15 USC 45: FTC Enforcement, AMG Capital, and Executive Liability

Section 5 of the Federal Trade Commission Act, codified at 15 U.S.C. 45, makes two broad categories of business conduct illegal: unfair or deceptive acts or practices, and unfair methods of competition.¹ Enforcement authority sits solely with the Federal Trade Commission, which reaches nearly every industry with a small set of statutory exceptions. There is no private right of action, so how the FTC applies the law is what matters in practice, both for companies that must comply and for consumers looking to it for protection.

What the Statute Prohibits

The law splits harmful conduct into two tests. The FTC can pursue a company under either or both.

The Unfairness Test

Congress wrote the unfairness standard directly into the statute at 15 U.S.C. 45(n). A practice is unfair only if it meets all three conditions: it causes or is likely to cause substantial injury to consumers; consumers cannot reasonably avoid the injury; and the harm is not outweighed by benefits to consumers or competition.¹ Public policy from statutes, regulations, or court decisions can support a finding, but it cannot be the primary basis on its own.

The three-part filter screens out minor annoyances and trade-offs that actually favor consumers. High prices alone are not unfair. But burying a cancellation process so deeply that customers effectively cannot stop recurring charges causes substantial, unavoidable harm with no offsetting benefit.

The Deception Test

A practice is deceptive when it misleads consumers acting reasonably under the circumstances, and the misleading element is material, meaning it would affect a purchasing decision. False advertising is the clearest case. In FTC v. Colgate-Palmolive Co., the Supreme Court upheld the FTC’s authority to challenge a television commercial that used a fake demonstration, holding that giving viewers the false impression they are watching a real product test is itself deceptive.² The Court also stressed that the FTC’s judgment about what counts as deception deserves significant deference on review.

Deception reaches well beyond traditional ads. Bait-and-switch tactics, misleading pricing, hidden fees, and false product claims all fall within the FTC’s reach. The common thread is a communication that is not true and that consumers rely on.

Advertising Substantiation

Under the FTC’s advertising substantiation policy, an advertiser must possess a reasonable basis for objective product claims before making them. Lacking that evidence is itself an unfair and deceptive practice under Section 5.³ When an ad says “tests prove” or “studies show,” the company must actually have those tests or studies. For claims that do not specify a level of proof, what counts as “reasonable” turns on the type of product, the consequences of a false claim, and what experts in the field would expect. For health, safety, and efficacy claims, that typically means competent and reliable scientific evidence.

This shifts the burden meaningfully. The FTC does not have to prove the claim was false. It only has to show the company lacked adequate evidence when it made the claim.

Unfair Methods of Competition

The statute separately prohibits “unfair methods of competition,” aimed at anti-competitive conduct. The Sherman and Clayton Acts are the primary antitrust statutes, but Section 5 reaches conduct those laws may not. In 2022 the Commission issued a policy statement making explicit its long-held view that this provision is broader than traditional antitrust.⁴

Under the 2022 framework, conduct qualifies as an unfair method of competition when it goes beyond competition on the merits and tends to negatively affect competitive conditions. The Commission looks at whether the behavior is coercive, exploitative, collusive, or predatory. The agency’s position is that Section 5 can reach conduct in its incipiency, before it ripens into a full antitrust violation, and does not always require proof of market power or detailed market definition. That distinguishes Section 5 from the more elaborate rule-of-reason analysis courts apply under the Sherman Act. Practices the FTC has targeted include exclusive dealing arrangements designed to lock out competitors, invitations to collude that fall short of a completed agreement, and predatory pricing.

Who Is Not Covered

Section 5 reaches nearly every business operating in or affecting U.S. commerce, but 15 U.S.C. 45(a)(2) carves out categories regulated by other federal agencies:¹

Banks, savings and loan institutions, and federal credit unions, which sit under agencies like the Office of the Comptroller of the Currency, the Federal Reserve, and the National Credit Union Administration. Non-bank financial companies such as payday lenders and debt collectors remain subject to FTC enforcement.
Common carriers regulated under the Acts to regulate commerce, including certain telecommunications companies overseen by the Federal Communications Commission.
Air carriers and foreign air carriers under Part A of subtitle VII of Title 49, placing them under Department of Transportation authority.
Entities subject to the Packers and Stockyards Act, meaning meatpackers and livestock dealers regulated under that 1921 statute, except where specifically provided otherwise.

Nonprofits generally sit outside FTC jurisdiction as well. The definition of “corporation” in 15 U.S.C. 44 is limited to entities “organized to carry on business for its own profit or that of its members.”⁵ A genuine nonprofit falls outside that. But the FTC has pursued organizations structured as nonprofits that actually operate for profit or generate financial benefit for their members.

Consumers Cannot Sue Under Section 5

One of the most consequential limits of 15 U.S.C. 45 is the absence of a private right of action. Enforcement power sits exclusively with the FTC. If you are harmed by an unfair or deceptive practice, you cannot file a federal lawsuit citing Section 5 as your cause of action.¹

Consumer redress therefore depends on the FTC choosing to act. The agency prioritizes cases with widespread harm or national significance, so isolated complaints often will not trigger enforcement. Individuals typically turn to state consumer protection laws, sometimes called “little FTC Acts” or UDAP statutes. Most states have enacted their own versions of Section 5, and the vast majority allow individuals to sue for damages. Many state statutes also authorize treble damages and attorney fees, incentives the federal statute does not provide.

How the FTC Investigates

Before enforcement, there is investigation, and the FTC has tools that carry real teeth if ignored.

The primary tool is the civil investigative demand, authorized by Section 20 of the FTC Act (15 U.S.C. 57b-1). A CID can require a company to produce documents, answer written questions, give oral testimony, or hand over tangible items. The Bureau of Consumer Protection uses CIDs for unfair or deceptive practice matters; the Bureau of Competition uses both CIDs and traditional subpoenas for antitrust work.⁶ CIDs can be served on entities outside the territorial jurisdiction of any U.S. court, giving the agency reach over companies operating abroad.

Under Section 9 of the FTC Act (15 U.S.C. 49), the Commission can also issue subpoenas requiring testimony and document production. If a company refuses to comply, the FTC can petition a federal district court for an enforcement order, and defying that order triggers contempt penalties.⁶ A separate power under Section 6(b) lets the Commission require companies to file reports or written answers about their practices, with daily penalties after a thirty-day grace period for default.

How Enforcement Actions Play Out

When an investigation points to a likely violation, the FTC has two main paths: administrative proceedings or federal court litigation.

In an administrative proceeding, the FTC issues a formal complaint. The company can settle or contest the charges before an administrative law judge in a trial-like proceeding.⁷ A finding of violation leads to a cease-and-desist order, which the company can appeal to the full Commission and then to a federal appeals court.

Most cases settle through consent orders before a full hearing. A consent order is a negotiated agreement in which the company agrees to stop the challenged conduct and comply with specific requirements, often without admitting it violated the law. Once final, a consent order carries the same legal force as a litigated order, and violations trigger the same civil penalties.¹

The FTC can also go directly to federal court. Section 13(b) of the FTC Act authorizes temporary restraining orders and preliminary injunctions to halt ongoing misconduct while the case proceeds.⁸ This route is common in fraud cases where delay would cause irreparable injury.

Penalties and Remedies

Consequences range from orders to stop the offending conduct to substantial financial penalties, depending on the nature of the violation and whether the company was on notice.

Cease-and-Desist Orders

The standard remedy is a cease-and-desist order requiring the company to stop the illegal practice. Orders often include additional obligations: a compliance program, regular monitoring, periodic reports, or destruction of misleading marketing materials. An order becomes final either when the time for appeal expires or when court review concludes.

Per-Violation Civil Penalties

Once an order is final, violating it creates serious financial exposure. Under 15 U.S.C. 45(l), each separate violation is a separate offense, and each day the violation continues counts as an additional violation.¹ The statutory base penalty is $10,000 per violation, but after annual inflation adjustments the current maximum is $50,120 per violation.⁹ For conduct that continues over weeks or months, daily penalties compound into millions of dollars quickly.

Penalty Offense Notices

Under Section 5(m)(1)(B), the Commission can seek civil penalties against a company that engages in conduct the FTC previously determined to be unfair or deceptive in a prior administrative decision, provided the company knew the conduct was unlawful.⁹ To establish that knowledge, the FTC sends “Notices of Penalty Offenses” listing practices already found illegal. A company that receives a notice and continues the prohibited conduct faces penalties of up to $50,120 per violation. Receiving a notice is not an accusation of current wrongdoing; it removes any later claim of ignorance.

Consumer Redress

Under 15 U.S.C. 57b, when conduct is dishonest or fraudulent in a way a reasonable person would recognize, the FTC can go to court for relief on behalf of affected consumers. Available remedies include contract rescission, refunds, damages, and public notification of the violation.¹⁰ Punitive damages are explicitly excluded.

Corrective Advertising

In false-advertising cases, the FTC can order corrective ads acknowledging prior misrepresentations. The best-known example is Listerine. After decades of advertising that the mouthwash could prevent colds and sore throats, Warner-Lambert was ordered to include a disclosure in its next $10 million of Listerine advertising stating: “Contrary to prior advertising, Listerine will not help prevent colds or sore throats or lessen their severity.”¹¹ The D.C. Circuit upheld the order, establishing corrective advertising as a viable remedy.

What Changed After AMG Capital

For decades, the FTC used Section 13(b) to obtain not just injunctions but also monetary relief such as restitution and disgorgement. In 2021 the Supreme Court unanimously held in AMG Capital Management, LLC v. FTC that Section 13(b) authorizes only injunctions, not equitable monetary relief.¹²

The practical effect was significant. The FTC lost what had been its most efficient route for returning money to consumers. The Court acknowledged this and said the policy arguments belonged in Congress. Legislation to restore monetary relief authority under Section 13(b) has been introduced but not enacted. The FTC has adapted by relying more heavily on 15 U.S.C. 57b, which requires going through the administrative process first, and on statutes that explicitly authorize financial remedies, such as the Telemarketing Sales Rule and the Restore Online Shoppers’ Confidence Act.

When Executives Are Personally Liable

Corporate officers and executives can be held personally liable for a company’s Section 5 violations without any need to pierce the corporate veil. Under the test applied by several federal circuits, an individual is personally liable if they participated directly in the unlawful conduct or had authority to control it, and they had actual knowledge of the misrepresentations, were recklessly indifferent to the truth, or were aware of a high probability of fraud and intentionally avoided learning the facts.

Courts have applied this standard to executives holding senior positions with direct responsibility over the practices at issue. Internal documents showing involvement in product design decisions or receipt of consumer complaint data can be enough. Willful ignorance of red flags does not shield an executive; avoiding explicit approval of the deceptive conduct is not a defense when the person had authority to control it and reason to know what was happening.

1
Office of the Law Revision Counsel. 15 U.S. Code 45 – Unfair Methods of Competition Unlawful; Prevention by Commission
2
Justia U.S. Supreme Court Center. FTC v. Colgate-Palmolive Co., 380 U.S. 374 (1965)
3
Federal Trade Commission. FTC Policy Statement Regarding Advertising Substantiation
4
Federal Trade Commission. Policy Statement Regarding Section 5 Enforcement
5
Office of the Law Revision Counsel. 15 U.S. Code 44 – Definitions
6
Federal Trade Commission. About the Federal Trade Commission’s Investigative, Law Enforcement, and Rulemaking Authority
7
Federal Trade Commission. Adjudicative Proceedings
8
Office of the Law Revision Counsel. 15 U.S. Code 53 – False Advertisements; Injunctions and Restraining Orders
9
Federal Trade Commission. Notices of Penalty Offenses
10
Office of the Law Revision Counsel. 15 U.S. Code 57b – Civil Actions for Violations of Rules and Cease-and-Desist Orders
11
Justia. Warner-Lambert Company v. Federal Trade Commission, 562 F.2d 749 (D.C. Cir. 1977)
12
Supreme Court of the United States. AMG Capital Management, LLC v. FTC