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What is the history of federal regulation for deceptive trade practices and consumer...

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enotes

Posted January 30, 2014 at 10:52 PM via web

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What is the history of federal regulation for deceptive trade practices and consumer protection?

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Tamara K. H. | Middle School Teacher | (Level 1) Educator Emeritus

Posted February 1, 2014 at 3:38 AM (Answer #1)

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One of the first steps ever taken to protect consumers was the establishment of the Federal Trade Commission (FTC), which was established by President Woodrow Wilson in 1914 under the Federal Trade Commission Act. Wilson initially designed the FTC to combat against trusts. A trust is simply a person or organization that holds the title of property for another person, and that person would be called a beneficiary, someone who benefits from the trust. The problem was that back in the 19th and early 20th centuries, major corporations were forming trusts and those trusts were creating monopolies by eliminating competition. Hence, Wilson created the FTC to review mergers and investigate business practices, especially practices that eliminate any competition. Making sure that monopolies do not exist and that all businesses have healthy competition also protects the consumers because businesses will compete with respect to both quality and prices. Hence, if there is healthy competition, consumers are guaranteed both high quality and fair prices.   

By the 1960s, regardless of the FTC, consumers began feeling that they were still at a disadvantage in comparison to sellers, especially large corporations, in that consumers were unable to equally bargain with sellers for fair prices. Consumer advocates began lobbying Congress for federal regulations protecting consumers from unfair seller practices, especially unfair practices of large industries and corporations. Congress established the Consumer Product Safety Commission (CPSC) in 1972 to set product safety standards and protect consumers from defective and harmful products. The CPSC is used to either ban or recall products from the market. The FTC's ability to regulate was also expanded in 1964 to include the regulation of advertising as part of unfair or deceptive business practices. The FTC could declare a business's practice, like advertising, to be unfair if it offended the public, was "immoral, unethical, oppressive, or unscrupulous," or harmed consumers ("Unfiar or Deceptive Trade Practices," West's Encyclopedia of American Law, 2nd ed.). One example of this type of regulation would be the FTC's ruling that cigarette manufacturers needed to label their products as harmful. However, the FTC changed again in 1980 and no longer uses the idea of "immoral, unethical, oppressive, or unscrupulous" practices to judge any business's practices as unfair. Instead, all decisions are now weighed against whether or not the practice harms the consumer and if that harm is greater than any benefit to consumers.

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Kay Morse | College Teacher | (Level 1) Senior Educator

Posted March 3, 2014 at 9:10 PM (Answer #2)

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Consumer protection agencies have been established on state levels as part of state attorney general offices. These agencies are different from and unconnected with the federal and state agencies that regulate fair trade practices. Since the 1960s, each state has statutes regulating fair trade practices though the federal government, since 1914, legislates national fair trade practices relating to these areas of restrictions and prohibitions in business practices:

  • unfair trade practices
  • deceptive trade practices
  • and unfair competition

It is the Federal Trade Commission that regulates federal, nationally imposed laws that prohibit specific practices in interstate commerce. The Federal Trade Commission (FTC) enacted the Federal Trade Commission Act of 1914 (FTCA). The FTCA was the first and original federal statue nationally prohibiting "unfair or deceptive trade acts or practices." It has been amended over the years to keep abreast with changes in the business and trade environments.

The original aim of the federal FTCA statute related to antitrust legislation and trademark infringement legislation. In contrast, prior to the 1960s, state statues related to "unfair competition."

unfair competition: common law tort action for practices employed by businesses to confuse consumers as to the source of a product ... "passing off" its goods as those of another ... [through] trademark infringement. (Encyclopedia of Everyday Law, Gale Cengage).

Despite the FTCA, which was designed to regulate "unfair or deceptive trade acts or practices," standards throughout the states of what legal actions rightly applied to unfair or deceptive trade acts or practices were undefined and unclear. To address the problem of lack of definition of appropriate legal action and to provide uniformity throughout the states, the National Conference of Commissioners on Uniform State Laws (NCCUSL) drafted the Uniform Deceptive Trade Practices Act in 1964, which was revised by the NCCUSL in 1966. The intent of the Act of 1964/1966 was to remove from state law unnecessary restraints against common law action in tort courts (as as are used for action in unfair competition) for cases of deceptive trade practices. 

Uniform Deceptive Trade Practices Act of 1964: designed to bring state law up to date by removing undue restrictions on the common law action for deceptive trade practices. (Gale Cengage)

Eleven states accepted the Act of 1964 for their own statutes while the others composed their own statues based on the language of the Act. States had uniformly compatible statutes governing deceptive or unfair trade practices by the 1970s. Not all possible situations of deceptive trade practices are covered by federal or state statutes. Most statutes are limited in scope to "commercial transactions involving a consumer purchasing or leasing goods or services for personal, household, or family purposes" (Gale Cengage). The specific language of the rights asserted or limited in statutes is often the subject of litigation--lawsuits brought about challenge the authority of the language and the applicability of it to trade situations. As a result, most states require liberal interpretations of the statutes since not all deceptive trade situations are defined or specifically addressed.

Categories of State Limitations Regarding Applicability of Deceptive Trade Statutes

Trade or Commerce: generally excludes trade between non-merchants and similar transactions; includes a broad range of profit-oriented transactions.

Consumer Transactions: consumer is defined as a person who will use a good or service for personal, family, or household purposes; applicability of definition of consumer is subjected to a subjective test (intent at time of transaction) and an objective test (typicality of transaction for consumers).

Goods and Services: defined under the Uniform Commercial Code (UCC) as those items that are movable at a time of purchase; cows are goods, acting on another's behalf is a service, etc; additional definitions include the provision that goods/services be involved in a transaction (exchange of consideration); additional definitions include "merchandise, which incorporates goods, services, real property, commodities, and some intangibles."

Prohibited Acts and Practices: this is a specific prohibition against fraudulent practices and unconscionable practices; on the federal level, the Federal Trade Commission (FTC) requires that an individual "have the capacity [or tendency] to deceive or commit an unfair trade practice"; if the FTC rules that this capacity or tendency exists [this is different from having an intent of an act or having committed an act of deception], this may be enough for the FTC to order that the company to cease and desist the deceptive or unfair practice; states follow the FTC and disregard intent, full knowledge, and committing an action.

[The above taken from Encyclopedia of Everyday Law, Gale Cengage.]

Consumer Action Against Deceptive Trade

  • Consult the applicable State Deceptive Trade Statute
  • Consult case law applying the statute
  • The Uniform Deceptive Trade Practices Act of 1964 list specific actions constituting deceptive practices such as passing off goods or services as those of another company, causing the likelihood of confusion or of misunderstanding, misrepresenting that goods or services are of particular standard, making false or misleading statements of fact, etc.

Other Practices Deemed Deceptive or Unfair

Debt Collection: the Federal Fair Debt Collection Practices Act of 1996 (FFDCP) governs abuses in debt collection; FFDCP may cover debt collections that other debt collection laws do not cover; may cover third-party debt collections; may cover false debt solution proposals.

Breach of Warranty: FFDCP may cover deceptive practices with respect to the advertisement or negotiation of a warranty.

Insurance: FFDCP may cover deceptive practices of insurance companies related to the sale of policies and the payment of claims.

Pyramid Schemes: state statutes may cover financial schemes by which investors make money by recruiting others to join and invest in a company rather than by selling a product claimed by a company.

State and Local Provisions

While most states have analogous (comparably similar) statutes and restrictions, there are variations in the different states. While consulting the FFDCP is important, it is also important to consult your state statutes to know the particular differences addressed by your state's regulations. For example, while Alabama prohibits 22 specific practices, Alaska prohibits 41. California and Arizona both require intent of deception and Delaware requires likelihood of a misunderstanding on the part of a consumer while the FFDCP does not require intent. Illinois and Iowa prohibit concealment or omission by a business of any material fact with intent. Missouri statutes apply to the sale, offer for sale, or advertisement of any merchandise while Montana statutes apply to any real or personal property, services, intangibles, or anything of value. While there is a good deal of uniformity, there are state related differences that the consumer will want to consult while taking action against deceptive practices.

History of Federal Regulation for Deceptive Practices

1914: Federal Trade Commission (FTC) enacted the Federal Trade Commission Act of 1914

1914-1950s, state statutes: related to "unfair competition."

1964: National Conference of Commissioners on Uniform State Laws (NCCUSL) drafted the Uniform Deceptive Trade Practices Act of 1964

1966: Uniform Deceptive Trade Practices Act amended

1960s-1970s: states enacted uniformly compatible statutes governing deceptive or unfair trade practices; incorporated prohibitions for consumer protection

1996: Federal Fair Debt Collection Practices Act (FFDCP)

Source: "Consumer Issues - Deceptive Trade Practices." Encyclopedia of Everyday Law. Ed. Shirelle Phelps. Gale Cengage, 2003.

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