U.S. consumer protection law: a federalist patchwork.

• Author: Crane, Edward M.

UNLIKE MANY foreign jurisdictions, the United States lacks a singular, comprehensive consumer protection code. Consumer protection law in the United States is instead a patchwork of federal and state laws. This patchwork is primarily a product of U.S. federalism, which allocates sovereign powers to both the federal and state governments. But it is also a function of the federal and state governments' piecemeal approach to consumer protection legislation. Accordingly, consumer protection law in the United States is not so much a cohesive body of law as it is a jumble of discrete (yet often interrelated and overlapping) federal and state laws.

Federal Consumer protection law reflects piecemeal Congressional efforts to protect consumers. Rather than enact comprehensive or overarching consumer protection legislation, Congress has passed a series of separate laws targeting specific business practices, industries, and consumer products. The most significant of these laws address unfair or deceptive business practices (e.g., the Federal Trade Commission Act), food and drugs (e.g., the Food, Drug, and Cosmetic Act), household goods (e.g., the Consumer Product Safety Act), and consumer financial products and services (e.g., the recent Dodd-Frank Wall Street Reform and Consumer Protection Act). Many of these laws also created new federal agencies charged with carrying out their provisions, most notably the Federal Trade Commission, Food and Drug Administration, Consumer Product Safety Commission, and newly formed Bureau of Consumer Financial Protection. In other words, federal consumer protection law is scattered throughout the federal statutes and enforced by a variety of federal agencies.

State consumer protection law is no less complex. While every state has enacted laws prohibiting unfair or deceptive business practices, the scope, evolution, and enforcement of those laws vary considerably from state to state. In addition, state "common" law--i.e., the non-statutory decisional law of torts and contracts--may offer aggrieved consumers an extra layer of protection. The contours of state common law vary considerably from state to state. Further complicating state consumer protection law is its sometimes uneasy coexistence with federal law. Because the U.S. Constitution requires that federal law supersede or "preempt" conflicting state law, the constitutional viability of state consumer protection laws is often called into question.

Finally, no survey of U.S. consumer protection law would be complete without briefly mentioning consumer class action lawsuits. Consumer class actions have been a prominent feature of U.S. consumer protection law since the 1960s, and some might argue they represent the chief enforcement mechanism for certain consumer protection laws. (1) While a few other countries permit class actions or a close facsimile, consumer class actions in the United States are unique in their prevalence, scale, and economic impact.

Consumer protection law in the United States is idiosyncratic, both in its federalist complexity and reliance on class actions. While this paper does not purport to catalog every federal and state consumer protection law, it does attempt to summarize the most significant laws. While this article is directed primarily towards international practitioners, the discussion of the Dodd-Frank Wall Street Reform and Consumer Protection Act in Section I.C may also prove useful to domestic practitioners.

1. Federal Consumer Protection Law

   The U.S. Constitution does not address the authority of the federal government to protect consumers. Instead, federal consumer protection law derives from Congress's constitutional power to regulate domestic commerce] Accordingly, federal consumer protection law is generally scattered among the various topical commercial laws (e.g., laws addressing trade, food, drugs, and banking) rather than codified in one federal law or statute. The result is a labyrinth of often overlapping consumer protection laws and regulations.

   Despite their proliferation, federal consumer protection laws are of relatively recent vintage. Prior to 1900, the federal government rarely legislated in the area of consumer protection. Protecting consumers was instead the province of state and even municipal governments. Around the turn of the twentieth century, several factors led to Congressional intervention in the field of consumer protection. Rapid industrialization created an ever expanding national market for manufactured or processed consumer goods. Because states had no jurisdiction to regulate conduct outside their borders, state law became increasingly ineffective at regulating consumer products and services that were distributed nationwide by out-of-state companies. (3) The emergence of the "progressive" reform movement focused public attention on the negative consequences of an unregulated national marketplace on public health and welfare. (4) In addition, there were several highly publicized incidents involving tainted food, hazardous (and even fatal) medicines, and unscrupulous or fraudulent business practices. (5) The U.S. Supreme Court, which once closely scrutinized Congressional efforts to expand its legislative powers over domestic commerce, began to adopt an expansive view of Congressional legislative power under the "Commerce Clause" of the U.S. Constitution. (6)

   Against this backdrop, Congress began passing legislation targeting specific categories of consumer products and unfair or deceptive business practices. It has since strengthened those laws and enacted additional significant consumer protection laws in the areas of product safety and consumer finance.

   1. General Consumer Protection: the Federal Trade Commission Act

      To the extent there is a general consumer protection law it is the Federal Trade Commission Act ("FTCA"). The FTCA prohibits unfair or deceptive business practices that "affect commerce." (7) These broad prohibitions apply to all individuals and businesses except those regulated by a different provision of federal law, such as banks and certain common carriers. (8) The FTCA has evolved into the primary federal consumer protection statute and is most often used to prohibit false or misleading advertisements, fraudulent marketing practices, identity theft, data piracy, and other consumer scares or frauds. (9) The FTCA is perhaps best known for the federal agency charged with enforcing it--the Federal Trade Commission ("FTC").

      1. FTC Structure

         In 1914, the FTCA created the FTC and tasked the agency with prohibiting anti-competitive business practices and arrangements. (10) Despite its origins as an antitrust agency, Congress later broadened the FTC's mission to include consumer protection. Given these broad mandates and the FTC's commensurately broad regulatory authority--including the authority to enforce numerous other consumer protection laws--the FTC is arguably the primary federal consumer protection agency. (11) The FTC is headed by five commissioners who are appointed by the President and subject to Senate confirmation. No more than three commissioners may be from the same political party. (12)

      2. FTC Powers

         The FTCA endowed the FTC with broad regulatory authority to prevent "unfair or deceptive" business practices. (13) "Unfair" practices are those that, at a minimum, "cause[] or [are] likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition." (14) "Deceptive" practices are typically those that tend to materially deceive a reasonable consumer. These definitions carry added weight because many other federal and state consumer protection laws borrow them or defer to the FTC's interpretations thereof. (15)

         (a) Rulemaking

         Under the FTCA, the FTC may issue regulations or rules that define or prevent unfair or deceptive business practices. (16) Invoking this power, the FTC has issued regulations addressing a wide range of business practices such as advertising, marketing, labeling, and the use of a consumer's private information. The FTC has also issued a number of business-specific regulations addressing businesses as varied as funeral homes, used car dealerships, and ophthalmologists. In addition to the FTCA, other federal consumer protection laws vest the FTC with rulemaking power over specific industries or practices. Examples of such statutes are the Fair Packaging and Labeling Act, Magnuson-Moss Warranty Act (addressing consumer product warranties), and Telemarketing and Consumer Fraud and Abuse Prevention Act. (17)

         (b) Investigation

         The FTC has several investigative and fact-finding tools at its disposal. The Bureau of Consumer Protection may issue subpoenas known as "civil investigative demands" ("CIDs") to investigate potential unfair or deceptive practices. (18) The CID may require the recipient to produce documents, give oral testimony, or file written reports or answers to questions. (19) In addition to CIDs, the FTC can also require a person or entity to submit a report or answer specific questions about the recipient's business, conduct, practices, management, or relationship to other entities. (20) The FTC frequently uses this fact-finding authority to conduct wide-ranging economic studies that may not have a specific law enforcement purpose.

         (c) Enforcement

         The FTC is responsible for enforcing both the FTCA, which outlaws unfair or deceptive practices, and the regulations promulgated thereunder. (21) Congress has also charged the FTC with enforcing numerous other federal consumer protection laws, including the Truth in Lending Act, Fair Debt Collection Practices Act, Electronic Fund Transfer Act, and Cigarette Labeling and Advertising Act. (22) The FTC may enforce the aforementioned laws through either administrative proceedings or civil litigation, although civil litigation is more common.

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