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Monday, April 28, 2014

A Tale of Two Approaches to UDAP Enforcement: FDIC, CFPB

By: ABIA Outside Counsel Adam D. Maarec, McIntyre & Lemon, PLLC

On Friday the Federal Deposit Insurance Corporation (FDIC) issued a press release outlining the 40 orders it issued over the last month. Tucked away in the list of actions is a consent order, order for restitution, and a $1 million civil money penalty against World's Foremost Bank, the issuer of a retail credit card for Cabela’s, Inc., a retailer of sporting goods, for violating the Federal Trade Commission Act's prohibition on unfair and deceptive acts and practices. While the FDIC's order does not make factual allegations, the order for restitution identifies the following problematic practices:

• Indicating an identity theft protection product is required, enrolling customers in the product based on misinformation, and enrolling customers without their knowledge;

• Charging interest during a 12-month interest-free period;

• Not providing retailer points as promised.

The FDIC's order requires the bank to stop engaging in unfair and deceptive practices, comply with the FDIC's guidance on unfair and deceptive practices, enhance its compliance management systems including employee training, and undertake internal compliance reviews. The FDIC's order does not put a value on the required restitution.

The Consumer Financial Protection Bureau (CFPB) has issued similar enforcement actions against banks for deceptive practices in connection with credit card promotions and add-on products, including identity theft protection. But the CFPB's actions are typically promoted with a press release and a public showing of the total relief to be provided, including the value of any restitution.

For example, the CFPB's latest enforcement action against a bank for allegedly deceptive sales of credit card debt protection and identity theft products touted a $727 million price tag, of which $20 million was for civil money penalties and the remainder was restitution. The CFPB holds itself out as a cop on the beat and is using high-profile enforcement actions both as a deterrent and as a political tool to demonstrate its value to the public. The FDIC's quieter approach in addressing, resolving, and valuing similar violations, albeit smaller in scale, is notable.