This report ("The Nader Report") is the result of a student task force exploration of the Federal Trade Commission (FTC), completed over the course of a summer job led by Ralph Nader. The seven law student volunteers (dubbed "Nader's Raiders" by the Washington press corps) began their evaluation of the FTC in June 1968 and published a revised and expanded version of the report as a book in January 1969. The report covers: The general material about which the FTC should be concerned ("The Crisis"—advertising, deception, targeting the poor, etc.); The reasons for the ineffectiveness of the FTC ("The Failures"—poor prioritization, delays, inaction, etc.); How the FTC was able to evade scrutiny ("The Mask"—deceptive public relations, secrecy, ties to industry and powerful political figures); The responsibility and effect of the leadership ("The Cancer"—partisan politics, hiring practices, etc.); and the recommended solutions to these problems ("The Cure").
Summary The report was based on the FTC as it was in the 1960s. During this time, the FTC was under scrutiny for major weaknesses. One year after the Nader Report was published, the ABA Commission to Study the FTC also issued a report criticizing the FTC, exploring whether or not the FTC should be abolished. The main arguments of the Nader Report were:
The FTC is ineffective. The FTC is passive about its duties, is not proactive about discovering violations, delays actions to an unreasonable extent, and has ineffective enforcement practices. The FTC should prioritize problems that have a high area of impact (e.g., many potential victims, particularly vulnerable victims, extraordinary cost to the victims). The FTC needs to improve detection of such problems, particularly through direct grassroots involvement and active investigation. The FTC needs to resolve the fundamental process and power issues that prevent it from taking action in a timely manner. The FTC should not be a "friend" to business; it needs to be feared, and it needs to provide strong disincentives to businesses for committing violations. The FTC should not be able to hide behind secrecy and powerful political and business relationships.
Nader's Raiders Edward F. Cox Robert C. Fellmeth John E. Schulz Judy Areen Peter A. Bradford Andrew Egendorf William Taft IV Seven law students embedded themselves at the FTC during the summer of 1968, and conducted their study first-hand. "We were dealt with as members of the general public—not as litigants, businessmen, members of Congress, or representatives of the White House."
The Report
The Crisis The authors focus on what they believe to comprise the domain of interest for the FTC, namely the "unfair methods of competition in commerce, and unfair or deceptive acts or practices in commerce." They discuss trends in advertising, including: targeted advertising and product marketing; suggestive advertising; deceptive claims; price fixing and price leadership; and directly targeting vulnerable consumers. A common trend discussed is that of businesses either directly deceiving the consumer, or diverting his attention away from unappealing information, such as side-effects of using a particular product (since it is only through advertising that the consumer learns about the product). Particular focus is given to the practices that target those who are desperate or those who do not have the means to help themselves once they discover they have been deceived. Some examples are of aggressive marketing of credit lines or financing to poor families, pyramid schemes, fruitless "get rich quick" schemes that involve an expensive buy-in (such as buying chinchillas to breed, expecting to sell their fur at a great profit, only to have the animals die or ultimately be unable to sell the fur at the promised rates), and the aggressive marketing of expensive home-improvement material to poor families (wherein the contract includes a confiscation clause, resulting in a large financial penalty or even loss of the home). The general claim is that the FTC cannot only rely on the consumer to notify it of problems:
The consumer might not be aware of the problems to begin with (e.g., if a side-effect surfaces much later, or through the use of deceptive advertising). The victim might be poor or elderly or otherwise restricted in ability to determine in a timely fashion that he or she is being treated unfairly. Or further, the consumer might not have any awareness of price fixing or high profit margins on products.
The Failures The task force criticized the FTC of being ineffective. Namely, the report focused on the FTC's failure to:
"detect violations systematically" "establish efficient priorities for its enforcement energy" "enforce the powers it has with energy and speed" "seek sufficient statutory authority to make its work effective."
Detection In the first case, the FTC's reliance on consumer-originated notification is criticized as being insufficiently effective at uncovering problems of consumer deception. For example, the authors suggest that "there must be alert and extensive monitoring operations with pre-screening by expert engineers, doctors and other professionals" in order to discover deception in TV commercials.
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