Federal Trade Commission

The Federal Trade Commission is charged with protecting consumers from unfair competition and unfair or deceptive acts in commerce. It promotes free and fair competition through the prevention of price-fixing agreements, combinations in restraint of trade, interlocking directorates, unfair acts of competition, false advertising, and other deceptive business practices.

The passage of the Federal Trade Commission Act of 1914Federal Trade Commission Act was the result of a program by President Woodrow Wilson to curtail the growth of business trusts and monopolistic businesses, and to preserve competition as an effective regulator of business. The underlying philosophy of the act was that markets should be left to competitive market forces and that anticompetitive market structures should be prevented. The intent was to prevent unfair practices rather than punish perpetrators. The Federal Trade Commission (FTC), created by the act, took over some of the work being performed by the Bureau of Corporations in the Department of Commerce. Joseph Davies was the initial FTC chair. The FTC began operating on March 16, 1915.Federal Trade Commission

FTC Objectives

The fundamental objectives of the FTC are to initiate antitrust actions and to protect the consumer public. In 1938, the Wheeler-Lea Act of 1938Wheeler-Lea Act amended the act by prohibiting a variety of deceptive practices in commerce. The law does not require an actual deception; a company may be held liable for unfair and deceptive acts when there is a possible likelihood that a consumer might be deceived. The FTC can hold a company liable for the unfair and deceptive acts of its employees, agents, or other representatives. The act applies to interstate and foreign commerce but does not apply to banking institutions, savings and loan associations, federal credit unions, or common carriers–all of which are regulated by other federal agencies.

The FTC consists of five commissioners who are appointed by the president with the advice and consent of the Senate. Not more than three of the commissioners can be from the same political party. Commissioners serve seven-year terms. Among the FTC’s activities are the enforcement of the provisions of the Sherman Antitrust Act of 1890, the Clayton Antitrust Act of 1914, and amendments to these acts. The FTC also enforces the Truth-in-Lending Act of 1968 and some aspects of the Foreign Corrupt Practices Act of 1977. The FTC has also enforced other laws at times over the years, including the Trading With the Enemy Act during World War I and the 1918 Webb-Pomerene Act, which created antitrust exemptions for export trade associations.

To enforce legislation, the FTC can investigate corporate conduct, hold hearings, and issue cease-and-desist orders. If a person or company fails to comply with the cease-and-desist order, the FTC turns to the Federal Circuit Court of Appeals for enforcement. Advertising industry;regulation ofThe first major initiative of the FTC was at the behest of an association of advertising agencies, which urged the new agency to challenge misrepresentations in advertisements. A February 19, 1918, sweep alleged deception and commercial bribery in thirty-nine complaints. The 1920’s were a contentious time at the FTC. Part of the problem was political; there was a Democratic majority during the early part of the decade despite the fact that there were Republican presidents.

There were also some judicial setbacks during the 1920’s, including the Supreme Court’s decision in Federal Trade Commission v. Eastman Kodak Co. (1927)Federal Trade Commission v. Eastman Kodak Co. (1927). The Court eliminated the commission’s ability to challenge Merger industrymergers effectively by ruling that the agency could not issue divestiture orders. During the 1930’s, there was further turmoil because of President Franklin D. Roosevelt’s New Deal and the subsequent passage of the Securities Act of 1933. Initially, the FTC enforced the Securities Act, but in 1934, the Securities and Exchange Commission took over that job. Prior to the Securities Act of 1933, the FTC had been active in enforcing “blue sky” cases and was thus the originator of federal securities regulation.

The 1936 Robinson-Patman Anti-Price Discrimination Act provided more work for the FTC, as did the 1939 Wool Products Labeling Act. Still, it was the 1938 Wheeler-Lea Act that was the most important in granting additional power to the agency. The 1938 act provided greater civil penalties to be assessed by the FTC and stipulated that deception need not be harmful to competitors to be unlawful. Also, precomplaint injunctions could be filed for the first time. Despite its accomplishments, the FTC was often criticized for not accomplishing enough. The decade of the 1940’s closed with the agency being publicly criticized by the Hoover Commission, which studied all federal executive department agencies.

The 1950’s and Later

In 1950, based partly on the Hoover Commission recommendations, there was a change in the administration of the FTC. Formerly, the chair of the commission had been elected by the other commissioners, and the role was essentially rotated among all the members. President Harry S. Truman changed that methodology by appointing a chair. Additional laws designed for FTC enforcement were passed in 1951 (the Fur Products Labeling Act) and 1958 (the Textile Fiber Products Identification Act). The enforcement of these labeling laws led to criticism that the agency was overly enthusiastic in enforcing the laws. In 1969, the American Bar Association report condemned the FTC’s enforcement of textile and fur labels as being a “glaring example of misallocation of resources and misguided enforcement policy.”

The FTC has been quite active in developing and enforcing consumer protection laws through litigation and other actions. Safety, consumerStudies of antibiotics pricing during the 1950’s led to self-regulation within the pharmaceutical industry. The agency suffered additional criticism in late 1960, when President-elect John F. Kennedy asked a former commissioner, James Landis (who had served briefly in 1933-1934 and worked primarily on securities regulation), to evaluate the organization’s performance. While working for President Kennedy, Landis developed a number of agency reorganization plans, one of which provided new authority for the FTC to delegate functions to its staff. At about the same time, the agency came under attack from the forces of Ralph Nader, who argued that there was inadequate regulation over product quality, particularly in automobiles.

The FTC was led by seven different chairs during the 1970’s, but it accomplished much, and most of what it accomplished was controversial. The result was a tidal wave of restrictive legislation in 1980. There was also important legislation during the 1970’s, including a 1973 law to broaden FTC authority to obtain preliminary injunctions. The 1975 FTC Improvement Act prescribed a variety of new remedies, including civil penalties for violations of trade regulations. The 1976 Hart-Scott-Rodino Act of 1976Hart-Scott-Rodino Act required that the FTC be notified in advance of mergers and prescribed a waiting period before mergers could be consummated. This latter act greatly expanded the FTC’s ability to maintain competition when a merger occurred.

Later laws have further expanded the FTC’s realm of responsibility. These acts have included the Fair Credit Reporting Act of 1970 and the Fair Debt Collection Practices Act. The 1994 Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994Telemarketing and Consumer Fraud and Abuse Prevention Act became the basis for what is known as the National Do Not Call RegistryNational Do Not Call Registry. In the eyes of the general public, it is this registry for which the FTC became best known. The agency has also taken the lead on new issues such as Internet fraud.

Over its history, the FTC has found its work frustrated by several Supreme Court decisions, but the commission has done much to rid the economy of anticompetitive business practices. The agency has been an aggressive advocate of competition and consumer protection, but it has constantly been criticized for not doing enough. Such criticism has led to more laws to strengthen the agency. Therefore, the FTC is much stronger than it was at its founding, and covers a greater variety of issues, but the overall role is still consumer protection and the advocacy of fair competition.

Further Reading

  • Clarkson, Kenneth W., and Timothy J. Muris. The Federal Trade Commission Since 1970: Economic Regulation and Bureaucratic Behavior. New York: Cambridge University Press, 2008. Calling the pre-1970 FTC dormant and ineffective, this volume is a comprehensive analysis of the revitalized agency.
  • Henderson, Gerard Carl. The Federal Trade Commission: A Study in Administrative Law and Procedure. New Haven, Conn.: Yale University Press, 1924. This 382-page volume is old, but is still used in law schools to teach issues arising from the FTC’s mandates to enforce certain laws.
  • Holt, William Stull. The Federal Trade Commission: Its History, Activities, and Organization. New York: D. Appleton and Company, 1922. This is a good early history of the FTC’s founding and is widely available, but it covers only the first seven years.
  • Jones, Mary Gardiner. Tearing Down Walls: A Woman’s Triumph. Lanham, Md.: Hamilton Books, 2008. This autobiography provides an insider’s view of the FTC through the eyes of its first female commissioner.
  • Kanwit, Stephanie W. Federal Trade Commission. 2 vols. St. Paul: Thomson West, 2008. Practice manual for those who are worried about being in violation of FTC requirements; probably only available in large business or law libraries.
  • Katzmann, Robert A. Regulatory Bureaucracy: The Federal Trade Commission and Antitrust Policy. Cambridge, Mass.: MIT Press, 1981. This volume deals with the competitiveness issues of mergers and antitrust violations.

Antitrust legislation

Business crimes

Child product safety laws

U.S. Department of Commerce

U.S. Congress

Funeral industry

Identity theft

Supreme Court and commerce