The Fair Folk are obsessed with political disputes between the rulers of Otherworld. What seems to us erratic behavior is in fact the collateral effects of their elaborate schemes.
There are criminals in Otherworld just as in this one. The Seelie are the respectable fey and the Unseelie are the criminals. Naturally they would behave badly in this world; they behaved badly in Otherworld too.
Which means, several of them have a bounty on them from the King of Otherworld. If you can catch one, you will be granted riches untold, a bountiful harvest, or whatever.
The Fair Folk are mischievous tricksters, but they cause nothing more than minor mischief and annoyance, and side with good when the time comes.
The Fair Folk are built up to be inscrutable, dangerous mischief makers by the townsfolk, but when you actually meet them, turn out to be no different than humans. It turns out that it's the humans that are being oppressive dicks to them, using those rumours as justifications.
Double Subverted: The Fair Folk are mischevious tricksters, but cause nothing more than minor mischief and annoyance... until the opportunity to wreak true mayhem arises, and they take it with gleeful abandon.
Parodied: The Fair Folk are ridiculous, Sugar Bowl fairies whose pitiful attempts to cause mischief never cross beyond Poke the Poodle.
Zig Zagged: Some fairies are evil, others aren't. Some fairies may swing alignments depending on the situation.
Averted: Fairies are many things, but cruelly malicious is not one of them.
Enforced: The work is an adaptation of old myths, from when fairies were genuinely feared.
Exploited: "Next time the rent collector comes for our grain, let's tell him about all the fairy gold hidden in that mound over there. Bet we never see him again."
The ruler of the Fair Folk, whether due to morality or fear of retribution, keeps a tight rein on her followers.
The mortals in this town all wear Iron jewelry wherever they go, hang iron knives and saints relics on their beds and ring their ironChurch bells continuously. In fact, their whole specialty is iron-smithing. They only sleep in daylight rather than risk being caught asleep in the dark. They constantly inspect their mills and kilns for unexpected "gifts". And all new babies are delivered in the church and right away baptized with holy water lest they be abducted. Furthermore, they keep a list of the true names of every fey in Fairy Landcopied in triplicate in the town archives as a deterrent. They never make deals with strangers, especially those of peculiar appearance; and they certainly don't wish to be given treasure. And they never ever go into The Lost Woods. The Fair Folk aren't gonna get the drop on them.
Discussed: "You ever read the old myths about fairies? They weren't always nice..."
Conversed: "Why is it that when people want to make fairy tales Darker and Edgier, they always make the fairies old-fashioned "evil" ones?
Reconstructed: The Fair Folk adapt to the modern age quite nicely, adding ruthless hacking and deadly Magitek weapons to their arsenal.
Played For Laughs:
The Quirky Town of mortals and The Fair Folk have been traditionally playing practical jokes on each other for generations, know each other's strength's and weaknesses, and regard each other as Friendly Enemies. When the Fair Folk put the Come Hither spell on a mortal, they will take him to a pub in Otherworld, get him drunk, and make fun of him for being outwitted, and then release him with no worse then a hangover. When a mortal catches a fairy in the open while the sun is out, he will take him to the mortals' pub so the mortals can make fun of him and then release him at sunset.
Mortals and Fair Folk have been in a state of feuding for thousands of years and regularly do nasty things to each other. But a mortal and a fairy maiden (or vice-versa) fall in love despite the enmity between the two groups. Both have to learn to love and trust each other despite the fact that each has been taught that the other race was evil.