The Federal Trade Commission (FTC) was established as an independent administrative agency pursuant to the Federal Trade Commission Act of 1914. The purpose of the FTC is to enforce the provisions of the Federal Trade Commission Act, which prohibits "unfair or deceptive acts or practices in commerce." The Clayton Antitrust Act (1914) also granted the FTC the authority to act against specific and unfair monopolistic practices. The FTC is considered to be a law enforcement agency, and like other such agencies it lacks punitive authority. Although the FTC cannot punish violators—that is the responsibility of the judicial system—it can issue cease and desist orders and argue cases in federal and administrative courts.
Today, the Federal Trade Commission serves an important function as a protector of both consumer and business rights. While the restrictions that it imposes on business practices often receive the most attention, other laws enforced by the FTC—such as the 1979 Franchise Rule, which directed franchisors to provide full disclosure of franchise information to prospective franchisees—have been of great benefit to entrepreneurs and small business owners. Basically, all business owners should educate themselves about the guidelines set forth by the FTC on various business practices. Some of its rules can be helpful to small businesses and entrepreneurs. Conversely, businesses that flout or remain ignorant of the FTC's operating guidelines are apt to regret it.
The FTC was created in response to a public outcry against the abuses of monopolistic trusts during the late 19th and early 20th centuries. The Sherman Antitrust Act of 1890 had proven inadequate in limiting trusts, and the widespread misuse of economic power by companies became so problematic that it became a significant factor in the election of Woodrow Wilson to the White House in 1912. Once Wilson assumed the office of the Presidency, he followed through on his campaign promises to address the excesses of America's trusts. Wilson's State of the Union Message of 1913 included a call for extensive antitrust legislation. Wilson's push, combined with public displeasure with the situation, resulted in the passage of two acts. The first was the Federal Trade Commission Act, which created and empowered the FTC to define and halt "unfair practice" in trade and commerce. It was followed by the Clayton Antitrust Act, which covered specific activities of corporations that were deemed to be not in the public interest. Activities covered by this act included those mergers which inhibited trade by creating monopolies. The FTC began operating in 1915; the Bureau of Operations, which had previously monitored corporate activity for the federal government, was folded into the FTC.
The FTC is empowered to enforce provisions of both acts following specific guidelines. The offense must fall under the jurisdiction of the various acts and must affect interstate commerce. The violations must also affect the public good; the FTC does not intervene in disputes between private parties. As noted, the FTC lacks authority to punish or fine violators, but if an FTC ruling—such as a cease and desist order—is ignored, the FTC can seek civil penalties in federal court and seek compensation for those harmed by the unfair or deceptive practices.
Since 1914 both the Federal Trade Commission Act and the Clayton Act have been amended numerous times, thus expanding the legal responsibilities of the FTC. Some of the more notable amendments are:
In recent years, the Federal Trade Commission has also turned its attention to Internet commerce. Specifically, it is, in conjunction with Congress, exploring the possibility of issuing rules to companies regulating their handling of personal data and other Internet privacy issues. For much of the 1990s, the FTC favored self-regulation in this area. But a 2000 survey conducted by the FTC found that only 20 percent of major e-commerce sites mets the agency's standards for consumer privacy protection. These findings, coupled with widespread concerns in both the public and private sectors about Internet security, may eventually trigger the creation of new FTC regulations for companies that operate electronic business sites.
The FTC is administered by a five-member commission. Each commissioner is appointed by the President for a seven-year term with the advice and consent of the Senate. The commission must represent at least three political parties and the President chooses from its ranks one commissioner to be chairperson. The chairperson appoints an executive director with the consent of the full commission; the executive director is responsible for general staff operations.
Three bureaus of the FTC interpret and enforce jurisdictional legislation: the Bureau of Consumer Protection, the Bureau of Competition, and the Bureau of Economics.
BUREAU OF CONSUMER PROTECTION The Bureau of Consumer Protection is charged with protecting the consumer from unfair, deceptive, and fraudulent practices. It enforces congressional consumer protection laws and regulations issued by the Commission. In order to meet its various responsibilities, the Bureau often becomes involved in federal litigation, consumer, and business education, and conducts various investigations under its jurisdiction. The Bureau has divisions of advertising, marketing practices, credit, and enforcement.
BUREAU OF COMPETITION The FTC's Bureau of Competition is responsible for antitrust activity and investigations involving restraint of trade. The Bureau of Competition works with the Antitrust Division of the U.S. Department of Justice, but while the Justice Department concentrates on criminal violations, the Bureau of Competition deals with the technical and civil aspects of competition in the marketplace.
BUREAU OF ECONOMICS The Bureau of Economics predicts and analyzes the economic impact of FTC activities, especially as these activities relate to competition, interstate commerce, and consumer welfare. The Bureau provides Congress and the Executive Branch with the results of its investigations and undertakes special studies on their behalf when requested.
The FTC becomes aware of alleged unfair or deceptive trade practices as a result of its own investigations or complaints from consumers, business people, trade associations, other federal agencies, or local and state governmental agencies. These complaints become known as "applications for complaints" and are reviewed to determine whether or not they fall under FTC jurisdiction. If the application does fall under FTC jurisdiction, the case can be settled if the violator agrees to a consent order. This is a document issued by the FTC after a formal—and in some cases—public hearing to hear the complaint. Consent orders are handed down in situations where the offending company or person agrees to discontinue or correct the challenged practices. If an agreement is not reached via a consent order, the case is litigated before an FTC Administrative Law Judge. After the judge has handed down his or her decision, either the FTC counsel or the respondent can appeal the decision to the Commission. The Commission may either dismiss the case or issue a cease and desist order. If a cease and desist order is issued, the respondent has sixty days to take all necessary steps to obey the order or launch an appeal process through the federal court system.
Holt, William Stull. The Federal Trade Commission: Its History, Activities, and Organization. AMS Press, 1974.
Hoover, Kent. "FTC Faces Tough Task Stemming Tide of Fraudulent Sales." Tampa Bay Business Journal. April 14,2000.
Labaree, Robert V. The Federal Trade Commission: A Guide to Sources. Garland, 2000.
"Online Enforcement Efforts Outlined." New York Times. November 1, 2000.
United States Federal Trade Commission Annual Report . Federal Trade Commission, U.S. Government Printing Office.
The fatal FLAW in the FTC Rule which appears to permit franchise chain systems to withhold material facts from new buyers concerning the often poor financial performance of startup units within the system has been pointed out to the FTC in public comments for many years. Yet neither the Congress nor the Executive acts to eliminate the flaw and to mandate that the franchisors themselves in the disclosure process provide visibility of unit financial performance statistics to new buyers of franchises and to the investors in the paper of franchise systems.
Obviously, the unit performance statistics of chain systems is highly material to both the buyer of a franchise, the franchisee, and to investors in the franchise chain systems, as well. If there had been visibility of UNIT financial performance within systems, some of the franchise systems who had securitized their businesses and then failed would perhaps not taken as many franchisees and investors down with them when they were liquidated in bankruptcies.
How can the FLAW in the FTC Rule and the little FTC Statutes continue to be rationalized by the FTC?