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Regulation of Business Administrative Agencies


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Regulation of Business Administrative Agencies

  1. 2. Regulation of Business Administrative Agencies The Federal Trade Commission Act and Consumer Protection Laws Antitrust: The Sherman Act 11 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
  2. 3. Regulation of Business The Clayton Act, The Robinson-Patman Act, and Antitrust Exemptions and Immunities Employment Law Environmental Regulation 11 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
  3. 4. THE FEDERAL TRADE COMMISSION ACT AND CONSUMER PROTECTION LAWS P A E T R H C 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)
  4. 5. Learning Objectives <ul><li>The Federal Trade Commission </li></ul><ul><li>Anticompetitive behavior and deceptive practices </li></ul><ul><li>Consumer protection laws </li></ul>48 -
  5. 6. <ul><li>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 </li></ul><ul><li>FTC enforcement devices : issuing trade regulation rules, facilitating voluntary compliance, and adjudicative proceedings </li></ul>The FTC 48 -
  6. 7. <ul><li>FTC trade regulation rules have force of law and FTC can proceed directly against those who engage in prohibited practices </li></ul><ul><li>FTC promotes voluntary compliance with best practices and regulations by issuing advisory opinions and industry guides </li></ul><ul><li>FTC may take internal administrative action against those who violate regulations </li></ul><ul><ul><li>Adjudicative proceeding or order </li></ul></ul>FTC Enforcement Devices 48 -
  7. 8. <ul><li>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 </li></ul><ul><li>Also prohibits unfair or deceptive acts or practices in commercial settings </li></ul><ul><ul><li>Commission must prove the activity is deceptive or unfair </li></ul></ul>FTC Act Section 5 48 -
  8. 9. <ul><li>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 </li></ul>Deceptive Acts or Practices 48 - <ul><li>Actual deception not required </li></ul><ul><li>Statements of opinion, sales talk, or puffery are not deceptive </li></ul>
  9. 10. <ul><li>Companies may sue another alleging the other is making false claims: </li></ul><ul><ul><li>Pizza Hut sued Papa John’s alleging that the “Better Pizza. Better Ingredients.” claim was false and misleading </li></ul></ul><ul><ul><li>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 </li></ul></ul>False Claims as Anticompetitive Behavior 48 -
  10. 11. <ul><li>Section 5 prohibits unfair acts or practices </li></ul><ul><li>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 </li></ul><ul><ul><li>See FTC Consumer Information webpage </li></ul></ul>Unfair Acts or Practices 48 -
  11. 12. <ul><li>FTC’s Telemarketing Sales Rule prohibits deceptive or abusive telemarketing practices </li></ul><ul><ul><li>Telemarketing: sales or marketing using one or more telephones and more than one interstate telephone call </li></ul></ul><ul><ul><li>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 </li></ul></ul>Telemarketing and Consumer Fraud and Abuse Prevention Act 48 -
  12. 13. <ul><li>If seller provides a written warranty for a consumer product costing > $15, Act requires simple, clear, and conspicuous presentation of certain information </li></ul>Magnuson-Moss Warranty Act 48 - <ul><li>Requires disclosure of limitations </li></ul><ul><li>Warranty must be available to consumer to review prior to sale </li></ul>
  13. 14. Truth In Lending Act 48 - <ul><li>Applies to creditors who extend credit to consumers for amounts < $25,000, including credit cards and home equity loans </li></ul><ul><li>Required disclosures: finance charge, billing statement, due date, annual percentage rate, late charge, billing rights, etc. </li></ul>
  14. 15. <ul><li>Applies to consumer reporting agencies that regularly compile credit-related information on individuals for the purpose of furnishing consumer credit reports to users </li></ul><ul><ul><li>Also imposes disclosure duties on users of credit reports (e.g., lenders, employers) </li></ul></ul><ul><li>Person disputing accuracy or completeness of credit report’s information may compel a reinvestigation by credit reporting agency </li></ul>Fair Credit Reporting Act 48 -
  15. 16. <ul><li>Fair and Accurate Credit Transactions Act permits victims of identity theft to file theft reports with consumer reporting agencies </li></ul><ul><li>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 </li></ul>Other FTC Credit Laws 48 -
  16. 17. <ul><li>Fair Credit Billing Act provisions cover credit card billing disputes </li></ul><ul><li>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 </li></ul><ul><ul><li>Applies to debts that involve money, property, insurance, or services obtained by a consumer for consumer purposes </li></ul></ul>Other FTC Credit Laws 48 -
  17. 18. <ul><li>Most important federal product safety law is the Consumer Product Safety Act (CPSA) which established the Consumer Product Safety Commission (CPSC) </li></ul><ul><ul><li>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” </li></ul></ul>Product Safety Regulation 48 -
  18. 19. Test Your Knowledge <ul><li>True=A, False = B </li></ul><ul><ul><li>The FTC has rulemaking and enforcement powers, but must file a case in a federal court. </li></ul></ul><ul><ul><li>FTC gathers evidence about possible violations solely from government entities and FTC investigations. </li></ul></ul><ul><ul><li>A consent order is an order approving a negotiated settlement in which respondent promises to cease certain activities and/or pay certain fees </li></ul></ul>48 -
  19. 20. Test Your Knowledge <ul><li>True=A, False = B </li></ul><ul><ul><li>FTC Act Sec. 5 prohibits unfair or deceptive acts or practices in commercial settings . </li></ul></ul><ul><ul><li>The FTC Telemarketing Act prohibits telemarketing to individual citizens. </li></ul></ul><ul><ul><li>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. </li></ul></ul>48 -
  20. 21. Test Your Knowledge <ul><li>Multiple Choice </li></ul><ul><ul><li>Deceptive practices under Sec. 5 must: </li></ul></ul><ul><ul><ul><li>(a) involve a material misrepresentation </li></ul></ul></ul><ul><ul><ul><li>(b) the representation must be likely to mislead a consumer </li></ul></ul></ul><ul><ul><ul><li>(c) the consumer must act reasonable under the circumstances </li></ul></ul></ul><ul><ul><ul><li>(d) all of the above </li></ul></ul></ul><ul><ul><ul><li>(e) all of the above plus result in a sale </li></ul></ul></ul>48 -
  21. 22. Test Your Knowledge <ul><li>Multiple Choice </li></ul><ul><ul><li>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? </li></ul></ul><ul><ul><ul><li>(a) Jordan must pay the bill or be arrested </li></ul></ul></ul><ul><ul><ul><li>(b) The store violated the Fair Debt Collection Practices Act </li></ul></ul></ul><ul><ul><ul><li>(c) Jordan must file a lawsuit against the store </li></ul></ul></ul>48 -
  22. 23. Test Your Knowledge <ul><li>Multiple Choice </li></ul><ul><ul><li>Which of the following is not a consumer protection law? </li></ul></ul><ul><ul><ul><li>(a) Fair Credit Reporting Act </li></ul></ul></ul><ul><ul><ul><li>(b) Federal Registration Act </li></ul></ul></ul><ul><ul><ul><li>(c) Truth in Lending Act </li></ul></ul></ul><ul><ul><ul><li>(d) Fair Debt Collection Practices Act </li></ul></ul></ul><ul><ul><ul><li>(e) Equal Credit Opportunity Act </li></ul></ul></ul>48 -
  23. 24. Thought Questions <ul><li>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. </li></ul><ul><li>Are you concerned about your privacy? </li></ul>48 -