and Regulation Z cover the practices regulated in 
the UDAP Rule, and in some instances, expand the UDAP Rule's 
requirements or consumer protections. For example, the UDAP Rule 
prohibited the financing of security deposits and fees for the 
availability of a credit card account in excess of 50% of the initial 
credit limit and limited how fees that did not exceed the 50% limit 
could be financed. The Credit CARD Act prohibits financing any fees 
charged within the first year an open-end credit plan in excess of 25% 
of the credit limit from the available credit. In as much as the UDAP 
Rule duplicates, overlaps, or conflicts with the Credit CARD Act and 
recent amendments to Regulation Z, the NCUA Board believes the recent 
amendments to Part 706 are unnecessary and is withdrawing the 
substantive requirements of the UDAP Rule. Accordingly, the Board is 
amending Part 706 to remove the substantive requirements and retain the 
clarifying technical amendments in the UDAP Rule, such as the addition 
of an authority, purpose, and scope section and, the removal of the 
provision for State exemptions.
    This revision is applicable only to NCUA's portion of the UDAP 
Rule. For procedural reasons, the substantive

[[Page 6559]]

requirements of the UDAP Rule will be removed effective July 1, 2010. 
It is the Board's intent, however, that the substantive requirements on 
the UDAP Rule will not take effect. Additionally, the Board does not 
intend to finalize the proposed amendments to the UDAP Rule. 74 FR 
20804 (May 5, 2009).

List of Subjects in 12 CFR Part 706

    Credit, Credit unions, Deception, Intergovernmental relations, 
Trade practices, Unfairness.

0
For the reasons set forth in the preamble, NCUA revises 12 CFR Part 706 
to read as follows:

PART 706--UNFAIR OR DECEPTIVE ACTS OR PRACTICES

Sec.
706.0 Purpose and scope.
706.1 Definitions.
706.2 Unfair credit practices.
706.3 Unfair or deceptive cosigner practices.
706.4 Late charges.

    Authority: 15 U.S.C. 57a(f).


Sec.  706.0  Purpose and scope.

    (a) Purpose. The purpose of this part is to prohibit unfair or 
deceptive acts or practices in violation of section 5(a)(1) of the 
Federal Trade Commission Act, 15 U.S.C. 45(a)(1). The prohibitions in 
this part do not limit NCUA's authority to enforce the Federal Trade 
Commission Act with respect to any other unfair or deceptive acts or 
practices.
    (b) Scope. This part applies to Federal credit unions.


Sec.  706.1  Definitions.

    (a) Person. An individual, corporation, or other business 
organization.
    (b) Consumer. A natural person member who seeks or acquires goods, 
services, or money for personal, family, or household use.
    (c) Obligation. An agreement between a consumer and a Federal 
credit union.
    (d) Debt. Money that is due or alleged to be due from one to 
another.
    (e) Earnings. Compensation paid or payable to an individual or for 
his or her account for personal services rendered or to be rendered by 
him or her, whether denominated as wages, salary, commission, bonus, or 
otherwise, including periodic payments pursuant to a pension, 
retirement, or disability program.
    (f) Household goods. Clothing, furniture, appliances, one radio and 
one television, linens, china, crockery, kitchenware, and personal 
effects (including wedding rings) of the consumer and his or her 
dependents, provided that the following are not included within the 
scope of the term ``household goods'':
    (1) Works of art;
    (2) Electronic entertainment equipment (except one television and 
one radio);
    (3) Items acquired as antiques; and
    (4) Jewelry (except wedding rings).
    (g) Antique. Any item over one hundred years of age, including such 
items that have been repaired or renovated without changing their 
original form or character.
    (h) Cosigner. A natural person who renders himself or herself 
liable for the obligation of another person without receiving goods, 
services, or money in return for the credit obligation, or, in the case 
of an open-end credit obligation, without receiving the contractual 
right to obtain extensions of credit under the obligation. The term 
includes any person whose signature is requested as a condition to 
granting credit to a consumer, or as a condition for forbearance on 
collection of a consumer's obligation that is in default. The term does 
not include a spouse whose signature is required on a credit obligation 
to perfect a security interest pursuant to State law. A person is a 
cosigner within the meaning of this definition whether or not he or she 
is designated as such on a credit obligation.


Sec.  706.2  Unfair credit practices.

    In connection with the extension of credit to consumers, it is an 
unfair act or practice for a Federal credit union, directly or 
indirectly, to take or receive from a consumer an obligation that:
    (a) Constitutes or contains a cognovit or confession of judgment 
(for purposes other than executory process in the State of Louisiana), 
warrant of attorney, or other waiver of the right to notice and the 
opportunity to be heard in the event of suit or process thereon.
    (b) Constitutes or contains an executory waiver or a limitation of 
exemption from attachment, execution, or other process on real or 
personal property held, owned by, or due to the consumer, unless the 
waiver applies solely to property subject to a security interest 
executed in connection with the obligation.
    (c) Constitutes or contains an assignment of wages or other 
earnings unless:
    (1) The assignment by its terms is revocable at the will of the 
debtor, or
    (2) The assignment is a payroll deduction plan or preauthorized 
payment plan, commencing at the time of the transaction, in which the 
consumer authorizes a series of wage deductions as a method of making 
each payment, or
    (3) The assignment applies only to wages or other earnings already 
earned at the time of the assignment.
    (d) Constitutes or contains a nonpossessory security interest in 
household goods other than a purchase money security interest.


Sec.  706.3  Unfair or deceptive cosigner practices.

    (a) Prohibited practices. In connection with the extension of 
credit to consumers, it is:
    (1) A deceptive act or practice for a Federal credit union, 
directly or indirectly, to misrepresent the nature or extent of 
cosigner liability to any person.
    (2) An unfair act or practice for a Federal credit union, directly 
or indirectly, to obligate a cosigner unless the cosigner is informed 
prior to becoming obligated, which in the case of open-end credit means 
prior to the time that the agreement creating the cosigner's liability 
for future charges is executed, of the nature of his or her liability 
as cosigner.
    (b) Disclosure requirement. (1) To comply with the cosigner 
information requirement of paragraph (a)(2) of this section, a clear 
and conspicuous disclosure statement shall be of this section given in 
writing to the cosigner prior to becoming obligated. The disclosure 
statement will contain only the following statement, or one which is 
substantially equivalent, and shall either be a separate document or 
included in the documents evidencing the consumer credit obligation.

Notice to Cosigner

    You are being asked to guarantee this debt. Think carefully 
before you do. If the borrower doesn't pay the debt, you will have 
to. Be sure you can afford to pay if you have to, and that you want 
to accept this responsibility.
    You may have to pay up to the full amount of the debt if the 
borrower does not pay. You may also have to pay late fees or 
collection costs, which increase this amount.
    The creditor can collect this debt from you without first trying 
to collect from the borrower. The creditor can use the same 
collection methods against you that can be used against the 
borrower, such as suing you, garnishing your wages, etc. If this 
debt is ever in default, that fact may become a part of your credit 
record.
    This notice is not the contract that makes you liable for the 
debt.

    (2) If the notice to cosigner is a separate document, nothing other 
than the following items may appear with the notice. The following 
paragraphs (b)(2)(i) through (v) may not be part of

[[Page 6560]]

the narrative portion of the notice to cosigner.
    (i) The name and address of the Federal credit union;
    (ii) An identification of the debt to be cosigned (e.g., a loan 
identification number);
    (iii) The amount of the loan;
    (iv) The date of the loan;
    (v) A signature line for a cosigner to acknowledge receipt of the 
notice; and
    (vi) To the extent permitted by State law, a cosigner notice 
required by State law may be included in the notice in paragraph (b)(1) 
of this section.
    (3) To the extent the notice to cosigner specified in paragraph 
(b)(1) of this section refers to an action against a cosigner that is 
not permitted by State law, the notice to cosigner may be modified.


Sec.  706.4  Late charges.

    (a) In connection with collecting a debt arising out of an 
extension of credit to a consumer, it is an unfair act or practice for 
a Federal credit union, directly or indirectly, to levy or collect any 
delinquency charge on a payment, which payment is otherwise a full 
payment for the applicable period and is paid on its due date or within 
an applicable grace period, when the only delinquency is attributable 
to late fee(s) or delinquency charge(s) assessed on earlier 
installment(s).
    (b) For purposes of this section, ``collecting a debt'' means any 
activity other than the use of judicial process that is intended to 
bring about or does bring about repayment of all or part of a consumer 
debt.


    By the National Credit Union Administration Board, on January 
29, 2010.
Mary F. Rupp,
Secretary of the Board.
[FR Doc. 2010-2311 Filed 2-9-10; 8:45 am]
BILLING CODE 7535-01-P