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e-CFR
Data is current as of January 28, 2009

Title 12:
Banks and Banking

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PART 535—PROHIBITED CONSUMER CREDIT PRACTICES

Section Contents
§ 535.1   Definitions.
§ 535.2   Unfair
credit practices.
§ 535.3   Unfair
or deceptive cosigner practices.
§ 535.4   Late
charges.
§ 535.5   State
exemptions.

Authority:   Sec. 18, as added by sec.
202, 88 Stat. 2193, as amended (15 U.S.C. 57a).

Source:   54 FR 49479, Nov. 30, 1989,
unless otherwise noted.

§ 535.1   Definitions.

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(a) Act. For the purposes of this part, “Act” means the Federal
Trade Commission Act, 15 U.S.C. 41 et seq .

(b) Consumer. The term “consumer” means a natural person who
seeks or acquires goods, services, or money for personal, family, or
household purposes, and who applies for or is extended “consumer credit”
as defined in §561.12 of this chapter.

(c) Cosigner. The term “cosigner” means a natural person who
assumes liability for the obligation of a consumer without receiving
goods, services, or money in return for the obligation, or in the case of
an open-end credit obligation, without receiving the contractual right to
obtain extensions of credit under the account. The term shall include 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 shall not include a spouse or
other person 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.

(d) Creditor. The term “creditor” means a savings
association.

(e) Debt. The term “debt” means money that is due or alleged to
be due from one to another.

(f) Earnings. The term “earnings” means 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.

(g) Household goods. The term “household goods” means clothing,
furniture, appliances, linens, china, crockery, kitchenware, and personal
effects 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) Antiques, i.e., any item over one hundred years of age, including
such items that have been repaired or renovated without changing their
original form or character, and

(4) Jewelry (other than wedding rings).

(h) Savings association. For purposes of this part, the term
“savings association” includes any savings association, and any service
corporation that is wholly owned by one or more savings association, that
engages in the business of providing credit to consumers.

(i) Obligation. The term “obligation” means an agreement between
a consumer and a creditor.

(j) Person. The term “person” means an individual, corporation,
or other business organization.

§ 535.2   Unfair credit practices.

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(a) In connection with the extension of credit to consumers after
January 1, 1986, it is an unfair act or practice within the meaning of
section 5 of the Act for a savings association directly or indirectly to
enter into a consumer credit obligation that constitutes or contains, or
to enforce in a consumer credit obligation purchased by a savings
association, any of the following provisions:

(1) 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) 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) An assignment of wages or other earnings, unless:

(i) The assignment by its terms is revocable at the will of the
debtor,

(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) A nonpossessory security interest in household goods other than a
purchase-money security interest.

§ 535.3   Unfair or deceptive cosigner
practices.

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(a) General. In connection with the extension of credit to
consumers after January 1, 1986, it is:

(1) A deceptive act or practice within the meaning of section 5 of the
Act for a savings association, directly or indirectly, to misrepresent the
nature or extent of cosigner liability to any person.

(2) An unfair act or practice within the meaning of section 5 of the
Act for a savings association, directly or indirectly, to obligate a
cosigner unless the cosigner is informed, prior to becoming obligated, of
the nature of his or her liability as cosigner.

(b) Disclosure requirement. (1) A clear and conspicuous document
that shall contain the following statement or one which is substantially
equivalent, shall be given to the consigner prior to becoming obligated
(which, in the case of open-end credit, shall mean prior to the time that
the cosigner becomes obligated for any fees or transaction on the
account):

Notice of 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.

(2) Compliance with the disclosure requirement under paragraph (b)(1)
of this section shall constitute compliance with the consumer information
requirement of paragraph (a)(2) of this section.

(3) If the notice is a separate document, nothing other than the
following times may appear with the notice:

(i) The name and address of the savings association;

(ii) An identification of the debt to be cosigned (e.g., a loan
identification number);

(iii) The date; and

(iv) The statement, “This notice is not the contract that makes you
liable for the debt.”

§ 535.4   Late charges.

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(a) In connection with collecting a debt arising out of an extension of
credit to a consumer after January 1, 1986, it is an unfair act or
practice within the meaning of section 5 of the Act for a savings
association, 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 the purposes of this part, “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.

§ 535.5   State exemptions.

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(a) Upon application to the Office by an appropriate state agency, the
Office shall determine if:

(1) There is a state requirement or prohibition in effect that applies
to any transaction to which a provision of this rule applies; and

(2) The state requirement or prohibition affords a level of protection
to consumers that is substantially equivalent to, or greater than, the
protection afforded by this rule.

(b) If the Office makes a determination as specified under paragraph
(a) of this section, then that provision of this section will not be in
effect in that state to the extent specified by the Office in its
determination, for as long as the state administers and enforces the state
requirement or prohibition effectively, as determined by the Office.

(c) The Director of Consumer Affairs in consultation with the Chief
Counsel shall have delegated authority to make such determinations as are
required under this part 535.

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