The Federal Trade Commission and the Future Development of U.S. Consumer Protection Policy

Abstract

The paper provides a comprehensive analysis of how the Federal Trade Commission (FTC) fits in the larger scheme of institutions for consumer protection embodied in the American economic system. It also examines how the agency's animating principles shape the Commission's enforcement agenda and other initiatives. The first part of the paper describes the system of institutions for consumer protection embodied in the American economic, legal, and regulatory systems and how they interrelate. It argues that a public institution, such as the FTC, can shore up these economic and legal institutions when they cannot protect consumers adequately. Because the bedrock principle of the FTC's agenda is that robust competition in a strong market is the primary bulwark of consumer protection, the agency strives to reinforce these other institutions without undercutting their vitality. In the past, the FTC has occasionally exceeded its proper place in this institutional context and failed to appreciate the powerful role markets and the common law play in protecting consumers. The past few decades have demonstrated both the opportunities and limits of the FTC as a regulatory agency, and this paper explores those developments. The second section of the paper examines how an understanding of the FTC's proper place in this system of institutions for consumer protection guides the design of the Commission's specific consumer protection initiatives. Starting with the agency's top priority - stopping conduct that causes the greatest threat to consumers - this section details the FTC's actions against fraud and then discusses the regulation of advertising, with an emphasis on matters involving health claims. It next illustrates how the agency uses its unique institutional capabilities to formulate new rules in response to changed situations by examining the FTC's initiatives on privacy and spam, with a particular emphasis on the National Do Not Call Registry. The paper concludes by discussing the critical importance to sensible policymaking of continuing efforts to increase the Commission's research and development function. This function involves a systematic effort to improve the base of knowledge that informs the agency's diverse initiatives in the face of changes in the economic and policymaking environment at home and abroad.