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CFPB Proposes to Resurrect Credit Practices Rule...And Then Some

Michael Christians • January 14, 2025

On January 13th, the Consumer Financial Protection Bureau (CFPB) issued a proposed rule that would resurrect the Federal Trade Commission’s Credit Practices Rule for financial institutions. The proposal would add a new subpart 1027 to Title 12 of the Code of Federal Regulations that would stand in place of the old Regulation AA, repealed by the Federal Reserve in 2016.

First, the proposed Part 1027 speaks to unfair credit contract provisions. A credit contract that contains any of the following would generally be unenforceable against the consumer:

Confession of judgment - a waiver of the right of notice and the opportunity to be heard in the event of suit or process
Waiver of exemption - a waiver of the exemption from attachment, execution or other process applicable to certain real or personal property owned by the consumer
Assignment of wages - unless specifically authorized by and revocable at any time by the consumer
A nonpossessory security interest in household goods other than a purchase money security interest

Next, the proposed Part 1027 discusses unfair or deceptive cosigner practices. A covered financial institution is prohibited from misrepresenting the nature or extent of a cosigner’s liability. To prevent this, the proposed rule requires a separate Notice to Cosigner that must be provided before the cosigner becomes obligated on the credit transaction.

Third, proposed Part 1027 prohibits the pyramiding of late fees. Pyramiding is the practice of charging a borrower a subsequent late fee based solely on his/her failure to pay a previously outstanding late fee.

Finally, proposed Part 1027 adds to the old Credit Practices Rule by prohibiting a covered financial institution from including any of the following terms and conditions in a contract for a consumer financial product or service:

Waivers of law - a waiver of any remedy or cause of action available to a consumer under federal or state law
Unilateral amendments - any language that allows the covered financial institution to unilaterally change, modify or revise a material term of the contract
Restraint on expression - any language that purports to limit or restrain the free and lawful expression of a consumer

Comments on the proposed rule, available here, are due by April 1, 2025.

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