Tests For Unfair or Deceptive Trade Practices
It's hot - not just outside, but in the rooms where product and marketing decisions are made. It is hottest when fee income is being discussed. The present competitive environment for banking creates temptations for financial institutions that rival the decision to taste the apple in the Garden of Eden.
Just as financial institutions are tempted to indulge in forbidden practices, Attorneys General are looking and hoping for a really good case. There is no dearth of eager prosecutors out there. So never has the territory been more dangerous.
The OCC's advisory letter AL 2002-3 includes guidance on what institutions should do to prevent falling into the trap of UDTPs. These readily translate into training information and audit procedures.
Use the points below for both purposes.
Steps To Avoid Unfair & Deceptive Trade Practices
- Information provided to consumers should be complete, accurate and sufficiently clear to avoid deceiving a reasonable consumer. Test information and disclosures that you provide to consumers for clarity, understandability, and completeness.
- Tell the truth - nothing more and nothing less. Don't say "guaranteed" or "lifetime" unless it is really, really true. Review all promotional materials for use of misleading or overly-optimistic terms.
- Be clear and up-front about accounts for which the institution reserves the right to change terms. Contracts are always a two-way street. When the institution plans to change terms, review contracts and disclosures to be certain this has been provided for in the contracts and disclosed to customers.
- Don't use a feature as a product teaser if that feature is conditional or may be negated by how the customer selects or uses the product. In audits, compare fees, charges, and any adverse action to promises and representations made when the product was sold.
- Review all sales scripts, especially telemarketing scripts, for clarity and accuracy. Review these scripts and compare all promises and representations to the actual terms and conditions of the product.
- Be clear and fair about free trial periods. Disclose them fully and make sure the customer knows when and how to cancel to avoid fees. Survey customers who have paid fees on this product to find out whether they understood and knowingly accepted the fee. Also check consumer complaints for allegations about this.
- Any third-party contracts should provide for consumer protection from UDTPs. Review all such business arrangements, such as telemarketers or third-party service providers, for compliance with the terms of the contract. Also look for and try to avoid any incentives for the third parties to be deceptive in spite of your instructions.
- Everything that you tell or send to consumers should fully comply with any applicable regulatory requirement. A regular compliance review of disclosures helps to establish the institution's clean practices.
- Consumers tend to complain when they are dissatisfied or frustrated. Give consumer complaints close attention to identify possible UDTPs. Regularly review consumer complaints to test this.
Copyright © 2002 Compliance Action. Originally appeared in Compliance Action, Vol. 7, No. 5, 5/02
First published on 05/01/2002