Consumer Protection

OFT’s Mental Capacity Guidance for Creditors
Europe, Middle East and Africa

The UK Office of Fair Trading (OFT) has made available Summary of responses to the consultation on ‘Mental Capacity – OFT guidance for creditors’ (March 2012), which aims to provide clarity to creditors on borrowers’ mental capacity in relation to responsible lending and borrowing decisions.

The guidance outlines the steps for creditors to:

  • “[identify] borrowers who might have mental capacity limitations”;
  • “[assist] … customers to be able to understand explanations of credit agreements to enable them to make informed borrowing decisions”;
  • “[reduce] the risk of such consumers being granted unaffordable or clearly unsuitable credit”;
  • “[provide] borrowers with clear information and explanations about credit agreements and any associated risks”;
  • “[give customers] adequate time to weigh up the information and explanations provided in order to better enable them to reach responsible lending decisions”; and
  • “[carry] out sufficiently stringent assessments of their ability to afford to meet repayments in a sustainable manner”.

Further information from the OFT
(Source: OFT)

Deals Website Gives Undertaking
Europe, Middle East and Africa

The UK Office of Fair Trading (OFT) has announced that it has accepted enforceable undertakings from MyCityDeal Ltd (trading as Groupon UK), which commits the company to changing some of its trading practices. An OFT investigation revealed that Groupon UK had breached consumer protection regulations relating to “reference pricing, advertising, refunds, unfair terms, and the diligence of its interactions with merchants”.

Pursuant to the undertaking, Groupon UK must ensure that:

  • “[r]eference prices (adverts that compare an original reference price against a sale price), including savings, are accurate, honest and transparent”;
  • it “carries out an accurate, honest and realistic assessment of a merchant’s ability to provide goods or services in the quantity or time frame suggested”;
  • “[p]roducts display clearly, prominently and on the same screen or before purchase all the limitations which apply to any deal”;
  • it “takes reasonable steps to ensure that health or beauty product claims are supported by adequate substantiation”;
  • “[t]erms and conditions are fair”; and
  • it “applies refunds policies and cancellation rights in accordance with the Distance Selling Regulations”.

Further information from the OFT
OFT’s media release (16 March 2012)
(Source: OFT)

Bank Fined for Excessive Charges on Bond Transactions

The US Financial Industry Regulatory Authority (FINRA) has announced that it has fined Citigroup subsidiary Citi International Financial Services (CIFS) US$600,000 and ordered it to pay more than US$648,000 in restitution and interest to over 3,600 customers affected by CIFS’ excessive markups and markdowns on corporate and agency bond transactions, and for related supervisory breaches. According to FINRA, CIFS was in breach of the “appropriate standards for fair pricing in debt transactions” when it charged markups and markdowns ranging from 2.73% to 10%, which were “excessive given market conditions, the cost of executing the transactions and the value of the services rendered to the customers, among other factors”. Further, CIFS did not use “reasonable diligence” to buy or sell corporate bonds so as to offer as favourable as possible a price to its customers under prevailing market conditions. The FSA has also ordered CIFS to revise its written supervisory procedures regarding supervisory review of markups and markdowns.
FINRA’s media release (19 March 2012)
(Source: FINRA)

Defendants Ordered to Pay for Fraud but Restitution Unlikely
Europe, Middle East and Africa

The UK Financial Services Authority (FSA) has announced that the UK High Court has held that James Kenneth Maynard, Countrywide Land Holdings Limited (Countrywide) and Plateau Development & Land Limited (Plateau) ran a collective investment scheme without permission and illegally sold plots of land to UK customers. According to the FSA, the defendants gave assurances that purchasers would make a significant profit when the land obtained planning permission and was sold, however, the defendants did not intend to seek planning permission or help investors sell their land. Further, the plots were in areas unlikely to ever gain planning permission. Mr Maynard has been banned for life from selling for business purposes in the UK and, along with Countrywide, is required to pay £31,896,194 to the FSA. Plateau has been ordered to pay £918,975. It is unclear how much money will ultimately be returned to investors as the FSA is yet to trace investors’ funds.
FSA’s media release (21 March 2012)
(Source: FSA)

Online Marketing Companies Settle Deception Charges

The US Federal Trade Commission (FTC) has announced that two online marketing companies have agreed to settle FTC charges that they used fake news websites to promote acai berry supplements and so-called “colon cleansers” with false claims that consumers could use them to lose weight. As per the settlement order (15 March 2012) made in the first case, Intermark Communications (trading as Copeac) and several other defendants will “pay more than $1.3 million, which represents revenues they received from deceptive fake news site ads for acai berries, colon cleansers, and other supposed weight-loss dietary supplements; and revenues they received for other products marketed on fake news sites”. Copeac is also required “to monitor all its affiliate marketers when selling any good or service, obtain adequate information about the affiliate marketers it hires, approve their advertisements, and immediately stop processing payments generated by any affiliate marketer using deceptive advertisements”.

As per the settlement order (19 March 2012) made in the second case, defendants Coulumb Media and Cody  Low (also known as Joe Brooks) will have their US$2.7 million judgment suspended after they pay US$170,000 in cash, proceeds from the sale of Mr Low’s car, and a certificate of deposit. The defendants from both cases are required to clarify when their commercial messages are advertisements rather than legitimate journalism, are prohibited from making further misleading claims about health-related products and must disclose “any material connections they have with merchants”.
FTC’s media release (21 March 2012)
(Source: FTC)