Regulatory Flexibility Act Review of Trade Regulation Rule Concerning Credit Practices

FEDERAL TRADE COMMISSION

16 CFR Part 444

Regulatory Flexibility Act Review of Trade Regulation Rule

Concerning Credit Practices

AGENCY: Federal Trade Commission.

ACTION: Regulatory Review; Request for Comments.

-----------------------------------------------------------------------

SUMMARY: In accordance with the Regulatory Flexibility Act (5 U.S.C.

601 et seq.) and a published plan for Periodic Review of Commission

Rules (46 FR 35,118 (July 7, 1981)), the Federal Trade Commission is

soliciting comments and data on whether the Trade Regulation Rule

Concerning Credit Practices (16 CFR part 444) (the ``Rule'') has had a

significant impact on a substantial number of small entities, and if it

has, whether the Rule should be amended to minimize any significant

impact on small entities. The Commission is also requesting comments

about the overall costs and benefits of the Rule and its overall

regulatory and economic impact as a part of its systematic review of

all current Commission regulations and guides.

DATES: Comments must be received on or before June 14, 1994.

ADDRESSES: Comments and data should be sent to: Secretary, Federal

Trade Commission, Washington, DC 20580. Submissions should be marked

``Credit Practices Rule Comments.''

FOR FURTHER INFORMATION CONTACT:

Sandra M. Wilmore, Attorney, Division of Credit Practices, Bureau of

Consumer Protection, room S4429, Federal Trade Commission, 6th and

Pennsylvania Avenue, NW., Washington, DC 20580. Tel: (202) 326-3224.

SUPPLEMENTARY INFORMATION: The Regulatory Flexibility Act requires the

Federal Trade Commission to conduct a periodic review of rules issued

by the Commission that have or will have a significant economic impact

on a substantial number of small entities.

For the purpose of the Regulatory Flexibility Act review, the term

``small entity'' is defined under the Small Business Size Standards,

codified at 13 CFR part 121 and revised by the Small Business

Administration (49 FR 5024 et seq., Feb. 9, 1984). Because the

definition of ``small entity'' differs for the various types of

business entities covered by the Rule, persons wishing to comment on

the Rule's impact on a particular type of small entity should refer to

the Small Business Size Standards.

In addition, the Commission has determined, as a part of its

oversight responsibilities, to review rules and guides periodically.

These reviews will seek information about the costs and benefits of the

Commission's rules and guides and their regulatory and economic impact.

The information obtained will assist the Commission in identifying

rules and guides that warrant modification or rescission. This periodic

review is conducted in accordance with the Commission's plan for

periodic review of rules (46 FR 35118 (July 7, 1981)).

The rule was promulgated by the Commission on March 1, 1984 (49 FR

7740) and became effective on March 1, 1985. The Rule applies to

lenders and retail installment sellers (creditors) and prohibits them

from directly or indirectly taking or receiving from a consumer an

obligation that:

(1) 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.

(2) 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.

(3) Constitutes or contains an assignment of wages or other

earnings unless:

(i) The assignment by its terms is revokable at the will of the

debtor, or

(ii) 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

(iii) The assignment applies only to wages or other earnings

already earned at the time of the assignment.

(4) Constitutes or contains a non-possessory security interest in

house-hold goods\1\ other than a purchase money security interest.

---------------------------------------------------------------------------

\1\``Household goods'' are defined at Sec. 444.1(i) of the Rule

and include possessions of the consumer and his family that are

generally regarded as necessities.

---------------------------------------------------------------------------

The rule requires lenders and retail installment sellers to inform

cosigners, prior to the time that the agreement creating the cosigner's

liability is executed, of the nature of their liability as cosigners.

The rule prohibits lenders and retail installment sellers, in

connection with collecting a debt arising out of an extension of credit

to a consumer, from directly or indirectly levying or collecting 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).

In promulgating the Rule, the Commission found that:

(1) Consumers suffered substantial economic and non-economic injury

from creditors' use of the remedies that the Rule restricts;

(2) Consumers cannot reasonably avoid these remedies themselves or

avoid the harsh consequences of the remedies by avoiding default; and

(3) The overall costs to consumers are greater that the

countervailing benefits that the use of these remedies provide to

consumers or creditors.\2\

---------------------------------------------------------------------------

\2\See Credit Practices Rule: Statement of Basis and Purpose and

Regulatory Analysis (SBP), 49 FR 7740, 7743-7745 (1984).

---------------------------------------------------------------------------

The objective of the review initiated by this notice under the

Regulatory Flexibility Act is to determine whether any part of the Rule

has had a significant impact on a substantial number of small entities

and, if so, whether any such impact can be reduced consistent with the

operation of the Rule. In addition, the Commission requests comments on

a number of other issues relating to the operation of the Rule.

For the purposes of this review, the Commission poses the following

questions for public comment:

1. Is there a continuing need for the rule?

a. What benefits has the rule provided to purchasers of the

products or services affected by the rule?

b. Has the rule imposed costs on purchasers?

2. What changes, if any, should be made to the rule to increase the

benefits of the rule to purchasers?

a. How would these changes affect the costs the rule imposes on

firms subject to its requirements?

3. What significant burdens or costs, including the cost of

compliance, has the rule imposed on firms subject to its requirements?

a. Has the rule provided benefits to such firms?

4. What changes, if any, should be made to the rule to reduce the

burdens or costs imposed on firms subject to its requirements?

a. How would these changes affect the benefits provided by the

rule?

5. Does the rule overlap or conflict with other federal, state, or

local laws or regulations?

6. Since the rule was issued, what effects, if any, have changes in

relevant technology or economic conditions had on the rule?

7. What significant burdens or costs, including costs of

compliance, has the rule imposed on small firms subject to its

requirements?

a. How do these burdens or costs differ from those imposed on

larger firms subject to the rule's requirements?

8. To what extent are the burdens or costs that the rule imposes on

small firms similar to those that small firms would incur under

standard and prudent business practices?

9. What changes, if any, should be made to the rule to reduce the

burdens or costs imposed on small firms?

a. How would these changes affect the benefits of the rule?

b. Would such changes adversely affect the competitive position of

larger firms?

10. Should the ``Notice to Cosigner'' set forth at 16 CFR 444.3(c)

be rewritten to make it easier to understand? How?

11. In considering the effect the rule has had on the availability

and cost of credit:

a. Has the rule caused an increase in the cost of consumer credit

or a decline in the availability of consumer credit, in particular

credit provided to consumers with low incomes or poor credit histories?

b. What evidence is there that any changes in the cost or

availability of credit to consumers are, in fact, attributable to the

rule and not to other changes in the market place?

12. In considering the continuing need for the existing rule:

a. Would an alternative rule that required disclosure of contract

provisions that might cause injury to consumers, as opposed to

restricting the use of such provisions, be effective in protecting

consumers?

b. How would such disclosures be made to ensure that the consumer

is aware of and understands them?

c. How would the costs and benefits of a disclosure approach

compare to the costs and benefits of the current approach?

In responding to these questions, please distinguish to the extent

possible between smaller and larger creditors and between new firms and

more established firms. In addition, please submit the factual data

(e.g., economic and accounting information, statistical analysis,

surveys, studies, etc.) upon which comments are based together with the

comments.

List of Subjects in 16 CFR Part 444

Federal Trade Commission, Consumer credit contracts, Cosigner

disclosures, Trade practices, Truth in Lending.

Authority: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq.

(1980).

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 94-9138 Filed 4-14-94; 8:45 am]

BILLING CODE 6750-01-M