The Federal Trade Commission and the Consumer Financial Protection Bureau

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Summary

Protecting the interests of the general public has long been considered an essential responsibility of contemporary government and a cornerstone of the administrative state. Consumer protection preserves customers’ interests and well-being through educating, mobilizing, and representing them. Consumer protection guarantees that customers are well aware of their choices and have full rights to appropriate recourse processes. Thus, through consumer protection agencies such as the FTC and the CFPB, companies are compelled to ensure the quality and reliability of their goods and services.

The Federal Trade Commission (FTC)

The FTC took over the responsibilities of its forerunner, the federal Bureau of Corporations. The statute strengthened the bureau’s investigative and reporting capacity by granting the body the jurisdiction to pursue administrative proceedings challenging unfair competition practices (Wagner, 2020). Five commissioners lead the FTC, which is divided into agencies such as the Bureau of Competition and the Bureau of Consumer Protection (The Federal Trade Commission, 2021). The FTC Commission’s Bureau of Consumer Protection prosecutes businesses that engage in unfair, misleading, or fraudulent commercial practices. It fulfills this mandate by gathering consumer complaints and undertaking investigations, prosecuting firms, and individuals who violate the law (The Federal Trade Commission, 2021). It creates regulations to ensure a balanced marketplace and teaches customers and merchants their rights and duties.

Unfair Practices

For many decades, protecting consumers from unfair and misleading commercial tactics has been a subject of recurrent governmental interest. A section of the FTC Act prohibits unfair commercial tactics that cause a customer considerable and inevitable damage. The FTC uses a series of standards created in the Supreme Court’s 1972 Sperry and Hutchinson decision to determine if the conduct is unfair (The Federal Trade Commission, 2021). While these factors aid the FTC in making judgments, they provide enforcement discretion. The Sperry and Hutchison criteria are divided into three parts:

Unjustified Consumer Injury – According to the FTC, the essential factor for assessing practice fairness is unwarranted customer harm. Unwarranted customer harm occurs when the harm is significant, supersedes any advantages to the consumer, and was justifiably preventable by the customer.
Violation of Public Policy – The FTC then takes into account existing public policy initiatives, which could perhaps be legislation or common laws. In other words, it assesses if a violation of public policy caused the injury.
Unethical Conduct – Lastly, the FTC evaluates if the conduct or behavior was unethical, which is perhaps the most ambiguous criterion. If an action is immoral, repressive, or manipulative, or if it breaches conventional corporate principles, it is deemed unethical.

Deceptive Practices

Each state has customer protection legislation that forbids misleading conduct, and many typically criminalize unjust or unreasonable actions. False statements, deceptive pricing claims, sales without appropriate transparency, bait-and-switch strategies, and inability to fulfill warranties are the most prevalent deceptive practices covered under the FTC law. The FTC can prohibit businesses from engaging in dishonest behavior, which is an additional “no-no” within the FTC Law. According to Bladow (2017), these regulations are somewhat stricter standards. While the requirements allow for some interpretation, misleading actions must meet all three requirements. The FTC examines these three elements when determining whether an activity or practice is misleading:

Misleading – A business’s activity or representation must potentially deceive a customer.
Consumer’s Perspective – The FTC takes into account how a regular and rational consumer may interpret a business’s actions or words. The technique has to be deceptive to the whole public, not just a chosen few.
Materiality – The falsehood should be such that it has a reasonable possibility of influencing a consumer’s decision. The misrepresentation must arise concerning information that the customer appreciates and is expected to influence their purchasing decisions.

Additional Laws

Consumer financial protection regulations are intertwined with the FTC Statute. The FTC is responsible for monitoring and enforcing laws relating to the FTC Act due to the act’s strong ties to other legislation. The Federal Trade Commission primarily enforces these laws’ privacy restrictions:

The Telemarketing and Consumer Fraud and Abuse Prevention Act prevents telemarketers from using fraudulent and invasive techniques.
The Gramm-Leach-Bliley Act protects consumers’ rights to information about their financial accounts and records.
The Children’s Online Privacy Protection Act restricts the collection of personal information from young children.
The Identity Theft Assumption and Deterrence Act strengthens the FTC’s ability to prevent and react to identity theft.
The Fair Credit Reporting Act, part of the Consumer Credit Protection Act, regulates credit reports to ensure their fairness and accuracy.

Enforcement and Penalties in Consumer Protection

The FTC conducts investigations into complaints made by people and enterprises, evaluates pre-merger update submissions by corporates, and analyzes the findings of Congressional investigations and media stories. It may look for deceptive marketing or fraud cases involving only one business or a whole sector. If an inquiry reveals illegal practice, the FTC may seek conformity via a consent decree or through filing an administrative dispute, although lawsuits are possible (The Federal Trade Commission, 2020). The Federal Trade Commission acts as the prosecutor in administrative proceedings before an impartial administrative law judge. Federal courts and the FTC may be used to levy penalties, assign a trustee or supervisor to the company, and freeze the company’s assets. Additionally, the FTC establishes and enforces trade standards that govern commercial conduct.

Civil sanctions may assist the Commission in deterring consumer-harming behavior. Since fines may surpass what a perpetrator earns through their actions, they convey a strong statement that customer exploitation will not be rewarding. The Commission has the authority to give businesses a “Notice of Penalty Offenses” (The Federal Trade Commission, 2021). This Notice is a paper that lists specific forms of behavior that the Agency has judged to be unjust or deceitful in contravention of the FTC Act in at least one administrative decision (apart from consent judgments). If a company receives this Notice but continues to participate in illegal acts, it could incur civil fines of up to $47,000 for every infringement (The Federal Trade Commission, 2021). The fact that the Agency has given a notice to a corporation is not indicative that it believes the company violates the FTC Act. These alerts are sent to guarantee that firms are aware of the law and prevented from breaching it.

Complaints are filed by the Commission when it has grounds to assume that the statute has been or is being abused and it seems that a case is in the public’s best interest. In 2014, AT&T Mobility LLC agreed to pay the Federal Trade Commission $80 million to reimburse customers the firm had wrongfully charged for unapproved third-party services (The Federal Trade Commission, 2014). Likewise, in December 2021, the FTC imposed a ban on a group of phantom debt collection agencies (Federal Trade Commission, 2021). Overall, when a District Court judge signs and approves a stipulated judgment, it becomes law.

The Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (CFPB) is a Federal Reserve System-funded autonomous organization. It was founded 12 years ago to protect and educate clients on their interactions with financial products and sectors (Orescanin, 2018). Its mission is to oversee that federal financial rules are properly implemented and that individuals have equitable and competitive access to all financial services. The CFPB is a component of the Dodd-Frank Act, which was enacted due to problematic borrowing and investment activities before the Great Recession of 2008 (Marciniak III, 2021). It was the inaugural government organization to concentrate only on customer rights and financial safeguards for consumers. The body was charged with a broad range of activities, including educating customers, enforcing laws and regulations, and conducting research on a range of goods and services, including mortgages, credit cards, student, auto loans, and payday, as well as collection companies.

The CFPB’s Consumer Protection Powers

The CFPB is specifically empowered to adopt regulations that safeguard and educate consumers in various ways. They consist of the capacity to:

Develop guidelines that are compliant with federal customer finance legislation;
Detecting unfair, dishonest, or abusive activities or practices via the creation of regulations, the supervision of businesses, and the enforcement of the law;
Enforcing anti-discrimination legislation in consumer finance;
Considering consumer grievances;
Improving Financial Education;
Investigating the user experience with financial goods (Consumer Financial Protection Bureau, 2022).

An act of Congress, the Consumer Financial Protection Act (CFPA) of 2009, created the Consumer Financial Protection Bureau (CFPB). Oversight responsibilities formerly held by multiple financial watchdogs were combined under the CFPB by the CFPA. Consequently, the CFPB was tasked with ensuring that financial goods and services were not unfair, misleading, or manipulative to consumers. In other words, the CFPB applies the rules and regulations of the Consumer Financial Protection Act to enforce consumer protection.

Consumer Financial Protection Bureau’s Goals

An important aspect of the Consumer Financial Protection Bureau’s goal is to provide a public grievance procedure for consumers. Consumers may take the following steps to file complaints:

The procedure starts when a client files a complaint with the CFPB or any government body. The CFPB approach encourages customers to research the claims process to minimize confusion about how the system operates.
The CFPB communicates the client’s claim to the firm they complained against and seeks to receive a reply from it. On other occasions, a different federal agency is engaged to assist.
The organization is supposed to communicate back on any actions adopted or intended to remedy the problems in the consumer complaint within two weeks or sometimes two months. This may entail the corporation communicating with the customer as needed.
The claim is then entered into the CFPB’s Customer Complaint Registry, including a summary of what transpired following the filing of the claim. Private information about the consumer is deleted prior to publishing.
The CFPB will notify the client when the organization answers, let them examine the reply, and offer two months for review.

Companies that have broken consumer financial protection laws may be ordered to pay compensation for the damage they have caused their customers when CFPB or a court rules that they must do so. Payments are made on a case basis and can range from $5,000 per day to one million per day (Peterson, 2016). When the Agency obtains a civil penalty via criminal prosecution, it deposits the amount into the Civil Penalty Fund (Consumer Financial Protection Bureau, 2022). The funds in the Fund are consolidated and may be utilized to assist victims who have not obtained complete restitution for their losses due to reparations given by the accused in their suit. The Dodd-Frank Act and the Bureau’s Civil Penalty Fund regulation limit the Fund’s usage to two main functions: compensating entitled affected customers and, to the degree that complainant compensation is not practical, sponsoring consumer training and financial intelligence initiatives (Consumer Financial Protection Bureau, 2022). This compensation is delivered to victims by the Consumer Financial Protection Bureau, the offender directly, or via a third-party operator.

Like FTC, CFPB actively engages in consumer protection through litigation. BrightSpeed Solutions and its creator Kevin Howard was sued by the Consumer Financial Protection Bureau (CFPB) in March 2021. According to the CFPB (2022), BrightSpeed and Howard intentionally supported organizations benefitting from illegal goods and services between 2016 and 2018. BrightSpeed and Howard accepted funds for firms that purported to provide technical-support goods and services to customers through the internet, yet the firms duped customers into buying costly and unwarranted antivirus programs or solutions (CFPB, 2022). This case illustrates the crucial role that CFPB plays in protecting consumers from unscrupulous business practices.

Summary and Impact of Consumer Protection Agencies

Consumers want reliable, impartial information concerning the goods and services they buy. This helps consumers to make the wisest decisions for their benefit and protects them from being unfairly treated or misled by enterprises. Federal and state consumer protection measures, rules, and regulations contribute to consumer well-being by guaranteeing that firms are held responsible for their actions. Firms that are recognized for treating their customers appropriately will earn a positive reputation and grow more popular. This boosts their competitiveness and profitability, which leads to long-term economic development. Consumer protection guidelines, rules, and regulations ensure that firms operate within the bounds of the law. Government regulation helps to develop competitive and productive marketplaces in which consumers and firms, irrespective of size, may thrive. Consumer demand promotes economic progress and innovation since firms are expected to provide reasonable pricing and a high-quality standard for their goods and services.

References

Bladow, L. E. (2017). Worth the click: Why greater FTC enforcement is needed to curtail deceptive practices in influencer marketing. William & Mary Law Review, 59, 1123. Web.

Consumer Financial Protection Bureau. (2022). Consumer Financial Protection Bureau. Consumer Financial Protection Bureau. Web.

Consumer Financial Protection Bureau. (2022). CFPB bans BrightSpeed solutions and its former CEO for supporting telemarketing scammers targeting older Americans. Consumer Financial Protection Bureau. Web.

Consumer Financial Protection Bureau. (2022). Payments to Harmed Consumers | Consumer Financial Protection Bureau. Consumer Financial Protection Bureau. Web.

Federal Trade Commission. (2021).Phantom Debt Collectors Permanently Banned from Industry in FTC Settlement. Federal Trade Commission. Web.

Marciniak III, S. A. (2021). Too big to protect: A Dodd-Frank framework for protecting 21st century American consumer privacy rights. Duquesne Law Review. 59, 329. Web.

Orescanin, J. (2018). From CFBP to BCFP: A New Bureau of Consumer Financial Protection. Loyola Consumer Law Review, 31, 148. Web.

Peterson, C. L. (2016). Consumer Financial Protection Bureau law enforcement: An empirical review. Tulane Law Review., 90, 1057.‌ Web.

The Federal Trade Commission (2021). A brief overview of the Federal Trade Commission’s investigative, law enforcement, and rulemaking authority. Federal Trade Commission. Web.

The Federal Trade Commission (2021). Notices of penalty offenses. Federal Trade Commission. Web.

The Federal Trade Commission. (2014). AT&T to pay $80 million to FTC for consumer refunds in mobile cramming case. Federal Trade Commission. Web.

Wagner, J. K. (2020). The federal trade commission and consumer protections for mobile health apps. Journal of Law, Medicine & Ethics, 48(S1), 103-114. Web.

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