Consumer Protection and Antitrust Laws

What you'll learn to do: summarize consumer protection and antitrust laws

This module concludes with coverage of consumer protection and antitrust laws. We’ll consider consumer protection legislation from from both economic and business ethics standpoints, citing statistics to put the need for consumer protection in perspective. We’ll highlight representative consumer protection legislation and summarize the key provisions of the three primary antitrust laws: the Sherman Act, The Federal Trade Commission Act and the Clayton Act. Note that these two categories of legislation serve both businesses and consumers, supporting ethical business practices fair competition that tends to yield price, quality and innovation benefits.

Consumer Protection

Importance of Consumer Protection Law

Accounting for roughly 70% of GDP in 2018, consumer spending is essential to the health of the U.S. economy and the country’s relative political stability, prosperity and quality of life. What would happen if the American consumer lost faith in manufacturers . . . in retailers . . . in providers of goods and services ranging from aircraft and automobiles to a broad range of agricultural and consumer packaged goods? That would put the $13 trillion consumers spent in 2018 at risk.

For perspective, that dollar figure dwarfs the (albeit substantial) $700 billion the Treasury spent on the 2008 bank bailout. The lack of ethics, ineffective standards and outright fraud that contributed to the economic crisis isn’t limited to the financial sector. The U.S. Food and Drug Administration and the U.S. Department of Agriculture’s Food Safety and Inspection Service reported 456 food recalls in 2017.^[13] In the consumer durables category, The National Highway Traffic Safety Administration reported 30.7 million motor vehicle recalls in 2017. Forbes contributor Jim Gorzelany puts that in perspective, noting that with 17.6 million new vehicles sold in 2017, the industry recalled approximately 74% more cars and truck than it delivered.^[14] Clearly, caveat emptor, a Latin term translated as "let the buyer beware," applies as much to modern commerce as it did when it first emerged as a legal principle in a 1603 case that drew a distinction between warranties and affirmations. However, this phrase is insufficient for consumer safety, and consumer protections are essential to maintain consumer confidence and the health of the economy and society.

Consumer Protection Laws

There are several consumer protection laws. In the United Sates, these laws are mainly enforced by The Federal Trade Commission, Consumer Financial Protection Bureau, FDA & US Department of Justice. Consumer protection legislation includes includes statutes that address the following:

• Product Safety
• Consumer Credit
• Automotive Safety

Product Safety

The federal Consumer Product Safety Act (CPSA) established the Consumer Product Safety Commission and authorized the agency to develop and enforce standards, including the right to ban products.^[15]

The federal Food and Drug Act (FDA) mandates regulation of food, drugs, cosmetics, biologics, medical products and tobacco. The FDA’s authority includes public education, investigation and enforcement.

Consumer Credit

The federal Fair Credit Reporting Act (FCRA) promotes the accuracy, fairness, and privacy of information in the files of consumer reporting agencies. The act requires credit reporting agencies such as Experian and Transunion to allow consumers to review their credit data on file and to verify any information disputed by a consumer. Excerpts from the FTC’s summary of rights under the act:

• You must be told if information in your file has been used against you.
• You have the right to know what is in your file.
• You have the right to dispute incomplete or inaccurate information.

An amendment to the law, the Fair and Accurate Credit Transactions Act, allows consumers to obtain one free credit report (not to be confused with your credit score) annually. To request your free report, visit https://www.annualcreditreport.com/.

Automotive Safety

The Highway Safety Act established the National Highway Traffic Safety Administration (NHTSA), an organization charged with “promoting vehicle safety innovations, addressing vehicle defects, setting safety standards for cars and trucks, and educating Americans to help them make safer choices when driving, riding, or walking.”^[16]

Although deceptive trade practices are addressed under antitrust legislation, it’s worth highlighting California’s Consumers Legal Remedies Act, which identifies a broad range of unfair methods of competition and unfair or deceptive acts or practices used in the sale or lease of consumer goods or services and allows consumers to sue to recover damages and stop the prohibited practices.^[17]

 

Antitrust Legislation

The Federal Trade Commission’s website explains the intended outcome of antitrust legislation as follows:

Free and open markets are the foundation of a vibrant economy. Aggressive competition among sellers in an open marketplace gives consumers — both individuals and businesses — the benefits of lower prices, higher quality products and services, more choices, and greater innovation.^[18]

The goal of antitrust legislation is to create and maintain a competitive market that yields the price, quality, choice and innovation benefits mentioned. The mission of the FTC and related agencies such as the U.S. Department of Justice (DOJ) Antitrust Division is to enforce the antitrust laws and, by extension, the rules of the competitive marketplace.

Here is an overview of the three core federal antitrust laws.

Sherman Act

As summarized on the Ourdocuments site, the Sherman Antitrust Act of 1890 was the first federal act to outlaw monopolistic business practices.^[19] As stated on the Federal Trade Commission website, “The Sherman Act outlaws ‘every contract, combination, or conspiracy in restraint of trade,’ and any ‘monopolization, attempted monopolization, or conspiracy or combination to monopolize.’"^[20]

For example, the act authorized the federal government to dissolve trusts that concentrated ownership in the hands of a few trustees and effectively restrained trade or commerce. A 1895 Supreme Court decision limited the extent of the law, ruling that the law prohibited only unreasonable restraints of trade. This limitation did not deter the government from pursuing and winning a number of high-profile cases based on the Sherman Act, including a prosecution of Microsoft pursued by the Justice Department and 19 states. In an opinion reported in The New York Times, Judge Jackson wrote "the court concludes that Microsoft maintained its monopoly power by anticompetitive means and attempted to monopolize the Web browser market . . . unlawfully tying its Web browser to its operating system."^[21]

Federal Trade Commission Act

The Federal Trade Commission Act is a federal consumer protection statute that created the Federal Trade Commision (FTC), an agency charged with developing and enforcing standards for commerce. To elaborate, the Commission has the authority to:

• Prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce
• Seek monetary redress and other relief for conduct injurious to consumers
• Prescribe rules defining with specificity acts or practices that are unfair or deceptive and establish requirements designed to prevent such acts or practices
• Gather and compile information and conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce.

The FTC’s Bureau of Consumer Protection educates consumers and businesses about their rights and responsibilities, investigates consumer complaints and litigates cases involving deceptive trade practices and other violations of consumer protection statutes.^[22]

Clayton Act

Passed by Congress and signed into law in 1914, the Clayton Antitrust Act was designed to clarify and strengthen the Sherman Act. Further, the FTC site notes that the Act “addresses specific practices that the Sherman Act does not clearly prohibit, such as mergers and interlocking directorates (that is, the same person making business decisions for competing companies).”^[23] In addition to banning price discrimination and anti-competitive mergers and acquisitions, the Clayton Act established the legality of strikes, boycotts and labor unions.^[24]

In addition to these federal statutes, most states have antitrust laws that are enforced by state attorneys general or private plaintiffs. Many of these statutes are based on the federal antitrust laws.

 

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