1. Administrative Agencies
The Federal Trade Commission Act and Consumer Protection Laws
Antitrust: The Sherman Act
The Clayton Act, The Robinson-Patman Act, and
Antitrust Exemptions and Immunities
Employment Law
Environmental Regulation
© 2010 The McGraw-Hill Companies, Inc. All rights reserved.

2. The Federal Trade
Commission Act and
Consumer Protection Laws
The most exciting thing happening
in business is the rise of vigilante
consumers.
Anita Roddick, Founder,
The Body Shop
Marketing Week
(Feb. 24, 2000)
© 2010 The McGraw-Hill Companies, Inc. All rights reserved.

3. Learning Objectives
v The Federal Trade Commission
v Anticompetitive behavior and deceptive
practices
v Consumer protection laws
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4. Overview
v Before 1914, the rule was caveat emptor –
let the buyer beware
v In some ways, that
rule remains, but
consumers now
demand a certain
level of protection
from unscrupulous
businesses
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5. The FTC
v Federal Trade Commission Act of 1914
enabled the creation of the Federal Trade
Commission (FTC) as independent agency
v FTC’s principal missions are to keep the
U.S. economy both free and fair
v FTC enforcement devices: issuing trade
regulation rules, facilitating voluntary
compliance, and adjudicative proceedings
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6. FTC Trade Regulation Rules
v FTC trade regulation rules have the force of
law and FTC can proceed directly against
those who engage in prohibited practices:
w Adjudicative proceeding
w Civil penalty up to $10,000 for each knowing
violation of a rule
w Court proceedings to obtain consumer remedies,
such as damages, refund of money, return of
property, or the reformation or rescission of
contracts
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7. FTC Voluntary Compliance
v FTC promotes voluntary compliance with
best practices and regulations by issuing
advisory opinions and industry guides
w Advisory opinion: commission’s response to a
private party’s inquiry about the legality of a
proposed business action
w Industry guides: FTC interpretations of the laws
it administers
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8. FTC Adjudicative Proceedings
v FTC may take internal administrative action
against those who violate regulations
v FTC gathers evidence about possible
violations from private parties, government
entities, and FTC investigations
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9. FTC Adjudicative Proceedings
v If FTC proceeds against alleged offender
(respondent), it files a formal complaint and
the case is heard in a public administrative
hearing called an adjudicative proceeding
w FTC administrative law judge presides
v Judge’s decision may be appealed: first to
FTC’s five commissioners, then to federal
courts of appeals and U.S. Supreme Court
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10. Adjudicative Orders
v Most common penalty resulting from a final
decision against the respondent is an FTC
cease-and-desist order
w Civil penalty for noncompliance with cease-and-
desist order is < $10,000 per violation (per day)
v 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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11. FTC Act Section 5
v FTC Act Sec. 5 authorizes commission to
prevent unfair methods of competition
v Thus FTC may regulate anticompetitive
practices made illegal by the Sherman Act,
Clayton Act, and Robinson-Patman Act, as
well as anticompetitive behavior not covered
by other antitrust statutes and potential or
incipient antitrust violations
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12. Deceptive Acts or Practices
v FTC Act Sec. 5 prohibits unfair or deceptive
acts or practices in commercial settings
v Commission must prove the activity is
deceptive or unfair
v To be deceptive under FTC Policy
Statement on Deception, an activity must:
(1) involve a material misrepresentation, omission,
or practice; (2) that is likely to mislead a
consumer; (3) who acts reasonably under the
circumstances
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13. Reasonable Consumer Test
v A seller violates Section 5 of the FTC Act if
a statement, omission, or practice is likely to
mislead reasonable consumers under the
circumstances (reasonable consumer test)
w Actual deception is not required
Statements of
opinion, sales talk,
or sales puffery are
not deceptive
48 - 13

14. False Claims as Anticompetitive
Behavior
v Companies may sue another alleging the
other is making false claims:
w Pizza Hut sued Papa John’s alleging that the
“Better Pizza. Better Ingredients” claim was
false and misleading
w 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
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15. Kraft, Inc. v. Federal Trade Comm
v Facts:
w Kraft, Inc. advertised that Kraft Singles (process
cheese food slices with at least 51% natural
cheese) contained 5 oz. milk in each slice
w True statement
w FTC brought Sec. 5 suit for deceptive advertising
against Kraft alleging that the milk equivalency
claim was false and misleading because 30% of
calcium in milk is lost through processing
w ALJ found in favor of FTC and ordered Kraft to
cease and desist the milk equivalency claim for
individually wrapped process cheese food slices
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16. Kraft, Inc. v. Federal Trade
Commission
v Procedural History:
v Kraft appealed to FTC
commissioners, which
affirmed and extended
coverage from the
individually wrapped slices
to “any product that is a
cheese, related cheese
product, imitation cheese,
or substitute cheese”
48 - 16

17. Kraft, Inc. v. Federal Trade
Commission
v Legal Analysis and Holding:
w Kraft appealed to Court of Appeals
w Implied claims (milk equivalency) reasonably clear
from advertisements and Commission may rely on
its reasoned analysis to determine what claims
are conveyed in challenged advertisement
w Even literally true statements can be misleading
w FTC has discretion to issue “fencing-in” multi-
product orders, thus Commission’s order upheld
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18. Unfair Acts or Practices
v Section 5 prohibits unfair acts or practices
v 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
w See FTC Consumer Information webpage
48 - 18

19. Telemarketing and Consumer
Fraud and Abuse Prevention Act
v FTC issued 1995 Telemarketing Sales Rule
(TSR) prohibiting deceptive and abusive
telemarketing acts or practices
w Telemarketing: plan, program, or
campaign conducted to induce purchase
of goods or services by using one or
more telephones and more than one
interstate telephone call
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20. Telemarketing and Consumer
Fraud and Abuse Prevention Act
v A 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
w Information covers total cost, conditions on
use or purchase, refund or exchange policy
v Abusive practice: telemarketer threatens or
intimidates a customer, or calls repeatedly
48 - 20

21. Telemarketing and Consumer
Fraud and Abuse Prevention Act
v Other restrictions apply to
telemarketers
w Internet use regulated as well
under 2004 CAN-SPAM Act
v FTC and state attorneys
general may enforce the
Telemarketing Act and
the TSR against violators
with civil penalties
48 - 21

22. Do-Not-Call Registry
v FTC and FCC (Federal Communications
Commission) created national
Do-Not-Call Registry which prohibits
telemarketers from placing calls to listed
numbers
v Registry became so popular that commercial
telemarketers initiated litigation questioning
legal validity: Mainstream Marketing
Services, Inc. v. Federal Trade Commission
48 - 22

23. Do-Not-Call Registry
v In
Mainstream Marketing Services, Inc. v. Federal
, the federal court of appeals upheld the do-
not-call registry against challenges based on
lack-of-statutory authority and the First
Amendment
48 - 23

24. Magnuson-Moss Warranty Act
v If the seller provides a written warranty for a
consumer product costing > $15, Act
requires simple, clear, and conspicuous
presentation of certain information:
w Persons protected
w Products, parts, characteristics covered
w What warrantor will do in case of product defect
w Warranty duration
w Consumer procedures in event of defect or failure
48 - 24

25. Magnuson-Moss Warranty Act
v Act requires disclosure of limitations
v Warranty must be available to consumer to
review prior to sale
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26. Truth In Lending Act
v Applies to creditors who extend credit to
consumers for amounts < $25,000
v Consumer credit
enables the purchase
of goods, services, or
real estate used
primarily for personal,
family, or household
purposes
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27. Truth In Lending Act
v Detailed disclosure provisions apply to three
types of credit:
w Open-end credit covers repeated transactions
and a finance charge computed on an unpaid
balance
w Closed-end credit: covers consumer loans from a
finance company for a specific time period
w Credit card applications and solicitations
v Required disclosures include finance charge,
billing statement, annual percentage rate,
due date, late charge, billing rights, etc.
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28. Truth In Lending Act
v Provisions deal with consumer credit
advertising, such as preventing a creditor
from “baiting” customers
v Regulates the home equity loans, including
advertisements, terms, and actions a creditor
may take against a defaulting consumer
v Provisions cover credit cards
48 - 28

29. Fair Credit Reporting Act
v Applies to consumer reporting agencies that
regularly compile credit-related information
on individuals for the purpose of furnishing
consumer credit reports to users
v Agency must adopt procedures to:
w Ensure users of information employ information
only for certain limited business purposes
w Avoid including obsolete information in a report
w Ensure maximum possible accuracy
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30. Fair Credit Reporting Act
v Also imposes disclosure duties on users of
credit reports (e.g., lenders, employers)
v If user obtains an investigative consumer report,
user must inform person under investigation
about report request and the possible sensitive
information in the report
v FCRA violations also violate FTC Act Sec. 5
48 - 30

31. Fair Credit Reporting Act
v Person disputing accuracy
or completeness of credit
report’s information may
compel a reinvestigation
by credit reporting agency
v Credit bureau must delete
information from file if
information inaccurate or
unverifiable
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32. Fair Credit Reporting Act
v If user rejects credit or insurance application,
user must inform applicant of reasons for
rejection or higher rates charged
v See Safeco Insurance Co. of America v. Burr
in which Supreme Court ruled that
insurance companies using credit reports
may be liable for willful violations of FCRA if
they show reckless disregard for the law
48 - 32

33. Fair Credit Reporting Act
v Criminal penalties
possible for persons who
knowingly and willfully
obtain consumer
information from credit
bureau under false
pretenses
v See
Fair Credit Reporting Act
48 - 33

34. Fair and Accurate Credit
Transactions Act (FACT)
v A series of amendments to the Fair Credit
Reporting Act, FACT permits victims of
identity theft to file theft reports with
consumer reporting agencies
v Requires agencies to include “fraud alerts” in
credit reports about consumers who believe
they are victims of the fraudulent use of their
financial information
v See FTC ID Theft information
48 - 34

35. Equal Credit Opportunity Act
v Prohibits credit discrimination on the bases
of sex, marital status, age, race, color,
national origin, religion, and obtaining
income from public assistance
v Applies to all entities that regularly arrange,
extend, renew, or continue credit
v See FTC Equal Credit Opportunity webpage
48 - 35

36. Fair Credit Billing Act
v Provisions cover credit card billing disputes
w Cardholder must give issuer written notice of
alleged error in billing statement within 60 days of
time the statement is sent to cardholder
w Card issuer must either (1) correct cardholder’s
account, or (2) send cardholder written statement
justifying billing statement’s accuracy
v See FTC Fair Credit Billing webpage
48 - 36

37. Fair Debt Collection
Practices Act
v Applies to debts that involve money,
property, insurance, or services obtained by
a consumer for consumer purposes
v Prohibits debt collectors from contacting third
parties such as debtor’s employer, relatives,
or friends, and limits a collector’s contacts
with debtor
v See FTC Fair Debt Collection webpage
48 - 37

38. Fair Debt Collection
Practices Act
v Prohibits certain methods of debt collection:
w Harassment, oppression, or abuse
w False or misleading misrepresentations
w Unfair practices
48 - 38

39. Product Safety Regulation
v Most important federal product safety law is
the Consumer Product Safety Act (CPSA)
which established the
Consumer Product Safety Commission
(CPSC)
48 - 39

40. Product Safety Regulation
v CPSC (1) issues consumer product safety
standards, (2) issues bans of certain
hazardous products; (3) may bring civil suits
in federal district court to eliminate dangers
presented by imminently hazardous
consumer products, and (4) after receiving
notice of hazards, may issue orders to
private parties to address “substantial
product hazards”
48 - 40

41. Test Your Knowledge
v True=A, False = B
w The FTC has rulemaking and enforcement
powers, but must file a case in a federal
court.
w FTC gathers evidence about possible
violations solely from government entities and
FTC investigations.
w A consent order is an order approving a
negotiated settlement in which respondent
promises to cease certain activities and/or
48 - 41
pay certain fees

42. Test Your Knowledge
v True=A, False = B
w FTC Act Sec. 5 prohibits unfair or deceptive
acts or practices in commercial settings.
w The FTC Telemarketing Act prohibits
telemarketing to individual citizens.
w 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.
48 - 42

43. Test Your Knowledge
v Multiple Choice
w 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
48 - 43

44. Test Your Knowledge
v Multiple Choice
w 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
48 - 44

45. Test Your Knowledge
v Multiple Choice
w 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
48 - 45

46. Thought Questions
v A customer is the most important visitor on our
premises, he is not dependent on us. We are
dependent on him. He is not an interruption in our
work. He is the purpose of it. He is not an outsider in
our business. He is part of it. We are not doing him a
favor by serving him. He is doing us a favor by giving
us an opportunity to do so.
w Mahatma Gandhi
What is your experience
as a customer?
48 - 46