Week 3 - Unfair or Deceptive Acts or Practices

Abusive

"Abusive" is defined as an act or practice that: - materially interferes with the ability of a consumer to understand the term or condition of a consumer financial product or service - takes unreasonable advantage of a lack of understanding on the part of the consumer of the material risks, cost or conditions of the product or service. - the inability of the consumer to protect the interest of the consumer in selecting or using a consumer financial product or service. - the reasonable reliance by the consumer on a covered person to act in the interest of the consumer.

Practices that may violate the Federal Trade Commission act

1. The failure to provide sufficient information to allow consumers to understand the terms of the product or service being offered without being misleading. 2. The failure to adequately disclose when significant fees or similar material prerequisites are applied to obtain the particular product or service being offered. 3. The failure to adequately disclose material limitations affecting the product or service being offered.

Managing compliance risk

1. Verify that information provided to consumers is complete, accurate, and not likely to mislead. 2. Avoid the use of claims such as "guaranteed," "pre-approved," and "lifetime rights" if there is a possibility the consumers will not receive the advertised terms. 3. Provide a clear, upfront disclosure of any contract provisions that permit a change in the provision to the terms of products or services offered. 4. Avoid engaging in promotions of a product or service that highlight a particular benefit if the benefit will be negated by another aspect of the transaction. 5. Review telemarketing scripts to market products to bank customers for accuracy and to ensure that they adequately describe the terms, benefits, and material limitations of the product or service being offered. 6. Clearly notify consumers at the time of the initial solicitation of "free trial periods" as well as subsequently if the consumer must add to cancel a service at the end of the trial period. 7. Follow due diligence in selecting a third-party vendor, make sure vendors are financially capable, and monitor vendor performance. 8. Ensure the contractual agreements with third-party vendors protect the bank against risk. 9. Ensure that promotional information and solicitations do not conflict with or contradict required consumer disclosure, such as TILA and privacy notices. 10. Review consumer complaints and communications to determine if the consumer was misled. 11. Maintain procedures to ensure that payments are promptly posted. 12. Monitor loan collections including collection calls made by third parties.

Unfair acts or practices

A practice may be found to be unfair if: 1. It causes substantial consumer injury 2. The injury is not outweighed by the benefits to the consumer or to the competition 3. The injury caused by the practice is one that consumers could not reasonably have avoided

Deceptive acts or practices

Acts or practices may be deceptive if the following three factors are present: 1. There is a representation, omission, act, or practice that is likely to mislead. These may include: a. False oral or written representations b. Miss leading claims about cost of services or products c. Use of bait-and-switch techniques d. Failure to provide promised services or products 2. The act or practice would be deceptive from the perspective of a reasonable consumer 3. The representation, omission, act, or practice is material. Materiality means that the act or practice is likely to affect a consumer's choice.

Unfair

An act or practice is unfair where it causes or is likely to cause substantial injury to consumers; cannot be reasonably avoided by consumers; and is not outweighed by countervailing benefits to consumers or to competition. Public policy, as established by statute, regulation, or judicial decisions, may be considered with all other evidence in determining whether an act or practice is unfair.

Deceptive

And act or practice is deceptive where: - a representation, omission, or practice misleads or is likely to mislead the consumer; - a consumer's interpretation of the representation, omission, or practice is considered reasonable under the circumstances; and - the misleading representation, omission, or practice is material.