FTC Credit Practices Rule / Consumer Credit Contract Terms

Restricted contract terms

Primary authority: 16 CFR § 444.2

The rule restricts confessions of judgment, waivers of exemptions, certain wage assignments, and nonpossessory security interests in household goods. It also prohibits pyramiding late charges in covered circumstances.

A contractual wage assignment is not wage garnishment. Garnishment is a legal process directed to earnings, while a wage assignment is a contract term purporting to authorize payment from wages. Different federal and state rules govern the two mechanisms.

Cosigner notice

Primary authority: 16 CFR § 444.3

For covered credit, the rule requires a notice explaining that a cosigner can be required to pay the debt and may face collection consequences if the borrower does not pay. The Credit Practices Rule cosigner protection is distinct from TILA’s private education loan cosigner provisions.

Institutional credit and nonprofit status

Primary authority: 16 CFR § 444.2 · 16 CFR § 444.3

Institutional loans and payment arrangements can be covered consumer credit when the transaction and creditor fall within the rule. Nonprofit organizational form does not, by itself, resolve every FTC jurisdiction question.

Different from the Holder Rule

Primary authority: 16 CFR § 444.2 · 16 CFR § 433.2

The Credit Practices Rule regulates specified creditor contract terms and practices. The Holder Rule preserves qualifying claims and defenses in covered seller-connected credit after assignment. The two FTC rules have different purposes and coverage tests.

Prohibited contract terms and late-charge treatment

Primary authority: 16 CFR § 444.2

For covered FTC-jurisdiction credit, Part 444 prohibits confessions of judgment and certain waivers of property exemptions. It restricts advance wage assignments and nonpossessory security interests in household goods, subject to defined exceptions. A contractual wage assignment differs from judicial wage garnishment or federal student loan Administrative Wage Garnishment.

The Rule also prohibits specified pyramiding of late charges when a later timely payment is applied to an earlier unpaid late fee and generates another late charge. It does not eliminate every original late charge.

Cosigners, institutions, and adjacent rules

Primary authority: 16 CFR § 444.3

Part 444 requires the prescribed Notice to Cosigner for covered credit and prohibits misrepresentation of cosigner liability. TILA has separate private education loan cosigner protections involving death and bankruptcy. The Holder Rule, meanwhile, preserves seller-connected claims and defenses rather than regulating these credit contract terms.

School-originated loans and deferred-payment sales can raise Part 444 issues when the entity and credit fall within FTC jurisdiction. The CFPB withdrew its proposed Regulation AA rule effective May 15, 2025; that proposal did not become a generally applicable CFPB Credit Practices Rule.