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Compliance Corner: Second Quarter 2002

Unfair or Deceptive Acts: Section 5 of the Federal Trade Commission Act Applies to Banks

On May 30, the Federal Reserve Board released a letter from Chairman Alan Greenspan to Rep. John J. LaFalce confirming the application to banks of the prohibition contained in Section 5 of the Federal Trade Commission Act against unfair or deceptive acts or practices.

For the press release and full text of the letter, visit the Board of Governor's website External Link.

Excerpt from Chair Greenspan's Letter

"The Board believes that the FTC Act's general prohibition against unfair or deceptive acts or practices applies to banks as a matter of law. By its terms, the prohibition does not exclude banks, and thus the banking agencies may use their authority under section 8 of the Federal Deposit Insurance Act (FDI Act) to enforce compliance with the prohibition. The fact that banks are excluded from the FTC's authority to enforce this prohibition merely reflects Congress' preference that the banking agencies – not the FTC – are the appropriate enforcing authorities for banks. Moreover, the fact that the Board may issue rules prohibiting specific practices and the banking agencies may enforce these Board rules does not negate the fact that the general prohibition in the FTC Act applies to banks and that the banking agencies have authority under the FDI Act to enforce any law, including that statutory prohibition. This is fully consistent with 1975 amendments to the FTC Act establishing consumer complaint processes at the banking agencies and requiring the agencies to take appropriate action on complaints about unfair or deceptive practices by banks."

The views expressed in this article are those of the author and are not necessarily those of this Reserve Bank or the Federal Reserve System.