The Consumer Protection Pyramid:
Education, Self-Regulation, and Law Enforcement
Prepared Remarks of
Commissioner Roscoe B. Starek, III
Federal Trade Commission
Korea Consumer Festival '97
Seoul, Republic of Korea
December 2, 1997
Good morning. Thank you for inviting me to participate in the 1997 Korea Consumer Festival. I am honored and delighted to be here to tell you about the United States Federal Trade Commission's efforts to protect consumers by preventing unfair, deceptive, or anticompetitive practices in the marketplace. I serve as one of five presidentially-appointed Commissioners overseeing all the activities of the FTC.(1)
Consumer protection plays a vital role in a free market economy. The exercise of informed choice by consumers in making purchase decisions is the lifeblood of a market economy: the choices made by consumers play a key role in determining the prices at which sellers will offer goods and services and what goods and services will succeed in the marketplace. The more fully and accurately consumers are informed, the better they will be able to make purchase decisions that reflect their individual preferences and needs. In general, advertising improves the efficient functioning of a market economy by providing useful information to consumers and encouraging competition among providers of goods and services. But if advertising or other forms of marketing are deceptive or fraudulent, or artificially restricted, consumers' ability to make appropriate purchase decisions suffers.
At the FTC, we constantly deal with the challenge of limiting practices that distort or prevent informed consumer choice, while avoiding costly government intervention that could impede the provision of accurate information to consumers. We encourage businesses to self-regulate and to work in partnership with government to educate consumers about how to protect themselves. Education is one of our most useful and effective consumer protection tools. By empowering consumers to protect themselves, and supporting industry self-regulatory efforts, we can have a more significant impact than by relying solely on regulations and law enforcement.
You can visualize this approach as a pyramid. [TRANSPARENCY # 1 (FTC PYRAMID)] Education and self-regulation make up the broad base, and law enforcement actions are the narrow peak. All three parts of this approach are related to one another. Education of consumers and businesses often leads to and supports industry self-regulation. Law enforcement educates consumers and businesses and may inspire self-regulation. Finally, law enforcement addresses the most harmful practices that cannot be addressed by education and self-regulation. Throughout my talk today, I'll return to the image of the pyramid to describe these three interrelated parts of our consumer protection work.
Government participation in consumer protection occurs at several levels in the United States -- the national or federal level, the state level, and within local jurisdictions. Private organizations such as trade associations and public interest groups also are involved in protecting consumers. Individual businesses often have corporate consumer affairs or consumer relations departments, because they recognize that keeping consumers happy is good business. Moreover, businesses typically engage in self-regulation through codes of conduct adopted and enforced by trade associations or other private organizations. Finally, the media play a valuable role in consumer protection by reporting on consumer protection issues and, occasionally, through active consumer assistance services that publicize consumer complaints, contact companies in response, and then inform consumers of the results.
Cooperative efforts among law enforcement agencies and the private sector are an excellent way to take advantage of the limited government resources available for consumer protection. I'll point out a number of examples, with a particular emphasis on how consumer education can improve fair competition.
The FTC's Mission and Powers
I thought I would take a couple of minutes to describe the FTC's goals, powers, and legal standards. Our mission is (1) to prevent business practices that are anticompetitive, deceptive or unfair to consumers; (2) to enhance informed consumer choice and public understanding of the competitive process; and (3) to accomplish these missions without unduly burdening legitimate business activity. Both the consumer protection and the competition missions promote the larger goals of facilitating informed consumer choice within the market and preventing consumer injury.
The Federal Trade Commission is the only U.S. agency at the national level with broad consumer protection law enforcement powers. Section 5 of the Federal Trade Commission Act ("FTC Act") prohibits unfair or deceptive acts or practices in or affecting commerce.(2) The Commission also enforces a variety of other consumer protection statutes that prohibit specific practices. In addition, we issue regulations which have the force of law, guides and policy statements interpreting the law and describing how we plan to enforce it, and, on occasion, advisory opinion letters.(3)
It is important for government periodically to reevaluate whether existing regulations remain useful and necessary, or, instead, create burdens on competitive conduct and impose unnecessary costs on industry and, ultimately, on consumers. For this reason, we have an active program of reviewing our regulations and guides. We rescind those that are obsolete or duplicative or impose unnecessary burdens on businesses, and we revise those that need to be modified to remain useful to consumers and not unduly costly to businesses.
The Commission's consumer protection law enforcement actions attempt to prevent future harm to consumers, usually through court or Commission orders that prohibit misleading practices. The Commission also may seek orders that require law violators to return money to consumers or release their illicitly obtained funds to the government. If a court order is violated, the violators may have to pay additional fines or, in some circumstances, may be imprisoned as a result of what is called a contempt action. Those who violate Commission orders may also have to pay fines to the government.
The FTC's competition (or antitrust) mission is related to our consumer protection mission. In the broadest terms, both missions seek to ensure that free markets work by facilitating informed consumer choice in the marketplace. The basic objective of the FTC's competition mission is to keep the marketplace free from anticompetitive business practices and from accumulations of market power that make those practices possible. We seek to prevent anticompetitive mergers, price fixing, and other activities that limit competition, while striving to maintain a balance between restraining illegal activity and permitting legitimate business activities. Our competition cases often challenge conduct that illegally restricts consumer information and choice in the marketplace.
Before deciding to proceed with any enforcement action, the Commission must determine that it has reason to believe a violation has occurred or is likely to occur and that acting against the violation would be in the public interest. This determination involves a consideration of the risk that seeking to prevent harmful conduct may also deter beneficial conduct.
Our consumer protection work mainly involves preventing deception and unfairness. The Commission's standard for deception is that a deceptive representation, omission, or practice is likely to mislead consumers acting reasonably under the circumstances and is "material" -- that is, likely to affect consumers' conduct or decisions with respect to the product or service being marketed.(4) A claim may be explicit or implied, and an advertiser is responsible for all material claims that consumers take from the ads, not just the claims that the advertiser intended to make. For example, an ad that explicitly states that a food product is low in cholesterol is likely to imply that the product also is low in fat.(5)
Advertisers must have substantiation -- which is simply a reasonable basis -- for any material, objective claim at the time they make the claim.(6) What constitutes a reasonable basis for a particular claim can vary, depending upon the nature of the claim, the product, the consequences of a false claim, the benefits of a truthful claim, the cost of developing substantiation for the claim, and the amount of substantiation that experts in the field believe is reasonable.(7) Health and safety claims generally require a high level of support, in the form of competent and reliable scientific evidence.
If a marketer tells consumers that he or she has a particular level of support for a claim, such as surveys of experts or clinical studies, the FTC requires at least that level of substantiation. For instance, we recently settled allegations that Gerber Products Company, a major manufacturer of baby food, deceptively stated in its ads that "4 out of 5 pediatricians recommend Gerber." Here's what one of the ads looked like. [TRANSPARENCY # 2 (GERBER AD)] Consumers reasonably would think from this ad that Gerber had competent and reliable studies to support that claim. In fact, although the manufacturer had done a survey of nearly 600 pediatricians, only 16 percent of pediatricians who recommended baby food to their patients recommended Gerber's baby food. That was only 12 percent of all the pediatricians surveyed, not the 80 percent claimed by the ad.(8)
When advertising or other marketing practices are directed to or primarily affect a particular audience, the FTC considers the effect on that audience when we decide whether the practice is deceptive. Thus, an examination of children's advertising takes into account the limited ability of children to detect exaggerated or untrue statements. An interpretation that might not be reasonable for an adult may well be reasonable from a child's perspective. Young children tend to take claims literally. Imagine an ad that shows a toy ballerina standing alone and twirling. Children may reasonably understand that ad to mean that the ballerina really can dance by herself.(9)
What is an unfair practice? According to Section 5 of the FTC Act, it is one that causes or is likely to cause substantial injury to consumers, where that injury is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits of the practice.(10) Unfair practices include, for example, the debiting of consumer bank accounts without the consumers' authorization.(11) In assessing whether injury is reasonably avoidable, the Commission looks at how susceptible the affected audience may be to the act or practice in question. Children, for example, tend to imitate other children and often cannot foresee and avoid dangers. Thus, ads that show young children engaging in potentially hazardous activities, such as cooking hot foods or using a blowdryer next to a bathroom sink filled with water, are unfair even though adults might reasonably avoid injury when engaging in similar activities.(12)
Law Enforcement Actions
Let me turn now to the peak of the consumer protection pyramid: law enforcement. The Commission's law enforcement actions have two types of effects. First, they stop and correct the violations in question. Second, publicity about our cases alerts consumers and businesses about law violations. This may help them avoid becoming victims of similar practices or take steps to avoid engaging in similar unlawful activity.
We try whenever possible to combine law enforcement actions with some effort to educate people about the problems targeted in the case. Some cases result in orders that require provision of information to consumers. Others involve a consumer education campaign -- usually coordinated with private industry or consumer groups -- to alert consumers to the types of violations targeted by the cases. More typically, when we announce a case we seek publicity about the danger facing consumers, and we may publish a consumer education brochure. The Commission brings carefully selected, high impact individual cases or, increasingly often, groups of cases that target similar law violations. These groups of cases often are coordinated with states, other federal agencies, and, sometimes, foreign law enforcement authorities.
Some of the most harmful violations that we pursue involve deceptive "credence claims" -- that is, claims whose accuracy is extremely difficult for consumers to assess based on their own experiences. One area in which credence claims are common -- and which traditionally has been a high priority for the Commission -- is health and safety. Deceptive health and safety claims are particularly likely to cause consumer injury.
Let me explain. Because Americans spend about 6 billion U.S. dollars a year on fraudulent diet products, the Commission launched an ongoing effort called "Operation Waistline" to ensure that consumers get accurate and reliable information about weight loss products and programs. The Commission issued seven settlements focusing on advertising claims that consumers can lose weight quickly and easily by using products such as diet supplements, or skin patches, or even -- as you can see in this magazine ad [TRANSPARENCY # 3] -- "Slimming Soles," an insole worn in each shoe that was supposed to cause weight loss by stimulating the digestive system each time the user took a step.(13)
Claims like these are difficult for consumers to evaluate before they buy the product. The results promised usually take time to achieve, so consumers must rely on the seller's word. Unscrupulous advertisers often take advantage of consumers' inability to judge the accuracy of their claims by using techniques to make their claims more credible, such as references to flawed scientific studies or glowing testimonials from satisfied customers that turn out to be imaginary or atypical. Indeed, in some of the Operation Waistline cases I just mentioned, the Commission charged that the marketers made false claims that scientific studies showed their weight-loss products were effective.
Credence claims also are common in ads about the nutritional qualities of food. Claims that a tasty dessert is low fat -- like this ad makes [TRANSPARENCY # 4 (YOGURT AD)] -- are very appealing to Americans. This ice cream manufacturer settled FTC charges that it made false and misleading low-fat claims for its frozen yogurt products. The order prohibited misrepresentations of the fat, saturated fat, cholesterol, or calorie content of any of the manufacturer's frozen food products.(14)
Most safety claims are credence claims. Recently, the Commission settled charges against a dietary supplement manufacturer that advertised that its product caused no side effects and was absolutely safe. What the ads failed to disclose was that the product contained ephedrine alkaloids -- substances that can have dangerous effects on the nervous system and heart. Among other things, our order requires that the manufacturer's future safety claims for any food, drug, or dietary supplement be true and substantiated by scientific evidence, and that the manufacturer's advertising and labeling for any product containing ephedrine alkaloids include a clear and prominent safety warning.(15)
Not all credence claims involve health or safety. We also find them in areas such as investment promotion, where the claims made may be technical in nature or relate to long-term financial benefits. Last summer, the Commission targeted marketers of fraudulent investment opportunities who promised their investors high profits and a high rate of success.(16) Our enforcement effort included cases involving communications technology, foreign construction projects, precious metals, and oil-drilling ventures. Unfortunately, the investments offered really were of little or no value. Working with other law enforcement agencies, we brought dozens of cases and launched a major consumer education campaign, including production of a brochure to alert potential investors to some of the false claims a fraudulent investment promoter might make.
Claims that involve rapid, new scientific and technological developments also may be especially difficult for consumers to evaluate based on prior experience. The Internet provides a good example. Although many of our cases against fraud on the Internet have simply involved old scams transferred to this new medium, last February the FTC obtained a federal court order against two companies and several of their officers to shut down an Internet scam that rerouted consumers who visited the defendants' Web sites to phone numbers in Moldova -- without alerting the consumers to the rerouting. After the consumers logged onto the defendants' Web sites through their local servers, a software program turned off their modem speakers, disconnected them from their local service providers, and reconnected them to an international long-distance phone number. The FTC alleged that the program did not disconnect from the international number until consumers turned off their computers, so that consumers who turned to other computer activities after visiting defendants' Web sites had to pay substantial international calling charges. Last month, we settled this litigation on terms that will provide refunds to consumers totaling over 2.74 million U.S. dollars.(17)
Certain law violations are most effectively cured by informational remedies, such as disclosures, corrective advertising, or consumer education requirements. Informational remedies, however, can be risky and sometimes controversial. Depending upon the law violations and the specific nature of the informational remedy, they may implicate freedom of speech rights under our federal Constitution. The FTC generally cannot force a company to provide information to consumers simply because it might be useful; informational remedies need to be closely related to the deception in which the company engaged. Requirements to provide information to consumers also can create undue burdens on companies, and may not communicate effectively the message that we want to send consumers. Nonetheless, despite these risks, informational remedies are extremely useful if they give consumers information critical to their purchasing decisions that they might not otherwise obtain.
Disclosure requirements are an appropriate remedy for failing to tell consumers something that would have changed their choice or conduct regarding a product. We call these failures "deceptive omissions." Affirmative disclosures may be required to correct specific misrepresentations or simply to prevent deception that is likely to occur if the advertiser omits material information (such as the safety warning we required in the dietary supplement case involving a product containing ephedrine alkaloids). Sometimes we require a letter or notice to consumers or distributors about the Commission's action and what they need to know to avoid being misled.
Another informational remedy is corrective advertising -- advertising that is meant to correct the misimpression created by an earlier deception. Corrective advertising is used rarely, and only when the challenged advertising substantially contributed to the development and maintenance of a false belief that lingers in the minds of consumers.(18)
In some circumstances, Commission orders may include a requirement to provide educational materials that help teach consumers how to avoid fraud or deception. One example can be found in an order settling allegations that Zale Corporation, the largest jewelry retailer in the United States, deceptively advertised that imitation pearl jewelry was composed of cultured pearls. Our order prohibits the challenged claims, requires Zale to disclose clearly and prominently the nature of the pearl jewelry it sells, and mandates that the company stores provide consumers with information about the differences between natural, cultured, and imitation pearls.(19) [TRANSPARENCY # 5 (PEARL INFORMATION)] As you can see, the information sheet provides clear and concise definitions of the three types of pearls, and gives consumers information to help them make purchasing decisions. Importantly, this information is closely tailored to the type of misrepresentation at issue in the case, so that it directly helps consumers avoid the type of misconception the earlier misrepresentations created.
Now that I have discussed our law enforcement actions, including their consumer education effects, I'd like to move to the foundation of the consumer protection pyramid and tell you about some of our broader consumer education activities. Where possible, we coordinate consumer education campaigns with our law enforcement actions to maximize the public attention drawn to the particular deceptive practice we are challenging. We focus our consumer education campaigns, like our law enforcement efforts, on unlawful practices that have the potential to inflict the most injury on consumers.
You can see some of our consumer education materials for yourself on the Commission's Web site at http://www.ftc.gov. [TRANSPARENCY # 6 (THE COMMISSION'S HOME PAGE)] This page itself, of course, is part of our consumer education effort. It brings information about the Commission, its activities, and its consumer resources to anyone's computer. The ease with which we can post educational materials on the Internet -- and the ease with which consumers can access those materials -- make consumer education on the Internet particularly cost effective. In fact, all of our consumer education materials are online so that consumers, libraries, teachers, and others may view or download them at their convenience. We also typically post special pages that relate to our law enforcement efforts. Here, for instance, is a page with information about the weight loss products and programs that I discussed earlier. [TRANSPARENCY # 7 (SHOULD YOU BELIEVE THESE AMAZING CLAIMS?)]
I hope you'll visit another site -- http://www.consumer.gov -- a new consumer education Web site we started along with several other federal government agencies charged with protecting the health and safety of consumers. The site is arranged topically, so users can look for information about food safety, money, automobile air bags, the stock market, or education without knowing which agency handles what subject.
We typically produce specialized materials and target our audiences based on the characteristics of persons likely to fall prey to the specific types of deceptive practices addressed in the materials. One of our most innovative targeted consumer education pieces is called "The Real Deal," an activity booklet for children. [TRANSPARENCY # 8 (THE REAL DEAL BOOKLET)] The booklet is full of games and activities that teach children how to be informed consumers of toys, video games, and other products. The Real Deal was produced and distributed in cooperation with state law enforcement authorities.
Ideally, we direct messages to consumers at times when they are most likely to become victims of fraud. Last year, the FTC announced several actions against companies that guarantee scholarships to high school or college students.(20)
The fact is that no one can guarantee anybody a scholarship, but we learned that many families were spending money for useless information about how to obtain purportedly guaranteed scholarships. Extensive media coverage by newspapers and radio and television stations across the country helped alert consumers. Although this publicity about our law enforcement actions was extremely useful, we wanted to make sure that students, their parents and their guidance counselors had ongoing access to information about recognizing these scams. We joined with a number of government and private organizations to get out our message.
One partner in this educational effort, a student loan marketing association, printed hundreds of thousands of bookmarks, posters and flyers with messages developed by the FTC that looked like this. [TRANSPARENCY # 9 (DON'T GET SCAMMED ON YOUR WAY TO COLLEGE POSTER)] The FTC disseminated these materials with the help of a number of additional groups, including associations of school guidance counselors, college admissions counselors, and student financial aid administrators. The National Association of Independent Colleges and Universities advised its members to place hyperlinks to the FTC's Web site on their own Internet sites.
A trade association of online service providers and companies doing business online also joined our scholarship scam education campaign. The association disseminated our messages through some of its members, including an online business that prepares students to take tests that colleges and universities use to make admissions decisions and grant advanced credit. The association also established a Web page that used a hypothetical scholarship scam to show students how to recognize the attractive promises made by successful scam artists.
In addition, an educational testing service posted an advisory on its Web site so that students seeking information online about college entrance examinations would be alerted to scholarship scams. The National Association of College Stores helped us place posters, flyers and bookmarks in over 9,000 book stores on college campuses across the country. And a photography company offered Scholarship Scam alert posters to the high schools it visits and volunteered to include the FTC's Scholarship Scam bookmarks in its return mailings of the proofs of yearbook photos of the thousands of high school students it photographs every year.
Other targeted messages include our public service messages sized like classified ads. These ads range from 20 to 60 words, similar to a standard classified ad, and cover a number of the subjects that an actual classified ad could address, such as employment, travel, real estate, vacations, or advance fee loans. We send these public service messages to each state press association and ask them to provide them to their member newspapers (or at the very least to let their members know that the FTC has such ads). We suggest that the papers might want to run the ads at the bottom of the appropriate columns when space permits and that they run the ads as "messages from the newspaper and the FTC." Many newspapers across the country have responded positively to these requests.
Finally, some of our most innovative targeted messages are our "sting pages" on the Internet. A "sting page" is a site that simulates a fraudulent Web page by mimicking the representations that might be made on a Web site offering, for example, fraudulent business opportunities. Once a consumer clicks on several of the options and reaches a point at which he or she might well have been duped if the site had been real, the consumer discovers that the ad is a fake, posted by the FTC to raise awareness about the hazards of fraud on the Internet. The sting page then explains the type of fraud it mimics, how to avoid such fraud, and where to obtain additional information.
In addition to relying on our own targeted messages, we try to enlist the support of private organizations that have a vested interest in consumer education. In this way, we really maximize our limited government resources. For instance, the Partnership for Consumer Education -- an umbrella group of over 80 consumer organizations, corporations, industry associations, and federal, state, and local agencies -- helped us spread the word about the FTC's Telemarketing Sales Rule. The idea was to enlist the help of organizations with an interest in consumers' knowing the difference between legitimate and fraudulent telemarketing. The FTC developed the messages and sent them to these organizations to distribute. We estimate that consistent and coordinated messages have been disseminated over 90 million times as part of this campaign through billing statements, publications, radio public service announcements, employee bulletins, and neighborhood newsletters.
By participating in these partnerships, we also are educating the private businesses that serve as our partners. In addition, we engage directly in more formal efforts to teach businesses how to comply with the laws we enforce. This brochure about "Complying with the Telemarketing Sales Rule," for example, can be used as a handy guide by businesses that should be following that Rule. The FTC produced this in cooperation with a large trade association whose members use telemarketing in their businesses. [TRANSPARENCY # 10 (TELEMARKETING SALES RULE BROCHURE)]
With the advent of the Internet, we have been relying on what we call "Surf Days" -- referring to the slang term "surfing" the Internet -- as a form of consumer and business education. Commission staff and other law enforcement agencies and consumer groups search the Internet and Usenet newsgroups for misleading promotions including pyramid schemes, deceptive health claims, and fraudulent business opportunities. Surf Days identify sites that may be engaging in law violations, educate the site operators about legal requirements, deter future illegal activity, and generate publicity to educate consumers and other businesses. Less than two months ago, the Korean Fair Trade Commission and the Korea Consumer Protection Board, along with consumer law enforcement agencies in Australia, Canada, and many other countries, participated in an international Internet Surf Day.
Another technique that we use is to educate the media about deceptive advertising so that clearly fraudulent ads cannot easily reach large numbers of consumers exposed to media advertising. The government and self-regulatory groups may take action after a misleading ad is published, but only the media are in a position to stop a deceptive ad before it becomes public. For years, major television networks in the United States have been quite successful in stopping the spread of blatantly deceptive television advertisements through a formal screening process. Some magazines and newspapers also have adopted media screening programs.
The Commission's role in this area is to be a persuader and educator, to point out that it is in the media's own interest for consumers to have confidence in the advertising spread by the media. Two years ago, we co-sponsored with other government agencies and an advertising agency trade association a one-day seminar for national media about their role in preventing fraudulent advertising. Following our cases targeting allegedly deceptive weight loss claims, the Commission staff sent a letter to magazines and newspapers that carried the allegedly deceptive ads, advising them how to recognize fraudulent weight loss ads and encouraging them to refuse to run such ads. Our staff later held a meeting with an association of magazine publishers to provide more information about media screening for blatantly deceptive advertising.
As our business education program suggests, the FTC also emphasizes self-regulation to protect consumers. Direct intervention by government in the marketplace -- whether by regulation or by law enforcement -- should be the solution of last resort. If you recall the pyramid model of our consumer protection approach, self-regulation is the second broad base of the pyramid.
The National Advertising Division ("NAD") of the Council of Better Business Bureaus is an excellent example of a successful self-regulatory program with which the FTC has a close, supportive relationship. The Council is an organization of local business organizations that promote ethical business practices through voluntary self-regulation and consumer and business education. With help from a local Better Business Bureau, consumers often can achieve satisfactory resolutions of their complaints against members. The NAD is the advertising industry's own self-regulatory organization. It runs a formal advertising review program and mediates hundreds of advertising disputes every year. The NAD monitors advertising in all media, including the Internet; resolves complaints by competitors or consumers about allegedly false or misleading claims in advertising; and writes decisions that it publishes and publicizes. When an advertiser refuses to stop making claims that the NAD finds deceptive or refuses to give the NAD information, the NAD sends the case to the FTC and we address the dispute with our law enforcement powers. In response to NAD findings, most advertisers agree to modify or delete offending claims.
The Commission has encouraged self-regulation by holding a number of public forums or "workshops" to study consumer protection issues raised by new technologies, particularly the Internet. These workshops help educate consumers and businesses, and by attracting attention to consumer protection issues have encouraged business associations to engage in self-regulation in areas such as consumer privacy on the Internet. Self-regulation of the Internet is much more easily adaptable to changes in technology than government regulation, which can easily be made obsolete by changes in technology. And self-regulation can be implemented on a world-wide basis much more easily than government regulation, which may be limited to the geographic boundaries of the regulator.
Of course, the success of self-regulation depends on whether members of an industry perceive it to be in their interest. If consumers demand information about privacy policies, for example, the market is likely to respond. But if industry fails to address consumer protection issues, government regulation of new technologies eventually may be needed.
This is exactly what happened with pay-per-call (900-number) technology during the last decade. 900-number technology -- which entails calls to publicly-available numbers, for which the consumer incurs a per-minute charge in return for information or entertainment -- was the first interactive technology to be widely available. It had huge potential as an alternative payment system, since every telephone could serve as a payment terminal. In 1991, 6 billion U.S. dollars were spent on pay-per-call transactions. But fraud operators quickly moved to exploit the technology, and the industry was slow to respond. The industry's reputation became tarnished by fraud and abuse, and sales fell to 300 million U.S. dollars annually.
The FTC brought several law enforcement actions challenging deceptive and unfair pay-per-call practices in the early 1990s.(21) And in 1992, at the direction of our national legislature, the FTC and the FCC (the federal agency that regulates telecommunications) began regulating the pay-per-call industry to ensure that consumers would receive price and other material information before incurring costs and would have the right to dispute allegedly incorrect or unauthorized charges. Annual sales have finally begun to climb again. This example shows how consumer protection was not achieved at the base of my pyramid model. The problem of pay-per-call fraud rose to the level of requiring law enforcement to make a difference.
Direct government regulation -- while sometimes necessary -- often is not the best solution to consumer protection problems. Self-regulation can be an extremely effective way to protect consumers, particularly when it is complemented by carefully selected government law enforcement actions. As my pyramid model tries to show, we need to use all the tools available to us -- consumer and business education, self-regulation by industry groups, and, when necessary, law enforcement action. By empowering consumers to protect themselves and by working with businesses and private organizations, we can be more effective at preventing false and misleading practices that distort the flow of accurate information to consumers necessary for a healthy market economy.
1. The views that I express here are my own and do not necessarily reflect those of the FTC or any other Commissioner.
2. 15 U.S.C. § 45(a).
3. See, e.g., Guides for the Use of Environmental Marketing Claims, 16 C.F.R. Part 260; Enforcement Policy Statement on Food Advertising, 59 Fed. Reg. 28,388 (1994); Nebraska Gasohol Committee, 116 F.T.C. 1522 (1993) (overruling an informal staff opinion and expressing the Commission's view that gasohol is covered by the definition of "automotive gasoline" in Title II of the Petroleum Marketing Practices Act and the Commission's Octane Rule).
4. Letter from the Federal Trade Commission to Hon. John D. Dingell, Chairman, Committee on Energy and Commerce, U.S. House of Representatives (Oct. 14, 1983), appended to Cliffdale Associates, Inc., 103 F.T.C. 110, 174 (1984).
5. See Conopco, Inc., Dkt. No. C-3706 (Jan. 23, 1997) (final order).
6. Policy Statement Regarding Advertising Substantiation, 49 Fed. Reg. 30,999 (Aug. 2, 1984), appended to Thompson Medical Co., Inc., 104 F.T.C. 648, 839 (1984).
7. Pfizer, Inc., 81 F.T.C. 23, 53-56 (1972) (finding that it is unfair to make an objective claim without having a reasonable basis for the claim).
8. Gerber Products Co., Dkt. No. C-3744 (May 27, 1997) (final order).
9. See Lewis Galoob Toys, Inc., 114 F.T.C. 187 (1991).
10. 15 U.S.C. § 45(n) (1994). See also Letter from the Federal Trade Commission to Hon. Wendell Ford and Hon. John Danforth, Committee on Commerce, Science and Transportation, United States Senate, Commission Statement of Policy on the Scope of Consumer Unfairness Jurisdiction, appended to International Harvester Co., 104 F.T.C. 949, 1064 (1984).
11. See, e.g., FTC v. Universal Credit Corp., No. SA CV 96-114 LHM (EEx) (C.D. Cal, filed Feb. 7, 1996); FTC v. Diversified Marketing Serv. Corp., No. 96-388 (W.D. Okla., filed Mar. 13, 1996); FTC v. Windward Mktg., Ltd., No. 96-CV-0615-FMK (N.D. Ga., filed Mar. 12, 1996).
12. See, e.g., Mego International, 92 F.T.C. 186 (1978); Uncle Ben's, Inc., 89 F.T.C. 131 (1977).
13. Guildwood Direct, Ltd., Dkt. No. C-3753 (June 16, 1997) (final order) (slimming insoles). See also Bodywell, Inc., Dkt. No. C-3754 (June 16, 1997) (final order) (also slimming insoles); AmeriFIT, Inc., Dkt. No. C-3747 (June 16, 1997) (final order) (dietary supplements); KCD, Inc., Dkt. No. C-3752 (June 16, 1997) (final order) (cellulose-bile product); Interactive Medical Technologies, Ltd., Dkt. No. C-3751 (June 16, 1997) (final order) (cellulose-bile product); 2943174 Canada, Inc., Dkt. No. C-3748 (June 16, 1997) (final order) (transdermal skin patch); Dean Distributors, Inc., Dkt. No. C-3755 (June 16, 1997) (final order) (low calorie and very low calorie diet programs).
14. Haagen-Dazs Co., Inc., Dkt. No. C-3582 (June 2, 1995) (final order).
15. Global World Media Corp., Dkt. No. C-3772 (October 9, 1997) (final order).
16. See FTC v. Dayton Family Productions, Inc., No. CV-S-07-00750-PMP (LRL) (D. Nev., filed June 20, 1997) (general partnerships involving interests in film productions); FTC v. Intellicom Services, Inc., No. 97-4572 TJH (Mcx) (C.D. Cal., filed June 20, 1997) (high-tech schemes); FTC v. Equifin International, No. 97-4526 DT (CWx) (C.D. Cal., filed June 20, 1997) (stamps); FTC v. Gulfstar Corp., 3-97-CV1508-G (N.D. Tex., filed June 20, 1997) (oil-drilling ventures); FTC v. JewelWay International, Inc., No. CV97-383 TUC JMR (D. Ariz., filed June 24, 1997)(pyramid scheme promising profits from sales of fine jewelry); FTC v. Rocky Mountain International Silver and Gold, Inc., No. 97-WY-1296 (D. Colo., filed June 23, 1997) (pyramid scheme to receive free silver and other products after an initial investment); FTC v. Sweetsong Corp., No. 97-4544 LGB (JGx) (C.D. Cal., filed June 20, 1997) (gemstones); FTC v. Tippecanoe Mining, Inc., No. 97-4543 (C.D. Cal., filed June 20, 1997) (mines).
17. FTC v. Audiotex Connection, Inc., No. CV-97-0726 (DRH) (E.D.N.Y., filed Nov. 4, 1997) (consent decree). See also Beylen Telecom, Ltd., FTC File No. 972-3128 (consent agreement accepted for public comment, Nov. 4, 1997).
18. See, e.g, Eggland's Best, Inc., Dkt. No. C-3520 (Aug. 24, 1994) (final order).
19. Zale Corp., Dkt. No. C-3738 (Apr. 28, 1997) (final order).
20. See FTC v. Career Assistance Planning, Inc., No. 1 96-CV-2187-MHS (N.D. Ga., filed Aug. 27, 1996); FTC v. Christopher Nwaigwe & Maduka, No. HAR-96-2690 (D. Md., filed Aug. 28, 1996); FTC v. Student Assistance Services, Inc., No. 96-6995 (S.D. Fla., filed Aug. 27, 1996); FTC v. College Assistance Services, Inc., No. 96-6996 (S.D. Fla., filed Aug. 27, 1996); FTC v. Student Aid Inc., No. 96-CIV-6548 (S.D.N.Y., filed Aug. 28, 1996).
21. Fone Telecommunications, Inc., 116 F.T.C. 426 (1993); Phone Programs, Inc., 115 F.T.C. 977 (1992); Teleline, Inc., 114 F.T.C. 399 (1991); Audio Communications, Inc., 114 F.T.C. 414 (1991).