Caveat Emptor or Caveat Vendor? The Evolution of Unfairness in Federal Consumer Protection Law

Under the Federal Trade Commission’s original interpretation of unfair or deceptive acts or practices law, financial institutions could feel some sense of security that, if they provided a consumer with a clear understanding of a proposed transaction, the burden was on the consumer to determine whether the transaction was in his or her best interest. Recent actions taken by the Consumer Financial Protection Bureau and prudential regulators, however, suggest that regulators may be creating an expectation that institutions put some conception of consumers’ interests first, even when there is no clear assumption of fiduciary or quasi-fiduciary responsibility.

This move away from traditional arms-length dealing would place financial institutions in a difficult position: not only would they have to investigate and weigh aspects of a consumer’s personal and financial life unrelated to the transaction, but they also may have to substitute their judgment for the consumer’s in determining the consumer’s best interest—a process almost certainly designed to lead to sub-optimal outcomes for all involved. The authors of this article explore the issues and advise financial institutions to carefully watch future regulatory guidance and enforcement actions for further signs that regulators are imposing quasi-fiduciary duties upon creditors.

Originally published in The Banking Law Journal; reprinted with permission.