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FTC Raises the Stakes on Violators

April 21, 2009

The Federal Trade Commission (FTC) upped the ante on abuses of the FTC Act by increasing the maximum civil penalty for unfair and deceptive acts and practices from $11,000 to $16,000 per violation.

The 45 percent fee hike, which became effective in February, is not automatically applied to rules governed by the FTC, regulations such as the Fair Credit Reporting Act, the Safeguards Rule and the Red Flags Rule.

However, if a violation of one of those rules is also deemed a violation of the FTC ACT, or if the FTC can make an independent case that violation is an unfair and deceptive practice under the FTC Act, then the agency can petition the court for the enhanced fine.

“In general, where trade rule violations are involved, the FTC must first determine that the rule was violated, issue a ‘ cease and desist’ to the offender, and then determine that the offender has subsequently violated the cease and desist order,” said attorney Michael Benoit. “So, there's a bit involved in getting to the bigger penalties.”

In the case of a violation of the Red Flags Rule – which will be enforced beginning on May 1 – the FTC can petition for up to $16,000 per violation if it finds the dealership committed an unfair and deceptive act or practice. Prior to the rule change , the FTC was limited to incurring an $11,000 penalty per violation.

“I would only expect that they would take that route in the case of an egregious and knowing violation of the rule, but they have the option in any case,” Benoit added.

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