Spring 2004-02 Unfair or deceptive acts by banks
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Spring 2004-02 Unfair or deceptive acts by banks

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Number 55
Spring 2004

Unfair or deceptive acts by banks

The FDIC and the FRB have issued guidance to banks regarding unfair and deceptive acts and practices.

Section 5 of the Federal Trade Commission Act prohibits the use of unfair or deceptive acts or practices in commerce. The Federal Deposit Insurance Corporation and the Federal Reserve Board apply the rule to banking activities.

The FTC Act provides that an act or practice may be found to be “unfair” if it causes or is likely to cause substantial injury to consumers, the injury is not reasonably avoidable by consumers themselves and the injury is not outweighed by countervailing benefits to consumers or to competition.


Substantial injury usually involves monetary harm. Emotional harm does not typically make an act unfair.


Consumers cannot reasonably avoid injury if the practice interferes with the ability to make effective decisions; for example: withholding material price information until after the consumer has committed to acquire a product or service. Also deemed “unavoidable” are injuries that result from coercion.


Offsetting benefits may include lower prices or a wider availability of products and services.


A representation or omission is deemed to be “deceptive” if it is likely to mislead a consumer acting reasonably under the circumstances, and is likely to affect a consumer’s conduct or decision regarding a product or service.


Federal advice


The federal agencies give the following advice:

Avoid fine print and inconspicuous disclosures to correct potentially misleading headlines.

Draw attention to key terms, including limitations and conditions.

Clearly and timely disclose all fees and penalties.

Clearly inform of contract provisions that permit a change in terms.

When using terms such as “pre-approved” or “guaranteed,” clearly disclose limitations and conditions.

Clearly inform customers when the account terms approved by the bank are less favorable than those advertised.

Clearly disclose when other products or services are not required to obtain credit.

© 2004 Goldman Antonetti