PART

PART

Regulation of Business

Administrative AgenciesThe Federal Trade Commission Act

and Consumer Protection LawsAntitrust: The Sherman Act

11

McGraw-Hill/Irwin Business Law, 13/e

© 2007 The McGraw-Hill Companies, Inc. All rights reserved.

PART

PART

Regulation of Business

The Clayton Act,The Robinson-Patman Act, and

Antitrust Exemptions and ImmunitiesEmployment Law

Environmental Regulation

11

McGraw-Hill/Irwin Business Law, 13/e

© 2007 The McGraw-Hill Companies, Inc. All rights reserved.

THE FEDERAL TRADE COMMISSION ACT AND CONSUMER PROTECTION LAWS

PA ET RHC 48“The most exciting thing happening in business is

the rise of vigilante consumers.”Anita Roddick, The Body Shop founder,

Marketing Week (Feb. 24, 2000)

Learning Objectives

The Federal Trade Commission Anticompetitive behavior and deceptive

practices Consumer protection laws

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General rule is caveat emptor – let the buyer beware – but Federal Trade Commission Act of 1914 created the Federal Trade Commission (FTC) as independent agency to keep U.S. economy both free and fair

FTC enforcement devices: issuing trade regulation rules, facilitating voluntary compliance, and adjudicative proceedings

The FTC

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FTC trade regulation rules have force of law and FTC can proceed directly against those who engage in prohibited practices

FTC promotes voluntary compliance with best practices and regulations by issuing advisory opinions and industry guides

FTC may take internal administrative action against those who violate regulations Adjudicative proceeding or order

FTC Enforcement Devices

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Authorizes commission to prevent unfair methods of competition under the Sherman Act, Clayton Act, and Robinson-Patman Act, and anticompetitive behavior not covered by antitrust statutes

Also prohibits unfair or deceptive acts or practices in commercial settings Commission must prove the activity is

deceptive or unfair

FTC Act Section 5

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To be deceptive and violate § 5 of FTC Act, an activity must involve a material omission, misrepresentation, or practice that is likely to mislead a consumer who acts reasonably under the circumstances

Deceptive Acts or Practices

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Actual deception not required Statements of opinion, sales talk, or

puffery are not deceptive

Companies may sue another alleging the other is making false claims: Pizza Hut sued Papa John’s alleging that the

“Better Pizza. Better Ingredients.” claim was false and misleading

Storage bag manufacturer S.C. Johnson sued The Clorox Co. alleging that Clorox claims that Clorox-manufactured storage bags would not leak like other storage bags

False Claims as Anticompetitive Behavior

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Section 5 prohibits unfair acts or practices FTC focuses on harm to consumers, which

must be: substantial, not outweighed by any offsetting consumer or competitive benefits produced by the challenged practice, and a harm that consumers could not reasonably have avoided See FTC Consumer Information webpage

Unfair Acts or Practices

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FTC’s Telemarketing Sales Rule prohibits deceptive or abusive telemarketing practices Telemarketing: sales or marketing using one

or more telephones and more than one interstate telephone call

Telemarketer or seller engages in a deceptive practice if it fails to disclose certain information to customers before he pays for telemarketed goods or services

Telemarketing and Consumer Fraud and Abuse Prevention Act

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If seller provides a written warranty for a consumer product costing > $15, Act requires simple, clear, and conspicuous presentation of certain information

Magnuson-Moss Warranty Act

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Requires disclosure of limitations

Warranty must be available to consumer to review prior to sale

Truth In Lending Act

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Applies to creditors who extend credit to consumers for amounts < $25,000, including credit cards and home equity loans

Required disclosures: finance charge, billing statement, due date, annual percentage rate, late charge, billing rights, etc.

Applies to consumer reporting agencies that regularly compile credit-related information on individuals for the purpose of furnishing consumer credit reports to users Also imposes disclosure duties on users of

credit reports (e.g., lenders, employers) Person disputing accuracy or completeness

of credit report’s information may compel a reinvestigation by credit reporting agency

Fair Credit Reporting Act

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Fair and Accurate Credit Transactions Act permits victims of identity theft to file theft reports with consumer reporting agencies

Equal Credit Opportunity Act prohibits credit discrimination on the bases of sex, marital status, age, race, color, national origin, religion, and obtaining income from public assistance

Other FTC Credit Laws

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Fair Credit Billing Act provisions cover credit card billing disputes

Fair Debt Collection Practices Act prohibits debt collectors from contacting third parties (debtor’s employer, relatives, friends) and limits a collector’s contacts with debtor Applies to debts that involve money,

property, insurance, or services obtained by a consumer for consumer purposes

Other FTC Credit Laws

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Most important federal product safety law is the Consumer Product Safety Act (CPSA) which established the Consumer Product Safety Commission (CPSC) CPSC issues consumer product safety standards,

bans hazardous products, brings civil suits to eliminate dangers of imminently hazardous consumer products, and issues orders to firms to address “substantial product hazards”

Product Safety Regulation

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Test Your Knowledge True=A, False = B

The FTC has rulemaking and enforcement powers, but must file a case in a federal court.

FTC gathers evidence about possible violations solely from government entities and FTC investigations.

A consent order is an order approving a negotiated settlement in which respondent promises to cease certain activities and/or pay certain fees

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Test Your Knowledge

True=A, False = B FTC Act Sec. 5 prohibits unfair or deceptive

acts or practices in commercial settings. The FTC Telemarketing Act prohibits

telemarketing to individual citizens. If a seller gives a written warranty for a

consumer product costing > $15, the warranty must have simple, clear, and conspicuous presentation of warranty details.

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Test Your Knowledge

Multiple Choice Deceptive practices under Sec. 5 must:

(a) involve a material misrepresentation (b) the representation must be likely to

mislead a consumer (c) the consumer must act reasonable under

the circumstances (d) all of the above (e) all of the above plus result in a sale

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Test Your Knowledge Multiple Choice

Jordan is late on paying a store charge card. Jordan received a call claiming that the store would have Jordan arrested for fraud unless payment was made in five days. Which of the following is true? (a) Jordan must pay the bill or be arrested (b) The store violated the Fair Debt Collection

Practices Act (c) Jordan must file a lawsuit against the store

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Test Your Knowledge

Multiple Choice Which of the following is not a consumer

protection law? (a) Fair Credit Reporting Act (b) Federal Registration Act (c) Truth in Lending Act (d) Fair Debt Collection Practices Act (e) Equal Credit Opportunity Act

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Thought Questions

A 2003 FTC survey showed that over a one-year period nearly 10 million people (4.6 % of adult population) were victims of some form of identity theft.

Are you concerned about your privacy?

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