How to Spot Illegal and Unfair Banking, and How to Report It

Published on June 12, 2020 by the FairShake Team

Of all the businesses we interact with on a daily basis, banks may have the most power to give us grief.

Think about it: Your bank is where you store your savings. Where you get your payment for work direct deposited. Where you take out car and home loans, and make payments for your vehicle and mortgage. Banks are also often the middlemen you have to go through to dispute charges with other businesses.

If a bank breaks the rules — or even makes a mistake — it can have serious repercussions for its customers.

And banks are businesses, which means that in almost all situations, they’re not motivated by doing what’s right or easy for you — they’re motivated by their profits. Just like any other business, a bank can engage in shady or unfair practices with its bottom line in mind, and cause serious harm to consumers.

Whether you’ve ever been victim of unfair practices by a bank or not, it’s important to know how to protect yourself, should your bank ever do something that’s shady or against the law. Our guide will teach you how to spot things like unfair practices and discrimination, and give you a step-by-step guide to reporting a bank and getting justice.

Common Complaints About Banks and Lenders

To put it simply, there are a ton of laws that govern banks, and help protect consumers from unfair or shady practices by financial institutions. We’ll try to cover a broad swath of them here, but know that this is not an exhaustive list of every complaint-worthy thing a bank might do.

Some of the most common complaints consumers make against banks are these:

  • They charge hidden fees
  • They manipulate debit processing to net more overdraft fees
  • They assess unauthorized charges
  • They misrepresent or illegally increase interest rates
  • They take too long to post payments or deposits to accounts
  • They open new accounts without customers’ consent
  • They transfer funds between accounts without customers’ consent or approval

All of these things are illegal. To understand your rights when going up against a bank, it’s helpful to know some of the consumer protection laws that apply to financial institutions. Here are some of the more expansive laws that are good to know.

Section 5 of the Federal Trade Act

The Federal Trade Act is the law that established the Federal Trade Commission (FTC), which oversees and enforces all parts of the law.

Section 5 outlines how businesses need to treat consumers fairly, which means they can’t try to deceive them, or put them in harm’s way either intentionally or unintentionally. Section 5 outlaws any business practices that are likely to cause injury to consumers. It also bans businesses from making any statements that might mislead consumers.

“Truth in Advertising” rules are also contained in Section 5, and prohibit any false advertising by banks and financial institutions, including bait-and-switch schemes and hidden fees.

Example of this law in action: Say a bank offers a totally free, no-fees checking account. Six months after opening the account, you notice the bank is charging you a monthly maintenance fee. This goes against the advertised terms of the account, and would be prohibited under Section 5 of the Federal Trade Act.

The Gramm-Leach-Bliley Act (GLBA)

The GLBA, sometimes known as the Financial Modernization Act, requires financial institutions to tell you, in writing, how they will keep your personal information safe and secure. That written explanation needs to be kept up-to-date and publicly available for anyone to read.

It also restricts how banks and other financial institutions can share customers’ personal information with third parties, protecting customers’ privacy and identity.

Example of this law in action: Say a bank promises not to share its customers’ personal and financial information outside of its own network of companies. Then, it’s discovered that that information is shared online or sold to for-profit companies. That would be a violation of the GLBA (and almost the exact violation that got Venmo fined by the FTC in 2018). 

Truth In Lending Act (TILA)

The Truth in Lending Act (TILA) protects consumers from banks where they secure home, auto, business, and other types of loans. The Act requires lenders to clearly and concisely disclose information about their terms and costs, so consumers are able to accurately calculate the full cost of a loan before they sign for it.

Example of this law in action: Say you’re applying for an auto loan to purchase a new car. The bank tells you what your interest rate will be, but doesn’t disclose the length of the loan, making it impossible for you to calculate what the total cost of the loan will be. That’s an extreme example, but would definitely violate TILA.

Fair Credit Billing Act (FCBA)

The Fair Credit Billing Act (FCBA) is actually an amendment that was added onto TILA. It protects consumers from unfair billing practices by creditors. It also gives consumers an avenue to dispute unfair or inaccurate credit charges without accruing interest in the process by requiring creditors to investigate and address billing disputes within two billing cycles.

Example of this law in action: Say you used your credit card to pay for a dinner out, and the restaurant accidentally charged your card twice. According to the FCBA, once you dispute the incorrect charge, your credit issuer must investigate and resolve your dispute within two billing cycles (around 60 days), and during that time, they can’t ask you to pay for the disputed charge or charge you interest for not paying it.

Consumer Financial Protection Act

In 2011, the Consumer Financial Protection Act established oversight to protect consumers from aggressive and predatory bank behavior that caused the housing bubble to burst and the ensuing financial crisis of 2008. The Act sought to remove discrepancies between state and federal lending laws, and create more cohesive, comprehensive protections for consumers.

Example of this law in action: Since it was created, the CFPA has investigated predatory payday lenders, prosecuted banks for unfair and deceptive overdraft processes, and investigated the 2017 Equifax data breach.

Under the Trump administration, however, no new funding has been requested for the Consumer Financial Protection Bureau, forcing the agency to scale back its protective services. The future of protections offered by this law remain uncertain.

Anti-Discrimination Laws

Anti-discrimination laws come from a number of different pieces of legislation. One that definitely applies to banks is the Fair Housing Act, which prohibits lenders from denying mortgages to anyone based on discrimination.

The patchwork of anti-discrimination laws that exists ensures that banks can’t discriminate in offering loans or services based on race, color, religion, age (provided the customer is of legal age to enter into a contract), sex, handicap, familial status, or national origin. 

Example of this law in action: In 2018, the Connecticut Fair Housing Center and National Consumer Law Center filed a federal lawsuit alleging that Liberty Bank was engaging in a practice called “redlining” — that is, they were denying loans and services to anyone who applied who lived in certain neighborhoods with higher numbers of African-American and Latinx residents. The lawsuit alleged that Liberty Bank was intentionally locating branch offices and mortgage loan officers in only majority-white neighborhoods, as well as treating loan applicants differently based on the color of their skin. This violated anti-discrimination laws, and in 2019, Liberty Bank was forced to pay nearly $16 million to settle the lawsuit.

Please note that while the laws listed here cover a wide variety of protections that are in place for consumers, this list isn’t exhaustive. These are just some of the laws that prevent banks from engaging in unfair behavior. If your bank has done something that seems shady but isn’t covered by this list, you can still file a complaint and trigger an investigation into your bank’s practices. Read on to learn how.

How to File a Complaint Against Your Bank

The most difficult thing about filing a complaint against a bank is there isn’t just one agency that handles these types of complaints. Where you go to file your complaint will depend on the type of bank or credit union you use. Luckily, there are some simple tools to help you find the right agency that has the correct oversight for your financial institution.

Step 1: Escalate Your Complaint at Your Bank Itself

Before reporting your bank to any agency, you should attempt to resolve the complaint with the bank itself. Start by speaking to a customer service representative. Calmly explain your complaint in as much detail as possible, and make sure to include how you’d like to see the problem resolved.

You may need to escalate your complaint to a branch manager or a bank manager. You may also need to go to a branch in person to speak to a manager.

If a bank representative can’t or won’t resolve your complaint, you can move on to Step 2.

Step 2: Report the Bank to the Federal Reserve

A good place to start is with the Federal Reserve, because this oversight agency has a simple, straightforward system for filling out a complaint form online

The Federal Reserve looks into every complaint it receives about a bank, but it doesn’t have the authority to resolve or act on all of them. That’s why you shouldn’t stop there — move on to Step 3.

Step 3: Find Your Bank’s Regulatory Agency

Different types of banks are regulated by different organizations and regulatory agencies. You’ll need to find the right one to ensure that the agency that receives your complaint is able to resolve it. 

Luckily, the Federal Financial Institutions Examination Council has created a simple tool for this. Simply visit their website and enter the name of your bank, and the site will return the appropriate federal bank regulatory agency. If you use a credit union instead of a bank, you’ll need to visit the National Credit Union Administration’s consumer complaint page.

Once you have the correct regulatory agency, visiting their website or contacting them by phone or email can help you get your complaint started.

Optional Step 4: Contact the Consumer Finance Protection Bureau

This step isn’t strictly necessary, but it’s another avenue for reporting a bank if the others aren’t getting you the resolution you’re looking for. You can go to the Consumer Finance Protection Bureau website to fill out a complaint form, attaching any evidence or supporting documents you have about your complaint. The CFPB will then forward your complaint to the bank, and work on your behalf to get a response from the bank, usually within a few weeks.

CFPB complaints are all published on the Bureau’s website, which adds more accountability and encourages banks to work to resolve them quickly.

Reporting Your Bank Isn’t Working? Consumer Arbitration Might.

It’s possible that reporting your bank for unfair practices won’t resolve your problem. The system is set up to protect consumers, but it isn’t perfect, and sometimes customers need other ways to get justice.

One way is through consumer arbitration. Arbitration works a little bit like the court system, but it tends to be faster and cheaper than a lawsuit. You and the bank will each explain your side of the dispute to an independent third-party called an arbitrator, who will investigate both sides and decide who’s in the wrong. While arbitration is usually less complex than going through the courts, it can still be a daunting process, and that’s where we come in. FairShake can help you navigate the arbitration process to get to a fair resolution.

Ready to get your fair shake? Read about how FairShake can help you get justice against banks — or any other companies — that aren’t treating their customers right.

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