Ford Motor Co. v. Federal Trade Commission
120 F.2d 175, 1941 U.S. App. LEXIS 3449 (1941)
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Rule of Law:
Advertising that has the capacity or tendency to mislead the public into an erroneous belief constitutes an unfair method of competition under the Federal Trade Commission Act, regardless of the advertiser's intent or whether competitors were actually deceived.
Facts:
- In 1935, General Motors began advertising a '6% plan' for financing new cars.
- The '6%' was not a simple annual interest rate but a multiplier applied to the original unpaid balance for the loan's duration, resulting in an effective simple interest rate of approximately 11.5%.
- Ford Motor Company, along with other major auto manufacturers, adopted and widely advertised a similar '6% plan' through the Universal Credit Corporation to remain competitive.
- Ford's advertisements, some with and some without an explanation, prominently featured the '6%' symbol and language, leading to its widespread promotion.
- The evidence showed that a substantial portion of the purchasing public was misled into believing the plan offered a 6% simple annual interest rate on the declining balance of their car loans.
- Ford discontinued the advertising campaign around July 1936.
Procedural Posture:
- The Federal Trade Commission (FTC) issued a complaint against Ford Motor Company, charging it with unfair methods of competition.
- Ford filed a motion to dismiss the complaint, which the FTC denied.
- Following a hearing and review, the FTC found that Ford's advertising was misleading and constituted an unfair method of competition in violation of the Federal Trade Commission Act.
- The FTC issued a cease and desist order requiring Ford to stop using the '6%' representation in a misleading manner.
- Ford Motor Company, the petitioner, petitioned the United States Circuit Court of Appeals for the Sixth Circuit to review and set aside the FTC's order.
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Issue:
Does the use of 'six percent' or '6%' in advertising a financing plan, where the actual charge is substantially higher than 6% simple annual interest, constitute an unfair method of competition in violation of the Federal Trade Commission Act?
Opinions:
Majority - Hamilton, Circuit Judge
Yes. The use of '6%' in advertising this financing plan is an unfair method of competition because it has the capacity and tendency to mislead the public. The standard under the Federal Trade Commission Act does not depend on the advertiser's intent, but on whether the advertisement is calculated to deceive the buying public. The court reasoned that the advertisement must be viewed from the perspective of the average individual, who is often incapable of making the complex calculations necessary to determine the true cost of credit. The term '6%' is highly susceptible to the interpretation that it means 6% simple annual interest, and since the actual rate was nearly double, the representation was misleading. That other companies or even government agencies used similar methods is immaterial; an inherently unfair method does not become fair through common practice. The court concluded that this deceptive advertising unfairly diverts trade from competitors who represent their credit charges truthfully and is therefore a practice the FTC has the power to restrain in the public interest.
Analysis:
This decision solidifies the 'capacity to mislead' standard for deceptive advertising under the Federal Trade Commission Act. It establishes that the FTC does not need to prove actual deception or bad faith on the part of the advertiser; the mere tendency of an advertisement to deceive the average consumer is sufficient. This case broadens the FTC's regulatory power by focusing on the protection of the consumer, even from their own lack of financial sophistication. It affirms that advertising which drives sales of products in interstate commerce is itself subject to federal regulation, even if the final sale is an intrastate transaction.
