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Auto enrollment in ID theft prevention could be UDAP
ALEXANDRIA, Va. (2/25/11)—Automatically enrolling new members with free checking accounts into for-pay identity theft prevention programs, “while only using an opt-out option, appears to be an unfair or deceptive practice and may present problems” under National Credit Union Administration (NCUA) regulations, the NCUA said in a recently released legal opinion. A credit union should not assess account-related charges “unless it is clearly within its contractual rights and has met all the relevant requirements of applicable laws,” the NCUA Associate General Counsel Hattie Ulan added. The letter was in response to an inquiry by Schwartz & Ballen LLP partner Gilbert Schwartz. The credit union’s proposed practice of enrolling members into id theft programs “without their request or express consent” and charging those members an optional monthly fee of $1, while providing them with the option of opting out, could be considered a violation of the Federal Trade Commission’s unfair and deceptive acts and practices (UDAP) provisions. The NCUA said that UDAP states that a financial practice is deceptive if there is a material representation or omission of information “that is likely to mislead a consumer acting reasonably under the circumstances.” Attaching a for-pay service to a so-called “free” checking account would also likely violate portions of the Truth in Savings Act and the NCUA’s own rules on the accuracy of advertising. Overall, credit unions that offer identity theft protection services from third party vendors “should structure or modify their policies, practices, and advertising to avoid or eliminate these types of potential violations,” the NCUA said. For the full legal opinion, use the resource link.
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