{"id":224,"date":"2014-09-17T00:42:03","date_gmt":"2014-09-17T00:42:03","guid":{"rendered":"https:\/\/courses.candelalearning.com\/buslegalenv\/?post_type=chapter&#038;p=224"},"modified":"2021-03-06T16:42:47","modified_gmt":"2021-03-06T16:42:47","slug":"27-1-the-federal-trade-commission-powers-and-law-governing-deceptive-acts","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/chapter\/27-1-the-federal-trade-commission-powers-and-law-governing-deceptive-acts\/","title":{"raw":"The Federal Trade Commission: Powers and Law Governing Deceptive Acts","rendered":"The Federal Trade Commission: Powers and Law Governing Deceptive Acts"},"content":{"raw":"<div class=\"bcc-box bcc-highlight\">\r\n<h3>Learning Objectives<\/h3>\r\nBy the end of this section, you will be able to:\r\n<ul id=\"mayer_1.0-ch52_s02_l01\" class=\"im_orderedlist\">\r\n \t<li>Describe the general powers of the Federal Trade Commission.<\/li>\r\n \t<li>Describe the general principles that guide laws and regulations against unfair and deceptive trade practices.<\/li>\r\n<\/ul>\r\n<\/div>\r\n&nbsp;\r\n<div class=\"im_section\">\r\n<div id=\"mayer_1.0-ch49_s01_s01\" class=\"im_section\">\r\n<h2 class=\"im_title im_editable im_block\">General Powers of the Federal Trade Commission<\/h2>\r\nCommon law prohibited a variety of trade practices unfair either to competitors or to consumers. These included passing off one\u2019s products as though they were made by someone else, using a trade name confusingly similar to that of another, stealing trade secrets, and various forms of misrepresentation. In the Federal Trade Commission Act of 1914, Congress for the first time empowered a federal agency to investigate and deter acts of unfair competition.\r\n\r\nSection 5 of the act gave the Federal Trade Commission (FTC) power to enforce a law that said \u201cunfair methods of competition in commerce are hereby declared unlawful.\u201d By \u201cunfair methods of competition,\u201d Congress originally intended acts that constituted violations of the Sherman and Clayton Antitrust Acts. But from the beginning, the commissioners of the FTC took a broader view of their mandate. Specifically, they were concerned about the problem of false and deceptive advertising and promotional schemes. But the original Section 5 was confining; it seemed to authorize FTC action only when the deceptive advertising injured a competitor of the company. In 1931, the Supreme Court ruled that this was indeed the case: an advertisement that deceived the public was not within the FTC\u2019s jurisdiction unless a competitor was injured by the misrepresentation also. Congress responded in 1938 with the Wheeler-Lea Amendments to the FTC Act. To the words \u201cunfair methods of competition\u201d were added these words: \u201cunfair or deceptive acts or practices in commerce.\u201d Now it became clear that the FTC had a broader role to play than as a second agency enforcing the antitrust laws. Henceforth, the FTC would be the guardian also of consumers.\r\n\r\nDeceptive practices that the FTC has prosecuted are also amenable to suit at common law. A tire manufacturer who advertises that his \u201cspecial tire\u201d is \u201cnew\u201d when it is actually a retread has committed a common-law misrepresentation, and the buyer could sue for rescission of the contract or for damages. But having a few buyers sue for misrepresentation does not stop the determined fraudster. Moreover, such lawsuits are expensive to bring, and the amount of damages awarded is usually small; thus law actions alone cannot adequately address deliberately fraudulent practices.\r\n\r\nThrough Section 5, however, the FTC can seek far-reaching remedies against the sham and the phony; it is not limited to proving damages to individual customers case by case. The FTC can issue cease and desist orders and has other sanctions to wield as well. So do its counterpart agencies at the state level.\r\n\r\nAs an administrative agency, the FTC has broader powers than those vested in the ordinary prosecutorial authority, such as the Department of Justice. It can initiate administrative proceedings in accordance with the Administrative Procedure Act to enforce the several statutes that it administers. In addition to issuing cease and desist orders and getting them enforced in court, the FTC can seek temporary and permanent injunctions, fines, and monetary damages and promulgate <span class=\"im_margin_term\"><span class=\"im_glossterm\">trade regulation rules<\/span><\/span> (TRRs). Although the FTC\u2019s authority to issue TRRs had long been assumed (and was approved by the US court of appeals in Washington in 1973), Congress formalized it in 1975 in the FTC Improvement Act (part of the Magnuson-Moss Warranty Act), which gives the FTC explicit authority to prescribe rules defining unfair or deceptive acts or practices.\r\n\r\nA TRR is like a statute. It is a detailed statement of procedures and substantive dos and don\u2019ts. Before promulgating a TRR, the commission must publish its intention to do so in the <em class=\"im_emphasis\">Federal Register<\/em> and must hold open hearings on its proposals. Draft versions of a TRR must be published to allow the public to comment. Once issued, the final version is published as part of the <em class=\"im_emphasis\">Code of Federal Regulations<\/em> and becomes a permanent part of the law unless modified or repealed by the FTC itself or by Congress\u2014or overturned by a court on grounds of arbitrariness, lack of procedural regularity, or the like. A violation of a TRR is treated exactly like a violation of a federal statute. Once the FTC proves that a defendant violated a TRR, no further proof is necessary that the defendant\u2019s act was unfair or deceptive. Examples of TRRs include the Retail Food Store Advertising and Marketing Practices Rule, Games of Chance in the Food Retailing and Gasoline Industries Rule, Care Labeling of Textile Wearing Apparel Rule, Mail Order Merchandise Rule, Cooling-Off Period for Door-to-Door Sales Rule, and Use of Negative Option Plans by Sellers in Commerce.\r\n\r\n<\/div>\r\n<\/div>\r\n<div id=\"mayer_1.0-ch49_s01_s02\" class=\"im_section\">\r\n<h2 class=\"im_title im_editable im_block\">General Principles of Law Governing Deceptive Acts and Practices<\/h2>\r\nWith a staff of some sixteen hundred and ten regional offices, the FTC is, at least from time to time, an active regulatory agency. The FTC\u2019s enforcement vigor waxes and wanes with the economic climate. Critics have often charged that what the FTC chooses to investigate defies common sense because so many of the cases seem to involve trivial, or at least relatively unimportant, offenses: Does the nation really need a federal agency to guard us against pronouncements by singer Pat Boone on the efficacy of acne medication or to ensure the authenticity of certain crafts sold to tourists in Alaska as \u201cnative\u201d? One answer is that through such cases, important principles of law are declared and ratified.\r\n\r\nTo be sure, most readers of this book, unlikely to be gulled by false claims, may see a certain Alice-in-Wonderland quality to FTC enforcement. But the first principle of FTC action is that it gauges deceptive acts and practices as interpreted by the general public, not by the more sophisticated. As a US court of appeals once said, the FTC Act was not \u201cmade for the protection of experts, but for the public\u2014that vast multitude which includes the ignorant, the unthinking, and the credulous.\u201d The deceptive statement or act need not actually deceive. Before 1983, it was sufficient that the statement had a \u201ccapacity to deceive.\u201d According to a standard adopted in 1983, however, the FTC will take action against deceptive advertising \u201cif there is a representation, omission or practice that is likely to mislead the consumer acting reasonably in the circumstances, to the consumer\u2019s detriment.\u201d Critics of the new standard have charged that it will be harder to prove deception because an advertisement must be \u201clikely to mislead\u201d rather than merely have a \u201ccapacity to deceive.\u201d The FTC might also be put to the burden of showing that consumers reasonably interpreted the ad and that they relied on the ad. Whether the standard will reduce the volume of FTC actions against deceptive advertising remains to be seen.\r\n\r\nThe FTC also has the authority to proceed against \u201cunfair\u2026acts or practices.\u201d These need not be deceptive but, instead, of such a character that they offend a common sense of propriety or justice or of an honest way of comporting oneself. See Figure 27.1 \"Unfair and Deceptive Practices Laws\" for a diagram of the unfair and deceptive practices discussed in this chapter.\r\n<div id=\"mayer_1.0-ch49_s01_s02_f01\" class=\"im_figure im_large im_editable im_block\">\r\n\r\n<span class=\"im_title-prefix\">Figure 27.1<\/span> Unfair and Deceptive Practices Laws\r\n\r\n<a href=\"https:\/\/textimgs.s3.amazonaws.com\/buslegalenv\/section_30\/3ec28a3a478060c838a641fe2a8f84c4.jpg\" target=\"_blank\" rel=\"noopener\"><img src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/140\/2014\/09\/20045951\/sm_3ec28a3a478060c838a641fe2a8f84c4.jpg\" alt=\"\" \/><\/a>\r\n\r\n<\/div>\r\n<div id=\"mayer_1.0-ch49_s01_s02_n01\" class=\"im_key_takeaways im_editable im_block textbox\">\r\n<h3 class=\"im_title\">Key Takeaway<\/h3>\r\nAlthough common law still serves to prohibit certain kinds of trade practices, the FTC has far more extensive powers to police unfair and deceptive trade practices. The FTC\u2019s rules, once passed through the processes defined in the Administrative Procedure Act, have the same authority as a federal statute. Trade regulation rules issued by the FTC, if violated, can trigger injunctions, fines, and other remedial actions.\r\n\r\n<\/div>\r\n<div class=\"bcc-box bcc-info\">\r\n<h3>Exercises<\/h3>\r\n<section id=\"self-check-questions\">\r\n<ol>\r\n \t<li>Go to the FTC website and look at its most recent annual report. Find a description of a loan modification scam, and discuss with another student why a regulatory agency is needed. Ask yourselves whether leaving it up to individual consumers to sue the scammers, using common law, would create greater good for society.<\/li>\r\n<\/ol>\r\n<\/section><\/div>\r\n<div id=\"mayer_1.0-ch52_s02_s06_n02\" class=\"im_exercises im_editable im_block\"><\/div>\r\n<\/div>","rendered":"<div class=\"bcc-box bcc-highlight\">\n<h3>Learning Objectives<\/h3>\n<p>By the end of this section, you will be able to:<\/p>\n<ul id=\"mayer_1.0-ch52_s02_l01\" class=\"im_orderedlist\">\n<li>Describe the general powers of the Federal Trade Commission.<\/li>\n<li>Describe the general principles that guide laws and regulations against unfair and deceptive trade practices.<\/li>\n<\/ul>\n<\/div>\n<p>&nbsp;<\/p>\n<div class=\"im_section\">\n<div id=\"mayer_1.0-ch49_s01_s01\" class=\"im_section\">\n<h2 class=\"im_title im_editable im_block\">General Powers of the Federal Trade Commission<\/h2>\n<p>Common law prohibited a variety of trade practices unfair either to competitors or to consumers. These included passing off one\u2019s products as though they were made by someone else, using a trade name confusingly similar to that of another, stealing trade secrets, and various forms of misrepresentation. In the Federal Trade Commission Act of 1914, Congress for the first time empowered a federal agency to investigate and deter acts of unfair competition.<\/p>\n<p>Section 5 of the act gave the Federal Trade Commission (FTC) power to enforce a law that said \u201cunfair methods of competition in commerce are hereby declared unlawful.\u201d By \u201cunfair methods of competition,\u201d Congress originally intended acts that constituted violations of the Sherman and Clayton Antitrust Acts. But from the beginning, the commissioners of the FTC took a broader view of their mandate. Specifically, they were concerned about the problem of false and deceptive advertising and promotional schemes. But the original Section 5 was confining; it seemed to authorize FTC action only when the deceptive advertising injured a competitor of the company. In 1931, the Supreme Court ruled that this was indeed the case: an advertisement that deceived the public was not within the FTC\u2019s jurisdiction unless a competitor was injured by the misrepresentation also. Congress responded in 1938 with the Wheeler-Lea Amendments to the FTC Act. To the words \u201cunfair methods of competition\u201d were added these words: \u201cunfair or deceptive acts or practices in commerce.\u201d Now it became clear that the FTC had a broader role to play than as a second agency enforcing the antitrust laws. Henceforth, the FTC would be the guardian also of consumers.<\/p>\n<p>Deceptive practices that the FTC has prosecuted are also amenable to suit at common law. A tire manufacturer who advertises that his \u201cspecial tire\u201d is \u201cnew\u201d when it is actually a retread has committed a common-law misrepresentation, and the buyer could sue for rescission of the contract or for damages. But having a few buyers sue for misrepresentation does not stop the determined fraudster. Moreover, such lawsuits are expensive to bring, and the amount of damages awarded is usually small; thus law actions alone cannot adequately address deliberately fraudulent practices.<\/p>\n<p>Through Section 5, however, the FTC can seek far-reaching remedies against the sham and the phony; it is not limited to proving damages to individual customers case by case. The FTC can issue cease and desist orders and has other sanctions to wield as well. So do its counterpart agencies at the state level.<\/p>\n<p>As an administrative agency, the FTC has broader powers than those vested in the ordinary prosecutorial authority, such as the Department of Justice. It can initiate administrative proceedings in accordance with the Administrative Procedure Act to enforce the several statutes that it administers. In addition to issuing cease and desist orders and getting them enforced in court, the FTC can seek temporary and permanent injunctions, fines, and monetary damages and promulgate <span class=\"im_margin_term\"><span class=\"im_glossterm\">trade regulation rules<\/span><\/span> (TRRs). Although the FTC\u2019s authority to issue TRRs had long been assumed (and was approved by the US court of appeals in Washington in 1973), Congress formalized it in 1975 in the FTC Improvement Act (part of the Magnuson-Moss Warranty Act), which gives the FTC explicit authority to prescribe rules defining unfair or deceptive acts or practices.<\/p>\n<p>A TRR is like a statute. It is a detailed statement of procedures and substantive dos and don\u2019ts. Before promulgating a TRR, the commission must publish its intention to do so in the <em class=\"im_emphasis\">Federal Register<\/em> and must hold open hearings on its proposals. Draft versions of a TRR must be published to allow the public to comment. Once issued, the final version is published as part of the <em class=\"im_emphasis\">Code of Federal Regulations<\/em> and becomes a permanent part of the law unless modified or repealed by the FTC itself or by Congress\u2014or overturned by a court on grounds of arbitrariness, lack of procedural regularity, or the like. A violation of a TRR is treated exactly like a violation of a federal statute. Once the FTC proves that a defendant violated a TRR, no further proof is necessary that the defendant\u2019s act was unfair or deceptive. Examples of TRRs include the Retail Food Store Advertising and Marketing Practices Rule, Games of Chance in the Food Retailing and Gasoline Industries Rule, Care Labeling of Textile Wearing Apparel Rule, Mail Order Merchandise Rule, Cooling-Off Period for Door-to-Door Sales Rule, and Use of Negative Option Plans by Sellers in Commerce.<\/p>\n<\/div>\n<\/div>\n<div id=\"mayer_1.0-ch49_s01_s02\" class=\"im_section\">\n<h2 class=\"im_title im_editable im_block\">General Principles of Law Governing Deceptive Acts and Practices<\/h2>\n<p>With a staff of some sixteen hundred and ten regional offices, the FTC is, at least from time to time, an active regulatory agency. The FTC\u2019s enforcement vigor waxes and wanes with the economic climate. Critics have often charged that what the FTC chooses to investigate defies common sense because so many of the cases seem to involve trivial, or at least relatively unimportant, offenses: Does the nation really need a federal agency to guard us against pronouncements by singer Pat Boone on the efficacy of acne medication or to ensure the authenticity of certain crafts sold to tourists in Alaska as \u201cnative\u201d? One answer is that through such cases, important principles of law are declared and ratified.<\/p>\n<p>To be sure, most readers of this book, unlikely to be gulled by false claims, may see a certain Alice-in-Wonderland quality to FTC enforcement. But the first principle of FTC action is that it gauges deceptive acts and practices as interpreted by the general public, not by the more sophisticated. As a US court of appeals once said, the FTC Act was not \u201cmade for the protection of experts, but for the public\u2014that vast multitude which includes the ignorant, the unthinking, and the credulous.\u201d The deceptive statement or act need not actually deceive. Before 1983, it was sufficient that the statement had a \u201ccapacity to deceive.\u201d According to a standard adopted in 1983, however, the FTC will take action against deceptive advertising \u201cif there is a representation, omission or practice that is likely to mislead the consumer acting reasonably in the circumstances, to the consumer\u2019s detriment.\u201d Critics of the new standard have charged that it will be harder to prove deception because an advertisement must be \u201clikely to mislead\u201d rather than merely have a \u201ccapacity to deceive.\u201d The FTC might also be put to the burden of showing that consumers reasonably interpreted the ad and that they relied on the ad. Whether the standard will reduce the volume of FTC actions against deceptive advertising remains to be seen.<\/p>\n<p>The FTC also has the authority to proceed against \u201cunfair\u2026acts or practices.\u201d These need not be deceptive but, instead, of such a character that they offend a common sense of propriety or justice or of an honest way of comporting oneself. See Figure 27.1 &#8220;Unfair and Deceptive Practices Laws&#8221; for a diagram of the unfair and deceptive practices discussed in this chapter.<\/p>\n<div id=\"mayer_1.0-ch49_s01_s02_f01\" class=\"im_figure im_large im_editable im_block\">\n<p><span class=\"im_title-prefix\">Figure 27.1<\/span> Unfair and Deceptive Practices Laws<\/p>\n<p><a href=\"https:\/\/textimgs.s3.amazonaws.com\/buslegalenv\/section_30\/3ec28a3a478060c838a641fe2a8f84c4.jpg\" target=\"_blank\" rel=\"noopener\"><img decoding=\"async\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/140\/2014\/09\/20045951\/sm_3ec28a3a478060c838a641fe2a8f84c4.jpg\" alt=\"\" \/><\/a><\/p>\n<\/div>\n<div id=\"mayer_1.0-ch49_s01_s02_n01\" class=\"im_key_takeaways im_editable im_block textbox\">\n<h3 class=\"im_title\">Key Takeaway<\/h3>\n<p>Although common law still serves to prohibit certain kinds of trade practices, the FTC has far more extensive powers to police unfair and deceptive trade practices. The FTC\u2019s rules, once passed through the processes defined in the Administrative Procedure Act, have the same authority as a federal statute. Trade regulation rules issued by the FTC, if violated, can trigger injunctions, fines, and other remedial actions.<\/p>\n<\/div>\n<div class=\"bcc-box bcc-info\">\n<h3>Exercises<\/h3>\n<section id=\"self-check-questions\">\n<ol>\n<li>Go to the FTC website and look at its most recent annual report. Find a description of a loan modification scam, and discuss with another student why a regulatory agency is needed. Ask yourselves whether leaving it up to individual consumers to sue the scammers, using common law, would create greater good for society.<\/li>\n<\/ol>\n<\/section>\n<\/div>\n<div id=\"mayer_1.0-ch52_s02_s06_n02\" class=\"im_exercises im_editable im_block\"><\/div>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-224\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Business and the Legal Environment. <strong>Authored by<\/strong>: Anonymous. <strong>Provided by<\/strong>: Anonymous. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"http:\/\/2012books.lardbucket.org\/books\/business-and-the-legal-environment\/\">http:\/\/2012books.lardbucket.org\/books\/business-and-the-legal-environment\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-nc-sa\/4.0\/\">CC BY-NC-SA: Attribution-NonCommercial-ShareAlike<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":5797,"menu_order":183,"template":"","meta":{"_candela_citation":"[{\"type\":\"cc\",\"description\":\"Business and the Legal Environment\",\"author\":\"Anonymous\",\"organization\":\"Anonymous\",\"url\":\"http:\/\/2012books.lardbucket.org\/books\/business-and-the-legal-environment\/\",\"project\":\"\",\"license\":\"cc-by-nc-sa\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-224","chapter","type-chapter","status-publish","hentry"],"part":755,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/pressbooks\/v2\/chapters\/224","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/wp\/v2\/users\/5797"}],"version-history":[{"count":5,"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/pressbooks\/v2\/chapters\/224\/revisions"}],"predecessor-version":[{"id":1455,"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/pressbooks\/v2\/chapters\/224\/revisions\/1455"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/pressbooks\/v2\/parts\/755"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/pressbooks\/v2\/chapters\/224\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/wp\/v2\/media?parent=224"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/pressbooks\/v2\/chapter-type?post=224"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/wp\/v2\/contributor?post=224"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/clinton-buslegalenv\/wp-json\/wp\/v2\/license?post=224"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}