Can Your Bank Forestall New Regs?

Griffin, Lucy, ABA Banking Journal

Yes, by understanding what consumers perceive to be unfair or deceptive practices

The legal definition of an unfair or deceptive trade practice is found in the Federal Trade Commission Act. But an easier way to understand the concept is to look at practices from the customer's perspective. A practice may be unfair or deceptive when what the customer expects will happen is different from what the vendor intends will happen.

Classic examples of unfair or deceptive practices include bait and switch techniques in advertising and selling; hiding important contract conditions in small print; or simply saying one thing and doing another. There are numerous examples of banking practices that consumers have considered unfair over the years. In fact, most of the bank compliance laws and regulations deal with practices that could be seen as unfair or deceptive.

History furnishes a ready example. When interest rates skyrocketed in the early 1980s, lenders designed the "discounted variable rate loan." Because there was--at that time--no explicit guidance in the Official Staff Commentary to Regulation Z, lenders disclosed an APR based on 30 years at the initial discounted or "teaser" rate. As a result, borrowers had no idea what their loan would really cost.

The official commentary now instructs lenders to prepare a blended-rate APR using the teaser rate for only the period of time that the loan would be discounted and the market rate for the remainder of the loan.

Deposit practices have also led to compliance regulations. Again, history holds the lesson. When some banks instituted the technique of paying interest only on the investable balance of deposit accounts, both customers and Congress got angry. The Truth in Savings Act, with its ban on the investable balance practice, is the direct result.

And, then, the Expedited Funds Availability Act responded to customer frustration with what they considered to be excessive holds placed on their deposits by banks.

History repeats itself

Why is this walk through Compliance Memory Lane important for bankers today?

The industry faces rising consumer concerns about practices old and new that consumers consider unfair and deceptive. When consumers don't like a banking …

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Publication information: Article title: Can Your Bank Forestall New Regs?. Contributors: Griffin, Lucy - Author. Journal title: ABA Banking Journal. Volume: 91. Issue: 10 Publication date: October 1999. Page number: 28. © 2009 Simmons-Boardman Publishing Corporation. COPYRIGHT 1999 Gale Group.

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