P A R T
11
Regulation of Business
Administrative Agencies
The Federal Trade Commission Act
and Consumer Protection Laws
Antitrust: The Sherman Act
McGraw-Hill/Irwin Business Law, 13/e
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
P A R T
11
Regulation of Business
The Clayton Act,
The Robinson-Patman Act, and
Antitrust Exemptions and Immunities
Employment Law
Environmental Regulation
McGraw-Hill/Irwin Business Law, 13/e
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.
C H A P T E R
48
THE FEDERAL TRADE COMMISSION ACT
AND CONSUMER PROTECTION LAWS
“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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The FTC
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

48 - 6
FTC Enforcement Devices
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


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Adjudicative proceeding or order
FTC Act Section 5
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


48 - 8
Commission must prove the activity is
deceptive or unfair
Deceptive Acts or Practices

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

Actual deception not required
Statements of opinion, sales talk, or
puffery are not deceptive

48 - 9
False Claims as
Anticompetitive Behavior

Companies may sue another alleging the
other is making false claims:


48 - 10
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
Unfair Acts or Practices
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


48 - 11
See FTC Consumer Information webpage
Telemarketing and Consumer
Fraud and Abuse Prevention Act

FTC’s Telemarketing Sales Rule prohibits
deceptive or abusive telemarketing practices


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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
Magnuson-Moss Warranty Act

If seller provides a written warranty for a
consumer product costing > $15, Act requires
simple, clear, and conspicuous presentation
of certain information

Requires disclosure of
limitations
Warranty must be
available to consumer to
review prior to sale

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Truth In Lending Act

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.
48 - 14
Fair Credit Reporting Act

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
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Other FTC Credit Laws
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

48 - 16
Other FTC Credit Laws
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


48 - 17
Applies to debts that involve money,
property, insurance, or services obtained by a
consumer for consumer purposes
Product Safety Regulation

Most important federal product safety law is
the Consumer Product Safety Act (CPSA)
which established the Consumer Product
Safety Commission (CPSC)

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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”
Test Your Knowledge

True=A, False = B



48 - 19
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
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.
48 - 20
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)
 (b)
 (c)
 (d)
 (e)

48 - 23
Fair Credit Reporting Act
Federal Registration Act
Truth in Lending Act
Fair Debt Collection Practices Act
Equal Credit Opportunity Act
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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