The Federal Trade Commission (“FTC”) is an independent and bipartisan government agency whose mission is to ensure compliance with antitrust law and to protect consumers, investors, and businesses, namely by preventing deceptive and predatory trade practices. The FTC has exactly 5 commissioners who are nominated by the President and approved by the Senate. Each commissioner serves a seven-year term, and no more than three commissioners can be within the same political party to promote bipartisanship.
The Federal Trade Commission Act (“FTCA”), which endows the FTC with its authority, was passed in 1914 by President Woodrow Wilson to “bust the trusts” and dismantle monopolies that took the American economy on a downward spiral. The FTC was not only designed to ensure compliance with the Federal Trade Commission Act, but also previous and other such Acts regulating trade, such as the Sherman Antitrust Act and the Clayton Antitrust Act. Since the Federal Trade Act was passed and the FTC was created, Congress has passed additional laws giving the FTC greater authority to police anticompetitive practices and to administer other such consumer protection regulations, including the Telemarketing Sales Rule, the Pay-Per-Call Rule, and the Equal Credit Opportunity Act. In addition, Congress has also endowed the FTC with the authority to adopt and implement industry-wide trade regulations to better regulate business.
In addition to promulgating rules and regulations which businesses must comply with, the FTC also is endowed with the right to sue businesses who do not comply with these rules and regulations. To promulgate these rules, the FTC conducts research and collects in-depth reports on various issues, including data security, mobile technology, do not call registries, deceptive advertising schemes, and mergers and competition.
The FTC and its Mission
As explained above, the FTCA is the FTC’s primary governing statute. The Act endows the FTC with broad authority to pursue several goals. In particular, the FTCA permits the FTC to: (1) prevent deceptive trade practices and anticompetitive practices amongst various industries and companies; (2) pursue compensation to reimburse consumers who have been harmed by deceptive and anticompetitive trade practices; (3) explain and outline what constitutes deceptive and anticompetitive practices and establish, and implement rules and regulations to eradicate these practices; (4) investigate organizations, businesses, and companies who might be engaged in prohibited practices; and (5) develop reports, data, and statistical analysis which provide the FTC a basis to make certain legislative recommendations.
The FTC’s website outlines its three clear goals, which include: (1) to protect consumers; (2) to maintain competition amongst businesses; and (3) to maintain and advance its own productivity. As we will see below, the FTC is reduced into three bureaus with each bureau tending to address one goal in the FTC’s overall mission.
With respect to its goal to protect consumers, the FTC attempts to protect consumers by eradicating deceptive trade practices and illegitimate business practices. With respect to its second goal—maintaining competition—the FTC promotes economic competition by preventing anticompetitive mergers amongst companies and other anticompetitive practices. Finally, with respect to its third goal, maintaining its own productivity and adequacy, the FTC has a goal to obtain organizational, individual, and management excellence. Outside these three main goals, the FTC also has a duty to balance these objectives without placing an undue burden on legitimate business activities companies regularly engage in.
The FTC Bureaus
Because it is generally most prudent to divide and conquer, the FTC has three “bureaus,” much akin to departments, regulating three broad areas in the trade practices realm: (1) consumer protection, (2) competition, (3) and economic analysis. Each Bureau has its own role and is inherently designed so that no one Bureau is endowed with the complete power to create, administer, and prosecute Federal laws or its own regulations, as such authority would not be consistent with the checks and balances system under which our government operates. However, while no bureau has this complete authority, there is substantial overlap between each Bureau.
The Competition Bureau
At their core, antitrust laws are designed to ensure consumers’ right to choose. Prior to the FTCA’s inception, American consumers and their pocketbooks—and subsequently, the American economy as a whole—was greatly damaged by monopolies and price-locking agreements amongst big businesses. These anticompetitive business practices dominating the American marketplace severely limited marketplace competition and provided American consumers no room to make choices about the goods and services at the price and quality that met their individual needs. Recognizing this as a historically detrimental issue as it affects the average consumer and the American economy, the Competition Bureau was designed to promote marketplace competition by ensuring compliance with antitrust laws and consumer’s right to choose.
Economic Analysis Bureau
The Economic Analysis Bureau is charged with evaluating the economic impact that FTC actions have by examining and reviewing the investigation and rulemaking processes mostly carried out by the Consumer Protection Bureau. However, this Bureau also examines the impact government regulations have on consumers.
The Consumer Protection Bureau
The Consumer Protection Bureau’s authority is a bit broader than the Competition Bureau and the Economic Analysis Bureau, as the Consumer Protection has its “hands” in every step in the process—including regulation development, administration and policing, and advice and education. Essentially, the Consumer Protection Bureau’s role overlaps with both the Competition and the Economic Analysis Bureau. For example, where the Competition Bureau is generally limited to policing Congress-enacted antitrust laws, the Consumer Protection Bureau ensures compliance with both Congress-enacted consumer protection laws and FTC-adopted trade practice regulations, and both the Economic Analysis Bureau and the Consumer Protection Bureau have a substantial role in advising on how certain government regulations could impact consumers.
With respect to the Consumer Protection Bureau, to adequately ensure compliance with Federal laws and its own regulations, the Consumer Protection Bureau is charged with policing, investigating, and prosecuting business and companies. The Consumer Protection Bureau then uses these investigations to better develop its own administrative rulemaking policies and educate consumers accordingly. Consumer Protection also uses its regulation development, administration, and education powers to advise Congress and other government entities about the potential impact proposed legislation could have on consumers.
The Inspector General
The Inspector General was established in 1989 as an independent agency within the FTC and essentially provides oversight to the Commission as a whole and over any individual employees. The Inspector General is charged with conducting FTC audits and investigations into the FTC’s own operations and programs to ensure productivity and that government and commission resources are not being wasted or abused. To that end, the Inspector General also investigates and responds to allegations and complaints against individual employees, as well as other entities who contract with the FTC.
FTC Consumer Protection Actions: Real Examples
Arguably, the FTC’s most important, and most notable role, is investigating and prosecuting those entities engaged in practices that violate Federal laws and the FTC’s own regulations. Many times, the FTC can investigate and prosecute wrongdoing by gathering consumer complaints. The examples provided below—a recent and not-so-recent example—show the various consumer protection issues and various industries the FTC has the authority to regulate. You can review the cases and proceedings brought in the FTC’s online library.
Project Telesweep (1995)
Throughout the years, the FTC has sought to crack down on various industries to eliminate deceptive practices, thereby protecting unsuspecting consumers. One such crack down came during the 1990s when the FTC conducted investigations into telemarketing schemes with Project Telesweep in 1995, which revealed at least 100 “business opportunity” scams.
One such scam discovered by the FTC was perpetrated by Public Telco Corporation and its owner, Ronald Oman, who were in the pay telephone business. Public Telco gained business by soliciting investors through advertisements and publications throughout the country. However, the FTC discovered that Public Telco and Oman made misleading statements to both investors and consumers regarding how much money investors could expect to pocket per week per phone. Based on these allegations, a Federal District Court in Florida entered a Judgment against Public Telco amounting to $2.4 million and implemented a permanent ban against Public Telco and Oman, prohibiting any continued telemarketing by the company.
Credit Karma (2022)
The FTC has recently pursued the ever-popular credit services company Credit Karma based on evidence that Credit Karma was indicating to consumers that they were “pre-approved” to obtain certain credit cards. Credit Karma was using its “approval odds” hallmark and would show consumers that they had 90% odds to be approved, when the odds that they would be approved were substantially less. However, the 90% odds enticed consumers to apply, and consumers subsequently wasted their time in applying when they couldn’t be approved. Although these consumers were not necessarily out money like the consumers in Project Telesweep, discussed above, the FTC ordered Credit Karma to pay $3 million to the consumers impacted by Credit Karma’s deceptive practices.