These comments address the Board’s proposed revisions to the Official
Staff Commentary regarding certain credit card issues and the selection of Treasury
yields for determination of the HOEPA trigger. These comments also raise several
open-end credit issues that we believe the Board should address.
In addition, these comments address the Board’s solicitation for comments
regarding the issue of bounce protection plans. On behalf of our low- and moderate-income
clients and consumers, we commend the Board for examining the issues surrounding
this product, which represents the latest high cost product marketed toward
this community. These comments will address why bounce protection fees are finance
charges and should be disclosed under TILA; how purveyors of these plans engage
in unfair and deceptive acts and practices in promoting and operating them;
and what should be done to protect consumers. A separate Appendix provides an
in-depth examination of how bounce protection plans are promoted and operated.
II. OPEN END CREDIT DISCLOSURES
The Board has proposed revisions to the Commentary to address the treatment
of fees imposed for expediting a consumer’s payment and whether a change
in terms notice is necessary for changes in this fee. The Board has also proposed
a revision that addresses the treatment of fees for expediting delivery of a
credit card, and a revision that would allow card issuers to send unsolicited
duplicate cards in some circumstances. Our comments address these proposals,
and in addition suggest other aspects of the rules for open end disclosures
that the Board should revise.
A. Expedited Payment Methods
The proposal would revise the Commentary to address fees charged by credit
card companies for expedited payment methods, such as electronic funds transfer
or a draft on a consumer’s checking account. The revision states that
such fees are not finance charges but are “other charges,” provided
that the method of payment was not established as the regular payment method
for the account.
We have no objection to the treatment of expedited payment fees as an “other
charge,” if the creditor does not impose the method and the consumer agrees
to it explicitly and affirmatively after disclosure. If the expedited payment
method is imposed by the creditor, even if it was not established as the regular
method of payment for the account, then it is a charge “payable directly
or indirectly by the person to whom the credit is extended, and imposed directly
or indirectly by the creditor as an incident to the extension of credit”
and should be considered a finance charge. We note that this proposal was in
response to credit card companies’ request for guidance on fees in a situation
where the consumer requests an expedited payment method, and we recommend that
this restriction be made explicit. In addition, since expedited payment methods
should be only at the consumer’s request, the consumer should be informed
of the amount of the fee at the time of the request for the service. The creditor
should be required to document that the consumer has been informed of the amount
of the fee at the time of requesting an expedited payment method, and has agreed
to it.
To incorporate these changes, we suggest that, instead of adding expedited
payment fees to § 226.6(b)(i) of the Commentary, the Board create a new
Commentary subsection 226.b(b)(1)(viii) for expedited payment fees, stating:
Charges imposed for expediting a consumer’s payment, provided that
expedited delivery was affirmatively and explicitly requested by the consumer,
was not required by the creditor, and was not established as the regular payment
method for the account, and the creditor has documented that, at the time
of the consumer’s request, the consumer was told of the amount of the
fee and agreed to it.7 Charges for expedited payment
that do not meet these criteria are finance charges.
This suggestion is dependent upon a requirement, discussed later in these
comments, that notice be given to the consumer in advance about the existence
and amount of this fee, i.e., a change in terms notice.
B. Expedited Delivery Fees
The proposes Commentary addresses the treatment of fees charged by credit
card companies for expediting delivery of a credit card. The revision would
provide that such fees are not finance charges and not “other charges,”
and hence would not have to be disclosed at all to consumers, so long as delivery
by standard mail service at no charge is available.
We are concerned about this treatment of expedited delivery charges. We question
why, unlike expedited payment method fees, they are not treated as “other
charges.” After all, both involve an extra fee for expedited treatment.
Consumers should be made aware of both fees, so that they can be fully informed
of the costs of choosing expedited service.
Moreover, expedited delivery charges should be disclosed as finance charges
in some circumstances. We believe that an expedited delivery fee is a finance
charge if the creditor imposes the method without the consumer’s explicit
and affirmative consent. If the method is required by the credit card issuer,
then it is a charge “payable directly or indirectly by the person to whom
the credit is extended, and imposed directly or indirectly by the creditor as
an incident to the extension of credit” and should be considered a finance
charge. We are highly concerned that the current proposal excludes these fees
from being a finance charge without a requirement that the consumer affirmatively
and explicitly agree to expedited delivery. It is not inconceivable that an
unscrupulous card issuer would start “expediting” the delivery of
all of its cards for a hefty fee, from which consumers would be required to
actively opt out.
Again, we note that this proposal was also in response to credit card companies’
request for guidance on fees for when a consumer requests expedited delivery.
We recommend that this condition be made explicit. In addition, the Board’s
Supplemental Information states for expedited fees that “[c]ard issuers
generally inform consumers of the amount of the specific charge at the time
the consumer agrees to the expedited service.” We recommend that the Board
make this practice a requirement, and also require that the creditor document
that the consumer has been informed of the amount of the fee at the time of
the request, and has agreed to it.
Another issue is that the proposed Commentary does not define the terms “expedited”
and “standard mail.” We are concerned that unscrupulous card issuers
might define “standard mail” as bulk mail, and treat first class
mail as “expedited delivery.” To address this issue, the Board should
state that “expedited” delivery does not include first class mail.
Furthermore, the Board should require that fees for expedited delivery bear
a reasonable relationship the actual cost of that delivery.
We recommend that the Board not adopt the proposed addition to § 226.6(b)(2)
of the Commentary. Instead, the following new Commentary subsection § 226.6(b)(1)(ix)
should be adopted, setting forth the rule that expedited delivery charges are
“other charges” if they meet certain standards, but otherwise are
finance charges:
Fees to expedite delivery of a credit card, either at account opening or
during the life of the account, provided that expedited delivery was affirmatively
and explicitly requested by the consumer and was not required by the creditor,
the creditor documents that, at the time of the consumer’s request,
the consumer was told of the amount of the fee and agreed to it,8
and card delivery is also available to the consumer by standard mail services
without paying a fee. First class mail shall not be considered expedited delivery.
Fees for expedited delivery should be reasonable in relationship to the actual
cost of delivery. Fees for expedited delivery that do not meet these criteria
are finance charges.
This suggestion is dependent upon a requirement, discussed below, that notice
be given to the consumer in advance about the existence and amount of this fee,
i.e., a change in terms notice.
C. Change in Terms Notices
The proposal would revise Section 226.9(c)(2) to permit imposition of changes
in the fee for an expedited payment method without a change-in-terms notice.
The explanatory material to the proposal notes that this is consistent with
the rules for late fees, the imposition of which also does not require a change-in-terms
notice.
For the Board to exempt any fee from a change-in-terms notice by citing late
fees is ironic, at best, given recent controversy over late fees. As noted by
several consumer groups, credit card companies have been aggressively increasing
their income from late fees.9 Credit card companies
have doubled the average late fee from 1992 to 2000.10
Some less scrupulous credit card companies have been using questionable tactics
to increase the imposition of such fees.11 As a result,
credit card companies nearly tripled their fee income between 1995 and 1999,
from $8.3 billion to $21.4 billion.12 Consumer groups
have assailed credit card companies for skyrocketing fees and using unfair tactics
to impose such fees, and several government enforcement and class action lawsuits
have been brought.13
The Board should amend this section by requiring change-in-term notices for
late fees, these new expedited payment fees, and the new expedited delivery
fees. Consumers are entitled to be informed when their credit card companies
add or raise the amount of a fee, especially when these fees have been increased
dramatically over the span of a few years. The fundamental purpose of TILA and
Regulation Z is to inform consumers of the cost of credit, so that they can
make informed credit choices. Increasingly, information about late fees and
other non-finance charges is exactly the sort of information consumers need
when shopping for a credit card or determining whether to continue to use an
existing card.
Thus, we recommend that the Board delete Section 226.9(c)(2)(vi) of the Commentary.
D. Exception to the One-for-One Rule
The proposal would revise the Commentary to permit card issuers to replace
an accepted credit card with one or more renewal or substitute cards on the
same account, provided that:
Any replacement card accesses only the account of the accepted card;
All cards issued under that account are governed by the same terms and
conditions; and
The consumer’s total liability for unauthorized use for that account
does not increase.
We believe that a fourth proviso should be added to this exception to the
one-for-one rule – that either all replacement cards be mailed in the
same envelope or that the consumer be notified in writing that a second renewal
or substitute card is being mailed.
As the Supplementary Information notes, the “one-for-one rule ”
was developed to implement the prohibition of Section 132 of TILA against unsolicited
mailing of credit cards. This section was enacted as a response to numerous
problems with unsolicited credit cards, including concerns about theft and liability
for unauthorized use.
If renewal or substitute cards are mailed in the same envelope or if the consumer
is aware that multiple cards will be mailed in separate envelopes, this proposal
does not raise any additional concerns regarding theft and unauthorized use.
However, if the cards are mailed in separate envelopes without the consumer
being informed, there is an additional risk that the second card might be stolen
in the mail. The consumer would be unaware of any theft.
We understand that the proposed changes protect the consumer from liability
for unauthorized use due to theft. However, that protection is not automatic.
The card issuer still has the option of attempting to prove that the use of
the card was authorized. In addition, in many cases of identity theft and theft
of credit cards, negative credit reports start appearing on the consumer’s
credit record before the consumer is even aware of the theft. These negative
credit reports can have long-term, intractable, severe consequences to consumers.
But even if theft of credit cards caused no harm at all to consumers, the risk
of loss to lenders and merchants can be reduced by the simple addition of the
requirement that duplicate cards not be mailed in a separate envelope unless
the consumer is informed in advance.
The Supplemental Information mentions that card issuers now use measures to
prevent theft by sending cards that are not activated, and then requiring the
consumer to verify receipt of the card. However, not all card issuers may employ
such measures and neither Regulation Z nor the Commentary requires such measures.
We recommend that the Board also consider requiring these measures.
In the Supplemental Information, the Board solicits comment on whether this
exception to the one-for-one rule should be applied even when there is no renewal
or substitution for the cardholder’s existing card. We would oppose such
an application unless it required that the consumer be given 7 days written
notice in advance that a duplicate of his/her credit card is being sent. Theft
of a card sent at any other time is much more likely to go undetected, because
the cardholder is not expecting it. Thus, if this exception to the one-for-one
rule were to be expanded, the Board must require the card issuer to provide
adequate advance notice to the consumer that a card will be arriving in the
mail.
E. Other Open-End Credit Issues
We also urge the Board to address other improvements that are needed to make
disclosure of open-end credit terms effective:
Better disclosures for home equity lines of credit: HELC disclosures
should be revamped from top to bottom. Current HELC disclosure requirements
do not give consumers usable or accurate enough information at either application
or closing. The Board should require a reasonable estimate of the payment
terms, the finance charge, and the total of payments for these open end loans.
For variable rate credit, the creditor should be required to illustrate the
effect of the worst-case scenario rate increase on the consumer’s actual
loan amount, not an arbitrary $10,000 loan. Technology now makes it easy for
creditors to tailor disclosures to the consumer’s particular loan terms
in this way. The Board should also require better disclosure of the non-interest
charges that are currently excluded from the annual percentage rate for home
equity loans, and should adopt clearer and simpler model forms for HELCs.
We would be happy to propose more the format and language for an improved
HELC model disclosure form.
Putting the truth back in Truth-in-Lending: The credit card industry
is rife with bait and switch offers. The Board’s stricter requirements
for disclosure of teaser rates, effective October 1, 2001, address bait and
switch tactics that relate to the APR, but the industry continues to advertise
other terms that are withdrawn shortly after consumers accept a card. In 2002,
in Rossman v. Fleet Bank, 14 the Third Circuit
held that a creditor violated the Truth in Lending Act by offering “no
annual fee” and then imposing a fee less than a year later. We urge
the Board to incorporate the Rossman holding by establishing rules about how
long an advertised or disclosed credit term has to remain true.
Deterring Spurious Open-End Credit. We bly urge the Board
to revive its December 7, 1997 proposal, which articulates five factors to
be considered when determining whether a credit transaction is truly open-end.
In addition, we urge the Board to close the information gap between close-end
and open-end disclosures.
Over-limit fees as finance charges. Currently, Regulation Z §
226.4(c)(2) appears to exclude over-limit fees categorically from the definition
of finance charge. The Sixth Circuit held in Pfennig v. Household Credit Services,
Inc.15 that the plain language of TILA requires
an over-limit fee to be treated as a finance charge if it is imposed by the
creditor as a condition of an extension of credit that exceeds a credit limit.
Credit card fees have skyrocketed during the past decade. They are a significant
source of profit for credit card companies, and thus function much the same
as interest from the creditor’s point of view. Yet the relaxed disclosure
requirements for these fees enable creditors to reap rich profits at the expense
of unsuspecting consumers. Disclosing the true cost of over-the-limit fees
is information consumers need in shopping for a credit card. We recommend
that the Board revise both Regulation Z and the Staff Commentary to reflect
the holding in Pfennig.
Prominence of critical disclosures. A major credit card issuer
recently changed its periodic statement format so that the total unpaid balance
is no longer disclosed at the top of the bill, but is buried at the bottom.
Even though that creditor withdrew the change about a week later, the incident
highlights the need for greater specificity in the disclosure requirement.
Creditors who seek to encourage consumers to stay in debt are likely to disclose
the balance in a way that downplays it. We urge the Board to propose a rule
that would require the balance on which the finance charge is computed to
be disclosed near to the minimum payment each time the minimum payment is
disclosed.
Term and payoff at minimum payment. The number of consumers who
make only minimum payments on their credit cards, thereby consigning themselves
to virtually perpetual debt, threatens not only the income security of families
but also the safety and soundness of banks. At least one state has attempted
to require disclosure on consumers’ bills of the effect of making just
the minimum payment. We urge the Board to take the lead on this issue and
require disclosure of the term and finance charge if the consumer makes only
the minimum payment.
III. PROPOSED AMENDMENTS TO THE HOEPA TRIGGER RULES
The Board is proposing three amendments to the Commentary to Regulation Z §
226.32, all relating to the calculation of the APR trigger that determines whether
a loan is subject to the Homeownership and Equity Protection Act. We support
the first and third proposals and consider the second proposal the best of the
available alternatives, none of which is entirely satisfactory.
A. Use of Actively Traded Treasury Securities Adjusted to Constant Maturities.
For certain short-term loans (up to six months), the Treasury Department offers
more than one type of security with comparable maturities. Creditors have asked
for guidance about which type of security to use when calculating the APR trigger.
The Board’s proposal specifies that creditors must use the rates for actively
traded Treasury securities adjusted to constant maturities, as listed on the
Treasury Department’s H-15 Statistical Release.
This proposal will bring clarity, certainty, and simplicity to the calculation
of the APR trigger. Calculation of the HOEPA triggers is necessarily technical,
given the requirements of the statute. To the extent that the Board’s
regulations and Commentary can minimize the complexity and uncertainty of these
calculations, it will increase creditor compliance, enhance monitoring and enforcement
by consumers and government agencies, and increase understanding of the law.
We support this proposal and commend the Board for making it.
B. Loans With 30-year Maturities
HOEPA sets the APR trigger by referring to Treasury securities having comparable
maturities.16 Unfortunately, on February 18, 2002,
the Treasury Department ended its publication of rates for 30-year securities.
Since 30 years is a common term for home-secured credit, the Treasury Department’s
action creates a significant gap.
The Board’s proposed solution to this problem is to direct creditors
to use the rate for 20-year securities when calculating the APR trigger for
30-year loans. The result is a higher APR trigger than was true when 30-year
rates were available,17 so fewer 30-year loans will
be subject to HOEPA’s protections. HOEPA’s protections are extremely
important in combating predatory lending, so the Board should be highly reluctant
to adopt interpretations that increase the APR trigger.
Unfortunately, there does not appear to be a better alternative at present.
The Treasury Department also publishes a long-term average yield for securities
with terms of 25 years and over, and an “extrapolation factor” that
can be added to this figure to estimate a 30-year rate. However, at least during
the eleven months that the Treasury Department has published these figures,
neither figure has uniformly preserved the rate drop that the 30-year securities
historically showed. In addition, while using the long-term average yield would
not be complex, using that yield plus the extrapolation factor would add complexity
to HOEPA calculations.18
We therefore endorse the Board’s proposal to instruct creditors to use
the 20-year rate to calculate the APR trigger for 30-year loans on an interim
basis. However, we urge the Board to continue to explore other alternatives
that might reflect the drop in prime rates for 30 year mortgages. We also urge
the Board to consider further revisions if Treasury begins publishing a more
suitable rate.
C. Use of Actual Auction Results
The Board also proposes to revise the Commentary to eliminate the option to
use yields of actual auction results as an alternative to the rates published
in the H-15 Statistical Release. We bly support this proposal.
Since Treasury auctions are held infrequently, they are less likely to reflect
market conditions at the time the borrower applied for credit. Allowing creditors
this choice invites them to pick and choose the standard that will allow them
to charge the highest APR without affording the HOEPA protections to the borrower.
The former interpretation undermined HOEPA by allowing creditors this means
of evading its protections.
Treasury auction results are also less readily accessible than the H-15 Statistical
Release. Establishing the H-15 Statistical Release as the sole benchmark means
that creditors, consumers, and regulators will only have to check a single,
easily-accessed document to determine the APR trigger for a transactions. This
change will reduce the complexity of HOEPA calculations and promote certainty,
simplicity, and understanding.
IV. BOUNCE PROTECTION PLANS
The Board has solicited information and comments on how “bounce protection”
services are designed and operated, as well as how this product should be treated
for purposes of TILA and other laws. We commend the Board for focusing attention
on the highly abusive practices that pervade the growing bounce protection plan
industry.
Bounce protection plans represent the banking industry’s foray into payday
lending, promoting an extremely high-cost credit product to low- and moderate-income
consumers. Bounce protection plans are marketed deceptively and without meaningful
disclosure. We believe the Board should prohibit bounce protection plans as
they are currently promoted to consumers by:
Requiring that TILA disclosures be made for bounce protection.19
Prohibiting deceptive advertisement of bounce protection plans, such as
advertising, representing, or implying that consumers should have the expectation
bounce protection will cover overdrafts, but then stating in contract documents
that paying overdrafts is discretionary.
Prohibiting banks from advertising or promoting any plan that encourages
consumers to write NSF checks or take other steps that might have criminal
consequences.
Forbidding banks from imposing bounce protection on consumers without the
consumer’s affirmative consent.
Prohibiting banks from promoting bounce protection plans without informing
consumers of other less expensive alternatives.
Prohibiting banks from seizing customers’ exempt funds (e.g. SSI
benefits deposited directly into the account by the Social Security Administration)
to repay the debt.
A. The Nature and Operation of Bounce Protection Plans
Bounce protection is a new form of overdraft protection that a number of banks
are marketing aggressively as a means of boosting their non-interest revenue
at the expense of the most vulnerable consumers. These products are not traditional
overdraft lines of credit or a bank’s occasional ad hoc practice of covering
a consumer’s bounced check as a courtesy. Instead, they are deliberate,
systemic attempts to hook consumers onto overdrafts as a form of high cost credit.20
The nature of bounce protection plans is summarized here and described in detail
in the Appendix to these comments.
Bounce protection plans offer short-term credit at triple-digit rates. A $100
advance will typically carry at least a 243% APR if paid in 30 days and 541%
if paid in 14 days. Banks usually charge a per item fee, generally the bank’s
standard NSF or overdraft fee of $20 to $35. Some banks also charge a per day
fee, such as $2 or $5 per day, until the consumer’s account has a positive
balance. Yet banks claim that they are not required to give Truth in Lending
disclosures regarding the cost of bounce protection.
Banks market bounce protection plans to consumers the same way payday lenders
do. One bank’s pitch is: “Access your Paycheck Before you have it!
Sound too good to be true? Well it isn’t, you can now start writing checks
before you get paid without the worry of returned checks.”21
Bounce protection advertisements also consistently contradict the industry’s
assertions that bounce protection is “discretionary,” which they
do to avoid TILA coverage.22 For example, one bank
states: “you will know that your checks, ATM withdrawals, Visa Check Card
Purchases, and other transactions will be honored up to your Bounce® Protection
Limit.” When a consumer with a bounce protection plan makes a transaction
at an ATM, the transaction slip typically lists the bounce protection ceiling
as “available.”
When a consumer uses bounce protection, the bank deducts the amount covered
by the plan plus the fee by setting off the consumer’s next deposit. This
is true even when the deposit is protected income, such as a welfare or a Social
Security check.
A characteristic feature of bounce protection plans is that consumers do not
affirmatively agree to coverage. Instead the bank imposes coverage on a subset
of account holders as a “courtesy” or additional service feature
of their account. Consumers who do not want this “courtesy” must
explicitly opt out by contacting the bank.23 One
consulting firm that markets bounce protection plans to banks claims that its
program is designed to result in coverage of 90 to 95% of a bank’s consumer
checking customers.
A handful of bank consultants are responsible for the creation of bounce protection
plans, marketing them to thousands of banks. These consultants typically offer
an entire programmatic package, including the software, customer marketing materials,
and consultant support to implement the programs at banks. These consultants
repeatedly emphasize increase in fee income as the major selling point for banks.
For example, Pinnacle’s website promises banks that will raise overdraft
fee income by “100%, 200%, 300% or more!”24
These promises appear to bear out. First Commerce Bank in Corpus Christi, Texas,
doubled its income from insufficient funds within a year of adopting a bounce
protection plan.25
B. Bounce Protection Plans Must Give TIL Disclosures to Consumers
Given the pitfalls and abuses presented by bounce protection, we urge the
Board to require purveyors of such programs to make disclosures under TILA and
Regulation Z. The following analysis will show why the fees for these products
should be treated as finance charges and TIL disclosures required.
1. Bounce Protection Constitutes Credit.
There is no question that bounce protection is credit as defined by section
1602(e) of TILA. When a bank uses its funds to pay for an overdraft, and then
requires the consumer to repay the bank, it is granting the consumer right to
“incur debt and defer its payment.” In fact, many banks explicitly
state that consumers who use this product have the right to defer payment for
certain number of days.26 The Office of Comptroller
of Currency has recognized that bounce protection is credit as defined by TILA:
“An overdraft would be “credit,” as defined by the Truth in
Lending Act and Regulation Z.”27 State regulators
have reached the same conclusion.28
The truth of this conclusion is demonstrated most clearly by the banks themselves
that offer bounce protection. Banks market bounce protection as credit. One
bank advertises “Have you ever had unplanned expenses between paydays?
There is no need to worry! With First Federal’s Powerdraft Plan, you will
be covered without the embarrassment of a returned check.”29
Another advertises “Access your Paycheck Before you have it!”30
These typical pitches, many more examples of which are set forth in the Appendix,
are a telling demonstration of the falsity of any argument that bounce protection
is not credit.
2. Fees for Bounce Protection Products Are Finance Charges
In order for TIL disclosures to be required, bounce protection must not only
be “credit,” but the bank must meet the statutory definition of
“creditor,” i.e. it must be extending credit that is payable by
agreement in more than four installments or for which a finance charge is or
may be required. 15 U.S.C. § 1602(f). Since credit extended under a bounce
protection plan is generally not payable in more than four installments, we
will focus on the question whether the charges imposed for bounce protection
are finance charges.
Bounce protection plan charges are a major source of profit for banks, and
are marketed as such.31 These charges function the
same as finance charges from the creditor’s point of view. We believe
that the plain language of TILA confirms this common sense approach and requires
that bounce protection fees be treated as a finance charge. In addition, given
the actual way in which bounce protection plans operate and are described to
consumers in banks’ literature, we contend that the fees fall within Regulation
Z’s definition of finance charges.
a. Bounce Protection Fees Meet TILA’s Definition Of “Finance
Charge” Under Section 1605(a)
Before turning to an analysis of Regulation Z, we need to examine the language
of TILA itself to determine whether bounce protection fees constitute a finance
charge. The starting point for interpreting TILA is the language of the statute
itself.
The plain language of TILA requires that the fees for bounce protection products
should be considered a “finance charge.” Section 1605(a) defines
a “finance charge” as ”any charge payable directly or indirectly
by the consumer, and imposed by the creditor as an incident to the extension
of credit.” Fees for bounce protection meet each element of this definition.
They are payable by the consumer, imposed by the creditor, and incident to the
extension of credit.
We recognize that Section 1605(a) of TILA exempts from the definition of “finance
charge” any fee “of a type payable in a comparable cash transaction.”
The question is what cash transactions, if any, are comparable to an extension
of credit under a bounce protection plan.
We submit that there is no cash transaction that is comparable to the extension
of credit that bounce protection plans promote. For a credit sale, the comparable
cash transaction is the sale of the same goods or services for cash. But with
a bounce protection plan what the consumer is getting is cash. It is not at
all clear that Congress intended the exception for charges imposed in comparable
cash transactions to apply to non-purchase money loans. If this analysis is
correct, then the “comparable cash transaction” exception should
simply not be an issue in analyzing bounce protection transactions.
Regulation Z and the Commentary, however, appear to treat an overdraft on an
account without a credit feature as a cash transaction comparable to an overdraft
on an account with a credit feature.32 We submit
that these sections are illogical and stray from the intent of the statutory
language. What the banks have appeared to assume is that because the NSF fee
for a returned check and a bounce protection fee are the same, the transactions
themselves comparable. Just because the banks have used the same dollar amount
for both transactions, however, does not make them comparable. Otherwise, creditors
would be able to avoid TIL responsibilities by making their finance charges
the same dollar amount as an unrelated fee in a cash transaction.
Furthermore, this reasoning does not apply at all when it comes to the per day
fee that some bounce protection plans charge. A consumer pays a single NSF fee
for a returned check but does not pay per day charges. State banking regulators
have noted that these daily fees are finance charges under state law.33
Even a consultant who promotes bounce protection has conceded that per day fees
are finance charges and has warned against imposing them. 34
For certain types of bounce protection transactions it is even clearer that
there is no comparable cash transaction. The argument for comparability completely
breaks down when it comes to non-check methods of accessing bounce protection,
such as access through ATMs, debit cards, on-line banking transactions, and
other payment methods. For many of the payment methods listed, there are no
comparable cash transactions. Consider this example noted by the Indiana Department
of Financial Institutions:
A consumer who has a $0.00 balance in their checking account attempts to
make a $200.00 withdrawal at an ATM. If the consumer has [bounce protection],
the consumer receives $200.00 from the machine and is charged a standard overdraft
fee ($20.00-$25.00) for this service. . . . If the consumer does not have
the protection of the Program, the consumer receives $0.00 from the machine
and is charged nothing for making the attempt.35
In this example, the bounce protection fee is clearly a finance charge, because
there is no fee for the allegedly comparable cash transaction – indeed,
there is no transaction at all without bounce protection. This is also true
for when bounce protection is accessed by debit cards, checks written to “cash”
presented to a teller, and on-line banking account transfers.
For all of these reasons, the fees charged for bounce protection plans are
finance charges.
b. Bounce Protection Charges Are Finance Charges Under Regulation Z
Bounce protection fees should not be exempted from finance charges under Section
226.4(c)(3) of Regulation Z, which excludes fees for traditional overdrafts.
Regulation Z provides that overdraft fees are finance charges only when “the
payment of such items and the imposition of the charge were previously agreed
upon in writing.”
Purveyors of bounce protection programs have attempted to avoid the requirements
of Regulation Z by squeezing these programs into the confines of section 226.4(c)(3).
They do so by stating that the payment of overdrafts is “discretionary,”
and arguing therefore they have not “agreed in writing” to pay overdrafts.36
However, it is clear that these bounce protection plans are not discretionary.
As the industry itself states, these plans are run by computer software that
automatically permits overdrafts when criteria are met.37
By handing over the decision to computer software, bounce protection is no longer
an occasional and discretionary action, but a formal written and agreed upon
practice.
Furthermore, when banks pay overdrafts under a bounce protection plan, they
are doing so pursuant to an agreement in writing. There are numerous examples,
some of which are reproduced in the Appendix, of written statements made by
banks that represent or imply that banks have agreed to pay overdrafts. For
example, one bank advertises “Overdraft Privilege gives you the peace
of mind that your checks will be honored, up to an overdraft of $500 ($300 for
Free Checking)!”38 Another advertises: you
will know that your checks, ATM withdrawals, Visa Check Card Purchases, and
other transactions will be honored up to your Bounce® Protection Limit.”
and “Remember, checks drawn up to the limit will not be returned, saving
you the embarrassment and expense associated with the returned check fee. This
privilege can save you money”39 Indeed, the
banks’ statement that the consumer has an “available balance”
that includes the bounce protection “limit” is a representation
that the bank has agreed to pay overdrafts.
Section 226.4(c)(3)’s requirement that the banks agree in writing to
pay overdrafts does not necessarily mean that such agreement needs to be part
of a formal contract or a provision in a customer agreement. A bank can agree
in writing to pay overdrafts by representing or implying that it will do so
in advertisements, correspondence, or in an FAQ section on its website. Furthermore,
“agreed in writing” does not mean the consumer has to affirmatively
assent - consumers are often held accountable as contracting for fees that banks
unilaterally impose without affirmative assent.
From a broader perspective, we submit that bounce protection fees should not
be excluded under Section 22.6(c)(3) because this section was originally intended
to exempt overdraft fees for the traditional situation in which a bank, on an
ad hoc and occasional basis, covers a consumer’s bounced check as a customer
courtesy. We believe in issuing Section 226.4(c)(3), the Board never contemplated
excluding fees for a program in which banks systemically extended credit and
charged fees for this credit. We note that in the revisions to Regulation Z
in 1980 as a result of TIL Simplification, the Board had proposed an amendment
to section 226.4(c)(3) which would have limited the exclusion for overdraft
charges to “an inadvertent overdraft.” We urge the Board to revisit
this issue and to consider revising Regulation Z’s criteria for excluding
overdraft charges from finance charges.
Instead of excluding overdraft charges from the definition of finance charges
when there is a written agreement that the bank will pay the overdrafts, the
Board should consider excluding charges that are imposed for occasional, inadvertent,
or unanticipated overdrafts. This approach would prevent banks from claiming
that bounce protection fees were not finance charges because of fine print in
the contract that gave the bank some discretion, whether exercised or not, to
decline to cover an overdraft. Instead, the question would be whether the parties
anticipated overdrafts. The Board has already adopted this same approach for
determining whether a late charge is a finance charge: charges for “actual
unanticipated late payments” are not finance charges. Regulation Z §
226.4(b)(2). The Board also follows this approach with respect to debit cards.
Section 226.2(a)(15)(2)(ii)(A) of the Commentary excludes from the definition
of credit card: “A check-guarantee or debit card with no credit feature
or agreement, even if the creditor occasionally honors an inadvertent overdraft.”
(emphasis added).
It is the systematic nature of bounce protection that requires that their
fees be considered finance charges. This is not a simple occasional customer
courtesy. This is a deliberate attempt to generate massive fees by allowing,
and encouraging, consumers to overdraw their accounts as a form of expensive
and highly addictive credit.
Focusing on whether the parties anticipated the overdraft rather than on the
terms of the agreement would also be consistent with the views of the Sixth
Circuit in Pfennig v. Household Credit Services with respect to over-the-limit
fees:
[I]n situations where the consumer is in default, is delinquent in payment,
or submits an unanticipated late payment, the lender is placed in a position
of unexpectedly having to bear the costs of the borrower’s tardiness
…. However, the scenario is entirely different where, as here, the borrower
has reached her credit limit, requests more credit, and the lender agrees
to that extension of extra credit, but assesses a fee as a result.
295 F.3d 522, 531 (6th Cir. 2002) (emphasis in original).
Like a late fee, an NSF fee is compensation for the bank when it has to unexpectedly
bear the costs of the consumer’s supposed misbehavior. A bounce protection
fee, like an over-the-limit fee when additional credit is extended, is a fee
assessed when the consumer requests credit and the lender agrees to the extension
of credit. For all of these reasons, bounce protection fees are finance charges.
3. TIL Disclosures About Bounce Protection Plans Are Critically Important
for Consumers
The importance of treating bounce protection plans as extensions of credit
subject to TILA is heightened by the nature of this particular loan product
and the manner in which it is marketed to consumers. If calculated as finance
charges, the Annual Percentage Rates for bounce protection fees are astronomical.
For example, a $100 overdraft will incur at least a $20 fee. If the consumer
pays the overdraft back in 30 days, the APR is 243%. If the consumer pays the
overdraft bank in 14 days, which is probably more typical for a wage earner,
the APR is 541%. Iowa regulators have described an example of an overdraft with
an APR of 1520%.40 Bounce protection plans are much
more expensive than alternatives that most banks offer, such as overdraft lines
of credit, linking the account to a credit card, and transfers from savings.
Further, banks market bounce protection as short-term loans. For example, one
bank advertises that its plan is for people who “run short of cash between
paydays.”41 The consultants who promote bounce
protection plans tell banks that the plans will help them compete for payday
loan customers. 42 Yet consumers are lured into these
short-term extensions of credit without ever getting the basic disclosures that
would enable them to compare these loans to other alternatives or make the decision
to forego the loan altogether.
The need for disclosure of the cost of credit for bounce protection could
not be plainer. However, banks are able to conceal these APRs by using a supposed
loophole in Regulation Z. We take the position that TIL and Regulation Z are
already clear enough in defining bounce protection plans as credit and bounce
protection fees as finance charges. But if the Board perceives any ambiguity,
the only action consistent with the purposes of the Truth in Lending Act is
to amend Regulation Z so that coverage of bounce protection plans is unequivocal.
C. In Promoting and Operating Bounce Protection Programs, Banks are Engaged
in Deception and Unfair Practices Which the Board Should Prohibit.
The methods used banks and their consultants to promote and operate bounce
protection programs are unfair and deceptive. The Board should use its power
under 15 U.S.C. § 57a(f) to declare these practices unfair and prohibit
regulated financial institutions from engaging in them.
1. Use of Contradictory And Deceptive Language
Banks engage in deception when they advertise and imply that consumers can
rely on bounce protection to pay an overdraft, then state in fine print elsewhere
that payment of an overdraft is at the bank’s sole discretion. The two
types of representations are in direct contradiction to each other, and one
of them must be false. The banks that promote bounce protection are trying to
straddle the line between not promising to pay checks while assuring their customers
it is safe to write overdraft checks. They should not be permitted to so.
Furthermore, when banks entice consumers into making overdrafts by promoting
bounce protection as reliable, providing “peace of mind,” or helping
the consumer “Access your Paycheck Before you have it,”43
consumers begin to rely on the product. Consumers are likely to take advantage
of bounce protection only if they really believe the bank will make good on
the check. For banks to turn around and claim that bounce protection is discretionary
is an unfair and deceptive practice.
2. Enticing Consumers Into Overdrawing their Accounts
Banks that promote bounce protection are encouraging vulnerable consumers
to overdraw their accounts. Not only are they encouraging the same bad financial
practices which NSF fees were originally imposed to deter, they are encouraging
consumers to commit an arguably criminal offense. The Indiana Department of
Financial Institutions has even warned bankers against enticing consumers to
unwittingly commit a criminal offense, stating:
Under [Indiana law], it is a Class A misdemeanor when a person knowingly
or intentionally issues or delivers a check knowing there are insufficient
funds in the bank. Since the Program gives no assurance of coverage in the
event of an overdraft, but leaves that to the discretion of the bank, a customer
will never be certain that a bad check will be covered. This could make both
the customer and the bank accountable under the criminal statute.44
Enticing consumers into committing an act that may have criminal consequences
is an unfair act, which the Board should prohibit.
3. Cramming Bounce Protection Plans is an Unfair Practice
Banks achieve the phenomenal growth in overdraft fee income that bounce protection
consultants promote by cramming bounce protection plans: i.e., imposing them
on consumers who have not requested them. Consumers do not affirmatively agree
to coverage; instead the bank imposes coverage to a subset of account holders
as a “courtesy” or additional service feature of their account.
Consumers who do not want this “courtesy” must explicitly opt out
by contacting the bank.45
The fact that banks are imposing bounce protection on consumers without their
affirmative consent is also an unfair practice. As discussed above, there is
no question that bounce protection is credit. Without consent, banks are imposing
involuntary loans on consumers. Furthermore, some consumers may not be aware
until they overdraw their account that they are accessing a high cost credit
product. This would be especially outrageous in the ATM or debit card context,
where consumers without bounce protection ordinarily do not incur fees when
they try to overdraw their account. The Board should prohibit this practice
as unfair.
4. Failure to Inform Consumers of Alternatives
Another unfair and deceptive practice of banks that promote bounce protection
is that they fail to inform consumers who are heavy users of bounce protection
of less expensive and more financially responsible alternatives. There are a
number of more reasonable alternatives that most banks offer, including overdraft
lines of credit, linking the account to a credit card, and transfers from savings.
In addition, banks might discuss with chronic overdrafters other forms of more
reasonable credit.
Instead, banks that promote bounce protection hook consumers -- without their
consent -- to the most expensive and abusive form of credit, the kind of credit
with APRs that exceed even payday lenders and loan sharks. These banks withhold
information about their favorable and straightforward products while automatically
enrolling consumers into this abusive product. There is no evidence that banks
tell consumers about less expensive alternatives when consumers begin to get
into trouble with this product. Instead, the evidence indicates that banks raise
the bounce protection limit for heavy users and encourage them to come back
for more. Consultants who market bounce protection recommend that banks send
“thank you” letters rather than dunning letters for overdrafts,
make overdrafts “OK” by allowing debit card and ATM withdrawals,
and being friendly to overdraft customers. 46 The
Board should require banks to inform consumers of the terms of alternatives
to bounce protection plans.
5. Seizure of Exempt Funds Directly Deposited Into the Consumer’s Bank
Account
A final unfair practice that pervades the bounce protection industry affects
consumers who receive Social Security, Supplemental Security Income (SSI), or
Veterans Assistance benefits that are directly deposited into their bank accounts
by a government agency. Federal law exempts these benefit payments from attachment
or garnishment, yet banks claim the right to seize these benefits to repay bounce
protection debts as soon as the government agency makes the deposit into the
consumer’s bank account.
The Ninth Circuit recently held that the bank could seize directly-deposited
SSI benefits to pay bounce protection debts despite the protections of the exemption
statute.47 But the Ninth Circuit did not address
whether seizure of exempt funds is a fundamentally unfair practice.48
We urge the Board to conclude that it is an unfair practice, and to prohibit
it.
In 1985, the FTC held that consumers subject to the standard form adhesion contracts
offered them by creditors should be protected from creditors’ ability
to obtain wage assignments in those contracts. When the FTC evaluated the fairness
of allowing creditors to include wage assignments and other onerous provisions
in loan documents, it concluded that consumers cannot reasonably avoid these
creditor remedies, because they were standard in the form credit agreements
offered to these consumers.49 The situation is even
more extreme with bounce protection: consumers not only have no ability to negotiate
the terms of bounce protection plans, but these plans are added to their accounts
without any affirmative request. The harm to consumers is profound. SSI beneficiaries
are by definition elderly or disabled and poor. Once on the debt treadmill created
by a bounce protection loan, many beneficiaries will find it impossible to walk
away. Each month the bank will seize not only the previous month’s loan
from the consumer’s benefits, but also the bounce protection fee, leaving
the beneficiary without enough income to pay for basic necessities. The beneficiary’s
only choice will be another bounce protection loan. The Board should prohibit
this unfair practice.
4. Recommendations
Bounce protection is an expensive, addictive, and abusive form of credit thrust
upon unwitting consumers. The Board should regulate bounce protection plans
by doing the following:
Require that TIL disclosures be made for bounce protection, including per
item and per day fees. Require that disclosures be made at ATMs when consumers
withdraw cash.
Prohibit as unfair and deceptive any statement that bounce protection is
“discretionary” when the banks have advertised, represented or
implied that consumers should have the expectation that bounce protection
will cover overdrafts.
Prohibit as unfair the advertisement or promotion of any plan that encourages
consumers to write NSF checks.
Prohibit banks from imposing bounce protection plans on consumers without
their affirmative consent by declaring the practice unfair under 15 U.S.C.
§ 57a(f) . The Board could exempt that type of pre-bounce protection
overdraft coverage that is really an ad hoc occasional courtesy, but the exemption
would need to exclude any overdraft plan that is promoted to consumers or
operated by one of the consultant software programs.
Prohibit banks from promoting bounce protection plans without informing
consumers of the terms and advantages of other alternatives.
Prohibiting banks from seizing customers’ exempt funds (e.g. SSI benefits
deposited directly into the account by the Social Security Administration)
to repay the debt.
______________________________________
1 The National Consumer Law Center is a non-profit
Massachusetts Corporation, founded in 1969, specializing in low-income consumer
issues, with an emphasis on consumer credit. On a daily basis, NCLC provides
legal and technical consulting and assistance on consumer law issues to legal
services, government, and private attorneys representing low-income consumers
across the country. NCLC publishes a series of fifteen practice treatises and
annual supplements on consumer credit laws, including Truth In Lending, (4th
ed. 1999) and Cost of Credit: Regulation and Legal Challenges (2nd ed. 2000),
as well as bimonthly newsletters on a range of topics related to consumer credit
issues and low-income consumers. These comments were written by Carolyn Carter,
Staff Attorney, and Chi Chi Wu, Staff Attorney, and are submitted on behalf
of the Center’s clients.
2 The Consumer Federation of America is a
nonprofit association of some 300 pro-consumer groups, with a combined membership
of 50 million people. CFA was founded in 1968 to advance consumers' interests
through advocacy and education. Jean Ann Fox, Director of Consumer Protection
for CFA, co-authored the Appendix, the examination of bounce protection plans.
3Consumers Union of US, Inc., the nonprofit
publisher of Consumer Reports, is a nonprofit membership organization chartered
to provide consumers with information, education and counsel about goods, services,
health, and personal finance; and to initiate and cooperate with individual
and group efforts to maintain and enhance the quality of life of consumers.
4 The National Association of Consumer Advocates
is a non-profit organization designed to promote justice for all consumers,
comprised of approximately 600 lawyers, law professors and advocates who specialize
in consumer law.
5 The National Senior Citizens Law Center (NSCLC)
is a nonprofit organization that advocates nationwide to promote the independence
and well-being of older Americans, with a special emphasis on low-income elders.
Founded in 1972 and operating from offices in Los Angeles, Washington, DC and
Oakland, CA, NSCLC provides technical assistance and training to attorneys and
other advocates and litigates cases likely to have a broad impact. NSCLC joins
in the portion of these comments dealing with bounce protection plans because
of its special interest in protecting Social Security, SSI, Veterans Benefits
and other retirement income from creditor abuses.
6 U.S. Public Interest Research Group serves as the national
lobbying office for state Public Interest Research Groups. PIRGs are non-profit,
non-partisan research and advocacy groups with offices around the country
7 This documentation requirement is met when the documentation
is in the form of tape recorded oral authorization or, for on-line transactions,
the consumer’s specific agreement after conspicuous visual disclosure
of the amount of the charge. The Federal Trade Commission specifies tape recorded
oral authorization as one of the forms of documentation for certain payment
methods in telemarketing transactions. See 16 C.F.R. § 310.3(a)(3)(ii).
8 This documentation requirement is met when the documentation
is in the form of tape recorded oral authorization or, for on-line transactions,
the consumer’s specific agreement after conspicuous visual disclosure
of the amount of the charge.
9 For a summary of these criticisms, see Ed Mierzwinski, U.S
Public Interest Research Group, The Credit Trap (April 2001) at 7-8, available
at www.pirg.org/truth/credittrap.pdf.
10 Id.
11 Id. These tactics include shortening grace periods and
moving posting deadlines to early in the morning prior to mail delivery so that
payment effectively must be received the day before the due date.
12 Id at 5.
13 Id at 4, 21.
14 280 F.3d 384 (3d Cir. 2002).
15 295 F.3d 522 (6th Cir. 2002).
16 15 U.S.C. § 1602(aa)(1)(A).
17 Historically, the rate for 30-year securities has been
somewhat lower than that for 20-year securities. Taking the first published
weekly rate of the years 1998 through 2002 as a sample (i.e., the rates for
Jan. 2, 1998, Jan. 1, 1999, Jan. 7, 2000, Jan. 5, 2001, and Jan. 4, 2002) shows
that the 20-year rate ranged from .02% to .3% higher than the 30-year rate.
18 An approach that would minimize the complexity would be
for the Board to post the rate on its website, preferably along with a link
to Treasury’s H-15 release. The New York State Banking Department, which
uses the 25-year average, adjusted by the extrapolation factor, to calculate
the APR trigger for 30-year loans under its high cost home loan regulation,
does the calculation and posts the rate at www.banking.state.ny.us/41yld.htm.
19 Once the Board requires TILA disclosures, these disclosures
must meaningfully illustrate the high cost of bounce protection resulting from
the short term nature of this credit.
20 To distinguish these products from traditional overdraft
lines of credit and from the occasional, ad hoc coverage of an overdraft, we
will refer to these plans using the same terminology as the Board in the Federal
Register notice, i.e., “bounce protection.”
21 Many other similar pitches for bounce protection are detailed
in the Appendix.
22http://www.fcbonline.com/bounce.htm,
visited January 20, 2003. Another bank states: “Overdraft Privilege gives
you the peace of mind that your checks will be honored.” www.bentonbankingcompany.com/news.htm,
visited May 24, 2002. . These and many similar bank advertisements are detailed
in the Appendix.
23 Gloria Irwin, “Overdraft Protection: Courtesy or
Curse?” Beacon Journal, October 20, 2002.
25 Laura K. Thompson, “Overdraft Play Looks Better to
Small Banks,” American Banker, April 2, 2001, at 1.
26 For example, the Indiana Department of Financial Institutions
noted that many banks give the customer 30 days to bring an account to positive
balance. Indiana Department of Financial Institutions, Newsletter – Winter
2002 Edition (November 2002), at 2. The website of Central National Bank –
“You should make every effort to bring your account into a positive balance
within 16 days.” www.centralnational.com/bounce_protection.htm
27 Daniel P. Stipano, Deputy Chief Counsel, Office of Comptroller
of Currency, Interpretive Letter #914, September 2001. A copy of this letter
is attached to these comments as Attachment 2 to the Appendix.
28 Indiana Department of Financial Institutions, Newsletter
– Winter 2002 Edition (November 2002), at 2; Letter from Assistant Attorney
General Paul Chessin, Colorado Department of Law, Consumer Credit Unit, March
21, 2001 in response to referral from the Administrator for the Colorado Uniform
Consumer Credit Code.
29 First Federal’s Convenient Overdraft Coverage Plan
brochure, on file with authors.
31 For example, one bank consultant markets its bounce protection
plans to banks as “dramatically increasing your fee income.” www.overdrafthonor.com,
visited January 21, 2003. See the Appendix for further examples. Another proclaims
that its program will increase a bank’s overdraft fee income by “100%,
200%, 300% or more!” www.bounceprotection.com/products/overdraft.html.
32 Regulation Z § 226.4(b)(2); Commentary § 226.4(b)-2.
33 For example, the Alabama Banking Department advised banks
that charging a $2 daily fee on overdrawn accounts is considered a finance charge
under Alabama law. V. Lynne Windham, Associate Counsel, Alabama State Banking
Department, letter to redacted company, August 14, 2001, on file with authors.
See also Iowa Consumer Credit Code Administrator, Informal Advisory # 88, “Per
Diem Charge on Honored NSF Checks As A Finance Charge Under the ICCC and Iowa
Common Law,” issued August 12, 1999, on file with the authors.
34 Alex Sheshunoff, A New Approach to Covering Overdrafts,
Bank Director, April 1, 2002 at 56.
35 Indiana Department of Financial Institutions, Newsletter
– Winter 2002 Edition (November 2002), at 3.
36 Indeed, one member of industry has admitted that overdraft
plans were supposedly designed to “slip through” regulatory requirements
by stating that bounce protection is discretionary. Charles Cheatham, Legal
Briefs “Overdraft Plans,” Oklahoma Bankers Association, August 2000.
37 For example, consultant Alex Sheshunoff states the different
between his product and traditional treatment of overdrafts is that “banks
are modifying their practices to automatically pay” overdrawn checks,
“providing automatic overdrafts up to a certain threshold” and “branch
personnel no longer exercise discretion over items paid or returned.”
Alex Sheshunoff, A New Approach to Covering Overdrafts, Bank Director, April
1, 2002 at 56.
39 www.fcbonline.com/bounceprotectionbody.htm, visited January
20, 2003
40 Iowa Consumer Credit Code Administrator, Informal Advisory
# 88, “Per Diem Charge on Honored NSF Checks As A Finance Charge Under
the ICCC and Iowa Common Law,” issued August 12, 1999, on file with the
authors.
41 Hometown Coverage brochure, The Cecilian Bank, on file
with authors. Additional examples are found in the Appendix.
42 See, for example, www.bankingexchangetechnologies.com
visited April 11, 2002. Similar claims by a number of other consultants are
documented in the Appendix.
45 Gloria Irwin, “Overdraft Protection: Courtesy or
Curse?” Beacon Journal, October 20, 2002.
46 Bank Strategy Group, “Creating a Sales Culture in
Banking and Financial Services,” CFO’s and Controllers Conference,
Bank Administration Institute, posted at www.bankstrategy.com
47 Lopez v. Washington Mutual, 302 F.3d 900, amended at, 311
F.3d 928 (9th Cir.2002).
48 The Ninth Circuit did reject an unfairness argument that
was “piggybacked” on violation of the exemption statute, because
it held there was no such violation of that statute. However, the Ninth Circuit
did not determine whether the practice was fundamentally unfair using the analysis
under the Federal Trade Commission Act or its California equivalent.
49 The FTC stated: “Consumers have limited incentives
to search out better remedial provisions in credit contracts. The substantive
similarities of contracts from different creditors mean that search is less
likely to reveal a different alternative. . . . [C]onsumers cannot reasonably
avoid the remedial provisions themselves.” Statement of Basis and Purpose
of the FTC's Credit Practices Rule, 49 Fed. Reg. 7740, 7744 (Mar. 1, 1984).
