Unfair trade practices involve using deceptive, fraudulent, or unethical methods to further a business. (These practices are commonly called misleading or unfair business practices.) They include false advertising, misrepresentation, tied selling, and failing to comply with regulations. Under consumer protection laws, they are illegal and can lead to compensatory or punitive consumer damages. In the telemarketing industry, these practices can include misleading sales pitches, false promises, and failure to disclose essential terms. Understanding these practices is foundational for compliance.
How “Unfair Trade Practices” Are Defined
Unfair practices cause substantial injury to consumers. The injury can be monetary or cause a significant risk of concrete harm. The Federal Trade Commission Act (FTC Act) states that an act is unfair if it:
- Causes substantial injury to consumers.
- Consumers cannot reasonably avoid it.
- Countervailing benefits to consumers or competition do not outweigh it.
Substantial injury in telemarketing often involves consumers losing money due to hidden fees or unauthorized charges. Consumers cannot reasonably avoid these injuries if the telemarketer withholds crucial information or misrepresents the product or service. For example, failing to disclose recurring charges in a telemarketing sale prevents consumers from making informed decisions. The FTC Act’s standards identify and lay out penalties. As established by statutes, regulations, or judicial decisions, public policy may also determine whether an act is unfair.
Understanding Deception
Deceptive practices mislead consumers. The FTC Act outlines that a practice is deceptive if:
- A representation, omission, or practice misleads or is likely to mislead the consumer.
- The consumer’s interpretation is reasonable under the circumstances.
- The misleading representation, omission, or practice is material.
In telemarketing, deceptive practices include making false claims about a product’s benefits or failing to disclose all terms of an offer. Telemarketers may use high-pressure tactics to rush consumers into decisions without giving them time to understand the terms. Misleading pricing schemes, such as advertising low rates but hiding additional fees, are also deceptive. Material information affects a consumer’s decision regarding a product or service. Express claims are presumed material, and omissions can be material if the institution knows the consumer needs the omitted information to evaluate the product or service. To comply with the FTC Act, telemarketers must ensure that their representations are clear, accurate, and not misleading.
Standards Across Different Industries
Unfair and deceptive practices can violate other federal or state statutes. The Truth in Lending Act (TILA) and the Truth in Savings Act (TISA) require clear disclosures of costs and terms. The Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA) prohibit discrimination in credit transactions. Practices targeting or having a disparate impact on protected classes may violate these acts and the FTC Act. Telemarketers must ensure their practices do not unfairly target vulnerable populations or mislead consumers.
Examiners review internal policies, procedures, and controls to determine whether a bank complies with section 5 of the FTC Act. They assess advertising, promotional materials, disclosures, servicing, and collections to identify potential unfair or deceptive acts. Banks should review consumer complaints to identify and correct potential compliance problems. Compensation programs for employees and third-party contractors should avoid incentives for unfair or deceptive practices.
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