Fed's Greenspan: More Bank
Fair-Trade Regulations Unneeded
By Rebecca Christie, Dow Jones Newswires 5/30/2002

Greenspan was responding to a March 25 letter from U.S. Rep. John LaFalce, D- N.Y. , and ranking member of the committee, asking the Fed for regulations spelling out how the Federal Trade Commission Act applies to banks. Banks are exempt from FTC supervision, but bank regulators are allowed to enforce the law as it applies to financial institutions.

"The fact that banks are excluded from the FTC's authority...merely reflects Congress' preference that the banking agencies - not the FTC - are the appropriate enforcing authorities for banks," Greenspan wrote. "Given that the FTC Act's prohibition against unfair or deceptive practices applies to banks as a matter of law, the Board believes that a rulemaking affirming the prohibition's applicability to banks is not required."

LaFalce didn't seem disappointed by Greenspan's response, although his initial letter said, "The benefits of regulation are clear." In a response Thursday, LaFalce said he was pleased with the Fed's pronouncement that banks aren't exempt from fair trade rules, and that regulators are prepared to enforce them.

"The Board's reluctance to issue broad regulations defining unfair and deceptive practices have flourished, especially with regard to credit cards," LaFalce said. "As a result, a variety of unfair and deceptive practices have flourished, especially with regard to credit cards."

Other banking regulators also weighed in on fair trade laws and how they apply to banks. Comptroller of the Currency John Hawke praised both LaFalce and Greenspan for wading into the issue.

"I want to congratulate Congressman LaFalce for his leadership in focusing attention on an important issue involving both consumer protection and bank safety and soundness," Hawke said in a statement. "I also want to commend the Federal Reserve and the Federal Deposit Insurance Corporation for confirming the OCC's long-held view that the banking agencies have authority to use their enforcement powers to assure compliance with the Federal Trade Commission Act's prohibition on unfair and deceptive practices."

The Federal Deposit Insurance Corporation put out an advisory Thursday saying that FTC rules did apply and that it would take enforcement actions where appropriate.

"To avoid misunderstanding about the applicability of the FTC Act, this letter is intended to clarify that the FTC Act's prohibition against unfair and deceptive trade practices does apply to your institution, and to its subsidiaries and third-party contractors," the FDIC wrote in a letter to bank executives.

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