On Wednesday, Senator Orrin Hatch (R-Utah)--the ranking minority member on the Senate’s antitrust subcommittee--voiced concern that the standard in Section 5 of the Federal Trade Commission Act for identifying “unfair or deceptive practices” is too vague. Senator Hatch voiced these concerns during a congressional hearing on antitrust enforcement where FTC Chairman Jon Leibowitz testified, detailing the agency’s recent work to promote competition and benefit consumers, such as ending “pay-for-delay” pharmaceutical agreements, preventing anticompetitive mergers, revising the guidelines that the FTC and the Justice Department use to assess horizontal mergers, and using its authority under Section 5 of the FTC Act to combat unfair methods of competition and protect consumers.
Senator Hatch may be tilting at windmills in his quest for a more definitive “unfair and deceptive practices” standard. While the area has been cited as a broad and relatively untested province of antitrust law according to The National Law Journal’s January report, the FTC has long used the authority to rein in unfair trade practices, particularly those that affect consumers. Indeed, the FTC recently exercised its Section 5 authority in challenges involving the likes of Intel Inc., Voice Touch Inc., Ticketmaster Entertainment Inc., and U-Haul International Inc. The FTC has also used this authority recently to rein in pay day loan practices, debt rehabilitation and mortgage foreclosure prevention programs and other practices in the consumer financial area. (For those Supreme Court history buffs we note that way back in 1935 the Supreme Court struck down an attempt by Congress to set up “fair” codes for business competition as unconstitutional because the term was too undefined. It noted with approval, however, the use of the term “unfair” in the FTC Act.)
Furthermore, the FTC has issued policy statements on what is deemed to constitute unfairness and deception, yet Chairman Leibowitz correctly acknowledged that the courts ultimately say what the law is. Chairman Leibowitz attempted to further allay Senator Hatch’s concerns by insisting that he “ha[d] yet to meet a company that has been surprised” by FTC action against conduct it deemed in violation of the FTC Act. Despite the lack of a clear standard, he seemed to suggest, companies were effectively on notice
We note that these standards also are expected to be employed by the proposed Bureau of Consumer Financial Protection under the pending financial reform bill. The bill, as currently written, authorizes the new Bureau to not only prevent a provider from committing or engaging in an “unfair or deceptive act or practice” in connection with any transaction with a consumer for a financial product or service, but also abusive acts or practices. The bill also sets forth what appears to be the current standard used by the FTC for finding an act unfair or deceptive, namely, that (A) the act or practices causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers; and (B) such substantial injury is not outweighed by countervailing benefits to consumers or to competition.
The bill also articulates a standard for what constitutes “abusive” practices: in order to declare an act or practice abusive, the Bureau must find either that it “materially interferes with the ability of a consumer to understand” terms or conditions, or that it “takes unreasonable advantage” of consumers in specified ways.
Thus, it appear that despite Senator Hatch’s views, use of the “unfair and deceptive” standards to rein in what is perceived as egregious practices against consumers is here to stay.
- Beth DeSimone & Caroline DeCell
