FTC Consumer Protection Investigative and Law Enforcement Authority

The Federal Trade Commission’s specific investigative powers are defined in Sections 6, 9, and 20 of the FTC Act, 15 U.S.C. Secs. 46, 49, and 57b-1, which authorize investigations and various forms of compulsory process.

Sections 9 and 20 of the FTC Act

Section 9 of the FTC Act authorizes the Commission to “require by subpoena the attendance and testimony of witnesses and the production of all such documentary evidence relating to any matter under investigation.” 15 U.S.C. Sec. 49.  Any member of the FTC may sign a subpoena (pursuant to an FTC-issued resolution for compulsory process in the matter), and both members and “examiners” (employees) of the agency may administer oaths, examine witnesses, and receive evidence. Commission Rule 2.5, 16 C.F.R. Sec. 2.5.

If a party fails to comply with a subpoena, the FTC may seek enforcement of the subpoena in “[a]ny of the district courts of the United States within the jurisdiction of which such inquiry is carried on.” 15 U.S.C. Sec. 49.  After the FTC files its petition to enforce a subpoena, and following receipt of any response from the subpoena recipient, the court may enter an order requiring compliance.  Refusal to comply with a court enforcement order is subject to penalties for contempt of court.

The Bureau of Consumer Protection may use only Civil Investigative Demands (CIDs), rather than subpoenas, to investigate possible “unfair or deceptive acts or practices.” FTC Act Sec. 20, 15 U.S.C. Sec. 57b-1.  The scope of a CID is different from that of a subpoena.  Both subpoenas and CIDs may be used to obtain existing documents or oral testimony.  However, a CID may also require that the recipient “file written reports or answers to questions.” 15 U.S.C. Sec. 57b-1(c)(1).  In addition, Section 20 expressly authorizes the issuance of CIDs requiring the production of tangible things and provides for service of CIDs upon entities not found within the territorial jurisdiction of any court of the United States. 15 U.S.C. Sec. 57b-1(c)(7)(B).

Under Commission Rule 2.10, 16 C.F.R. Sec. 2.10, a party may raise objections to a subpoena or a CID by filing a petition to limit or quash.  Such petitions will be resolved by the full Commission.  The FTC may petition a federal district court to enforce a CID in the event of non-compliance.

Section 6 of the FTC Act provides another investigative tool. Section 6(b) empowers the Commission to require an entity to file “annual or special . . . reports or answers in writing to specific questions” to provide information about the entity’s “organization, business, conduct, practices, management, and relation to other corporations, partnerships, and individuals.” 15 U.S.C. Sec. 46(b).  Similar to CIDs, the recipient of a 6(b) order may file a petition to limit or quash, and the FTC  may seek a court order requiring compliance.

If a party fails to comply with a 6(b) order after receiving a notice of default from the FTC, the agency may commence suit in federal court under Section 10 of the FTC Act, 15 U.S.C. Sec. 50.  After expiration of a thirty-day grace period, a defaulting party is liable for a penalty for each day of noncompliance. Commission Rule 1.98(f), 16 C.F.R. Sec. 1.98(f).

The Commission’s 6(b) authority also enables it to conduct wide-ranging studies that do not have a specific law enforcement purpose.  Section 6(f) authorizes the FTC to “make public from time to time” portions of the information that it obtains, where disclosure would serve the public interest. 15 U.S.C. Sec. 46(f).

Section 6(f) and Section 21 of the FTC Act

Section 6(f) also authorizes the FTC to share confidential information with other appropriate enforcement agencies, subject to appropriate limitations and confidentiality assurances.  This allows the FTC and other law enforcers to cooperate and minimize duplication in investigations.  Section 21, 15 U.S.C. Sec. 57b-2, establishes the conditions and procedures for confidential treatment of various types of materials and information obtained by the FTC.

Section 21b of the FTC Act

Section 21B, 15 U.S.C. Sec. 57b-2b, protects certain entities (for example, Internet service providers and consumer reporting agencies) from liability for voluntary disclosures to the FTC about suspected fraud or deception, about recovery of assets for consumer redress or about consumer complaints sent to them.

International Investigations

The “Undertaking Spam, Spyware, And Fraud Enforcement With Enforcers beyond Borders Act of 2006” (the “U.S. SAFE WEB Act of 2006” or “Safe Web”) (Pub. L. No. 109-455, extended by Pub. L. 112–203) added subsection (j) to Section 6, allowing the Commission to use all of its investigative powers to conduct investigations and discovery to help foreign law enforcement agencies in appropriate consumer protection matters.

Section 6(j)(4), 15 U.S.C. Sec. 46(j)(4), authorizes the FTC, with the approval of the Secretary of State, to negotiate and conclude international agreements in the name of the United States or the FTC if foreign law requires an agreement as a condition for reciprocal assistance or information sharing.  Safe Web amended Sections 6(f) and 21(b), 15 U.S.C. Secs. 46(f) and 57b-2(b), to authorize disclosure of confidential materials or information to foreign law enforcement agencies in consumer protection matters, subject to appropriate confidentiality constraints.

Enforcement Authority

Following an investigation, the FTC may initiate an enforcement action using either an administrative or judicial process if it has “reason to believe” that the law is being or has been violated.  The FTC enforces both consumer protection and antitrust laws.  Violations of some laws may result in civil penalties, which are adjusted annually for inflation. Commission Rule 1.98, 16 C.F.R. Sec. 1.98.

Consumer Protection

Section 5(a) of the FTC Act provides that “unfair or deceptive acts or practices in or affecting commerce . . . are . . . declared unlawful.” 15 U.S.C. Sec. 45(a)(1).  Safe Web clarified that “unfair or deceptive acts or practices” in Section 5(a) include such acts or practices involving foreign commerce that cause or are likely to cause reasonably foreseeable injury within the United States or involve material conduct occurring within the United States. 15 U.S.C. Sec. 45(a)(4)(A).

“Deceptive” practices are defined in the Commission’s Policy Statement on Deception as involving a material representation, omission or practice that is likely to mislead a consumer acting reasonably in the circumstances.  An act or practice is “unfair” if it “causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.” 15 U.S.C. Sec. 45(n).

In addition, the Commission enforces a variety of other consumer protection statutes that prohibit specifically defined practices.  These statutes generally specify that violations are to be treated as if they were “unfair or deceptive” acts or practices under Section 5(a); many also provide that violations are to be treated as if they were violations of a trade regulation rule issued under Section 18 of the FTC Act, and thus subject to civil penalties.

Administrative Enforcement of Consumer Protection Laws

In the administrative process, the FTC determines in an adjudicative proceeding whether a practice violates the law.  Under Section 5(b) of the FTC Act, the FTC may challenge “unfair or deceptive act[s] or practice[s],” “unfair methods of competition,” or violations of other laws enforced through the FTC Act, by instituting an administrative adjudication.

When the FTC has “reason to believe” that a law violation has occurred, the FTC may issue a complaint setting forth its charges. If the respondent elects to settle the charges, it may sign a consent agreement (without admitting liability), consent to entry of a final order, and waive all right to judicial review.  If the FTC accepts the proposed consent agreement, it places the order on the record for thirty days of public comment (or for such other period as the FTC may specify) before determining whether to make the order final.

Administrative Adjudication

If the respondent elects to contest the charges, the complaint is adjudicated before an administrative law judge in a trial-type proceeding conducted under the Commission’s Rules of Practice.  The prosecution of a matter is conducted by FTC “complaint counsel,” who are staff from the relevant bureau or a regional office.

Upon conclusion of the hearing, the ALJ issues an “initial decision” setting forth the findings of fact and conclusions of law, and recommending either entry of an order to cease and desist or dismissal of the complaint.  Either complaint counsel or respondent, or both, may appeal the initial decision to the full FTC.  In limited cases, the FTC’s rules provide that the appeal is automatic.

Upon appeal of an initial decision, the FTC receives briefs, holds oral argument, and thereafter issues its own final decision and order.  The FTC’s final decision is appealable by any respondent against which an order is issued.  The respondent may file a petition for review with any United States court of appeals within whose jurisdiction the respondent resides or carries on business or where the challenged practice was used. FTC Act Section 5(c), 15 U.S.C. Sec. 45(c).

If the court of appeals affirms the FTC’s order, the court enters its own order of enforcement.  The party losing in the court of appeals may seek review by the Supreme Court.

FTC decisions and orders are available here.

Enforcing Final Commission Orders

An FTC order (except an order to divest assets) generally becomes final (i.e., binding on the respondent) 60 days after it is served, unless the order is stayed by the FTC or by a reviewing court.  Divestiture orders become final after all judicial review is complete (or if no review is sought, after the time for seeking review has expired).  If a respondent violates a final order, it is liable for a civil penalty for each violation. FTC Act Section 5(l), 15 U.S.C. Sec. 45(l).  The penalty is assessed by a federal district court in a suit brought to enforce the FTC’s order.  The court may also issue “mandatory injunctions” and “such other and further equitable relief” as is deemed appropriate.

Redress After an Administrative Order is Entered

In addition (after all judicial review of its order is complete), the FTC may seek consumer redress from the respondent in federal district court for consumer injury caused by the conduct that was at issue in the administrative proceeding.  In such a suit, which lies under Section 19 of the FTC Act, 15 U.S.C. Sec. 57b, the FTC must demonstrate that “a reasonable man would have known under the circumstances [that the conduct] was dishonest or fraudulent.”

Civil Penalty Enforcement Against Non-Respondents in Consumer Protection Matters

Where the FTC has determined in a litigated administrative adjudicatory proceeding that a practice is unfair or deceptive and has issued a final cease and desist order, the FTC may obtain civil penalties from non-respondents that thereafter violate the standards articulated by the FTC.  To accomplish this, the FTC must show that the violator had “actual knowledge that such act or practice is unfair or deceptive and is unlawful” under Section 5(a)(1) of the FTC Act. FTC Act Section 5(m)(1)(B), 15 U.S.C. Sec. 45(m)(1)(B).

To prove “actual knowledge,” the FTC typically shows that it provided the violator with a copy of the FTC determination regarding the act or practice in question, or a “synopsis” of that determination.

Judicial Enforcement

Even where the FTC determines through adjudication that a practice violates consumer protection law, the FTC must still seek the aid of a court to obtain civil penalties or consumer redress for violations of its orders to cease and desist or trade regulation rules.  Discussed herein is the FTC’s ability to challenge a practice directly in court, without first making a final agency determination that the challenged conduct is unlawful.

Section 13(b) of the FTC Act, 15 U.S.C. Sec. 53(b), authorizes the FTC to seek preliminary and permanent injunctions to remedy “any provision of law enforced by the Federal Trade Commission.”  Whenever the FTC has “reason to believe” that any party “is violating, or is about to violate” a provision of law enforced by the FTC, the Commission may ask the district court to enjoin the allegedly unlawful conduct, pending completion of an FTC administrative proceeding to determine whether the conduct is unlawful.  Additionally, “in proper cases,” the FTC may seek, and the court may grant, a permanent injunction.

Rulemaking Authority

The FTC may use rulemaking to address unfair or deceptive practices that occur commonly, in lieu of relying solely on actions against individual respondents.

The FTC’s rulemaking authority comes from Section 6(g) of the FTC Act, 15 U.S.C. Sec. 46, which authorizes the FTC “to make rules and regulations for the purpose of carrying out the provisions of this subchapter.”  In 1975, Section 18 of the FTC Act, 15 U.S.C. Sec. 57a, became the FTC’s exclusive authority for issuing rules with respect to unfair or deceptive acts or practices under the FTC Act.

Under Section 18 of the FTC Act, 15 U.S.C. Sec. 57a, the FTC is authorized to prescribe “rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce” within the meaning of Section 5(a)(1) of the Act.  These rules are known as “trade regulation rules.”

Among other things, the statute requires that FTC rulemaking proceedings provide an opportunity for informal hearings at which interested parties are accorded limited rights of cross-examination.  Prior to commencing a rulemaking proceeding, the FTC must have reason to believe that the practices to be addressed by the rulemaking are “prevalent.” 15 U.S.C. Sec. 57a(b)(3).

Once the FTC has promulgated a trade regulation rule, anyone who violates the rule “with actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and is prohibited by such rule” is liable for civil penalties for each violation.

The FTC obtains such penalties by filing a suit in federal district court under Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. Sec. 45(m)(1)(A).  In addition, any person who violates a rule (irrespective of the state of knowledge) is liable for injury caused to consumers by the rule violation.  The FTC may pursue such recovery in a suit for consumer redress under Section 19 of the FTC Act, 15 U.S.C. Sec. 57b.

These procedures apply only to rules with respect to unfair or deceptive acts or practices promulgated under authority of the FTC Act.  In addition, various other statutes authorize FTC rulemaking; such rulemaking is typically promulgated in accordance with section 553 of title 5, United States Code.  These statutes generally provide that a violation is treated as a violation of the FTC Act, and often provide that a violation is treated as a violation of a trade regulation rule promulgated under FTC Act Section 18.  Section 22 of the FTC Act, 15 U.S.C. Sec. 57b-3, contains procedural requirements that apply to the FTC’s rules.