Unfair and Deceptive Acts and Practices - Research Paper Example

 Unfair and Deceptive Acts and Practices Introduction Unfair or deceptive acts or practices (UDAP) are unlawful consistent to Section 5 of the Federal Trade Commission Act (FTC).1 The federal banking authorities have right to implement Section 5 of the FTC Act for the establishments they monitor. If unfair or deceptive acts or practices entail an entity or entities which comes within the purview of more than one enforcement bureau has right to control, then the agencies can organize their enforcement activities. The effectual measures for unfairness and deception are autonomous and do not depend on each other. Reckoning on the facts, a practice can be unfair, deceptive, or both. Federally governed financial establishments have for quiet some time been subject to UDAP laws. On a macroeconomic degree, with consequences that have reflected throughout the economy of the world, many have attempted to improve some of the unrecognized general chances that finally led to the suspending of the credit markets and surge of troubles together denoted as the financial crisis of 2008–2009 (Kupiec, & Nickerson, 2004). In current years, amid interrogations into fast-growing loaning practices and modified examination on the credit card trade, the enforcement of UDAP laws has deepened and there has been a considerable drive by banking governors and Congress to inflict more rigid UDAP measures on financial institutions (Smith & Shahani, 2008). History: In the present years – principally in the stir of the subprime mortgage disaster and costs of voracious lending – assessment measures have grown more scrupulous with regard to forestalling UDAP claims. Section 5 of FTCA has, consequently, been a repeated source of power for limiting bank and thrift exercises that materialize to be unfair or deceptive but differently do not fall into distinct prohibitions under other consumer security laws. On December 18, 2008, the Board applied its power under the Federal Trade Commission Act (FTC Act) to approve a final rule improving Regulation AA (12 CFR Part 227) and the staff comments to the ruling in order to defend consumers from unfair acts or practices with regard to consumer credit card accountings. Besides commanding new essential prerequisites, the regulation also made numerous non-substantive rectifications to Regulation AA. For instance, the Board retooled certain portion headers and amalgamated the consumer grievance provisions in sections 227.1 and 227.2 into a new section 227.1 and lent an e-mail address and Web site where users can put forward their complaints (http://www.federalregister.gov /articles/2010/02 /22/ 2010-2672/unfair-or-deceptive-acts-or-practices, accessed December 17, 2010). This rule was in print in the Federal Register on 29th of January, 2009 (74 FR 5498, January 2009 Regulation AA Rule), and the of use date for the rectifications amendments was July 1, 2010. The Board published its January 2009 Regulation AA Rule mutually with a regulation published by the Office of Thrift Supervision (OTS) bettering 12 CFR Part 535 and a principle brought out by the National Credit Union Administration (NCUA) changing 12 CFR Part 706 (http://www.federalregister.gov/ articles/2010/02/22/2010-2672/unfair-or-deceptive-acts-or-practices, accessed on December 17, 2010). In the year 2009 on May 22nd, the Credit Card Accountability Responsibility and Disclosure Act of 2009 was made into a law (Public Law 111-24, 123 Stat. 1734, 2009). The Credit Card Act mainly improves the Truth in Lending Act (TILA) and launches a number of new substantial and revelation prerequisites to prove fair and lucid practices concerning to open-end user credit programs, which included the credit card accounts. For practical causes, these prerequisites were got rid of from July 1, 2010. The greater part of the Credit Card Act's provisos was effective from February 22, 2010 (http://www.federalregister.gov/articles/2010/02/22/2010-2672/unfair-or-deceptive-acts-or-practices, accessed on December 17, 2010). Current Law The FTC Act forbids unfair or deceptive acts or practices.Congress enlisted this proviso generally in order to render adequate plasticity in the law to deal with alterations in the market and unfair or deceptive practices that may come forth.2 An act or practice may be detected to be unfair where it “causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition. A representation, omission, or practice is 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.”3 The growth and execution of policies and processes in these regions will assist banks to guarantee that products and services are furnished in a style that is evenhandedly, lets educated customer preference, and is steady with the FTC Act. Impact on consumers The execution of the UDAP law had a striking impact on both credit card institutions and consumers and is the most significant revamp of revelation rules and limitations on loaner practices. The UDAP rule was made effective from July 1, 2010. This is roughly 18 months after the rule’s estimated emergence in the Federal Register. In this respect, the Supplementary Information coming with the UDAP rule submits that “the final rule is not intended to suggest that [covered practices] are unfair or deceptive prior to the effective date,” and clears up that “prior to the effective date, institutions may [continue to take] actions that will be prohibited once the final rule is effective.” Apart from sanctioning rectifications to Regulation AA pertaining to unfair or deceptive credit card practices, the Board accepted final changes to Regulation Z, final changes to Regulation DD and future rectifications to Regulation E (Hancock, 2005). The Regulation AA was ordained to make out precise forbidden acts or practices for banks. These forbiddances are laid down in the credit practices rule, which keys out certain amends that banks are disallowed from practicing to implement consumer credit obligations.4 The rule enforces to annexes of credit to users. The rule also sets domestic goods and distinguishes what is omitted from the definition. Actually the rule practices to credit annexes for user purposes, but the distinction between consumer and business intentions is not all the time lucid. The rule furnish some instances to show the differentiations between consumer and business intentions and notify that the extended discussion of this matter in section 3a of the Official Staff Commentary for Regulation Z can be utilized for Regulation AA purposes as well. The rules of thumb also elucidate that loans to obtain real estate are omitted from the range of the credit practices rule. The remedies available for the consumers forbids creditors from letting in certain redresses in credit agreements that are at all times believed unfair or deceptive. The disallowed remedies are: admission of judgment, discharge of immunity, wage designation, and security interest in domestic goods. Conclusion To summarise, it is significant for banks to bear in mind that consumer conformity is not fixed to the precise prerequisites of well-known consumer rules like Regulation Z (Truth in Lending), Regulation CC which deals with Expedited Funds Availability. Banks are also focused to section 5(a) of the FTC Act, which generally forbids unfair or deceptive acts and practices. As the Providian Bank event establishes, the punishments for breach can be significant, particularly if they are persistent and strike a great number of customers. References: 1. Kupiec, P, & Nickerson, D. (2004). Assessing systemic risk exposure from banks and gses under alternative approaches to capital regulation. The Journal of Real Estate Finance and Economics, 28(2,3), Pp. 123-145. 2. Paul F. Hancock, (2005). Unfair or Deceptive Acts or Practices: Would You Recognize Them if You Saw Them?, ABA Bank Compliance, p. 5 3. Smith, BW, & Shahani ,V R. (2008). Unfair and deceptive acts and practices developments in the financial services industry. Banking Law Journal, p.810. 4. http://www.federalregister.gov/articles/2010/02/22/2010-2672/unfair-or-deceptive-acts-or-practices (accessed on December 17, 2010). Read More