Help! The FTC shut me down! Now what?

Having an unhappy customer threatening to file a complaint with the Federal Trade Commission (FTC) can strike terror in most small business owners' hearts. Despite your hardest efforts, the customer is just not satisfied. Your imagination takes over and you see the complaint landing on the desk of someone at the FTC. At that moment, it's easy to feel that your business, and all the hard work you've put into it, is at risk.

But what does an FTC complaint process actually look like and what does it means for your business?

The FTC complaint process

Despite the adage that the customer is always right, every small business owner knows that there are certain situations where your options may be limited when it comes to dealing with a customer complaint. Whether it's because of circumstances that are outside of your control, or a problem that is simply not fixable, dealing with an angry customer always presents a challenging prospect.

If you have a customer telling you that they'll file a complaint against you, the situation can become even more stressful. The FTC oversees consumer complaints under the authority of the Federal Trade Commission Act. Under section 5 of that act, it is unlawful for a company to engage in "unfair or deceptive acts or practices." If a customer files an FTC complaint against your business, this is the section under which the complaint would most likely be filed. As an example, unfair or deceptive acts or practices include both fraud and identity theft.

How many complaints trigger an FTC investigation?

The FTC receives a lot of complaints every year. According to the FTC's annual summary of complaints received in 2017, the agency received 2.68 million complaints that year. A single FTC complaint may not be enough to draw the FTC's investigative attention but it's definitely possible that complaints may play a role in triggering an FTC investigation.

According to Aaron Messing of Messing Law, who has advised clients in connection with FTC investigations, "Although the FTC rarely discloses why it began investigating a company, generally speaking, a solitary complaint may not be sufficient to trigger an FTC investigation." He notes, however, that there can be circumstances in which one complaint can trigger an investigation, particularly if:

• The complaint is connected to one of the FTC's areas of emphasis
• The complaint pertains to alleged unfair or deceptive acts and practices
• The complaint is otherwise newsworthy; or
• A consumer advocacy group or standards-setting group gets involved.

The FTC investigation process

The thought of an FTC investigation is alarming, but knowing what to expect will help you make appropriate decisions to help you get your business through the process. "The FTC has a variety of tools at its disposal, but generally, unless it believes there is an imminent threat of significant consumer injury (in which case it can seek immediate relief in court), the FTC will usually contact the target company by mail to request information as part of their investigation," says Messing.

He notes that these requests, which are often but not always confidential, can be either informal or formal. For example, for high profile investigations or in situations where the FTC believes a business will not cooperate with the investigation, the FTC will generally go a more formal route and issue a civil investigative demand (CID) or subpoena.

While responding to these requests can be expensive and disruptive, Messing advises that it's very important to respond promptly to an FTC information request, because a failure to respond can result in a more aggressive posture from the FTC.

When to get legal help

If you've received a request for information from the FTC, it's a good time to consider obtaining legal advice. "Experienced counsel will contact the FTC to negotiate the scope and timing of the request, and help you to craft a response which tells your company's story, rather than simply responding by providing the information requested," Messing says. "For example, counsel can help the company explain why it does not believe that it has engaged in wrongdoing, and provide additional information beyond what was requested, in order to inform the FTC of matters which may not be clear from the complaint alone. It's important that the company coherently advocate its position, and not just provide data without the benefit of context."

Other things an attorney experienced in FTC matters can help you with? "Counsel will often request a phone conference or meeting with the FTC to clarify areas of confusion, provide background information, answer additional questions, suggest preemptive remedial responses, and otherwise advocate the company's position," Messing says. "Often, the FTC will have follow-up questions and requests, and experienced counsel can be instrumental in shaping the direction of the investigation."

Consent order

While the prospect of an FTC investigation is alarming, it's good to keep in mind that an investigation won't necessarily result in formal enforcement procedures against your business.

According to Messing, "at the end of the investigation, the FTC staff will make a recommendation to the Bureau of Consumer Protection to either close the investigation without further action, or to pursue a formal enforcement action. However, if the FTC believes that an investigation has uncovered illegal acts or practices, it usually attempts to settle with the target company by entering into a consent order before resorting to litigation."

Formal enforcement proceedings

If the FTC investigation results in a recommendation of enforcement, and the Bureau agrees with this recommendation, the complaint and the consent order, or proposed terms of settlement, are forwarded to the FTC commissioners. "A majority of the FTC commissioners must vote in favor of issuing a complaint against the company," Messing notes. After a vote in favor, the FTC will have the choice of bringing either an administrative action, or an action before the federal court.

Administrative proceedings. The FTC administrative action is heard before an administrative law judge who evaluates whether the company has committed the alleged acts. "FTC administrative proceedings function like expedited court proceedings in which FTC staff attorneys prosecute as complaint counsel," Messing says. "After an evidentiary hearing, an administrative law judge evaluates whether the company has committed the alleged acts. "

Federal lawsuit. If the FTC opts to pursue enforcement at the federal court level, it will send a recommendation to the Department of Justice, which must then decide whether or not to prosecute the case. If a decision is made to prosecute, then the matter will proceed as formal litigation before the federal court.

What to do if you think your business might come under FTC scrutiny

If you're concerned that your customer's complaint might trigger an FTC investigation, Messing suggests that you consider conducting an internal investigation to determine whether the complaint is substantiated, and also taking proactive action to prevent further exposure. "These internal investigations should be conducted by counsel to not only ensure that they are objective," he advises, "but also to ensure that the investigation is protected by privilege and work product protections, to the extent possible. It's also important to consider that while retaining counsel can be expensive, botching a response is usually significantly more expensive, especially if there is concern about criminal and civil liability for the company and its officers and directors."

And what if your worse fears come to fruition and you find your company subject to an FTC investigation? It's essential at that point to obtain the aid of experienced counsel, who will be able to provide invaluable assistance at every stage of the FTC process. Messing notes that an attorney experienced in FTC matters will be able to communicate the company's position, explain why a complaint cannot be issued, outline the company's concerns with a proposed consent order, and otherwise attempt to shape the proceedings in ways that are favorable to the company.

Hearing that a customer has submitted an FTC complaint against your business is never a good thing, but having knowledge of the FTC complaint process itself, and particularly knowing when you should obtain legal assistance, will help you deal with whatever events might arise as a result of this complaint.