US Federal Trade Commission Written evidence (FDF0093)

 

What is the role of the FTC in protecting consumers against fraud and scams, what activities does it undertake to do this and how effective are they?

The Federal Trade Commission (“FTC” or “Commission”) is an independent law enforcement agency and the primary consumer protection agency within the United States. It has a broad mandate to protect consumers from unfair and deceptive acts or practices in the marketplace, including frauds and scams. It does this by, among other things, conducting investigations, filing law enforcement actions to stop unlawful practices and, when possible, returning money to consumers. The FTC also does this by developing rules to protect consumers, conducting research and studies, collecting complaints about a host of consumer issues, and educating consumers and business on consumer protection issues.

Because the FTC has jurisdiction over a wide range of consumer protection issues, it must effectively use its limited resources by targeting its law enforcement and education efforts to achieve maximum impact. Through research and collaboration with federal, state, international, and private sector partners, the FTC strategically targets its efforts to achieve the maximum benefits for consumers. The FTC also focuses on investigating and litigating cases that cause or are likely to cause substantial injury to consumers. This includes not only monetary injury, but also, for example, unwarranted health and safety risks. By focusing on practices that are actually harming or likely to harm consumers, the FTC can best leverage its limited resources.

The FTC’s Annual Performance Report (“APR”), the most recent of which was for fiscal year 2020 contains a useful summary of our activities.  The APR is structured around the FTC’s strategic goals and their supporting objectives as established in the FTC’s Strategic Plan. The FTC’s strategic goals, objectives, and performance measures articulate what the agency intends to accomplish to meet its mandated mission. The FTC’s first strategic goal is to protect consumers from unfair and deceptive practices in the marketplace. This includes protecting consumers against frauds and scams.

As explained in the APR, the FTC measures its performance with respect to protecting consumers from unfair and deceptive acts and practices through various means. These measures include, for example, (1) the amount of money the FTC returned to consumers or forwarded to the U.S. Treasury resulting from FTC enforcement action, (2) the number of complaints entered into and the number of contributors to the FTC’s Consumer Sentinel database,[1] (3) the rate of consumer satisfaction with the FTC’s education websites, (4) the number of workshops and conferences the FTC convened and reports it issued, and (5) the FTC’s collaboration with domestic and international partners to enhance consumer protection, including the number of investigations or cases in which the FTC cooperated with foreign agencies and/or multilateral organizations on enforcement matters. By way of example, in fiscal year 2020, the FTC returned $2.79 billion to consumers, exceeding its target. In addition, the FTC and foreign consumer protection agencies shared information or engaged in other enforcement cooperation in 42 investigations or cases. 

In addition to the APR, the FTC also regularly releases information about its law enforcement efforts and other activities through ftc.gov. Some notable fraud-related enforcement actions and other achievements from the last year include the following:

 

What key fraud trends are affecting US consumers today and how has this changed over time? How is the FTC’s counter-fraud response evolving?

The FTC collects and analyses data related to its mission, including to spot and respond to emerging threats. The FTC also shares that data in different formats and at different levels of frequency, including by making its Consumer Sentinel data available online in an interactive format at ftc.gov/exploredata, through Consumer Sentinel and other data reports,[2] and through the periodic release of data spotlights, which highlight recent consumer complaint trends.

Over the past few years, the Commission has seen a soaring number of reports about business imposters, substantial losses stemming from online shopping and undelivered merchandise, a record high number of romance scams, and a rising number of cryptocurrency and other income scams, work-from-home scams, fake check scams, and deceptive online trading offers. Between 2019 and 2021, the number of consumer reports has increased by over 67 percent, from 3.4 million reports in 2019 to 5.7 million reports in 2021.[3]

Our analyses also show that digital platforms have become fertile ground for fraud and abuse. More than one in four people who reported losing money to a scam in 2021 said that the scam started with a contact on social media. What’s more, the number of reports has increased nineteen-fold since 2017, with reported losses of about $770 million in 2021.

Additional information on recent trends, including some noted above, is provided below:

 

In addition, the most recent Consumer Sentinel data for the second quarter of 2022 shows the FTC received 483,500 fraud complaints from consumers.[5] The top 10 fraud complaint categories are listed below.

 

In addition, the FTC has reported the following complaint trends covering the period 2018 through June 2022.

 

 

In response to identified trends, the Commission not only challenges individual illegal activity but also takes comprehensive action to deter and disrupt practices across industries that harm consumers and provides consumer and business education to augment our law enforcement efforts. In the past year, the Commission has focused its efforts on digital harms, COVID and other fraud, and ensuring that workers and small businesses aren’t cheated.

 

 

What enforcement powers does the FTC have to act against fraudsters and how effective are these powers?

The FTC has wide-ranging law enforcement responsibilities under the FTC Act, 15 U.S.C. § 41 et seq., and enforces a variety of other laws ranging from the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 6101-6108, to the Fair Credit Reporting Act, 15 U.S.C. §§ 1681-1681x. In total, the Commission has enforcement or administrative responsibilities under more than 70 laws. A complete list of all statutes and rules enforced by the FTC can be found on ftc.gov.

The primary law used by the FTC to combat frauds and scams is Section 5 of the FTC Act, 15 U.S.C. § 45(a), which prohibits "unfair or deceptive acts or practices in or affecting commerce.”[6] This includes “acts or practices involving foreign commerce that— (i) cause or are likely to cause reasonably foreseeable injury within the United States; or (ii) involve material conduct occurring within the United States.” 15 U.S.C. § 45(a)(4). 

In addition, the Commission enforces a variety of other consumer protection statutes that prohibit specifically defined practices. These statutes generally specify that violations are to be treated as if they were “unfair or deceptive” acts or practices under Section 5(a); many also provide that violations are to be treated as if they were violations of a trade regulation rule issued under Section 18 of the FTC Act (and thus subject to civil penalties).

Some notable statutes and rules related to the FTC’s fraud mission include the following:

The Commission may also use rulemaking to address unfair or deceptive practices in lieu of relying solely on actions against individual respondents. Under Section 18 of the FTC Act, 15 U.S.C. § 57a, the Commission is authorized to prescribe “rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce” within the meaning of Section 5(a)(1) of the Act. These rules are known as “trade regulation rules.” Among other things, the statute requires that Commission rulemaking proceedings provide an opportunity for informal hearings at which interested parties are accorded limited rights of cross-examination. Before commencing a rulemaking proceeding, the Commission must have reason to believe that the practices to be addressed by the rulemaking are “prevalent.” 15 U.S.C. Sec. 57a(b)(3).

Once the Commission has promulgated a trade regulation rule, anyone who violates the rule “with actual knowledge or knowledge fairly implied on the basis of objective circumstances that such act is unfair or deceptive and is prohibited by such rule” is liable for civil penalties for each violation. In addition, any person who violates a rule (irrespective of the state of knowledge) is liable for injury caused to consumers by the rule violation.

In addition, various other statutes authorize Commission rulemaking. These statutes generally provide that a violation is treated as a violation of the FTC Act, and often provide that a violation is treated as a violation of a trade regulation rule promulgated under FTC Act Section 18.

Additional information about the FTC’s enforcement authority can be found at https://www.ftc.gov/about-ftc/mission/enforcement-authority.

As noted above, the FTC reports on its effectiveness, among other things, in its APR.

 

How does the FTC work with UK regulators such as the Competition and Markets Authority (CMA) on counter-fraud issues and how effective are these relationships?

One of the FTC’s objectives is to collaborate with domestic and international partners. For example, during fiscal year 2020 the FTC cooperated with a wide range of foreign agencies and multilateral organizations on 42 investigations, cases, and projects and worked closely with international counterparts on several significant enforcement actions involving large-scale international frauds.

The U.K. CMA is an important international law enforcement partner with whom the FTC cooperates and whose relationship the FTC greatly values. In 2019, the CMA and FTC signed a memorandum of understanding to strengthen enforcement cooperation on consumer protection matters.[7] This memorandum superseded an October 2000 agreement between the FTC and the U.K. Department of Trade and Industry and Office of Fair Trading. The 2019 MOU facilitates exchanges that assist FTC and CMA employees review of deceptive and fraudulent practices around the world. The FTC also engages with the CMA through international fora such as the International Consumer Protection Enforcement Network (“ICPEN”) and the Organisation for Economic Co-Operation and Development. In addition, as part of ICPEN’s econsumer.gov project lead by the FTC, the UK CMA and the National Trading Standards Scams Team are registered to access econsumer.gov and cross-border complaints through the Consumer Sentinel Network.  In addition to the CMA, the FTC also engages with the UK’s Information Commissioner’s Office (ICO).  In 2014, the FTC entered into an MOU with the ICO.  The ICO has worked with the FTC on numerous investigations and international initiatives to increase global privacy cooperation. The ICO and the FTC are both founding members of the Global Privacy Enforcement Network (“GPEN”) and the London Action Plan (now known as the Unsolicited Communications Enforcement Network or UCNET).

 

26 August 2022


[1] Consumer Sentinel is the FTC’s secure online database of consumer complaints. Since 1997, Sentinel has collected tens of millions of consumer reports about fraud, identity theft, and other consumer protection topics.

[2] The FTC’s Consumer Sentinel Data Book is based on unverified reports filed by consumers. The data is not based on a consumer survey. Consumer Sentinel has a five-year data retention policy, with reports older than five years purged biannually.

[3] The increase is due in part to the addition of new data contributors, such as the Social Security Administration

Office of Inspector General and the Australian Competition and Consumer Commission.

[4] The FTC’s annual reports and surveys that it has conducted on mass market consumer fraud in the United States, including those conducted in 2017 and 2011, might also be of interest to the House of Lords.

[5] This data is available on a quarterly basis going back to 2018 at https://public.tableau.com/app/profile/federal.trade.commission/viz/TheBigViewAllSentinelReports/TopReports.

[6] “Deceptive” practices are defined in the Commission’s Policy Statement on Deception as involving a material representation, omission or practice that is likely to mislead a consumer acting reasonably in the circumstances. An act or practice is “unfair” if it “causes or is 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.” 15 U.S.C. Sec. 45(n).

[7] The MOU streamlines sharing investigative information and complaint data, simplifies requests for investigative assistance, and facilitates joint law enforcement investigations. It also provides strong and clear confidentiality and data safeguards.