We believe that offering a special rate on a CD to customers who simultaneously open a checking account and a CD presents a relatively low risk of being considered an unfair, deceptive or abusive act or practice (UDAAP). However, the characterization of an act or practice as a UDAAP violation is highly subjective and sometimes unpredictable; the CFPB has the power to deem any practice “unfair, deceptive, or abusive,” even if the practice does not violate any law or regulation.

Apparently, this would be a program to attract new checking account customers. While a more conservative approach would be to also allow your existing customers the option of closing their checking accounts and opening new accounts to access the special CD rate, your bank may decide the risk of offering the special CD rate only to new customers is acceptably low, since this practice would not “hinder” your existing customers’ “decision-making” with respect to their existing accounts.

For resources related to our guidance, please see:

• Consumer Financial Protection Act of 2010, 12 USC 5536(a) (“It shall be unlawful for (1) any covered person or service provider . . . (B) to engage in any unfair, deceptive, or abusive act or practice.”)

• Consumer Financial Protection Act of 2010, 12 USC 5531(c)(1) (“The Bureau shall have no authority under this section to declare an act or practice in connection with a transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service, to be unlawful on the grounds that such act or practice is unfair, unless the Bureau has a reasonable basis to conclude that—

(A) the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers; and

(B) such substantial injury is not outweighed by countervailing benefits to consumers or to competition.”)

• CFPB Supervision and Examination Manual, page 175 (“A key question is not whether a consumer could have made a better choice. Rather, the question is whether an act or practice hinders a consumer’s decision-making. For example, not having access to important information could prevent consumers from comparing available alternatives, choosing those that are most desirable to them, and avoiding those that are inadequate or unsatisfactory. In addition, if almost all market participants engage in a practice, a consumer’s incentive to search elsewhere for better terms is reduced, and the practice may not be reasonably avoidable.”)