Introduction
The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) are independent government agencies in the United States. The two bodies were established to promote consumer protection and eliminate inappropriate business practices. The FTC was set in 1914 and obligated with the principal mission of enforcing America’s non-criminal antitrust laws and safeguarding the public from unfair marketplace operations. The agency was created through the legislation of the Federal Trade Commission Act in response to the 19th-century monopolistic trust, which was a major political concern in the Progressive Era (Lamoreaux, 2019). Similarly, the CFPB, a regulatory and supervisory authority, was constituted to oversee the safe provision of consumer services and products, eliminating exploitative, unjust, and misleading business practices in the financial sector. The two organizations extend a wide array of legal protections enforced through a raft of rules, regulations, and laws. Although businesses utilize numerous strategies to survive the highly competitive environment, CFPB and FTC ensure that consumers are protected from predators and inappropriate practices as organizations driven by profit motives.
Legal Protections Provided by FTC and CFPB
FTC is obligated to implement interventions that prevent the orchestration of fraudulent, deceptive, and distorted business practices. Additionally, the independent agency also provides useful educational information to help consumers identify, stop, and avoid swindling. The primary areas of concern for FTC include marketing and advertising, privacy and identity protection, financial products and services, Do Not Call Registry, and other business practices which could be detrimental to the consumer. FTC conducts investigations where an aggrieved customer reports fraudulent or deceptive activities, and upon ascertaining the authenticity of the grievance, the agency files an administrative complaint and initiates a federal litigation process. Additionally, it can also pursue voluntary compliance by the offending entity and avoid expensive and punitive enforcement.
FTC, through the Federal Trade Commission Act, enjoys investigatory powers designed to ensure that effective measures are adopted and implemented to prevent deceptive and unfair practices. For instance, FTC regulates against price-fixing agreements between firms and competition-elimination strategies (Shapiro, 2019). Such business undertakings would ultimately harm American consumers since they are designed to facilitate predatory or exploitative operations. In recent years, the agency’s efforts to curb identity theft have been escalated as they try to eliminate the fraudulent utilization of another person’s credentials for financial gain to their detriment. In addressing this challenge, FTC functions as the Federal repository, receiving consumer complaints and initiating remedial action for the perpetrator and the victim. For instance, the agency has an elaborate regulatory system of laws that prohibit false advertising and bait and switch schemes.
The CFPB is an independent organization engaged in the promotion of consumer protection in the financial sector. The agency’s jurisdiction includes entities such as securities firms, mortgage-servicing operations, pay-day lenders, banks, credit unions, and financial companies among others. Since its inception in 2011, CFPB has integrated advanced technological tools to effectively control the way financial companies used social networking sites and algorithms to target specific classes of consumers. Notably, the conception and the eventual formation of this body were inspired by the financial crisis that spanned between 2007 and 2008 and the subsequent Great Recession (Kastner, 2017; Willis, 2017). This implies that CFPB receives consumer complaints on operators in the financial sector and initiates investigations. This independent agency fosters transparent and fair practices, particularly regarding services and products such as mortgages and credit cards.
Rules, Regulations, and Laws Applied and Enforced by FTC and CFPB
FTC and CFPB rely on various policies, laws, and regulations to provide protection to consumers and enforce compliance by organizations. Although these prohibitions and compulsions are numerous, FTC has extensively used the 16 CFR Part 239 to regulate the advertisement of warranties and guarantees. FTC believes that these warranties could significantly enhance the avoidance of deceptive and unfair business practices. Additionally, the agency uses the 16 CFR Part 437, which is the Business Opportunity Rule. Under this policy, companies are obligated to provide prospective buyers with adequate disclosures, which would be used by potential consumers to assess and evaluate any possible business opportunity.
On the converse, CFPB is responsible for enforcing the various regulations and laws and compelling offending entities to offer remedial interventions to the aggrieved parties. For instance, this independent agency relies heavily on 12 CFR Part 1005 – The Electronic Fund Transfer (Regulation E) to protect consumers when they use electronic systems to transfer finances. This regulation spans across areas such as error correction and the disclosure of applicable fees and limits. The 12 CFR Part 1002 Part– Equal Credit Opportunity Act (Regulation B) protects applicants for credit facilities against any form of discrimination.
Steps Adopted in Investigating/Enforcing the Violation of Consumer Rights
FTC is triggered to commence investigations after a complaint is filed by a consumer, recommendations from the National Advertising Division, petitions and requests, news articles, and direct observations, among others. The agency sets a roadmap, clearly outlining the purpose of the investigation. FTC then discloses the complaint to the offending organization and provides an opportunity for the entity to respond by providing all the necessary information. After the conclusion of the inquiry, the agency files a report and informs the company of the findings of the forensic probe, and submits the report to the other law enforcement bodies for appropriate action. For instance, if an organization justifies and explains its marketing and advertisement approaches and illustrates how it has not violated any law, no further action is taken. When an aggrieved party files a complaint with CFPB regarding any issue with a consumer financial service or product, the agency evaluates the submitted information and commences the investigation process. It forwards the complaint to the offending company upon determination of its authenticity and sets up a follow-up process for responses. Where CFPB deems that another government body is better positioned to assist in the probe, the complaint and other relevant materials are conveyed to the institution. The violating entity responds, typically in 14 days, while CFPB establishes the veracity of the response by the firm. After the closure of the investigations, the agency imposes enforcement and remedial action in the form of administrative proceedings or litigations in federal courts.
Imposed Penalties for Violation of Regulations
The penalties imposed by FTC and CFPB upon the determination that a company has violated a specific regulation are provided by court injunctions or enumerated by the agencies’ policy framework. For instance, CFPB imposes a $5,000 penalty per day for garden-variety infringements of the federal consumer financial laws (Chean, 2016). However, the agencies may pursue other forms of retribution, including compensation to the aggrieved party, business closure, and prohibition of advancing the violation, among others.
Impact and Significance of FTC and CFPB Activities on the U.S Commerce
The most remarkable and significant effect of FTC and CFPB is the protection of consumers from exploitative and predatory businesses. This milestone has been achieved due to the deliberate effort of comprehensively investigating complaints and imposing punitive penalties and fines. Additionally, FTC has ensured the functionality of a free and open market by forbidding anti-competitive mergers. As a result, the American citizenry has enjoyed relatively high-quality products and services, expansive choices, low process, and innovative products.
Case Studies and Briefs
Palmyra Medical Center and Phoebe Putney Memorial Hospital
In 2011, FTC challenged and won the acquisition of Palmyra Medical Center by Phoebe Putney Memorial Hospital. The agency argued that transactions would effectively create a monopoly, significantly reduce competition, and allow the new entity to increase prices for the general acute-care hospital services (Garmon & Kmitch, 2018). As a result, consumers, employees, and local employers would suffer detrimental impacts. In 2013, the Supreme Court rendered a judgment in favor of FTC.
OSF Healthcare System and Rockford Health System
FTC filed a lawsuit in 2011 to challenge the acquisition of Rockford by OSF. The commission argued that the completion of the merger would increase the prices charged for the general acute-inpatient services since only one competitor would be left following the acquisition. FTC asserted that the resultant entity would be able to unilaterally increase prices without fearing the loss of customers.
The Gateway Learning Case
In this suit, FTC alleged that Gateway Learning Corporation was engaging in deceptive and unfair business practices, characterized by the deliberate alterations of the firm’s privacy policy. The retrospective operations were conducted without the involvement of customers, and therefore, it amounted to fraudulent dealing. The company resolved the issue by making a decree with FTC, eventually forcing it to enter into restrictions for 20 years.
Conclusion
FTC and CFPB are important governmental agencies in the United States responsible for protecting consumers. FTC safeguards the interests of customers by ensuring that organizations do not deploy deceptive and fraudulent practices which could eventually be detrimental to the general public. CFPB protects the interests of consumers by regulating the conduct of operators in the financial service sector, such as banks, mortgage companies, securities organizations, and credit unions.
References
Chean, J. S. (2016). Can’t live with them, can’t live without them: How mini-CFPAS and surety bonds could make a world with debt settlement companies more bearable. Fordham Journal of Corporate & Financial Law, 20(4), 380−411.
Garmon, C., & Kmitch, L. (2018). Hospital mergers and antitrust immunity: The acquisition of Palmyra Medical Center by Phoebe Putney Health. Journal of Competition Law & Economics, 14(3), 433−466. Web.
Kastner, L. (2017). Tracing policy influence of diffuse interests: The post-crisis consumer finance protection politics in the US. Journal of Civil Society, 13(2), 130−148. Web.
Lamoreaux, N. R. (2019). The problem of bigness: From Standard Oil to Google. Journal of Economic Perspectives, 33(3), 94−117.
Shapiro, C. (2019). Protecting competition in the American economy: Merger control, tech titans, labor markets. Journal of Economic Perspectives, 33(3), 69−93.
Willis, L. E. (2017). The Consumer Financial Protection Bureau and the quest for consumer comprehension. RSF: The Russell Sage Foundation Journal of The Social Sciences, 3(1), 74. Web.