Even though its exercise must await a Senate-confirmed Director, much has been made of the power of the new Bureau of Consumer Financial Protection to prohibit “unfair, deceptive or abusive acts or practices” with respect to consumer financial products and services.2 What may have gone unnoticed, however, is that banking regulators have regularly used a similar general standard in Section 5 of the Federal Trade Commission (FTC) Act to sanction “unfair and deceptive” consumer credit practices. The recent action of the FDIC in sanctioning World’s Foremost Bank is a reminder that the new powers of the Bureau are not so new at all.

On March 8, 2011, the FDIC issued a consent order against World’s Foremost Bank for violations of Section 5 of the FTC Act and the Truth in Lending Act relating to the credit card practices of the bank. The FDIC assessed a $250,000 civil money penalty against the bank and ordered it to pay approximately $10.1 million in restitution to current and former cardholders.3

Sources of FDIC Authority

Section 5 of the FTC Act (15 U.S.C. § 45) prohibits “unfair or deceptive acts or practices” in commerce. The Act excludes banks, however, from FTC enforcement authority. For some time, banking regulators have interpreted the enforcement ban against the FTC to mean that banking regulators themselves should enforce Section 5 under Section 8 of the Federal Deposit Insurance (FDI) Act (12 U.S.C. § 1818), which permits “the appropriate Federal banking agency” to bring enforcement actions against banks that are “violating or [have] violated, or … [are] about to violate, a law, rule or regulation.”4

The FDIC action against World’s Foremost Bank was based on the general principles contained in a Section 5 advisory issued by the FDIC and the Federal Reserve Board on March 11, 2004, describing the standards by which the agencies would determine that acts or practices in consumer services were unfair or deceptive under Section 5.5 Under the advisory, an act or practice is unfair within the meaning of Section 5 if it “causes or is likely to cause substantial injury to consumers … cannot be reasonably avoided by consumers, and … is not outweighed by countervailing benefits to consumers or to