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«Federal Trade Commission Operating Manual Chapter Nine SPECIAL STATUTES TABLE OF CONTENTS Section General.1 Promulgation of Special Statute Rules ...»

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Federal Trade Commission Operating Manual

Chapter Nine SPECIAL STATUTES

TABLE OF CONTENTS

Section

General

.1

Promulgation of Special Statute Rules

.1.1

Review of Special Statute Rules

.1.2

Truth-in-Lending

.2

Credit Advertising - No Identified Finance Charge

.2.1

.2.2 Exceptions to General Rule.2.2.1 Credit Insurance Orders.2.2.2 Open-End Credit Disclosures Used for Other Than Open-End Credit.2.2.3 Rescission under Section 226.9.2.2.4 Meaningful Sequence Requirements.2.3 Criminal Violations.2.3.1 Responsibility Presentation to Department of Justice.2.3.2 Declination of Prosecution.2.3.3 Establishment of Investigation File.2.3.4 Conducting Criminal Prosecutions.2.3.5 Refusal to Produce Evidence.2.3.6 Assistance from the Department of Justice.2.3.7.2.3.8 Simultaneous Criminal and Administrative Proceedings.2.3.9 Deferment to Criminal Proceedings.2.3.10 Re-evaluation after Completion of Criminal Proceedings.3 Fair Credit Billing Act.4 Consumer Leasing Act.5 Fair Credit Reporting Act Reference.5.1 Investigative Reporting.5.1.1 Credit Bureaus.5.1.2 Check Cashing Lists.5.1.3 Users of Consumer Reports.5.1.4 Hobby Protection Act.6.6.1 Complaints.6.1.1 Statutory Basis.6.1.2 Jurisdiction.6.1.3 Laying the Foundation.6.2 Orders.6.2.1 Notification to Purchasers.7 Warranty Act Complaints.7.1 Consent Orders.7.2 Rulemaking under the Magnuson-Moss Warranty Act.7.3 Equal Credit Opportunity Act.8 General.8.1 i Federal Trade Commission Operating Manual Chapter Nine SPECIAL STATUTES.8.2 Specificity of the Complaint and Order.8.3 References to the Original and Amended Regulation B.8.4 Complaint.8.5 Order.9 Fair Packaging and Labeling Act.9.1 Jurisdiction State Regulation.9.1.1 Enforcement Procedure.9.2 Wool Products Labeling Act.10 Jurisdiction.10.1 Misbranding.10.2 Rule Violations (16 C.F.R. Part 300).10.3.10.4 Recordkeeping.10.5 Continuing Guaranty.10.6 Bonding.10.7 Invoices.10.8 Understatement of Wool: Inaccurate Disclosure...

.10.9 Notice to Customers.11 Fur Products Labeling Act Jurisdiction.11.1 Misbranding.11.2 False and Deceptive Invoicing and Advertising.11.3 Rule Violations (16 C.F.R. Part 301).11.4 Recordkeeping.11.5 Continuing Guaranty.11.6.11.7 Bonding.12 Textile Fiber Products Identification Act.12.1 Jurisdiction.12.2 Misbranding and False Advertising.12.3 Rule Violations (16 C.F.R. Part 303).12.4 Substitution of Labels Recordkeeping.12.5 Continuing Guaranty.12.6 Bonding.12.7

Illustration

1 Truth-in-Lending Complaint Format 2 Truth-in-Lending Order Format 3 Fair Credit Reporting Act Complaint Format 4 Fair Credit Reporting Act Order Format 5 Warranty Act Complaint Format 6 Warranty Act Order Format 7 Equal Credit Opportunity Act Complaint Format Equal Credit Opportunity Act Order Format FTC Survey Sheet Fair Packaging and Labeling Act Notice Letter Fair Packaging and Labeling Act Respondent's Reply Form Wool Products Labeling Act Complaint Format

–  –  –

13 Wool Products Labeling Act Order Format 14 Fur Products Labeling Act Complaint Format 15 Fur Products Labeling Act Order Format 16 Textile Fiber Products Identification Act - Complaint Format 17 Textile Fiber Products Identification Act - Order Format

–  –  –

This chapter outlines the procedures used to enforce certain special statutes under the Commission's enforcement jurisdiction. These statutes are: the Truth-in-Lending Act (15 U.S.C. § 1601 et seq.), the Fair Credit Billing Act(15 U.S.C. § 1666 et seq.), the Consumer Leasing Act (15 U.S.C. § 1667 et seq.), the Fair Credit-Reporting Act (15 U.S.C. § 1681 et seq.), the Equal Credit Opportunity Act (15 U.S.C. § 1691 et seq.), the Hobby-Protection Act (15 U.S.C. § 2101 et seq.), the Fair Packaging and Labeling Act (15 U.S.C. § 1331-39), the Wool Products Labeling Act (15 U.S.C. § 68-68j), the Fur Products Labeling Act (15 U.S.C. § 69-69j), the Textile Fiber Products Identification Act (15 U.S.C. § 70-70k), and Title I of the Magnuson-Moss Warranty Federal Trade Commission Improvement Act (15 U.S.C. § 2301-12).

Sample complaints and orders are included as illustrations.

Although the Commission's general rules of notice pleading are applicable to all special statutes matters, the Commission's complaints and orders also serve an important public information and interpretative function and thus, special statutes pleadings are more detailed than in other areas, e.g., a definition section is generally advisable in special statutes cases. In general, when pleading a violation of a special statute the complaint should include a reference to the FTCA and, if applicable, to the regulations promulgated under the specific statute. Also, orders should contain standard boilerplate provisions. But, complaint counsel must evaluate the appropriateness of such language and modify it if necessary to effectuate the agreement. See also Complaints, OM Ch.4, Orders, OM Ch. 5, and Consents, OM Ch. 6 for standard provisions and general discussion.

PROMULGATION OF SPECIAL STATUE RULES.1.1

The staff should include in draft notices of proposed rulemaking under special statutes a solicitation of public comment on such matters as : (1) the economic and regulatory impact of the proposed rule;





(2) the paperwork requirements that the proposed rule may impose; and (3) possible regulatory alternatives, if any, that would reduce the economic impact of the proposed rule yet fully satisfy the requirements imposed on the Commission by the special statute.

REVIEW OF SPECIAL STATUTE RULES

.1.2 The Commission has adopted a policy of reviewing the rules it promulgates under special statutes at least once every ten years, as described in OM Ch 7.5.

.2 TRUTH-IN-LENDING This Act (Title I of the Consumer Credit Protection Act) delegates to the Commission, effective July 1, 1969, enforcement responsibility as to business entities in general for compliance with the consumer credit disclosure provisions. The Commission does not have enforcement responsibility over regulated depository institutions such as banks and certain other regulated industries such as common carriers. If there is any doubt as to the coverage, the staff should check § 108 of the Act (15 U.S.C. § 1607) and § 226.3 of Regulation Z (12 C.F.R.

§ 226 et seq.).

–  –  –

requirements for any advertisement containing a credit representation, and it includes a 3-day right of rescission in any transaction involving a security interest (except a first mortgage) in the consumer's residence.

The Truth-in-Lending Act was amended on October 26, 1970, to prohibit the issuance of unsolicited credit cards. Since the Act provides for a private right of action, use of that provision should be encouraged where the public interest and the cost benefit indicate that Commission action is not warranted.

The Truth-in-Lending Act provides that a violation of the Act or any implementing regulation shall be deemed a violation of the Federal Trade Commission Act, whether or not the violator is engaged in commerce or meets any other jurisdictional test in the Federal Trade Commission Act. Regulation Z, promulgated by the Federal Reserve Board (hereinafter FRB) is the implementing regulation. It can be found at 12 C.F.R. 226 et seq.

Copies can be obtained from the Division of Credit Practices.

As a general rule, all complaints and orders in this area will follow the language and form of the implementing regulation. Thus, for example, a complaint alleging that a respondent has failed to use the term "annual percentage rate" to describe the rate of the finance charge as an annual percentage rate would allege that the

respondent:

–  –  –

Similarly where the respondent is alleged to have inaccurately stated the annual percentage rate, the complaint

would allege that the respondent:1

–  –  –

The corresponding order provision would be the same as that set out above. Further examples of this format and examples of pleading violations of specific sections of the Act can be found in Illustrations 1 and 2. (When using past cases, care must be taken to ensure that pleadings and order provisions reflect amendments to Regulation Z and the Act. For the most part this can be accomplished by comparing the provisions to a recent copy of Regulation Z or the updated Regulation found in 1 CCH Consumer Credit Glide Par. 3401.).2.1 CREDIT ADVERTISING - NO IDENTIFIED CHARGE Violations of § 226.10(f) of Regulation Z - Credit Payable in More than Four Installments; see generally Gulf Allegations that the disclosed APR (Annual Percentage Rate) is inaccurate will frequently be coupled with allegations that the finance charge has been incorrectly calculated, for example, by the failure to include finders' fees or other charges. See In re Union Mortgage Company, 80 F.T.C. 427 (C-2177, Mar. 24, 1972); Commercial Credit Company, 82 F.T.C. 1841 (C-2420, June 26, 1972.

–  –  –

(The complaint in this matter predates § 226.10(f) amendments and should be revised accordingly, but the final order may be utilized.)

–  –  –

There are several areas of Truth-in-Lending enforcement in which departure from the general rule of closely following the language of Regulation Z is merited. Since new order provisions are being developed in these areas, it is advisable to contact the Division of Credit Practices before putting orders in final form.

Credit Insurance Orders.2.2.1

Credit insurance orders should normally follow the form set out in Commercial Credit Corporation, 82 F.T.C.

1841 (C-2420, 1973) or USLIFE Credit Corporation, (Dkt. 9057, initial Decision filed January 27, 1977). See also Peacock Buick (Dkt. 8976, final order Dec. 19, 1975, aff'd 4th Cir. April 1977) (Credit insurance sales practices as a § 5 violation).

.2.2.2 Open End Credit Disclosures Used for Other Than Open End Credit

–  –  –

Charnita, 80 F.T.C. 892 (Dkt. 8829, 1972) aff'd 479 F.2d 684 (3d Cir. 1973); Coventry Builders (Dkt. 9042, Complaint issued July 15, 1975). As a general matter, the basis for a decision to seek or not to seek retroactive rescission must be discussed in the forwarding memorandum for every case involving § 226.9 of Regulation Z.

.2.2.4 Meaningful Sequence Requirements Meaningful sequence requirements should be a separate paragraph modeled on § 226.6(a). (See Allen v.

Beneficial Finance, (No. 75-1635,. 7th Cir., Feb. 9, 1976)).

–  –  –

Participation by the Commission staff in criminal investigations involving violations of the Truth-in-Lending Act should only be undertaken after consultation with the division program advisor. The staff should direct its primary efforts towards obtaining injunctive relief and consumer redress against firms or individuals involved in willful or knowing violations of the special statute.

.2.3.1 Responsibility In carrying out the procedures outlined in this section and specifically with regard to criminal matters, the regional offices should consult with the Division of Credit Practices, Bureau of Consumer Protection.

Presentation to Department of Justice.2.3.2

–  –  –

the staff should first get clearance from the program advisor and then confer with the Consumer Affairs Section, Antitrust Division, Department of Justice, Washington, D.C 20530, telephone, 202-739-4174, to determine (a) whether a prosecution is warranted assuming that the evidence can be developed properly and, if warranted, (b) what evidence is necessary for a successful criminal prosecution. If the Commission attorney or consumer protection specialist has already contacted the proposed defendant(s), further investigation or examination should be delayed until after the Department of Justice has been contacted. The Director, Bureau of Consumer Protection should be immediately notified by memorandum that the matter has been presented to the Department of Justice.

Declination of Prosecution.2.3.3 If the Department of Justice declines to prosecute the matter based upon an evaluation of the files and the evidence, the investigation should proceed as in other Truth-in-Lending matters.

.2.3.4 Establishment of Investigation File As soon as it is decided to conduct a criminal investigation, the regional office or Division of Credit Practices should obtain a full or updated history search and a 7-digit number. See also OM Chs. 18, 3 and 2.

–  –  –

When it is determined that an investigation involves possible criminal violations of the Truth-in-Lending Act, it may become necessary to interview the proposed defendant. If at all possible, such interviews should be conducted in the office or facility of the propose defendant during regular business hours. The Commission attorney or consumer protection specialist should show his/her FTC Identification Card to the proposed defendant and state with some particularity the reason for the interview. if the questioning takes place at the proposed defendant's office and if the proposed defendant demonstrates his/her understanding when being questioned that he/she is free to stop the questioning or free to leave at his/her will, the Miranda warnings probably do not have to be given. However, if the questioning takes place at the interviewer's choice of place, or if the defendant demonstrates a belief that he/she is deprived of his/her freedom of action in any way, the

questioning may become 'custodial interrogation' and it is best to give the Miranda warnings as follows:

–  –  –

Any physical evidence obtained during the course of a Truth-in-Lending investigation shall be retained in the evidentiary files. Documents and statements proffered by the prospective defendant prior to any warning, if such warning is given, should be so identified.



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