How the Federal Trade Commission (FTC) Protects Consumers' Legal Rights
Inside the Federal Trade Commission (FTC) is the Bureau of Consumer Protection, which is designed to protect consumers from deceptive or unfair business practices. It provides free information to consumers and investigates alleged violations of federal laws or FTC regulations. The Bureau of Consumer Protection also can bring enforcement actions in federal court. It focuses on protecting the privacy of consumers, fighting identity theft, regulating advertising and marketing practices, regulating business practices in the financial industry, and protecting Americans from telemarketing fraud. (In this last area, the Bureau of Consumer Protection operates the United States Do Not Call Registry.)
The other components of the FTC are the Bureau of Competition and the Bureau of Economics. The Bureau of Competition focuses on enforcing antitrust laws and other measures designed to protect competition in the market. It often investigates mergers and agreements between direct competitors in an industry. Meanwhile, experts in the Bureau of Economics assist the other two bureaus by analyzing the economic effects of their actions.
Deceptive Practices Affecting Consumers
The FTC has the authority to investigate and prevent deceptive acts by businesses toward consumers. This is considered separate from its authority to prevent unfair acts by businesses toward consumers and unfair methods of competition between businesses. The basis for its authority appears in Section 5 of the Federal Trade Commission Act.
The representation, omission, or practice must be likely to mislead a reasonable consumer.
Deception cases involve a representation, omission, or practice that is likely to mislead a consumer. In other words, the business may have actively done something to obscure the truth surrounding its products or services. Or it may have failed to disclose something regarding its products or services that a reasonable consumer would expect to be disclosed. Any allegation of a deceptive practice thus is considered from an objective perspective, rather than the subjective perspective of the person reporting the practice. Also, the representation, omission, or practice must be material. This means that it must be something that would be reasonably expected to affect a consumer’s behavior, most likely inducing a consumer to buy the product or service.
Unfair Practices Affecting Consumers
While the FTC has explicitly defined its standards for determining whether a practice is deceptive, it has left the question of whether a practice is unfair to be interpreted by courts. In response, courts have developed a three-factor test to identify an unfair practice. They will consider whether the practice is unethical or unscrupulous, whether it violates public policy, and whether it actually causes harm to consumers.
Is the Practice Unfair?
1Is the practice likely to cause substantial injury?
2Is the injury not reasonably avoidable by consumers?
3Is the practice not outweighed by countervailing benefits to consumers or competition?
When the FTC Declines to Act
Government agencies like the FTC tend to be overstretched and lack the resources to pursue every deserving case that crosses their path. If you observe a deceptive or unfair practice and bring it to the FTC’s attention, you should be aware that the FTC may or may not bring an enforcement action based on the information. If it chooses not to act, this does not necessarily mean that you do not have a valid claim. You may be able to join forces with similarly aggrieved consumers in a class action or pursue a case in small claims court based on the deceptive or unfair practice. (Usually, an individual consumer does not suffer massive losses from a deceptive or unfair practice, so small claims court likely would be the appropriate venue if they are acting on their own.)