FTC Released a Guide - Complying with the Credit Practices Rule (December 2006)

Complying with the Credit Practices Rule

December 2006

The Federal Trade Commission (“FTC”) has released a guide aimed at helping creditors, including finance companies and retailers, understand and comply with the Credit Practices Rule, which has been in effect since March 1, 1985. This guide outlines the rule's requirements, who it applies to, the transactions covered, penalties for violations, and the process for seeking exemptions.

The Credit Practices Rule consists of three main provisions: it prohibits certain unfair contract provisions, requires creditors to inform cosigners of their potential liabilities, and restricts the imposition of late charges in specific situations. The rule bans practices such as confessions of judgment, waivers of exemption, wage assignments, and security interests in household goods. It mandates that cosigners receive a clear notice about their responsibilities before they are obligated for a debt, explaining the financial implications should the primary borrower default.

The rule applies to all creditors under FTC jurisdiction, including various financial institutions and retailers that offer consumer credit, but it excludes transactions related to real estate purchases. Contracts signed before the rule’s enactment that include prohibited provisions remain enforceable, though late fees that violate the rule cannot be collected after its effective date.

Violations of the rule can result in significant penalties, with the FTC having the authority to sue in federal court for civil penalties of up to $51,744 per violation. States may petition the FTC for exemptions if they have laws that provide equivalent or greater consumer protections, but until such exemptions are granted, the rule remains applicable.

In summary, the guide provides essential information on how creditors can comply with the Credit Practices Rule, detailing the prohibited practices, the requirements for cosigner notices, and the limitations on late charges, while emphasizing the importance of adhering to these regulations to avoid penalties.

 

For more information, see here:  https://www.ftc.gov/tips-advice/business-center/guidance/complying-credit-practices-rule

 

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