The Federal Trade Commission and its Impact on Your Business
Lawrence Hartman is the author of GUILTY TILL PROVEN INNOCENT: A Shocking Inside View Into America’s Failing Justice System (now available online at Amazon) and you may contact him via email at Lawrence@ComplianceMitigation.com to discuss your legal mitigation needs.
Most people have no idea what the Federal Trade Commission is or does until they get a fateful knock on the door or letter in the mail. Or, they simply assume, that’s something the Facebooks of the world have to worry about[1], not my relatively small company. Well, unfortunately, think again. The FTC promulgates literally thousands of bureaucratic regulations on a regular basis, many of which don’t even requite intent, just waiting to trip you up.
The FTC was created in 1914, with a limited mandate to prevent unfair methods of competition in commerce as part of its battle to “bust the trusts,” you know, go after the bad guys looking to monopolize industries. However, as with everything big government, it has only grown over the years as Congress passed additional laws giving the agency greater authority to police anticompetitive practices. In 1938, Congress passed a broad prohibition against “unfair and deceptive acts or practices,” and then added on a myriad of other powers, including the Telemarketing Sales Rule, the Pay-Per-Call Rule and the Equal Credit Opportunity Act. Until 1975, when Congress gave the FTC the independent authority to adopt industry-wide trade regulation rules, essentially creating a new arm of government.
So, as you can imagine, the FTC started making Federal Cases about a lot of things that were never prosecuted (or prosecutable) in the past. After all, a big sprawling agency needs to justify its existence. Unfortunately, though, that began causing major grief for many small businesses legitimately trying to just make a living and grow their operations. Whether it was the additional costs of a review and responding to questions or defending actual allegations of wrongdoing, this surprise cost of compliance has bankrupted many. New rule creation, moreover, can lead to backward-facing liability going back prior to the new rules’ creation, as we’ve particularly seen in some lending industries nowadays. Sometimes, cases are even driven by a competitor seeking to weaponize the FTC, by raising a complaint against you using a professional consultant formerly employed there. In fact, a 2018 report by the Office of Inspector General noted concerns about “Improper Influences by Former Officials and Employees.” It is an agency that exercises extreme power and is only loosely accountable to the Executive Branch.
Many small business are regularly destroyed by FTC investigations alone, as the FTC puts out one-sided press releases damning you guilty in the press, even as they claim you’re still innocent until proven guilty in some fine print at the bottom.[2] So, even if you aren’t immediately put out of business, the reputational damage can be tough to overcome. And, all too often, you don’t even see it coming. In fact, an article written in the Winter 2018 issue of the Journal of Law, Economics & Policy[3] decries the FTC’s ongoing “deception-creep,” an expansion of the Commission’s perception of what constitutes deception, as a slippery slope of what’s unfair. The FTC is the sole arbiter of fairness, with a constantly expanding definition impossible to pin down.
Defending yourself at trial against cases brought by the FTC can be a real challenge, costing millions of dollars in legal fees. As a result, most people seek to mitigate the damage and seek a resolution that helps them cut their losses. The problem is, this isn’t your typical negotiation. You are personally and emotionally vested in the outcome while the FTC is not. The person handling your case at the FTC, or Assistant United States Attorney, if your case has gone criminal, goes home at night, back to their normal life. In the meanwhile, you are living, eating and breathing the drama of this trauma 24/7. They, moreover, have little career capital invested in the outcome of your case. Sure, they’re like anyone and want to win, but the stakes are exponentially greater for you. That’s why having the best advice from experienced professionals is so vital for getting you the best result possible when up against the FTC.
[1] FTC Imposes $5 Billion Penalty and Sweeping New Privacy Restrictions on Facebook, July 24, 2019
[2] New York-Based Finance Companies Deceived Small Businesses, Non-Profits and Seized Their Personal and Business Assets, FTC Alleges — June 10, 2020; FTC Acts to Stop Deceptive Ad Sales to Small Businesses — February 11, 2020; and FTC Alleges Merchant Cash Advance Provider Overcharged Small Businesses Millions — August 3, 2020, just to note a few.
[3] UNPACKING UNFAIRNESS: THE FTC’S EVOLVING MEASURES OF PRIVACY HARMS — Cobun Keegan & Calli Schroeder
