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On March 11, 2004, the Board of Governors of the Federal Reserve System (Board) and the Federal Deposit Insurance Corporation (FDIC) issued guidance outlining standards they will apply to determine when acts or practices by state-chartered banks are unfair or deceptive.1 Such practices are illegal under section 5 of the Federal Trade Commission Act (FTC Act).
To respond to questions raised by institutions under the agencies' supervision, the Board and the FDIC jointly issued a statement that provides guidance on steps that state-chartered banks can take to avoid engaging in unfair or deceptive acts or practices. The approach outlined in the statement is based on long-established standards used by the FTC to enforce section 5 of the FTC Act against non-bank entities.
The joint statement outlines standards for state-chartered banks that are consistent with the March 2002 standards articulated by the OCC for national banks in Advisory Letter 2002-3, Guidance on Unfair or Deceptive Acts or Practices2, and are guided by the Federal Trade Commission's December 1980 FTC Policy Statement on Unfairness3 and October 1983 FTC Policy Statement on Deception.4 These standards will be applied to determine when specific acts or practices by state-chartered banks are unfair or deceptive.
High Risk Areas
The guidance addresses areas with the greatest potential for unfair or deceptive acts or practices. These areas include advertising and solicitations, customer agreements and disclosures, loan servicing and collection practices, and managing and monitoring employees and third-party service providers.
In response to questions raised by the institutions under the agencies' supervision, the joint statement also provides guidance on best practices that state-chartered banks are encouraged to use to avoid engaging in certain unfair or deceptive acts or practices. It outlines specific measures that banks should consider incorporating into their policies and procedures to protect consumers and minimize their own risk.
To avoid engaging in unfair or deceptive activity, institutions are encouraged to adopt the following practices.
State-chartered financial institutions should review how they plan to implement procedures to conform to the joint guidance on unfair or deceptive acts or practices. Adopting the suggested best practices might be the easiest way to effect compliance and minimize risk. As always, staff will also need to be trained to ensure their understanding of the guidance.
If you have any questions regarding this article, please contact Supervising Examiner Eddie L. Valentine or Robin P. Myers, Consumer Compliance/CRA Examinations Unit Manager, through the Regulations Assistance Line at (215) 574-6568.
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.