It's Not Nice To Deceive Your Customers

Here at Compliance Action, we have been warning you for some time about unfair and deceptive trade practices. In fact, it has become one of this editor's basic themes. Although there were times when I felt I was crying alone in the wilderness, I have now been joined by the Comptroller of the Currency and the San Francisco District Attorney. This is lofty company, and the message to financial institutions should be clear: it is not nice to deceive your customers. More than that, it is against the law. Don't worry about which law - we'll find one. Pundits may debate whether the OCC had sufficient authority under the Federal Trade Commission Act. The fact is that no matter what your thoughts on this issue, the OCC pulled it off. This is an agreement "willingly" signed by the target of the enforcement. As such it sets a precedent. The OCC's authority under the FTC Act is unchallenged and the agency's attitude has been made crystal clear.

Providian is not in a good position to challenge this enforcement action. No-one can look at their marketing scripts and product strategies and conclude that they were playing fair. Their strategy was to withhold information that the consumer needed to make a reasoned decision and to misrepresent the product features. This is much, much worse than the old, reviled image of the paternalistic banker. This is not playing fair. This is underhanded. In fact, it is unfair and deceptive. The worst part of this case is that the evidence makes very clear that the bank intended to do precisely what it did: deceive customers into purchasing a product that was not as promised.

Small wonder that the Comptroller took the unusual step of issuing a statement to accompany the consent order. Under more ordinary circumstances, regulators let an enforcement order speak for itself. In this case, however, the Comptroller issued a statement to make absolutely clear the level of his outrage. In his view, Providian violated the trust of its customers.

Why be concerned if you aren't doing quite what Providian was doing? There is more to this message than the immediate and obvious if you look at this enforcement action in the larger context of compliance developments. Consider the political environment of compliance right now and the warning signs that have been visible on the horizon.

First, there is privacy - one of the hottest issues right now. And what was one of the Comptroller's key concerns about banks protecting customer privacy? Trust. Over and over, Hawke went on the record reminding banks that the trust of their customers was one of their most important assets.

Banks did not take adequate steps to ensure their customers' privacy. In fact, some banks invaded it - without telling the customer. So Congress stepped in and imposed a fix. As a result, we have Regulation P, and probably more to come.

This should not have come as a surprise. Prior to this action, there were enough speeches, directives, and other warnings from regulators to fill a compliance bookshelf. The message was clear. It was up to banks to listen to it and heed it.

Then there is predatory lending. What is predatory lending if not a lender who knows more taking advantage of a consumer who knows less? Isn't that unfair - and possibly deceptive? Concerns about predatory lending are also hot - so hot that the steam is rising out of Congress when the issue is discussed. We are getting clear warning signals on this one too.

The message is clear. The way banks do business is as important as the business itself. Banks are businesses that should have a conscience. There is more to banking than the bottom line. There is trust and respect. These must run in both directions. You must trust and respect the customer as much as you expect the customer to trust and respect you. If you don't, you won't have their business.

Copyright © 2000 Compliance Action. Originally appeared in Compliance Action, Vol. 5, No. 8, 7/00