Statement of Chairman Pitofsky and
In the Matter of
We have voted to file the complaint in the Touch Tone Information Inc. matter because we find reason to believe that Section 5 of the Federal Trade Commission Act has been violated. 15 U.S.C. § 45. The case is to be litigated in the United States District Court for the District of Colorado, and that Court will have to determine whether, in its view, Section 5 has in fact been violated. Because our colleague has issued a statement asserting that this action is a departure from FTC policy and should be handled in an administrative proceeding, a response is warranted.
As Commissioner Swindle notes, the Commission's 1983 Deception Statement, which was incorporated into the Commission's decision in In re Cliffdale Associates, Inc., 103 F.T.C. 110, 174-84 (1984), sets forth a three-part test for deception: (1) there must be a representation, omission, or practice that is likely to mislead the consumer; (2) the misleading nature of which is examined from the perspective of a consumer acting reasonably under the circumstances; and (3) the representation, omission, or practice must be material. Id. at 175. As explained in the Statement, previously decided cases were reviewed "to synthesize the most important principles of general applicability" in an attempt "to provide a concrete indication of the manner in which the Commission w[ould] enforce its deception mandate." Id. Our vote to file the complaint in this case does not depart from, or expand the reach of, the Deception Statement, because we found reason to believe that the alleged facts of this case - an information broker's impersonation of an account holder to obtain private financial information from a bank - satisfy the three-part test.
First, we find it difficult to imagine a more cognizable deceptive act or practice under Section 5 than this where a material and false statement to one entity (the bank), has the likely effect of injuring that entity as well as another (the account holder). We find that simple proposition fits comfortably within the purview of the Deception Statement and the plain language of Section 5.
Second, whether we analyze the deception count from the perspective of the bank or the bank account holder as the "consumer," the Deception Statement is not an impediment to the filing of the complaint. By its very terms, that Statement was not issued by this agency to serve as a straitjacket for Section 5's deception authority. See Cliffdale Associates, Inc., 103 F.T.C. at 175. This Commission has never so held. And, with due respect to our colleague's unduly narrow interpretation, no Court of Appeals has found the Statement to preclude challenging as deceptive certain acts or practices that were not foreseen at the time or described within its four corners. In fact, both before and after the 1983 Statement the Commission has challenged deceptive statements made to one party that may injure that party or a third party.(1)
Accordingly, this case is not unprecedented; nor is it a departure from the Commission's historic approach to deception in the marketplace. Indeed, if the allegations in the complaint are found true, we would be hard-pressed to account for inaction.
The last issue pertains to the unfairness allegation. The complaint, as pled, sets forth a cause of action consistent with our statutory authority. 15 U.S.C. § 45(n). We have previously recognized that the misuse of certain types of private financial information can be "legally unfair," In re Beneficial Corp., 86 F.T.C. 119, 173 (1975), aff'd in part, remanded on other grounds, 542 F.2d 611 (3d Cir. 1976).(2) Thus, no new theory of consumer injury is advanced here. Moreover, the Commission cannot be precluded from challenging new techniques by dishonest actors if the act itself satisfies general controlling principles. For purposes of finding reason to believe a complaint should be filed, it seems hardly a strain to posit that substantial consumer injury could flow from the use of false pretenses to obtain the unauthorized disclosure of private financial information.
Section 5 of the FTC Act deliberately incorporates a flexible standard, so that the Commission may react to changes in the marketplace.(3) We would be remiss to fail to apply our statutory authority where we see conduct that both we and courts could readily find is likely injurious to consumers. We further observe that this full Commission in recent testimony has stated that the type of conduct at issue here -- pretexting -- "likely violates" Section 5's prohibition against unfair or deceptive acts or practices.(4) And, it is against this background, based upon our review of the governing legal standards and the public interest as mandated by Section 5, that we found reason to believe that Section 5 may be violated under the facts alleged in the complaint.
1. E.g., FTC v. American Architectural Manufacturers Ass'n, No. 94-C6979 (N.D. Ill. filed Nov. 23, 1994) (settlement of allegations about misrepresentations to government entities administering energy conservation programs; consumers were deceived indirectly through materials published by energy conservation programs); In re Equifax Inc., 96 F.T.C. 844 (1980) (challenging misrepresentations designed to induce consumers and third parties to reveal consumer information), rev'd in part on other grounds, 678 F.2d 1047 (11th Cir. 1982) (Section 5 issues not raised on appeal); In re Verrazzano Trading Corp., 91 F.T.C. 888, 955 (1978) (misrepresentations to clothing manufacturers about the shrinkage of fabric harmed consumers who ultimately purchased clothing from the manufacturers; "Section 5 does not tolerate deceptive practices by businesses merely because they are visited upon by other businesses rather than directly upon the consumer."); In re William M. Libman d/b/a Better Business Service, 74 F.T.C. 306 (1968) (challenging as deceptive the use of misleading forms sent to debtors and others to identify debtor's location). Cf. FTC v. Motion Medical, Inc., No. C2-95-511 (S.D. Ohio, entered May 20, 1996) (settlement of allegations that defendants offered certain medical equipment to consumers but billed insurance companies for more expensive equipment; while consumers and the insurance companies were both deceived, the insurance companies suffered the immediate economic harm.)
2. In Beneficial, a tax preparer used a client's personal financial data, which was collected for tax purposes, to offer loans to the client without the client's consent. 86 F.T.C. at 168-69. More recently, in FTC v. Capital Club of North America Inc., et al., No. 94-6335 (D.N.J. filed Jan. 19, 1995), defendants' unauthorized disclosure of consumers' credit card information to third parties was challenged as unfair.
3. FTC v. Colgate-Palmolive Co., 380 U.S. 374, 384-85 (1965).
4. Obtaining Confidential Financial Information by Pretexting: Hearings Before the House Comm. on Banking and Financial Services, 105th Cong. (1998) (prepared statement of the Federal Trade Commission) at 4.