Disclaimer: This blog is for general information purposes only and does not constitute legal advice and does not create or intend to create an attorney-client relationship. This blog post should never be used to replace the advice of your personal attorney.
Before 1914, there was no one to watch consumers’ backs to ensure that businesses don’t breach their trust. In the name of consumer protection, the FTC enforcement or Federal Trade Commission was born to change that. The FTC’s initial goal was to enforce antitrust laws, which were laws that made companies play by the rules. Over several years, the FTC received more power from congress. Not only were they in charge of enforcing antitrust laws, but a variety of consumer protection laws. This includes the telemarketing sales rules of the National, Do Not Call Registry.
The FTC Enforcement – A Brief History
In 1914, the Federal Trade Commission got into action. Before that, the Bureau of Corporations handled the responsibility of ensuring businesses followed fair business practices. The Bureau of Corporations was an investigatory branch of the Department of Commerce and Labor. Come 1914, the FTC absorbed the Bureau of Corporation and any active cases they were handling.
What Does The FTC Enforcement Do Exactly?
As briefly touched on, the Federal Trade Commission enforces antitrust and consumer protection laws. These laws cover numerous consumer markets, so there is a very high chance your own business falls under them. At the most basic level, the FTC uses its resources to enforce Section 5 (a) of the FTC act. Section 5 (a) gives the federal agency the power to investigate companies that use unfair practices to gain an advantage over the competition or companies that use unfair, deceptive, or overall morally questioning acts to push their services to consumers. In short, the FTC handles consumer protection and promotes fair business competition. As part of the statute, the FTC can go as far as to seek relief for consumers of these services, and in severe cases, hand out fines to businesses as punishment for the malpractice.
However, before the FTC can go after these companies breaking the rules, they must first write the rules. The FTC has the ability and the responsibility of implementing specific trade regulation rules that define what a business can and can’t do. The regulations get regularly reviewed to make sure that they are effective and up-to-date and make sure that they are fair for all parties involved.
Businesses want their customers’ money, though, sometimes, these businesses do this by using deceptive, unfair, or outright fraudulent business practices. The FTC brings fines and other forms of punishment to these companies, though they can’t do it alone. Each day, the FTC receives numerous consumer complaints. Some examples of complaints include:
- A breach of the Do Not Call list.
- A data security breach.
- A case of deceptive advertising.
- A case of identity theft.
The FTC collects this information, analyzes it, and hands it out to law enforcement agencies. The Bureau of Consumer Protection handles such cases.
The Do Not Call Registry
The Do Not Call Registry puts consumer privacy at the forefront. The registry is a list of subscribed numbers that do not wish to receive telemarketing sales, and guidelines a business must follow. Failure to do so can and has led to FTC enforcement action. Not all types of companies have to follow the rules, with there being exceptions for charity organizations, debt collection services, and others. If a business does not fit into the exemption category nor has received consent from a consumer but has then called a number on the list, they can expect fines of over $40,000 per violation. Some other rules, known as the TSR or Telemarketing Sales Rules if broken, will count as a violation, including though not limited to:
- All outbound calls must come with a caller ID. The caller ID should outline the name of the business calling. It should include the number of that business, and the third-party telemarketer’s name if one is in use.
- No calls should get placed to a consumer before 8 am and after 9 pm.
- The call must be handed to a live agent within 2 seconds of getting answered by the consumer.
The Fair Credit Reporting Act
Another specific act that the Bureau of Consumer Protection oversees is the Fair Credit Reporting Act. The Fair Credit Reporting Act is one of the tools the FTC uses to combat identity theft, among other things. The information protected under the act includes that collected by credit bureaus and also regulates how they can use it. Consumers, under the FCRA, can examine their credit report. They must also be told if they get refused a credit card or similar product due to the information in their credit report. The only other people who can access a consumer’s credit report are those with permissible purposes, such as landlords, insurers, or creditors. A business that does not match that description cannot view an individual’s credit report without express written permission. Doing so could lead to FTC enforcement.
The Promotion Of Competition
America is known worldwide as the land of equal opportunity, and it is the FTC’s job to make sure that stays true. For that reason, they work to make sure that companies can fairly compete with each other. This is by regulating pricing, the number of services offered, or the quality of services. If two businesses want to merge, the FTC will evaluate the merger. If the result is higher prices, lower quality, and other factors that are not fair to consumers, the FTC steps in and puts a stop to it. The Bureau of Competition handles these cases.
What Constitutes Unfair Competition?
The above Bureau of Competition works to ensure that businesses in the same industry all play by the same rules. From that, there may be a misconception that business can’t improve to beat the competition. For that reason, a business owner needs to understand what the FTC classes as unfair methods of competition. Companies can compete, whether by outpricing, offering a better product or service, and just generally by providing a better service. Below are some examples of what the FTC classes as unfair methods of competition, and can lead to FTC enforcement against a business.
- Deceptive practices, including advertising a product as better than it is, are known as bait and switch.
- Using a competitor’s confidential information in any way, whether to boost business or not.
- Selling products below the actual costs of manufacturing. Usually, this gets done to draw in business quickly, before offering for-profit items to consumers.
- Trading libel or defamatory information about a company to ruin their reputation.
- Misrepresenting the source of a product to the general public.
The FTC gets made up of three Bureaus, with the last one to get a mention being the Bureau of Economics. It is their responsibility to ensure that the acts put forward by the rest of the FTC are economically sound. They must also make sure that the consumer’s interests are protected. Suppose they have the potential to bring a negative effect on the country’s economy, perhaps for being too strict and thus limiting a business’s ability to provide goods and services. In that case, the Bureau of Economics employees needs to have the skills to spot that.
Alternatively, the act may lower the level of consumer protection, and again, the FTC’s Bureau of Economics needs to spot that before theory becomes a reality. They do this by analyzing not just the case in question, but also cases from the past, before confirming their financial decision. They also evaluate the possibility of economic impact from investigations of the other two bureaus and offer advice when necessary. Behind the front line work of FTC enforcement by the other bureaus, economists are there to provide their expert advice, just like ourselves at TCPA Protect do for businesses.
The FTC Enforcement Today
As stated above, the FTC has the difficult job of making sure all businesses treat consumers fairly. The FTC will always need to combat scammers, though, in 2019, their job got that much harder. There were two points of interest for the FTC that year that remain at the forefront to this day.
Sometimes, the offending act the FTC deal with isn’t so clear cut as a business advertising a product, and then taking the money without giving consumes what they paid for. Instead, today’s threat comes in the form of cybersecurity breaches, which fall under the FTC’s jurisdiction. The Safeguard rule outlines what steps businesses must take to ensure consumer privacy, and if they fail to take such steps, they can face enforcement action. Some examples of what the FTC expects of companies include:
- They must develop a cybersecurity incident plan, and then place a single individual in charge of that plan.
- They must restrict access to physical locations that store customer information, along with encrypting that data while it is in transit to the data security facility. It must remain encrypted upon arrival.
- They must implement data security and online privacy practices into their overall training.
There are many more rules relating to consumer privacy protection as part of the Safeguard regulations. With the constant growth of social media, it is sure that more will be implemented to ensure data privacy.
If a business has to deal with European consumers as well, then there are additional data security measures to consider. The United States Government conceived of the EU-U.S. Privacy Shield, though the EU didn’t sign off on its reliability. If you are worried your business isn’t meeting U.S. or European Data Security rules, contact us at TCPA Protect, as we can help to ensure your business is compliant.
Another challenge faced by the FTC today is one that we can all relate to. The Covid-19 pandemic. Businesses that are performing scams already have low morals, so it is not such a stretch to think that they will try and take advantage of the world’s current state. Multiple different scams have popped up during this event, and the FTC is busy fighting all of them. While the FTC is carrying out enforcement against offending businesses, they have issued some consumer advice to help potential victims remain vigilant, and thus lower the damage. That advice includes:
- Hang up on robocalls – The FTC already has a strict policy on robocalls, but in this time, when companies are using them to push Covid-19 related products, consumers are advised to hang up straight away.
- Ignore offers for vaccination – Currently, there is no vaccination for Covid-19, though multiple companies will attempt to sell one to consumers.
- Ensure test kits are FDA approved – There are numerous home testing kits on the market, though not many of these have FDA approval. Consumers should double-check before committing to a purchase.
How Is FTC Enforcement Carried Out?
The ultimate goal of the FTC is consumer protection and the promotion of competition. If a business can follow the outlined rules, they will never suffer the consequences that such a call would bring. In an ideal world, everyone would play fair, but that is not the case. When the FTC first receives a report of a breach of their rules, they will investigate. Depending on the number of complaints received, the FTC may choose to investigate a single company or take a more in-depth look at the industry as a whole.
The FTC will never make it publicly known that they are carrying out an investigation, as the investigation itself, even without results, could harm an innocent company’s integrity. However, a company can announce that they are undergoing investigation, and the FTC will confirm that. If the investigation comes back with a breach of the rules, the FTC can proceed in one of three ways.
Find Out What DNC Means for Your Business
When it comes to antitrust law violations, which is the FTC’s specialty, they typically get resolved with a consent order. A consent order, or consent decree as it can be known, is a settlement that resolves a dispute between parties, which in this case is the FTC and the offending business. This type of resolution can benefit a company as it does not require an admission of guilt or liability. It is also much faster to settle, requires fewer resources to carry out, and both parties can work together to reach amicable terms. A federal court supervises the enactment of the order.
If the FTC finds that a business is in breach of the regulations they oversee, they can file an administrative complaint. The complaint gets brought to a court, with the FTC serving as the prosecutor. The complaint will contain a variety of information, including:
- A description of the action that made the complaint necessary.
- A description of how the action was in breach of the guidelines.
- Details of how the affected parties suffered due to the breach of the guidelines.
- A proposal of how the offending party can correct its action.
The complaint then gets brought before an administrative law judge or ALJ, for short. After a thorough review, the offender can appeal the complaint with the U.S. Court of Appeals and the Supreme Court.
If the case is big enough, the FTC can decide to pursue federal litigation. If the FTC chooses to bring about federal litigation and is successful in their case, the fines can be extensive. Some examples of Federal Litigation cases include:
- Pointbreak Media LLC – Pointbreak Media had called small business owners under the pretense that they were working on Google’s behalf. Pointbreak Media LLC claimed that Google would shut down the businesses’ websites unless the business owners spoke to a Google “specialist.” Those “specialists” then asked for a sum of between $300 and $700 to secure a top spot on Google. The FTC investigated the case, brought it before a U.S. Court, and secured more than $700,000 in refunds.
- Apply Knowledge LLC – Apply Knowledge LLC offered consumers the chance to earn thousands of dollars a month, provided they purchased a business coaching service and then established internet businesses. These consumers then lost thousands of dollars, with a lot of loss coming from credit card debt from the Apply Knowledge payments. The FTC refunded over $2 million to the affected consumers.
- Veterans of America – Veterans of America, a fake charity claiming to help military veterans, had a case brought against them after they made many robocalls to unwanting consumers, which alone breached the Do Not Call Registry rules. However, the calls’ contents were also fraudulent. They asked for donations of cars, boats, and similar, before selling them on for a profit, of which they kept for themselves. The case is still proceeding, though a similar judgment saw a fine of $20.4 million.
The FTC Enforcement Can’t Do It Without You
The above three cases got brought against those companies because consumers reported them to the FTC, instead of letting them walk away free. As a business owner, it is your responsibility to ensure you never give your customers a reason to make a consumer complaint against you, and we at TCPA Protect can help you ensure that is the case. However, as a consumer yourself, for the right of fair and just business practices. You must also stay vigilant against other companies who don’t follow the letter of the law like yourself. Consumer complaints get made at ftc.gov/complaint, where they will require a variety of information, including:
- Contact Information – Name, telephone number, email, and address are all required.
- Product Information – Details on the product or service, along with details on the transaction.
- Offending Business Information – Name of the business, address of the company, any contact information including telephone number and email address, and the name of the representative you dealt with.
The FTC takes complaints on a variety of matters. As outlined above, National Do Not Call Registry violations, and telemarketing scams are just some examples.
FTC Enforcement Won’t Act On A Single Claim
The FTC wants to ensure all consumers receive protection against companies looking to take advantage of them. However, if they investigate every claim they received, they would never get anything done. Sometimes, the consumer complaint is from a disgruntled customer who wasn’t happy with what they received despite the company being honest about their services. For this reason, the FTC will only launch an investigation into companies that receive multiple complaints about the same or similar issue.
The FTC advises that along with forwarding their complaint to the FTC, consumers should also request a refund directly from the company. As part of the FTC guidelines, a business must give you a three day cancellation period if you have purchased the product or service from anywhere. At a retail outlet, not all products and services are covered. If that fails, a consumer may have grounds to bring the offending company to a small claims court, though, that in itself can be costly and time-consuming.
The FTC also advises that consumers be aware of fake complaint processing agencies who will claim to get spent money back for a fee. No refund should cost you, and companies that came to offer this service should get reported to the FTC.
What Does An FTC Investigation Look Like From The Business’s Side?
As the FTC does not disclose information on an investigation until it is in its closing stages, it can be difficult for a business to know what to expect if they become the subject of one. Ideally, and with the help of TCPA Protect, that will never be the case. However, it never hurts to plan for the worse, so the below is what a business can expect from an FTC investigation. The initial phase, or the informal investigation, is where it starts.
The Informal Investigation
When enough consumer complaints gather, the FTC launches an informal investigation. The FTC will then examine those complaints in more detail, as well as look at other publicly available information. It is not just consumer complaints that can trigger an informal investigation. One may also get launched at the request of another agency, such as the FCC or Federal Communications Commission. Once the investigation results are laid out and analyzed, the FCC will either close the investigation based on there being no case or launch a full official investigation.
The Full Investigation
If the FTC decides to proceed with further action, they will launch a full investigation. The first stage of this action is the formal gathering of information. The FTC will gather documentation from the offending business, including training materials, audits, and information on the consumer compliance program. They will also ask the company to outline any promises they have made to consumers about their products, whether true or not. While dealing with data collection from the business, the FTC will also talk to consumers and business competitors.
With the data collection phase complete, the FTC will begin the sometimes lengthy process of reviewing said information. The review period’s ultimate aim is to ascertain whether the business under review is guilty of the cases brought against them. If they are found guilty, the FTC will then assess how much damage consumers suffered. They will also evaluate that if the reason for the case was not intentional, what efforts did the business go to to help rectify the situation before enough consumer complaints incited an FTC investigation. With a case built, the FTC will go on to seek a resolution.
Come the end of the investigation, the FTC will decide on its next course of action. If they find a business in breach of federal law, they lodge a formal complaint leading to one of the measures outlined above. Enforcement action is somewhat rare when considering how many cases the FTC handles. However, if the case warrants such punishments, a business should prepare for expensive legal battles and a press release to minimize the damage of reputation that is sure to follow.
Does FTC Enforcement Work?
Without the FTC, businesses could go about their day, scamming consumers whenever they like. As stated, the FTC can’t see to every consumer complaint personally, though overall, the work they do is essential. Even the biggest multinational companies have to abide by the rules of the FTC. They have an incentive to stay on their good side, as the bigger the company. The more potential consumer complaints with one of the deciding factors of the resolution coming from the number of affected consumers. Ideally, every consumer should receive protection, though that is hugely resource-intensive. Instead, the FTC hopes that with business crushing enforcement action of monetary judgments on offending companies, others will step in line to provide a safe business place for consumers. TCPA Protect is here for those companies. It helps make sure they don’t suffer the same fate as their other more morally questionable competitors.
The Best Way For A Business To Avoid FTC Enforcement Is Not To Break The Law
FTC enforcement can be expensive, and if the financial costs don’t ruin your business, the bad press will. Even if a company wins the case against them, the damage done might be too much. The best way to fight an FTC enforcement action is not to leave yourself open to investigation. Stay in contact with your lawyers to ensure you are entirely in compliance with the rules related to your industry. Regularly audit your employees to ensure their practices are in line with your business’s code of conduct. Ensure that the same code of conduct gets updated when necessary and that it is available to all. Sounds like a lot of work? TCPA Protect has the resources and experience to help. Get in touch, and we will handle the rest from there. You don’t ever need to worry about FTC Enforcement.