Regulation AA

What Is Regulation AA?

Regulation AA (Unfair or Deceptive Acts or Practices) was a regulation created by the Federal Reserve designed to address practices by banks that were perceived as unfair by consumers. Regulation AA established the procedures used to process complaints registered by bank customers. This regulation applied to state member banks only. It was adopted in 1985 and repealed in 2016.

Understanding Regulation AA

Regulation AA was created in response to numerous consumer complaints related to their banks that were not being addressed in an orderly manner. Before Regulation AA, consumers felt that certain bank practices were unfair, such as credit-related fees, confusion around credit practices, and other obligations.

The FTC Act allowed the Federal Trade Commission (FTC) to put in place regulations that would define and stop unfair practices to consumers. The FTC required the Board of Governors of the Federal Reserve to create similar rules in relation to banks.

Regulation AA was created to bring clarity to the credit practices followed by banks in order to protect consumers. Consumers who had complaints about their bank were directed to send them to the director of the Division of Consumer and Community Affairs at the Board of Governors in Washington, D.C.

Practices Prohibited by Regulation AA

Two subparts composed Regulation AA. Subpart A outlined the Federal Reserve’s procedures for processing and responding to consumer complaints about unfair and deceptive banking practices. Subpart B prohibited the use by banks of certain practices used to enforce credit obligations in their contracts. The types of contract provisions prohibited under Subpart B included:

Banks were also prohibited from misrepresenting the extent or nature of a cosigner’s potential liability for a debt and from failing to inform a cosigner of this liability prior to the incursion of the debt. Furthermore, Regulation AA prohibited banks from using pyramided late fees. Pyramided late fees are when a bank charges a late fee after a customer makes a full loan payment but did not make a prior late fee on an earlier payment.

Regulation AA also set out a process on how consumers should file a complaint regarding a bank that they had done business with, and how the Board of Governors would respond to this complaint. This was intended to provide consumers with a clear understanding and timeline of how their complaints would be handled and responded to. Regulation AA also included staff guidelines on how the regulation applied in different circumstances, making it easier to determine if any unfair or deceptive practice actually occurred.

Repeal of Regulation AA

The Dodd-Frank Wall Street Reform and Consumer Protection Act ended the Federal Reserve Board’s power to make rules regarding deceptive or unfair banking practices, and thus Regulation AA was repealed with the passage of the Dodd-Frank Act.

However, the Dodd-Frank Act transferred this rulemaking authority to the Consumer Financial Protection Bureau (CFPB). The CFPB has issued the Interagency Guidance Regarding Unfair or Deceptive Credit Practices, which serve “to clarify that the repeal of the credit practices rule [as outlined in Regulation AA] … should not be construed as a determination by the Agencies that the credit practices described in these former regulations are [now] permissible.”

As a result, any financial institution that engages in the credit practices formerly prohibited under Regulation AA may still be cited for statutory violations. Consumer complaints against such practices can still be filed on the CFPB’s website.