Credit Practices Rule

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The Federal Trade Commission has determined that its Credit Practices Rule continues to serve a useful function and, there- fore, will retain the rule in its present form. The Commission's decision comes after examining the rule as part of its periodic review of rules and guides to determine their effectiveness and impact. A discussion of the Commission's decision was published in the May 10 Federal Register.

The Credit Practices Rule, promulgated in 1984 and effective on March 1, 1985, prohibits lenders and creditors from including certain provisions in consumer credit contracts that would waive the due process rights consumers have in the event of a dispute, or that would waive protections provided to judgment debtors under state law. Contract provisions that permit a creditor to seek payment directly from a consumer's employer in the event of default, or provide for security interests in household goods, also are prohibited under the rule. The rule also requires creditors to provide a "Notice to Cosigner" to potential co- signers which explains their obligations and their potential liability if the primary borrower fails to pay. In addition, the rule prohibits creditors from assessing multiple late charges when only one payment was actually late.

In April 1994, as part of its oversight responsibilities, the Commission sought public comment on a number of questions pertaining to the operation and effectiveness of the rule, on whether the rule has had an significant impact on a substantial number of small entities, and on whether the rule should be modified or rescinded. After carefully considering the seven comments received, the Commission found that the rule serves a useful function and that there is continuing need for it. The Commission also concluded that the commenters did not show that the rule has had a significant impact on a substantial number of small entities, or that any of the suggested expansions were warranted at this time. Therefore, the Commission has terminated its review of the Credit Practices Rule at this time.

The Commission vote to retain the Credit Practices Rule was 5-0.

Copies of the Federal Register notice, as well as other news documents associated with this matter, are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.

(FTC Matter No. P944805)

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