The FDIC recently released an article regarding the topic of certain unfair and deceptive acts within the banking industry.  The purpose of the article is on the analysis for determining an FTC Act violation not actual incidences within the banking industry. 

In the publication, the standards are reviewed for what constitutes a deceptive or unfair business practice by a bank.  The publication states that a deceptive practice is determined by different standards for determining whether the act or practice is unfair or deceptive.  The determinations are independent of each other.  And although a specific act or practice may be both unfair and deceptive, an act or practice is prohibited by the FTC Act if it is either unfair or deceptive.  The FDIC clarifies that whether an act or practice is unfair or deceptive, in each instance, will depend on a careful application of the appropriate standard to the particular facts and circumstances.
The standards for unfairness must meet a three part standard that was highlighted as follows: The act or practice must cause or be likely to cause substantial injury to consumers.  Consumers must not reasonably be able to avoid the injury.  The injury must not be outweighed by countervailing benefits to consumers or to competition.  In addition to these standards, the FTC Act allows public policy to be considered in determining whether an act or practice is unfair.

The FDIC report summarizes the conditions for a deceptive act are ones that meet the guidelines declared by the Federal Trade Commission and subsequently adopted by the FDIC.  Which is a three-part test is used to assess whether a representation, omission, or practice is deceptive under Section 5 of the FTC Act.  The representation, omission, or practice must mislead or be likely to mislead the consumer.  The consumer’s interpretation of the representation, omission, or practice must be reasonable under the circumstances.  The misleading representation, omission, or practice must be material.

The following is the typical overdraft protection practices that were analyzed by examiners and other FDIC staff for compliance with the FTC Act during this period: “Including the available balance of an overdraft line of credit when disclosing a deposit account balance, particularly at automated teller machines (ATMs).  Failing to disclose accessibility of overdraft line of credit via ATMs, point-of-sale (POS) transactions, online banking, or preauthorized transfers.  Erroneously disclosing inaccessibility of overdraft line of credit via ATMs, POS transactions, online banking, or preauthorized transfers.  Promoting overdraft protection services without informing the depositor of (or overstating) the maximum dollar amount of protection or without disclosing fees associated with service.  Using the word “free”, when charges are imposed, and other misleading representations in overdraft protection advertisements.  Enrolling depositors in overdraft protection programs without their knowledge or consent and, subsequently, approving withdrawals at ATMs that overdraw a depositor’s account, resulting in the imposition of fees.”

While certain practices are identified and addressed, the article is not intended, nor does it attempt, to list a series of citable FTC Act violations.  Rather, the goal of this article is to impart, through examples, a better understanding of the approach for determining violations.

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