Petition — Federal Trade Commission v. Beneficial Corp.

Supreme Court, U. 3,

76-1088 — FILED

FEB 4 1977

—— |

MICHAEL RODAK, JR., CLERK

In the Supreme Court of the United States

OCTOBER TERM, 1976

FEDERAL TRADE COMMISSION, PETITIONER

Vv.

BENEFICIAL CORPORATION AND

BENEFICIAL MANAGEMENT CORPORATION

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

DANIEL M. FRIEDMAN,

Acting Solicitor General,

DONALD I. BAKER,

Assistant Attorney General,

ROBERT J. LEWIs, ROBERT B. NICHOLSON,

General Counsel, FREDERIC FREILICHER,

Attorneys

GERALD P. NORTON, ; ‘

Deputy General C. el, Department of Justice,

Washington, D.C. 20530.

JEROLD D. CUMMINS,

Acting Assistant General Counsel,

DAVID M. FITZGERALD,

Attorney,

Federal Trade Commission,

Washington, D.C. 20580.

eS a a a ee ae

INDEX

eee eee

Cee TOE A Od

Question presented.

Statute involved . ae 616 SE ae as ee!

A a A a

Reasons for granting the petition 5 ss

See ee

Appendix A Se ee ae

AEE er AAR Ee, Re CE

gi lie aa aa aa RE Rea aN,

a ame ee ee Ce

gg RII SS SE a tld

CITATIONS

Cases :

Bakers Franchise Corp. v. Federal Trade

Commission, 302 F. 2d 258

Bigelow v. Virginia, 421 U.S. 809

Carter Products, Inc. v. Federal Trade

Commission, 268 F. 2d 461, certiorari

denied, 361 U.S. 884

Federal Trade Commission vy. Algoma

11

Lumber Co., 291 U.S. 67.10, 11, 18, 14

Federal Trade Commission v. Army and

Navy Trading Co., 88 F. 2d 776 _ -

Federal Trade Commission v. Colgate-

Palmolive Co., 380 U.S. 374 sits

~~

11

10

Cases—Continued " Page

Federal Trade Commission v. National

Lead Co, 968 US. 419 ——________ 10

Federal Trade Commission v. Royal Mill-

jie C., Cs. Se 9, 12, 13, 14

Federal Trade Commission v. Ruberoid

SS SR ee 10

Jacob Siegel Co. v. Federal Trade Com-

mission, 327 U.S. 608... 9, 10, 12, 13, 14

Resort Car Rental System, Inc. v. Federal

Trade Commission, 518 F. 2d 962. 11

United States Navy Weekly, Inc. v. Fed-

eral Trade Commission, 207 F. 2d 17. 11

Virginia State Board of Pharmacy v. Vir-

ginia Citizens Consumer Council, Inc.,

ee Ee AR eee 15

Young v. American Mini Theatres, Inc.,

No. 75-312, decided June 24, 1976... 16

Constitution and statutes:

United States Constitution, First Amend-

STE ATR eC A ARP NENT ~ ENTE, 9,15, 16

Federal Trade Commission Act, Section 5,

38 Stat. 719, as amended, 15 U.S.C. 45,

and as amended by 88 Stat. 2193 and

89 Stat. 801, 15 U.S.C. (Supp. V) 45

et seq.:

Section 5, 15 U.S.C. 45... 5

Section 5(a), 15 U.S.C. 45(a) ss 2

Section 5(b), 15 U.S.C. 45(b) —. 2, 3,

Section 5(a)(1), 15 U.S.C. (Supp.

i _, _. p ee RS ar Ca es 2

Section 5(a)(2), 15 U.S.C. (Supp.

ee MID” Nicntiniinedntitiduatsiandeilaiaiine 2

Iu the Supreme Court of the Auited States

OCTOBER TERM, 1976

No.

FEDERAL TRADE COMMISSION, PETITIONER

Vv.

BENEFICIAL CORPORATION AND

BENEFICIAL MANAGEMENT CORPORATION

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

The Solicitor General, on behalf of the Federal

Trade Commission, petitions for a writ of certiorari

to review the portion of the judgment of the United

States Court of Appeals for the Third Circuit that

set aside the first paragraph of the Commission’s

order.

OPINIONS BELOW

The opinion of the court of appeals (App. A, infra,

pp. la-30a) is reported at 542 F.2d 611. The deci-

sion (App. D, infra, pp. 35a-140a) and order (App.

E, infra, pp. 141a-145a) of the Federal Trade Com-

mission are reported at 86 F.T.C. 119.

(1)

2

JURISDICTION

The judgment of the court of appeals (App. B,

infra, pp. 3la-32a) was entered on September 8,

1976, and modified on September 28, 1976 (App. C,

infra, pp. 33a-34a). On November 27, 1976, Mr.

Justice Brennan extended the time to file a petition

for a writ of certiorari to and including February

5, 1977. The jurisdiction of this Court is invoked

under 28 U.S.C. 1254(1).

QUESTION PRESENTED

Whether the court of appeals applied an erroneous

standard of judicial review of remedies of adminis-

trative agencies when it set aside an order of the

Federal Trade Commission prohibiting the use of a

deceptive advertising slogan, where the order rested

on the Commission’s considered judgment that quali-

fying language or anything less than elimination of

the deceptive slogan would not adequately protect

the public.

STATUTE INVOLVED

Section 5(a) and (b) of the Federal Trade Com-

mission Act, 38 Stat. 719, as amended, 15 U.S.C.

45(a) and (b), provided in pertinent part:’

‘ After the complaint issued in this case, Section 5(a) and

(b) were amended by adding the words “or affecting” before

commerce and by the renumbering of paragraph (a) (6) as

paragraph (a) (2). 88 Stat. 2193, 89 Stat. 801, 15 U.S.C.

(Supp. V) 45(a) (1), (2).

ae i ee amie ote

CO ADI Biya

Pe) ee ee FB

— ae

Co a NE CE

GO tO NES

(a)(1) Unfair methods of competition in

commerce, and unfair or deceptive acts or prac-

tices in commerce, are declared unlawful.

(6) The Commission is empowered and di-

rected to prevent persons, partnerships, or cor-

porations, * * * from using unfair methods of

competition in commerce and unfair or decep-

tive acts or practices in commerce.

(b) * * * If upon such hearing the Commis-

sion shall be of the opinion that the method of

competition or the act or practice in question is

prohibited by this Act, it * * * shall issue * * *

an order requiring such person, partnership, or

corporation to cease and desist from using such

method of competition or such act or practice.

ses

STATEMENT

In 1969 respondent Beneficial Corporation,‘ which

was in the consumer loan business, established an in-

come tax preparation service (App. D, infra, p. 35a).

Beneficial then began to advertise what it called an

“instant tax refund” with commercials and print ad-

vertisements which ran during the early months of

each year* (id. at 43a-45a, 90a). The “instant tax

* Both Beneficial Corporation and its wholly-owned sub-

sidiary, Beneficial Management Corporation, petitioned for

judicial review of the Commission’s order. They are referred

to here collectively as Beneficial. Beneficial Corporation is

the parent of some 1,500 separately incorporated local loan

offices known as the Beneficial Finance System. (App. D,

infra, p. 37a.)

* Beneficial’s 1969 and early 1970 advertising used texts

such as the following:

[Footnote continued on page 4]

4

refund” was in fact Beneficial’s ordinary consumer

loan service and was entirely unrelated to tax re-

funds (id. at 45a). Although Beneficial made a series

of modifications (see p. 3, n. 3, supra), this adver-

tising campaign continued to focus on the “instant

tax refund” theme despite Beneficial’s awareness

that it was being misinterpreted by consumers.

* [Continued]

Do you have a refund coming to you on your income

taxes this year? Well, there’s no need to wait weeks for

your refund check. Get the money right now—even be-

fore you mail your return—with a cash advance from

Beneficial. We call it the Instant Tax Refund, a special

service of Beneficial Finance. Instant Tax Refund. At

Beneficial you’re good for more * * *. [App. A, infra,

p. 5a.]

By February 1970, Beneficial had changed its advertise-

ments in response to confusion that had developed concern-

ing the nature of the “instant tax refund” service (Apps. A

and D, infra, pp. 5a, 44a). Beneficial continued to modify its

advertising, so that, by 1973, Beneficial’s typical radio and

television advertisement was:

ANNCR: This year, have your taxes prepared a

better way * * *

SINGERS: At Beneficial (toot, toot) * * *

ANNCR: at Beneficial Finance. Beneficial’s Income

Tax Service does your taxes by computer * * * for as

little as five dollars. And listen to Beneficial’s “Instant

Tax Refund” Plan: if you have a refund coming, you

don’t have to wait weeks for a Government check. The

instant you qualify for a loan, Beneficial will lend you

the equivalent of your refund, in cash, instantly. It’s the

“Instant Tax Refund” Plan * * * at Beneficial Finance.

The place to have your taxes done this year. [App. A,

infra, pp. 5a-6a.]}

Pe

5

In April 1973, the Federal Trade Commission is-

sued an administrative complaint against Beneficial,

charging that the Commission had reason to believe

that the “instant tax refund” advertising was an

unfair and deceptive act or practice in violation of

Section 5 of the Federal Trade Commission Act.‘

Beneficial conceded, and the Commission and the

Administrative Law Judge found, that the “in-

_ Stant tax refund” advertised by Beneficial was only

Beneficial’s ordinary consumer loan service, with nor-

mal finance charges and repayment period, and was

unrelated to tax refunds or the customer’s use of

Beneficial’s tax preparation service (App. A, infra,

p. 4a). Neither a customer’s eligibility for a tax

refund, nor the amount of any refund to which he

might be entitled, affected either his eligibility for

or the amount or terms of, a loan, both of which

depended entirely on his meeting Beneficial’s ordi-

nary credit standards. (App. D, infra, p. 45a.) The

Commission further found that the use of the words

“instant tax refund,” in even the most modified form

of Beneficial’s advertising, had the capacity and ten-

‘The complaint also alleged that other Beneficial practices

violated Section 5, including misuse of information provided

by its tax service customers, and misrepresentations concern-

ing its reimbursement policy, its competence to prepare tax

returns, and the number of customers for whom it had se-

cured refunds. Beneficial consented to entry of an order pro-

hibiting some of these practices (App. D, infra, p. 36a). The

Commission found that Beneficial had misused tax informa-

tion its customers provided and barred such misuse; the

court of appeals upheld that determination (App. A, infra,

pp. 2la-24a) and it is no longer in issue.

6:

dency to mislead the public about the true nature of

Beneficial’s loan offer, in violation of Section 5 of

the Act (Apps. A and D, infra, pp. 6a, 47a-48a).°

Both the Administrative Law Judge and the Com-

mission considered at some length the possibility of

permitting Beneficial to continue to use the slogan

with explanatory language, including that proffered

by Beneficial, but concluded that qualifying language

couid not cure the deception inherent in Beneficial’s

use of the words “instant tax refund” (App. D,

infra, pp. 54a-55a, 110a-112a, 132a-134a). The Com-

mission explained (App. D, infra, pp. 54a-55a):

In fact, since its inception in 1969, the Instant

Tax Refund phrase has deceived continuously,

and Beneficial’s repeated efforts to explain it

have not cured the false impression it leaves.

Beneficial’s inability to remedy the deception,

which persists even in the qualifying phrase it

offers on this appeal as a settlement, confirms

what we believe to be obvious. No brief lan-

guage is equal to the task of explaining the

* As the Commission found, the record demonstrated that

customers had in fact been substantially misled by Benefi-

cial’s advertising. For example, a report from Beneficial’s

advertising agency stated: “Many [customers] thought they

could simply get their government checks immediately at

Beneficial. * * * There were many loud arguments and un-

pleasantnesses * * * including one or two incidents of violence

being threatened” (App. D, infra, p. 49a). Even after

Beneficial modified its advertising to include references to

a loan, consumers testified that their “impression was that

they would pay only a small fee and that the main qualifica-

tion for the Instant Tax Refund was being due an actual

Government refund” (App. D, infra, p. 52a).

AA te Bet me eed he RD A) tO ORE wig

ONG Ot OE ete — el ye,

7

Instant Tax Refund slogan, for the phrase is

inherently contradictory to the truth of Bene-

ficial’s offer. In truth, the Instant Tax Refund

is not a refund at all, but only Beneficial’s every-

day loan service, complete with normal finance

charges and credit checks; nor is it in the least

related to any tax refunds, for the size of the

loan Beneficial wishes to sell is geared to the

customer’s credit limit instead of his govern-

ment refund and many people due a government

refund do not qualify for an Instant Tax Re-

fund loan at all; moreover, depending on the

season of the year or the customer’s sales re-

sistance, the Instant Tax Refund may be called

a Vacation loan, a Taxpayer loan, or a Bill Con-

solidation loan.

Accordingly, the Commission ordered Beneficial to

cease and desist from “[u]sing the term ‘instant tax

refund,’ or any other word or words of similar

import or meaning” in advertising its consumer loan

business (App. D, infra, p. 137a).*

The court of appeals upheld the Commission’s find-

ing that Beneficial’s advertising, even in its most

qualified form, was deceptive (App. A, infra, p. 15a).

The court, however, set aside that portion of the

Commission’s order which prohibited use of the slo-

gan “instant tax refund” or words of similar im-

port.

*The Commission noted that if Beneficial began offering

a loan service actually related to income tax refunds, it could

seek to reopen the order (App. D, infra, p. 55a). See 15 U.S.C.

45(b).

The court noted the Commission’s determination

that no qualifying language could adequately dispel

the deception inherent in Beneficial’s use of the

phrase “instant tax refund” (App. A, infra, p. 19a),

but stated that “[w]e do not believe” that. certain

examples of advertisements (which the court, but not

Beneficial, suggested) would be deceptive’ (App. A,

infra, p. 19a). The court concluded that the Com-

mission had “exceeded its remedial authority” be-

cause it failed “to consider fully the feasibility of

requiring merely that advertising copy be rewritten

in lieu of total excision of the offending language

** *” (App. A, infra, p. 19a), and remanded the

case “for further proceedings consistent with * * *

this opinion” (App. A, infra, p. 24a).

Recognizing that it was establishing a new stand-

ard of judicial review, the court stated (App. A,

infra, p. 17a):

We acknowledge of course, that we are ordi-

narily obliged to defer broadly to the Com-

mission’s exercise of informed discretion in

*The examples of permissible advertisements were as fol-

lows:

Beneficial’s everyday loan service can provide to regu-

larly qualified borrowers an Instant Tax Refund Antici-

pation Loan whether or not the borrower uses our tax

service.

or

Beneficial’s everyday loan service can provide to any

regularly qualified borrower an instant loan in antici-

pation of his tax refund. We call it an instant Tax Re-

fund Anticipation Loan. [App. A, infra, p. 19a.]

framing remedial orders that bear some rational

relationship to the removal or prevention of an

established violation. * * * But we are dealing

in this case with the government regulation of

a form of speech. The first amendment requires,

we believe, an examination of the Commission’s

action that is more searching than in other con-

texts.

The court concluded that this result was com-

pelled by Federal Trade Commission v. Royal Milling

Co., 288 U.S. 212, and Jacob Siegel Co. v. Federal

Trade Commission, 327 U.S. 608, which it read as

establishing what has become a “constitutional prin-

ciple” that the Commission cannot require excision

of a misleading trade name or advertising slogan

unless it determines that a narrower remedy would

be inadequate to correct the deception (App. A, infra,

p. 20a).

Judge Van Dusen, dissenting, noted that the Com-

mission had already fairly considered and rejected

a limited remedy, and concluded that neither the

First Amendment nor decisions under the Act re-

quire more (App. A, infra, pp. 28a-30a).

REASONS FOR GRANTING THE PETITION

1. This Court repeatedly has emphasized the broad

discretion of the Commission in formulating appro-

priate remedies to deal with unfair and deceptive acts

and practices and the limited scope of judicial review

of those orders. “The Commission has wide discre-

tion in its choice of a remedy deemed adequate to

10

cope with the unlawful practices in this area of trade

and commerce. * * * [J]udicial review is limited. It

extends no further than to ascertain whether the

Commission made an allowable judgment in its

choice of the remedy. * * * The Commission is the

expert body to determine what remedy is necessary

to eliminate the unfair or deceptive trade practices

which have been disclosed. It has wide latitude for

judgment and the courts will not interfere except

where the remedy selected has no reasonable rela-

tion to the unlawful practices found to exist” (Jacob

Siegel Co. v. Federal Trade Commission, 327 U.S.

608, 611-613; footnote omitted). See, also, Federal

Trade Commission v. Colgate-Palmolive Co., 380 U.S.

374, 394-395; Federal Trade Commission v. National

Lead Co., 352 U.S. 419, 428-429; Federal Trade Com-

mission v. Ruberoid Co., 343 U.S. 470, 473.

The Court in Siegel also held that these principles

apply to the issue in this case, namely, “whether the

Commission abused its discretion in concluding that

no change ‘short of the excision’ of the [deceptive

advertising slogan] would give adequate protection.

Federal Trade Commission v. Algoma Lumber Co.,

[291 U.S. 67] pp. 81-82” (327 U.S. at 612).

Under these principles, the court of appeals should

have upheld the Commission’s order prohibiting re-

spondent from using the advertising slogan “instant

tax refund” or similar words. Where the Commission

finds that a trade name (and, a fortiori, an advertis-

ing slogan) is inherently so deceptive that no qualify-

ing language would be adequate to correct the de-

ee ee eee ee eee ne OO ee ee Oe Ge ee ee ee Ee ee

‘ a ee ee -

11

ception, it may prohibit use of the misleading lan-

guage altogether. Thus, in Federal Trade Commis-

sion v. Algoma Lumber Co., 291 U.S. 67, this Court

upheld a Commission order prohibiting the use of the

words “California white pine” on lumber that was

botanically yellow pine. Similarly, in Resort Car

Rental System, Inc. v. Federal Trade Commission,

518 F. 2d 962 (C.A. 9), the court sustained the

Commission’s ban of the trade name “Dollar-A-Day”

by rental agencies that did not, in fact, offer auto-

mobiles for rent at a dollar per day.*

The Commission explicitly considered whether some-

thing less than elimination of the deceptive phrase

would suffice to protect the public, but justifiably con-

cluded that any lesser remedy would be inadequate.

As the Commission explained (App. D, infra, pp. 54a-

55a), “the phrase is inherently contradictory to the

truth of Beneficial’s offer,” since “the Instant Tax

Refund is not a refund at all, but only Beneficial’s

everyday loan service, complete with normal finance

charges and credit checks; nor is it in the least re-

lated to any tax refunds, for the size of the loan

Beneficial wishes to sell is geared to the customer’s

credit limit instead of his government refund and

many people due a government refund do not qualify

® See, also, Bakers Franchise Corp. v. Federal Trade Com-

mission, 302 F. 2d 258, 262 (C.A. 3); Carter Products, Inc.

v. Federal Trade Commission, 268 F. 2d 461, 498 (C.A. 9),

certiorari denied, 361 U.S. 884; United States Navy Weekly,

Ine. v. Federal Trade Commission, 207 F. 2d 17, 18 (C.A.

D.C.) ; Federal Trade Commission v. Army and Navy Trading

Co., 88 F. 2d 776 (C.A.D.C.).

12

for an Instant Tax Refund loan at all * * *.” The

inherently deceptive character of Beneficial’s use of

the words is confirmed by the fact that Beneficial

itself was unable to change the wording of the ad-

vertisements so as to dispel the confusion and mis-

understanding the words had created among Benefi-

cial’s customers. (See the Statement, swpra, pp. 4, 6).

Since, as Beneficial conceded and the Commission

found, Beneficial’s “instant tax refund” loan has no

relationship to whether a customer is entitled to a

tax refund but is “only Beneficial’s everyday loan

service” to which Beneficial applies its normal stand-

ards for making loans, the Commission reasonably

concluded that any use of those words necessarily

is inherently deceptive. For no matter how the

words may be qualified, they present a false concept:

that the availability of a Beneficial loan is related to

a customer’s right to a tax refund. The only function

those words could serve would be to fool customers

into thinking that their prospects for obtaining a

loan were enhanced if they had a tax refund coming,

which in fact is not the case.°

The present case is therefore significantly different

from Siegel, supra, and Federal Trade Commission

v. Royal Milling Co., 288 U.S. 212, upon which the

*The two advertisements that the court of appeals sug-

gested would not be deceptive (App. A, infra, p. 19a) are

subject to the same infirmity. Both of them permit use

of the words “Instant Tax Refund Anticipation Loan” even

though the availability of the loan has nothing to do with

any possible tax refund and eligibility for a refund does not

expedite or improve chances for obtaining a loan.

es ee Se dell weed Boe. =

Pine ete (Mee Bs

tel lt Hic pean thd Pinas titel ee 5. eer va whe rack See

ROW ae em

i a

13

court of appeals relied (App. A, infra, pp. 18a-20a).

In each of those cases, this Court set aside a Commis-

sion order requiring the elimination of a trade name.

In both cases, however, the rationale was that the

agency had not considered whether something less

than elimination of the offending name would cure

the deception. As the Court explained in Siegel,

where it remanded to the agency a Commission or-

der prohibiting the use of the trade name “Alpacuna”’

on coats containing no vicuna, “we are left in the

dark whether some change of name short of excision

would in the judgment of the Commission be ade

quate. Yet that is the test, as the Algoma Lumber

Co. and the Royal Milling Co. cases indicate” (327

U.S. at 613).”

Here, in contrast, the Commission fully examined

the question “whether some change of [the slogan]

short of excision would * * * be adequate,” and justi-

fiably concluded that it would not. In so ruling, the

Commission “made an allowable judgment in its

choice of the remedy” and the court of appeals should

not have “interfere[d]” by substituting its judgment

for that of the agency that “no change ‘short of

excision,’” would give adequate protection (Siegel,

supra, 327 U.S. at 612-613).

*° In Royal Milling, this Court held that the Commission had

gone “too far” in prohibiting the use of trade names contain-

ing the word “milling,” which the Commission found was

deceptive because the companies did no milling; the Court

stated that requiring qualifying language indicating that the

companies do not grind grain would suffice (288 U.S. at 217-

218). Siegel, however, also involved a deceptive trade name,

14

2. The court of appeals was of the view, however,

that different principles govern the authority of the

Commission to frame remedial orders and the scope of

judicial review of those orders when the order in-

volves “government regulation of a form of speech”

(App. A, infra, p. 17a). Although recognizing “that

we are ordinarily obliged to defer broadly to the Com-

mission’s exercise of informed discretion in framing

remedial orders that bear some rational relationship

to the removal or prevention of an established vio-

lation,” the court concluded that “[t]he first amend-

and the Court there recognized the broad discretion of the

Commission to decide whether excision of the deceptive trade

name was necessary to protect the public. Indeed, as noted,

in Siegel the Court remanded the case to the agency to deter-

mine “whether some change of name short of excision would in

the judgment of the Commission be adequate.” (327 U.S. at

613). Siegel thus itself recognizes that the Commission has the

authority to require excision of a trade name where necessary,

a principle which it stated both Royal Milling and Algoma

Lumber (see, supra, p. 18) recognize.

However, assuming arguendo that Royal Milling does

limit the Commission’s authority to prohibit use of deceptive

trade names, the agency properly declined to extend that deci-

sion to advertising slogans (App. D, infra, p. 54a, n. 6). There

are significant differences between trade names and mere ad-

vertising slogans that justify giving the Commission broader

authority to deal with the latter. A trade name identifies a

business or product in the mind of the public and its excision

necessarily eliminates whatever good will that name has de-

veloped. An advertising slogan, on the other hand, ordinarily

relates only to the qualities and characteristics of a particu-

lar product and frequently is used for only brief periods. The

impact upon a company of prohibiting a particular advertis-

ing slogan ordinarily will be far less than prohibiting use of

a trade name.

shied ali at ee eae a re WA bathe

ation.

ee

15

ment requires, we believe, an examination of the

Commission’s action that is more searching than in

other contexts”; and that the recent decisions of this

Court holding that the First Amendment protects

commercial speech" “mean that the remedy for the

perceived violation can go no further in imposing

a prior restraint on protected commercial speech

than is reasonably necessary to accomplish the re-

medial objective of preventing the violation” (App.

A, infra, pp. 17a-18a).

Even under that standard, however, the court of

appeals should have sustained the Commission’s or-

der. The Commission did not here “go * * * further

* * * than is reasonably necessary to accomplish the

remedial objective of preventing the violation” in re-

quiring excision of the advertising slogan “instant

tax refund,” since it justifiably concluded that any-

thing less would not correct the inherently deceptive

character of that slogan and its inevitable consequence

of misleading and deceiving the public.

In any event, this Court’s decisions that the First

Amendment protects commercial speech do not limit

the Commission’s power effectively to prevent decep-

tion accomplished through such speech or change the

scope of judicial review of Commission orders. In

Virginia State Board of Pharmacy v. Virginia Citi-

zens Consumer Council, Inc., 425 U.S. 748, the Court

noted that commercial speech is distinguishable from

" Virginia State Board of Pharmacy v. Virginia Citizens

Consumer Council, Inc., 425 U.S. 748; Bigelow v. Virginia,

421 U.S. 809.

16

other forms of speech (id. at 771, n. 24) and that

the First Amendment does not bar effective regula-

tion of false, misleading or deceptive advertising (id.

at 771-772; footnote omitted) :

Untruthful speech, commercial or otherwise, has

never been protected for its own sake. * * * Ob-

viously, much commercial speech is not provably

false, or even wholly false, but only deceptive or

misleading. We foresee no obstacle to a State’s

dealing effectively with this problem. The First

Amendment, as we construe it today, does not

prohibit the State from insuring that the stream

of commercial information flow cleanly as well

as freely.

See, also, Young v. American Mini Theatres, Inc., No.

75-312, decided June 24, 1976, slip op. 18, n. 31:

“The power of the Federal Trade Commission to re-

strain misleading, as well as false, statements in

labels and advertisements has long been recognized.”

3. The issue is important in the Commission’s

administration of the Federal Trade Commission Act.

A major portion of the Commission’s work under the

Act involves the elimination and prevention of false

and misleading advertising. Those objectives cannot

be achieved unless the agency has authority effectively

to deal with such advertising, which may require the

elimination of deceptive language where necessary to

protect the public. The restrictions that the court of

appeals’ decision imposes upon the Commission’s

ability to frame effective remedies in such cases and

the expanding role of the courts in reviewing those

17

orders which that decision presages would seriously «

handicap the agency’s ability properly to perform its

duties in this important aspect of its work.”

* Although the court of appeals stated that the Commission

had improperly failed “to consider fully the feasibility of re-

quiring merely that advertising copy be rewritten in lieu of

total excision of the offending language” (App. A, infra, p.

19a), it remanded the case “for further proceedings consistent

with * * * this opinion” (id. at 24a). The opinion leaves little

doubt that in the court’s view the Commission could not pro-

hibit Beneficial from using the advertising slogan “instant

tax refund,” but was limited to requiring the use of qualify-

ing language. Indeed, the court itself proposed two suggested

advertisements containing qualifying languaye which it did

“not believe” would be deceptive (id. at 19a). The opinion

did not merely remand the case to the agency to consider anew

whether something less than excision of the slogan would be

adequate to correct the deception ; the Commission already had

considered that issue and concluded that a lesser remedy would

not suffice. Accordingly, the issue presented in this petition

is now ripe for review by this Court, despite the court of

appeals’ remand of the case to the agency for further proceed-

ings.

18 la

CONCLUSION . APPENDIX A

The petition for a writ of certiorari should be UNITED STATES COURT OF APPEALS

granted. FOR THE THIRD CIRCUIT

Respectfully submitted. |

| No. 75-2102

DANIEL M. FRIEDMAN,

Acting Solicitor General.

DONALD I. BAKER,

a

RoBERT J. LEWIS, ;

General Counsel, Aerutant Atteraty € BENEFICIAL CORPORATION, a Delaware corporation,

GERALD P. NORTON, ROBERT B. NICHOLSON, | and BENEFICIAL MANAGEMENT CORPORATION,

Deputy General Counsel, * = - 7 on a Delaware corporation, PETITIONERS

JEROLD D. CUMMINS,

Acting Assistant General Counsel,

DAVID M. FITZGERALD,

Attorney,

Federal Trade Commission.

Sie de

v8.

_s

FEDERAL TRADE COMMISSION, RESPONDENT

(Federal Trade Commission No. 8922)

FEBRUARY 1977.

So | an a *

ON PETITION FOR REVIEW OF AN ORDER OF THE

FEDERAL TRADE COMMISSION

Argued June 8, 1976

Before VAN DUSEN, GIBBONS and ROSENN,

Circuit Judges

2a 3a

OPINION OF THE COURT GIBBONS, Circuit Judge

(Filed Sep. 8, 1976) We here consider a petition for review of a final

E. NORMAN VEASEY, Esq.

R. FRANKLIN BALOTTI, Esq.

RICHARDS, LAYTON & FINGER

4072 Du Pont Building

Wilmington, Delaware 19899

Attorneys for Petitioners

ROBERT J. LEWIS

General Counsel

GERALD P. NorRTON

Deputy General Counsel

GERALD HARWooD

Asst. General Counsel

WILLiaM A. E. Doyinc

Attorney

Washington, D.C. 20580

Attorneys for the

Federal Trade Commission

eee eee

sen this, erties bs Slane cea SNM bie betas ht

RIS sete api pala acne wise: Precise, Ptr 9 3h, a ee

order of the Federal Trade Commission, filed pur-

suant to 15 U.S.C. § 45(c). The order directed the

petitioner Beneficial Corporation to cease and desist

from certain practices in connection with its loan

and tax preparation businesses.’ Beneficial chal-

lenges both the Commission’s violation determinations

and the breadth of its remedy. We enforce the Com-

mission’s order in part, but vacate and remand in

part because we conclude that the order is overbroad

in one respect.

I. The Commission Proceedings

On April 10, 1973, the Federal Trade Commission

filed a complaint charging Beneficial with unfair and

deceptive trade practices in connection with the prep-

aration of income tax returns and the making of

consumer loans in the loan offices of the Beneficial

Finance System, in violation of section 5 of the Fed-

eral Trade Commission Act, 15 U.S.C. § 45. Benefi-

cial, through 1400 branches operated by wholly-owned

subsidiaries comprising the Beneficial Finance Sys-

tem, engaged in the business of making loans to

* The petitioners are Beneficial Corporation and Beneficial

Management Corporation, both of which are corporations

incorporated under the laws of Delaware with their principal

places of business in Delaware and New Jersey, respectively.

The loan offices in the Beneficial Finance System are operated

by subsidiaries of Beneficial Corporation. Both of the peti-

tioners will be referred to collectively as “Beneficial”.

4a

members of the public based on their credit-worthi-

ness. In the spring of 1969 Beneficial decided to go

into the business of income tax return preparation.

Because of developments in computer technology,

Beneficial’s loan officers were able to gather the in-

formation necessary for a computer to prepare tax

returns accurately and at reasonable cost. The deci-

sion to enter the tax return preparation business was

based on the belief that customers for the service

who needed funds to pay the tax found to be due

would find it convenient to borrow such funds from

Beneficial. It soon became apparent, however, that

most such customers would actually receive tax re-

funds. Beneficial decided to advertise a loan provid-

ing for an immediate use of money in anticipation

of the tax refund, thus eliminating the wait for a

refund check from the government. The Commission

and Beneficial agreed that the tax refund loan is

nothing other than Beneficial’s usual loan service,

based on the credit-worthiness of the borrower as to

which the anticipated tax refund may have no bear-

ing. The parties differed on (1) whether the adver-

tising of the loan deceived customers as to its nature,

and (2) whether Beneficial improperly used the tax

information it obtained in its tax return preparation

service to solicit customers for loans. After an evi-

dentiary hearing an administrative law judge on

October 21, 1974, found Beneficial to be in violation

in both respects. The Commission affirmed this deci-

sion on July 15, 1975, and entered a cease and desist

order which, among other things, prohibited Bene-

Pa he hee As a

alae’.

ficial from using in its copyrighted advertising the

term “ ‘instant tax refund,’ or any other word or

words of similar import or meaning,” and from using

customer tax information in loan solicitations except

under prescribed conditions.

The evidence before the administrative law judge

established that Beneficial’s 1969 and early 1970 ad-

vertising typically used a text such as the following:

“Do you have a refund coming to you on your

income taxes this year? Well, there’s no need

to wait weeks for your refund check. Get the

money right now—even before you mail your

return—with a cash advance from Beneficial.

We call it the Instant Tax Refund, a special

service of Beneficial Finance. Instant Tax Re-

fund. At Beneficial you’re good for more... .”

By February 1970 Beneficial added a reference to a

loan, and to the fact that the customer would have

to qualify for that loan. There were additional modi-

fications and qualifications with the result that Bene-

ficial’s radio and television advertisements at the

time of the Commission’s order typically were like

the following:

“ANNCR: This year, have your taxes pre-

pared a better way...

SINGERS: At Beneficial (toot, toot) ...

ANNCR: At Beneficial Finance. Beneficial’s

Income Tax Service does your taxes by computer

. . » for as little as five dollars. And listen to

Beneficial’s ‘Instant Tax Refund’ Plan: if you

have a refund coming, you don’t have to wait

weeks for a Government check. The instant you

6a

qualify for a loan, Beneficial will lend you the

equivalent of your refund, in cash, instantly.

It’s the ‘Instant Tax Refund’ Plan .. . at Bene-

ficial Finance. The place to have your taxes done

this year.”

The Commission concluded that both the original ad-

vertising and the modified copy were false and mis-

leading, and that the proper remedy was a total pro-

hibition against the use of the copyrighted terms

“Instant Tax Refund Plan” or “Instant Tax Refund

Loan”, no matter how qualified by the preceding or

following text.

The evidence before the administrative law judge

also established that from late 1969, when it started

its tax return preparation business, until December

1971, Beneficial routinely used information obtained

from its tax return customers for the purpose of

soliciting loans. Indeed, the generation of loan busi-

ness was the principal motivation underlying the de-

cision to expand into the tax return preparation busi-

ness. On December 10, 1971, § 316 of the Revenue

Act of 1971, 26 U.S.C. § 7216, was enacted, effective

January 1, 1972. Subject to exceptions not material

here, § 7216(a) provides

General rule-—Any person who is engaged in

the business of preparing, or providing services

in connection with the preparation of returns

of the tax imposed by chapter 1, or declarations

or amended declarations of estimated tax under

section 6015, or any person who for compensa-

tion prepares any such return or declaration for

any other person, and who—

1 aA Saleh Wateate” Gey Ailaaba Nes (dE Dati le ba elle en ge ea SY Bia ta ei ee TL ee Se Sa

Ae Prt Br al SS ET Lcd an Poo tee

Ta

(1) discloses any information furnished

to him for, or in connection with, the prep-

aration of any such return or declaration,

or

(2) uses any such information for any

purpose other than to prepare, or assist in

preparing, any such return or declaration,

shall be guilty of a misdemeanor, and, upon con-

viction thereof, shall be fined not more than

$1,000, or imprisoned not more than 1 year, or

both, together with the costs of prosecution.

This statute establishes a general prohibition against

the disclosure or use for non-tax purposes of tax

information gathered by a tax preparer like Benefi-

cial. Treasury regulations adopted in 1974 under

the authority of § 7216(b) (3), however, permit’ the

2 (2) Written consent to use or disclosure—(i)_ Solici-

tation of other business. (i) If a tax return preparer has

obtained from the taxpayer a consent described in para-

graph (b) of this section, he may use the tax return infor-

mation of such taxpayer to solicit from the taxpayer

any additional current business, in matters not related to

the Internal Revenue Service, which the tax return pre-

parer provides and offers to the public. The request for

such consent may not be made later than the time the tax-

payer receives his completed tax return from the tax

return preparer. If the request is not granted, no follow

up request may be made. This authorization to use the

tax return information of the taxpayer does not apply,

however, for purposes of facilitating the solicitation of the

taxpayer’s use of any services or facilities furnished by

a person other than the tax return preparer, unless

such other person and the tax return preparer are mem-

bers of the same affiliated group within the meaning of

section 1504. Thus, for example, the authorization would

8a

use of such information with the customer’s written

consent.’ The new law compelled Beneficial to alter

not apply if the other person is a corporation which is

not affiliated with the tax return preparer within the

meaning of section 1504(a). Moreover, this authorization

does not apply for purposes of facilitating the solicitation

of additional business to be furnished at some indefinite

time in the future, as, for example, the future sale of

mutual fund shares or life insurance, or the furnishing of

future credit card services. It is not necessary, however,

that the additional business be furnished in the same

locality in which the tax return information is furnished.

Treas. Reg. § 301.7216-3(a) (1974).

* The form of consent is specitied and illustrated in Treas.

Reg. § 301.7216-3(b)-(c) (1974):

(b) Form of consent. A separate written consent,

signed by the taxpayer or his duly authorized agent or

fiduciary, must be obtained for each separate use or dis-

closure authorized in paragraph (a)(1), (2) or (3) of

this section and shall contain—

(1) The name of the tax return preparer,

(2) The name of the taxpayer,

(3) The purpose for which the consent is being

furnished,

(4) The dates on which such consent is signed,

(5) A statement that the tax return information

may not be disclosed or used by the tax return preparer

for any purpose (not otherwise permitted under

§ 301.7216-2) other than that stated in the consent, and

(6) A statement by the taxpayer, or his agent or

fiduciary, that he consents to the disclosure of use of

such information for the purpose described in subpara-

graph (3) of this paragraph.

(c) Illustrations. The application of this section may

be illustrated by the following examples:

Example (1). In order to stimulate the making of

loans, a bank advertises that it is in the business of

Dre 80 ee, en Ph SET NID

ad eek! te aby hea oP a et ciel) Rl nd Cae a

9a

its solicitation practices. In attempting to comply

with the requirements, Beneficial adopted a Form

BOR-56, reproduced in the margin in its entirety,‘

preparing tax returns. A taxpayer goes to the bank

to have his tax return prepared. After the return

has been completed by the bank, the employee of the

bank who obtained the tax return information from

the taxpayer explains that the taxpayer owes an ad-

ditional $400 in taxes and that the bank’s loan de-

partment may be able to offer the taxpayer a loan

to pay the tax due. If the taxpayer decides to accept

the opportunity offered to apply for a loan, the bank

must first have the taxpayer execute a written con-

sent described in paragraph (b) of this section for

the bank to use any of such information which is re-

quired in determining whether to make the tax loan.

AUTHORIZATION

TO

I hereby authorize and request you to use my name and

address for the purpose of soliciting me in connection

with any business in which you or your associated com-

panies or affiliated corporations may engage. Further-

more, I acknowledge that this and any other information

which may appear in any loan or finance application by

me or on my behalf or in any loan or finance statement

or information form, given in connection therewith, was

not given to you for the purpose of preparing any tax

return on my behalf.

Dated:

Signature

Name (Print)

Address

City State Zip

10a

and required that its loan officers first procure a tax

return customer’s signature on that form before so-

liciting the customer for a loan. The Commission

held that the pre-1972 use of tax information for

loan solicitations was an unfair and deceptive trade

practice amounting to an abuse of a confidential re-

lationship, in violation of § 5. It also held that Form

BOR-56 was inadequate as an informed consent.

Without deciding whether Beneficial’s present prac-

tices violated the Revenue Act of 1971, the Commis-

sion held that those practices continued to violate § 5

and entered an order prohibiting Beneficial from:

“7. Using information concerning any cus-

tomers of respondents, including the name and/

or address of the customer, for any purpose

which is not essential or necessary to the prepa-

ration of a tax return if such information was

obtained by respondents as a result of the prepa-

ration of the customer’s tax return which in-

cludes any information given by the customer

after he has indicated, in any way, that he is

interested in utilizing respondents’ tax prepara-

tion services, unless prior to obtaining such in-

formation respondents have both (1) specifically

requested from the customer the right to use the

tax return information of the customer and (2)

have executed a separate written consent signed

by the customer which shall contain:

1. Respondent’s name

2. The name of the customer

3. The specific purpose for which the con-

sent is being signed

tote a I iE EME LI SANE Sidd e tie ek PASI ss iS he DE Tit at RET WN ala ed ai habe Se niin ncaa thd ate Shae io igh siai Root Seren

lla

4. The exact information which will be

used

5. The particular use which will be made

of such information

6. The parties or entities to whom the in-

formation will be made available

7. The date on which such consent is signed

8. A statement that the tax return infor-

mation may not be used by the tax re-

turn preparer for any purpose other

than that stated in the consent, and

9. A statement by the taxpayer that he con-

sents to the use of such information for

the specific purpose described in sub-

paragraph (3) of this paragraph;

Provided, however, that nothing herein shall

prohibit respondents from using names and ad-

dresses only of customers for the purpose of

communication with such customers solely con-

cerning respondents’ income tax preparation

business.

Nothing in the above provision is intended to

relieve respondents of any further requirements

imposed on them by the Revenue Act of 1971,

Pub. L. 92-178, title III, § 316(a), December 10,

1971; 26 U.S.C. § 7216 or regulations issued

pursuant to it.”

The instant petition for review followed the Com-

mission’s decision and order.

12a

II. Deceptive Advertising

A.

At the outset, Beneficial contends that the Com-

mission’s finding that its “Instant Tax Refund” ad-

vertising campaigns were deceptive lacks evidentiary

support, and that in the absence of such a finding,

supported by record evidence, no order could properly

have been entered respecting its advertising. Section

5(c) of the Act, 15 U.S.C. § 45(c), provides that

“t]he findings of the Commission as to the facts,

if supported by evidence, shall be conclusive” upon

review in the Courts of Appeals. The law is clear

that properly interpreted, the statute requires re-

view by the substantial evidence in the record as a

whole standard.’ The parties agree that the tendency

of the advertising to deceive must be judged by view-

ing it as a whole, without emphasizing isolated words

or phrases apart from their context. An intent to

deceive is not an element of a deceptive advertising

’ See, e.g., Adolph Coors Co. v. FTC, 497 F.2d 1178, 1184

(10th Cir. 1974) cert. denied, 419 U.S. 1105 (1975) ; Ameri-

can Cynamid Co. v. FTC, 363 F.2d 757, 772 (6th Cir. 1966) ;

Continental Wax Corp. v. FTC, 330 F.2d 475, 477 (2d Cir.

1964); Regina Corp. v. FTC, 322 F.2d 765, 768 (3d Cir.

1963) ; Snap-On Tools Corp. v. FTC, 321 F.2d 825, 835 (7th

Cir. 1963) ; Carter Products, Inc. v. FTC, 268 F.2d 461, 493

(9th Cir.), cert. denied, 361 U.S. 884 (1959). See also FTC

v. Colgate-Palmolive Co., 380 U.S. 374, 386 n.14 (1968) (cit-

ing Universal Camera Corp. v. NLRB, 340 U.S. 474 (1951) ).

* See, e.g., FTC v. Sterling Drug, Inc., 317 F.2d 669, 674

(2d Cir. 1963); Aronberg v. FTC, 132 F.2d 165, 167 (7th

Cir. 1943).

13a

charge under § 5.” Moreover, the FTC has been sus-

tained in finding that advertising is misleading even

absent evidence of that actual effect on customers;

the likelihood or propensity of deception is the cri-

terion by which advertising is measured.* Whether

particular advertising has a tendency to deceive or

mislead is obviously an impressionistic determina-

tion more closely akin to a finding of fact than to a

conclusion of law. Cf. FTC v. Colgate-Palmolive Co.,

380 U.S. 374, 385 (1965). At the same time, evi-

dence that some customers actually misunderstood

the thrust of the message is significant support for

the finding of a tendency to mislead.

The initial advertising quoted above (1969-early

1970) did not indicate, at least in words, that the

offered “advance” was actually a loan, that the cus-

tomer would have to meet regular standards of credit-

worthiness, or that if the customer had a satisfac-

tory credit rating, he could obtain a Beneficial loan

even though he was not a tax return preparation

customer. Beneficial’s own advertising agency re-

ported that the initial campaign resulted in fairly

widespread public confusion as to the nature of the

“refund” being offered. The Commission concluded:

* Regina Corp. v. FTC, 322 F.2d 765, 768 (3d Cir. 1963).

* Bankers Security Corp. v. FTC, 297 F.2d 403, 405 (3d

Cir. 1961); Resort Car Rental Sys. v. FTC, 518 F.2d 962,

964 (9th Cir. 1974) (per curiam) ; Montgomery Ward & Co.

v. FTC, 379 F.2d 666 (7th Cir. 1967) ; Feil v. FTC, 285 F.2d

879, 896 (9th Cir. 1960).

*

l4a

“The early Instant Tax Refund advertising

is, on its face, totally misleading about the true

nature of Beneficial’s offer. Instead of making

clear that Beneficial is simply offering its every-

day loan service, the advertising implies that

Beneficial will give a special cash advance to

income tax preparation customers with a govern-

ment refund due, in the amount of their refund.

The natural impression, since the Instant Tax

Refund is stressed as exclusive and special is

that this cash advance is different from a normal

consumer loan.”

This finding is supported by substantial evidence.

While not conceding the validity of the Commission’s

finding with respect to the initial advertising, Bene-

ficial does not seriously dispute that we must accept

it. It contends, however, that because the early text

was soon abandoned with no prompting from the

Commission, the finding cannot support a cease and

desist order. But this and other courts have held

that at least where a discontinued deceptive trade

practice could be resumed, the prior practice may be

the subject of a cease and desist order.’ Here the

Commission’s complaint was not filed until three

years after the early advertising was discontinued,

and there is no evidence from which the Commission

could infer that it would in the early form be re-

peated. Beneficial urges that the entry of a cease

*Hershey Chocolate Corp. v. FTC, 121 F.2d 968, 971-72

(3d Cir. 1941); P. F. Collier & Son Corp. v. FTC, 427 F.2d

261, 271-72 (6th Cir.), cert. denied, 400 U.S. 926 (1970);

Feil v. FTC, 285 F.2d 879, 886 n.15 (9th Cir. 1960).

15a

and desist order in such circumstances, based solely

on the early violations, would amount to an abuse

of discretion.”

We need not decide that issue in this case, how-

ever, for we conclude that the Commission’s finding

that even the later advertising had a tendency to

deceive or mislead has a sufficient evidentiary sup-

port in the record as a whole. The testimony of some

consumers, credited by the Commission, was that

during the later period they failed to understand that

Beneficial was offering only its normal loan service

with normal finance charges. Their impression was

that the main qualification for the Instant Tax Re-

fund loan was entitlement to an actual government

refund. These consumers may well have been singu-

larly dense.“ They were, nevertheless, a part of the

%” See Rodale Press, Inc. v. FTC, 407 F.2d 1252 (D.C. Cir.

1968); FTC v. Civil Service Training Bureau, 79 F.2d 113

(6th Cir. 1935); John C. Winston Co. v. FTC, 3 F.2d 961

(3d Cir.), cert. denied, 269 U.S. 555 (1925). But see C.

Howard Hunt Pen Co. v. FTC, 197 F.2d 273, 281 (3d Cir.

1952).

1 =6h “The general public has been defined as ‘that vast

multitude which includes the ignorant, and unthinking

and the credulous, who, in making purchases, do not stop

to analyze but too often are governed by appearances

and general impressions.’ The average purchaser has

been variously characterized as not ‘straight thinking,’

subject to ‘impressions,’ uneducated, and grossly misin-

formed; he is influenced by prejudice and superstitution ;

and he wishfully believes in miracles, allegedly the result

of progress in science .. . . The language of the ordinary

purchaser is casual and unaffected. He is not an ‘expert

in grammatical construction’ or an ‘educated analytical

16a

audience te which the advertisements were directed.

We cannot second guess the Commission’s finding re-

specting the later advertising. FTC v. Colgate-Pal-

molive Co., supra; Fedders Corp. v. FTC, 529 F.2d

1398, 1403 (2d Cir. 1976), petition for cert. filed,

44 US.L.W. 3652 (U.S. Apr. 19, 1976). Thus

whether or not the Commission could have acted

solely on the basis of the earlier advertising, it cer-

tainly did not abuse its discretion in concluding that

some remedy was still appropriate since the confu-

sion persisted.

B.

Both the administrative law judge and the Com-

mission concluded that the only appropriate remedy

for the violation found was a total ban on the use

of the Instant Tax Refund phrase or any words of

similar import. Beneficial contends that explanatory

words could cure any tendency to mislead, and that

an order forcing it to abandon entirely its copyright-

ed and heavily promoted phrase is unwarranted. The

Commission reasoned:

“No brief language is equal to the task of ex-

plaining the Instant Tax Refund slogan, for the

phrase is inherently contradictory to the truth

of Beneficial’s offer. In truth, the Instant Tax

Refund is not a refund at all, but only Benefi-

reader’ and, therefore, he does not normally subject

every word in the advertisement to careful study.”

1 Callman, Unfair Competition and Trademarks § 19.2

(a) (1), at 341-44 (1950) quoted in FTC v. Sterling

Drug, Inc., 317 F.2d 669, 674 (2d Cir. 1963).

17a

cial’s everyday loan service . . .; nor is it in the

least related to any tax refunds, for the size of

the lean Beneficial wishes to sell is geared to

the customer’s credit limit instead of his govern-

ment refund and many people due a government

refund do not qualify for an Instant Tax Re-

fund loan at all... .”

We do not believe that the Commission’s conclusion

as to the capacity of qualifying language to apprise

Beneficial’s audience of the true nature of the oifered

service can be sustained. We acknowledge, of course,

that we are ordinarily obliged to defer broadly to

the Commission’s exercise of informed discretion in

framing remedial orders that bear some rational re-

lationship to the removal or prevention of an estab-

lished violation. See FTC v. National Lead Co., 352

U.S. 429 (1957); FTC v. Colgate-Palmolive Co.,

supra; Windsor Distributing Co. v. FTC, 437 F.2d

443, 444 (3d Cir. 1971) (per curiam); Conswmer

Products of America, Inc. v. FTC, 400 F.2d 930, 933

(3d Cir. 1968). But we are dealing in this case with

the government regulation of a form of speech. The

first amendment requires, we believe, an examina-

tion of the Commission’s action that is more search-

ing than in other contexts.

It is now established beyond dispute that there is

no commercial speech exception to the first amend-

ment. See Virginia State Board of Pharmacy v. Vir-

ginia Citizens Consumer Council, Inc., 44 U.S.L.W.

4686 (U.S. May 24, 1976); Bigelow v. Virginia, 421

U.S. 809 (1975); see also Young v. American Mini

18a

Theatres, Inc., 44 U.S.L.W. 4999 (U.S. June 24,

1976). That does not mean that an advertiser may

engage in speech that is an essential part of a scheme

to violate an otherwise valid law. Pittsburgh Press

Co. v. Pittsburgh Commission on Human Relations,

413 U.S. 376, 388 (1973). It does mean that the

remedy for the perceived violation can go no further

in imposing a prior restraint on protected commer-

cial speech than is reasonably necessary to accom-

plish the remedial objective of preventing the viola-

tion. See, e.g., United States v. O’Brien, 391 U.S.

367, 382 (1968); New Jersey State Lottery Commis-

sion v. United States, 491 F.2d 219 (3d Cir. 1974)

(en banc), vacated as moot, 417 U.S. 907 (1975);

Veterans & Reservists For Peace in Vietnam v. Re-

gional Commissioner of Customs, 459 F.2d 676 (3d

Cir.), cert. denied, 409 U.S. 933 (1972); Linmark

Associates, Inc. v. Township of Willingboro, No. 75-

1448, at 49-54 (3d Cir. 1976) (Gibbons, J., dissent-

ing).

Even before the demise of Valentine v. Chresten-

sen, 316 U.S. 52 (1942), was heralded in Virginia

State Board of Pharmacy v. Virginia Citizens Con-

sumer Council, Inc., supra, and Bigelow v. Virginia,

supra, the Supreme Court held that the Federal

Trade Commission abused its discretion in ordering

the excision from advertising of a valuable business

asset like a trade name without considering whether

modification of the message could eliminate the ob-

jectionable portion. Jacob Siegel Co. v. FTC, 327

19a

U.S. 608 (1946); FTC v. Royal Milling Co., 288

U.S. 212 (1933). The Second Circuit has said that

where qualifying explanatory language does not in-

herently contradict the advertiser’s identifying lan-

guage it should be accepted in preference to requir-

ing excision. Elliott Knitwear, Inc. v. FTC, 266 F.

2d 787, 790 (2d Cir. 1959). The Commission at-

tempts to distinguish these authorities on the ground

that no combination of words in which “instant” and

“refund” appear in a proximate relationship can

avoid conveying the impression that Beneficial is of-

fering an instant tax refund from the government

rather than an instant loan. We do not believe that

the following examples convey that impermissible

impression :

“Beneficial’s everyday loan service can pro-

vide to regularly qualitied borrowers an Instant

Tax Refund Anticipation Loan whether or not

the borrower uses our tax service.”

or

“Beneficial’s everyday loan service can pro-

vide to any regularly qualified borrower an in-

stant loan in anticipation of his tax refund. We

call it an Instant Tax Refund Anticipation

Loan.”

In failing to consider fully the feasibility of re-

quiring merely that advertising copy be rewritten in

lieu of total excision of the offending language, the

Commission would appear to have exceeded its re-

medial authority under §5 as shaped by the Jacob

Siegel-Royal Milling line of cases. The Commission’s

20a

opinion dealt with the Royal Milling case in a foot-

note:

“Though we believe the Royal Milling line of

cases is compatible with our normal responsi-

bility to enter effective but not overbroad orders,

to the extent it may actually be a limitation or

exception to the Commission’s authority to de-

vise fully effective remedies, then we decline to

expand the exception from trade names to ad-

vertising slogans.”

We reject the limiting construction that the Com-

mission attaches to Royal Milling. This conclusion

is based in part upon the difficulty we have in accept-

ing the Commission’s differentiation between trade

names and copyrighted advertising material—a dis-

tinction without a difference in the spirit of Royal

Milling. The conclusion is reached not unmindful of

the long shadow cast by the first amendment, how-

ever, for doubtless the Commission’s broad construc-

tion of its §5 remedial authority cannot survive the

demise of the commercial speech exception to the first

amendment. While Royal Milling in terms merely

describes a statutory limitation upon the Commis-

sion’s remedial power in a particular class of cases,

the rule it announced has subsequently evolved into

a general statement of constitutional principle.

The Commission, like any governmental agency,

must start from the premise that any prior restraint

is suspect, and that a remedy, even for deceptive ad-

vertising, can go no further than is necessary for

the elimination of the deception. The Commission’s

2la

order proscribing use of the term instant tax refund

or any other word or words of similar import or

meaning, without consideration of the context in

which the words appear, went further than was per-

mitted for that purpose and was an abuse of the

Commission’s remedial discretion. It cannot in that

form and without such consideration be affirmed or

enforced.

III. The Tax Information Use Violation.

In its complaint the Commission charged that the

retention and use of the customer tax information

violated §5 in two respects. First, it charged that

the special relationship between a tax return pre-

parer and a customer had the capacity and tendency

to mislead the customer into the erroneous and mis-

taken belief that the information provided would

be used solely for the preparation of the tax return

and would remain confidential. Thus the failure to

disclosed anticipated use in loan solicitation was said

to be a false, misleading and deceptive practice in-

juring the customers. Secondly, the Commission

charged that because Beneficial had competitors in

the tax return preparation business, from whom

business could be diverted, the failure to disclose an-

ticipated use of the tax information in loan solicita-

tions was an unfair method of competition.

Beneficial does not contend that the use of the tax

information in loan solicitation, absent § 316 of the

Revenue Act of 1971, is a subject matter beyond the

reach of the Commission’s §5 authority. Rather, it

22a

contends that the latter statute and the Treasury

Regulations issued thereunder preempt the field, that

it is now in full compliance with those regulations,

and that the Commission’s order requiring more is

invalid. While admitting that § 5 originally gave the

Commission authority to find unfair trade practices

in relation to tax preparation services, Beneficial ar-

gues that §316 was intended by Congress to cir-

cumscribe that power. Nothing on the face of § 316

supports that construction, and we have been re-

ferred to no legislative history which would tend to

suggest such an intention.” The criminal prohibition

in §316 appears to be directed at preserving the

confidentiality of tax return information except un-

der specified circumstances. Enforcement under § 5

of the Federal Trade Commission Act, in contrast, is

aimed at preventing unfair and deceptive acts and

practices. There is nothing inconsistent between the

two policies, and there is no reason for attributing

to Congress the intention of reducing the Commis-

sion’s power to prevent deception or unfairness. If

the Commission had directed conduct which is incon-

sistent with the confidentiality policy of § 316, we

could understand Beneficial’s objection. But in this

case the Commission is pursuing a separate govern-

mental objective in a manner wholly consistent with

that policy. That the Commission’s order goes beyond

122The House, Senate, and House Conference Reports on

the Revenue Act of 1971 are reproduced in 1971 U.S. Code

Cong. & Admin. News 1825-2079. There does not appear to

be any discussion of § 316 in any of these reports.

23a

the requirements of Treasury Regulation 301.7216-3

in several insignificant respects seems to us unex-

ceptionale. Nor does Beneficial’s contention * that the

Internal Revenue Service has approved its Form

BOR-56 change our view. Assuming such approval,

nothing in the Revenue Act of 1971 or any other

statute confers on the Internal Revenue Service au-

thority to determine what is an appropriate remedy

for a violation of §5 of the Federal Trade Commis-

sion Act.

The Commission’s finding that Beneficial’s prac-

tices, both prior to the enactment of § 316 and there-

after, were misleading because of the failure of

Form BOR-56 to adequately disclose the nature and

purpose of the waiver of confidentiality is supported

by substantial evidence in the record as a whole.

The remedial order, which permits Beneficial to so-

licit tax return customers for loan business, only

requires the observance of certain procedural formali-

ties. Items (1), (2), (8), (7), and (8) and (9)

duplicate the six requirements of the Treasury Reg-

ulation. The additional items required to be disclosed

are:

4. The exact information which will be used.

5. The particular use which will be made of

such information.

6. The parties or entities to whom the infor-

mation will be made available.

8 That contention is disputed by the Commission as un-

supported by the evidence. We need not resolve that dispute.

24a

These additional requirements are rationally related

to the unfair practices which the Commission found.

We cannot in these circumstances hold that the Com-

mission abused its discretion in fashioning the remedy

it did.

IV. Conclusion

The petition for review will be granted insofar

as the Commission’s order requires total excision of

the words “Instant Tax Refund” from all Beneficial

advertising. That part of the order will be set aside

and the case remanded to the Commission for further

proceedings consistent with Part IIB of this opinion.

In all other respects the petition for review will be

denied. |

To THE CLERK:

PLEASE FILE THE FOREGOING OPINION.

Circuit Judge

Se —

25a

VAN DUSEN, Circuit Judge, dissenting and concur-

ring in part:

I respectfully dissent from part II-B of the ma-

jority opinion,’ which states that the Commission

did not consider whether modification of the message

advertised could eliminate the objectionable, decep-

tive portion of such message. The majority opinion

overlooks this language of the Commission’s opinion

(part II-C) :

“The law judge’s order bans the use of the

Instant Tax Refund phrase or similar words.

He found no qualifying language could remedy

The majority apparently does not challenge the following

findings of the Commission, which are supported by substan-

tial evidence on the whole record (1193a) :

“In truth, it is admitted, what Beneficial is offering

is its everyday loan service. The Instant Tax Refund

is not a refund at all but a personal consumer loan, with

regular finance charges, costs, and repayment period.

. . . Such a loan is always available to anyone meeting

Beneficial’s credit standards, whether or not the cus-

tomer is owed a tax refund by the government, but

Beneficial will not make any loan to a person failing to

meet its credit standards, even if the customer is due a

government refund. The size of the loan Beneficial

wishes to sell is not related to any tax refund, but to the

customer’s credit limit.” [References to record omitted.]

The testimony of more than five consumers, credited by the

Commission, was that they were misled during the later

period and “failed to understand that Beneficial was offering

only its normal loan service with normal finance charges”

(majority opinion at 12). As stated by the majority, “[t]heir

impression was that the main qualification for the Instant

Tax Refund loan was entitlement to an actual government

refund.”

26a

the deception and that only purging Beneficial’s

advertisements of the phrase would suffice. Bene-

ficial vigorously contends that explanatory lan-

guage could cure any fault and that forced aban-

donment of its copyrighted and heavily promoted

phrase is unwarranted.

“In some instances, it is true, respondents

have been allowed to retain trade names which

had become valuable business assets, because the

misleading qualities of the names could be dis-

pelled by explanation. . . . If explanatory lan-

guage is insufficient to qualify a deceptive trade

name or is inherently contradictory, its effect is

simply to confuse the public and the Commission

in framing a proper remedy must excise the

offending phrase altogether. [Citations omitted. ]

Moreover, the Commission has wide latitude in

judgment, particularly in determining whether

qualifying words will eliminate a deceptive trade

name. ...

“In light of these principles, we see no reason

for allowing Beneficial to retain the offending

slogan. The Instant Tax Refund advertisements,

we have held, have the capacity and tendency to

mislead and have in fact misled consumers. In

fact, since its inception in 1969, the Instant Tax

Refund phrase has deceived continuously, and

Beneficial’s repeated efforts to explain it have

not cured the false impression it leaves. Bene-

ficial’s inability to remedy the deception, which

persists even in the qualifying phrase it offers

on this appeal as a settlement, confirms what

we believe to be obvious. No brief language is

equal to the task of explaining the Instant Tax

Refund slogan, for the phrase is inherently con-

27a

tradictory to the truth of Beneficial’s offer. In

truth, the Instant Tax Refund is not a refund

at all, but only Beneficial’s everyday loan serv-

ice, complete with normal finance charges and

credit checks; nor is it in the least related to

any tax refunds, for the size of the loan Bene-

ficial wishes to sell is geared to the customer’s

credit limit instead of his government refund

and many people due a government refund do

not qualify for an Instant Tax Refund loan at

all; moreover, depending on the season of the

year or the customer’s sales resistance, the In-

stant Tax Refund may be called a Vacation loan,

a Taxpayer loan, or a Bill Consolidation loan.

* * ®

“Beneficial argues that excision of the Instant

Tax Refund slogan and words of similar import

would prevent any reference to the concept of

tax refund loans. This is quite true. The record

is absolutely clear that, in Beneficial’s business

at least, no such concept exists. If, however,

Beneficial should begin offering a special loan

service actually related in some way to income

tax refunds, it may seek to reopen the order.

For now we believe the absolute prohibition

necessary.” [Footnotes omitted.] (1198a-1200a)

I do not believe that the advertisements suggested

at page 16 of the majority opinion would make it

clear to these consumers that the loan being offered

is an everyday consumer loan having no relationship

to tax refunds and no special features. Furthermore,

on this record I believe the Commission was entitled

to conclude that the words “tax refund loan” in-

28a

herently contradict the idea of an everyday loan un-

related to refunds. The words “tax refund” imply

something free and “unique” and the word “Antici-

pation” in the court-suggested advertisements might

only underline the non-existent relationship between

the loan and any refund. It is noted that the Com-

mission gave Beneficial the right to reopen its order

if a relationship between tax refunds and the loans

was shown to exist in future advertisements (see

page 2 above).

Given the Commission’s consideration of the pcs-

sibility of a lesser remedy, its broad discretion, and

Beneficial’s inability to produce an advertisement

which was not misleading, I believe the excision or-

der should be sustained. See Baker’s Franchise

Corp. v. FTC, 302 F. 2d 258, 262 (8d Cir. 1962),

where this court said: “The matter of the choice of

remedy is one for the Commission.” See also cases

cited at the top of page 14 of the majority opinion.

At the least, I believe the Commission in the first

instance should be permitted to consider any new

advertisements using the Instant Tax Refund lan-

guage before they are used.

I would affirm the conclusion reached in part II-C

of the Commission’s opinion in view of these legal

principles adopted by the Supreme Court of the United

States:

A. The Commission may prohibit statements which,

though literally true, are potentially deceptive.

Although it is now clear that commercial speech

enjoys “some” First Amendment protection, the Su-

preme Court has been careful to state that “regula-

tory commissions may prohibit businessmen from

making statements which, though literally true, are

potentially deceptive.” Young v. American Mini

Theatres, Inc., 44 U.S.L.W. 4999, 5004 and n. 31

(U.S., June 24, 1976); see Virginia State Board of

Pharmacy v. Virginia Citizens Consumer Council,

Inc., 44 U.S.L.W. 4686, 4693 and n. 24 (U.S., May

24, 1976), where the Court said: “The First Amend-

ment, as we construe it today, does not prohibit the

State from insuring that the stream of commercial

information flows cleanly as well as freely.”

In Young v. American Mini Theatres, Inc., supra

at 5004 n. 31, the Court stated: “The power of the

Federal Trade Commission to restrain misleading, as

well as false, statements in labels and advertise-

ments has long been recognized [citing cases].”

B. The federal courts are limited in their right to

review the exercise by an administrative agency

of its discretion.

In Jacob Siegel Co. v. Federal Trade Commission,

327 U.S. 608 (1946), the Court repeatedly emphasized

the “limited” scope of our review of Commission

discretion. In Siegel, the record did not indicate

whether a remedy short of excision had been con-

sidered or would be adequate. The Court declined to

30a

hold that excision was inappropriate and simply re-

manded for consideration of a more limited remedy.

See also Federal Trade Commission v. Algoma Lum-

ber Co., 291 U.S. 67 (1934) (upholding an excision

order).

Here the Commission has considered and rejected

a more limited remedy, and the Siegel case states at

page 613 that: “The courts will not interfere ex-

cept where the remedy selected has no reasonable

relation to the unlawful practices found.”

Applying the standard enunciated in Jacob Siegel,

which appears to survive the demise of the former

commercial speech doctrine, I believe the choice of

the remedy of total excision was permissible on this

record.

In all other respects, I concur in the majority

opinion.

3la

APPENDIX B

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 75-2102

BENEFICIAL CORPORATION, a Delaware corporation

and BENEFICIAL MANAGEMENT CORPORATION,

a Delaware corporation, PETITIONERS

v8.

FEDERAL TRADE COMMISSION, RESPONDENT

(Federal Trade Commission No. 8922)

ON PETITION FOR REVIEW OF AN ORDER OF THE

FEDERAL TRADE COMMISSION

JUDGMENT

Present: VAN DUSEN, GIBBONS and ROSENN,

Circuit Judges

This cause came to be heard on the record from the

Federal Trade Commission and was argued by coun-

sel.

On consideration whereof, it is now here ordered

and adjudged by this Court that the petition for re-

view is granted insofar as the Order of the Federal

Trade Commission entered July 15, 1975, requires

total excision of the words “Instant Tax Refund”

from all Beneficial advertising, and it is further or-

dered that such part of said order is set aside and

the cause remanded to the Federal Trade Commission

for further proceedings consistent with Part II B

of the opinion of this Court. In all other respects, the

petition for review is denied.

ATTEST:

/3/ Thomas F. Quinn

Clerk

September 8, 1976

sda

APPENDIX C

No. 75-2102

BENEFICIAL CORPORATION, a Delaware corporation

and BENEFICIAL MANAGEMENT CORPORATION,

a Delaware corporation, PETITIONERS

v8.

FEDERAL TRADE COMMISSION, RESPONDENT

(Federal Trade Commission No. 8922)

ON PETITION FOR REVIEW OF AN ORDER OF THE

FEDERAL TRADE COMMISSION

AMENDED JUDGMENT

Present: VAN DUSEN, GIBBONS and ROSENN,

Circuit Judges

This cause came to be heard on the record from

the Federal Trade Commission and was argued by

counsel.

On consideration whereof, it is now here ordered

and adjudged by this Court that the petition for re-

view is granted insofar as the Order of the Federal

Trade Commission entered July 15, 1975, requires

total excision of the words “Instant Tax Refund”

from all Beneficial advertising, and it is further or-

dered that such part of said order is set aside and

the cause remanded to the Federal Trade Commis-

sion for further proceedings consistent with Part II

B of the opinion of this Court. In all other respects,

34a

the petition for review is denied. To the extent that

the petition has been denied, the order of the Com-

mission is affirmed and the petitioners are com-

manded to obey it.

ATTEST:

/s/ Thomas F. Quinn

Clerk

September 28, 1976

Certified as a true copy and issued in lieu of a formal

mandate on October 26, 1976.

35a

APPENDIX D

UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

COMMISSIONERS:

Lewis A. Engman, Chairman

Paul Rand Dixon

Mayo J. Thompson

M. Elizabeth Hanford

Stephen Nye

Docket No. 8922

In the Matter of

BENEFICIAL CORPORATION, a corporation, and

BENEFICIAL MANAGEMENT CORPORATION,

a corporation.

OPINION OF THE COMMISSION

By Engman, Commissioner:

In this case respondents Beneficial Corporation

and Beneficial Management Corporation, which we

shall refer to jointly as Beneficial unless otherwise

noted, appealed from the Administrative Law Judge’s

Initial Decision and Order.

Beneficial operates a nationwide system of consum-

er loan offices and, starting in late 1969, the loan of-

fices began offering a personal income tax prepara-

tion service. The complaint in this matter, which

was issued on April 10, 1973, charged Beneficial

with a variety of offenses under Section 5 of the Fed-

eral Trade Commission Act (16 U.S.C. § 45), stem-

ming from the advertising and operation of the in-

come tax service. During adjudication, counsel for

the parties signed a Stipulation for Partial Adjudi-

cated Settlement, by which Beneficial admitted viola-

tions, and consented to appropriate order provisions,

concerning advertising misrepresentations of Bene-

ficial’s reimbursement policy, its competence to pre-

pare tax returns, and the number of customers for

whom it has secured government refunds. The law

judge accepted this stipulation and we see no reason

to overrule him. However, the order provisions which

the law judge entered respecting these issues do not

correspond in some particulars to the stipulated

order provisions, and, on the joint motion of Bene-

ficial and complaint counsel, we shall substitute the

latter.

After the partial admission, the remaining issues

to be adjudicated were the lawfulness of Beneficial’s

advertisements featuring its “Instant Tax Refund”

slogan, the lawfulness of Beneficial’s soliciting loans

with information given by its tax service customers,

and the liability of respondent Beneficial Corpora-

tion. The law judge found against respondents on

each of these issues in an Initial Decision filed Oc-

tober 21, 1974. Respondents have appealed on each

issue.

We affirm the Administrative Law Judge. Except

to the extent that they are inconsistent with this

opinion, the findings and conclusions of the law judge

are adopted as those of the Commission.

87a

I. LIABILITY OF BENEFICIAL CORPORATION

Every local loan office of what is known as the

Beneficial Finance System is a separate corporation

wholly owned, with the exception of a few shares

of a few companies, by Beneficial Corporation. At

the end of 1972, 1,505 of these local loan corporations

operated domestically. (CX 18 at 8)* Beneficial Cor-

poration also wholly owns respondent Beneficial Man-

agement Corporation, which provides management

services, at cost, to the local loan subsidiaries. Other

wholly-owned Beneficial Corporation subsidiaries in-

clude Beneficial Management Corporation of Ameri-

ca, which implements the local loan policies set by

Beneficial Management Corporation, and Beneficial

Data Processing Corporation, which provides ac-

counting services for the local loan subsidiaries.

(1D. 99 7, 20). It is undisputed that the conduct

challenged in this matter was performed, directly at

least, by subsidiaries, and that Beneficial Corpora-

tion must be subject to vicarious liability or none at

all.

In determining a parent corporation’s liability, we

examine the “pattern and framework of the whole

1 The following abbreviations are used in this opinion:

LD.—Initial Decision of Administrative Law Judge (cited

by paragraph where adopted without change)

Tr. —Transcript of Testimony

CX —Commission Exhibit

RX —Respondents Exhibit

38a.

enterprise.” Art National Mfgs. Dist. Co. v. Federal

Trade Commission, 298 F.2d 476, 477 (2d Cir.),

cert. denied, 370 U.S. 939 (1962). And if the facts

demonstrate even latent control, the applicable stand-

ard is met:

[W]here a parent possesses latent power,

through interlocking directorates, for example,

to direct the policy of its subsidiary, where it

knows of and tacitly approves the use by its

subsidiary of deceptive practices in commerce,

and where it fails to exercise its influence to

curb illegal trade practices, active participation

by it in the affairs of the subsidiary need not be

proved to hold the parent vicariously responsible.

Under these circumstances, complicity will be

presumed.

P. F. Collier & Son Corp. v. Federal Trade Com-

mission, 427 F.2d 261, 270 (6th Cir.), cert. denied,

400 U.S. 926 (1970).

Despite this clear statement, respondents contend

that we should be governed instead by the common

law rule, restated in National Lead Co. v. Federal

Trade Commission, 227 F.2d 825, 829 (7th Cir.

1955), rev’d on other grounds, 352 U.S. 419 (1957),

that to pierce the corporate veil we must find evidence

of such complete control of the subsidiary by the

parent that the subsidiary is a mere tool and its

corporate identity a mere fiction. We reject the con-

tention that any such stringent standard applies.

Manifestly, where the public interest is in-

volved, as it is in the e~forcement of Section 5

of the Federal Trade Commission Act, a strict

adherence to common law principles is not re-

quired in the determination of whether a parent

should be held for the acts of its subsidiary,

where strict adherence would enable the cor-

porate device to be used to circumvent the policy

of the statute.

P. F. Collier, supra, 427 F.2d at 267. See also, e.g.,

Goodman v. Federal Trade Commission, 244 F.2d

584, 590 (9th Cir. 1957).

Accordingly, we have examined the overall pattern

of Beneficial Corporation’s relation with its sub-

sidiaries, and we find for several reasons that an

order should issue against the parent.

First, respondent Beneficial Corporation shares a

common management with respondent Beneficial

Management Corporation. The President of the for-

mer serves as President and Chairman of the Board

of the latter, and sits on the Executive Committee of

each. The First Vice President of Beneficial Cor-

poration also sits on both Executive Committees.

Beneficial Corporation’s Chairman of the Board is

additionally General Counsel of Beneficial Manage-

ment Corporation and, likewise, a joint Executive

Committee member. These three men were a ma-

jority of Beneficial Corporation’s Executive Com-

mittee and were the entire Executive Committee of

Beneficial Management Corporation during much of

the relevant period. The Executive Committee of

Beneficial Management Corporation approved the

40a

start of the income tax preparation business. (I.D.

30, 31, 32). .

Through its domination of the service subsidiaries,

Beneficial Corporation also controls each of its local

loan subsidiaries. While no officer or director of

the parent serves directly as an officer or director

of any local loan subsidiary, Beneficial Corporation

chooses local officers and directors from the ranks

of the management subsidiaries,

Since at least 1969, Beneficial Corporation has in-

stalled each Regional Vice-President of Beneficial

Management Corporation as a Director of all local

loan subsidiaries in his region; typically, the same

man also serves as President of all. the local loan

subsidiaries in the region. The remainder of each

local Board is filled by a small group of employees of

Beneficial Management Corporation of America.

Thus, the President of Beneficial Management Cor-

poration of America and two other employees of

that corporation serve on the Boards of all 1,143

local loan subsidiaries outside New York, and are

a majority of those Boards; the same three men are

also, respectively, Secretary, Vice-President, and

Treasurer of these 1,143 subsidiaries. (CX 145a; Tr.

198-201, 221, 226).

The Administrative Law Judge correctly called

these patterns of control “a pervasive web of inter-

locking directories and managements.” (I.D. at 40).

Here, as in P. F. Collier, supra, 427 F.2d at 268, the

men who directed the policy and operations of the

4la

parent also directed the policy and operations of the

wholly-owned subsidiaries.

Second, Beneficial Corporation also exercises com-

plete financial control over the affairs of its sub-

sidiaries. The local loan offices receive all cash for

making consumer loans from the parent company,

either by capitalization or by loan. Beneficial Data

Processing Corporation performs all of the account-

ing for the local loan subsidiaries. The service sub-

sidiaries provide their services to the local loan com-

panies at cost, and themselves borrow needed funds

from Beneficial Corporation. (1.D., 119, 20). With-

out the continuing support and intervention of the

parent, neither the local loan subsidiaries nor the

service subsidiaries would be independently viable.

Third, Beneficial Corporation also allows or en-

courages local loan subsidiaries to hold themselves

out as part of a single nationwide Beneficial entity.

Each of them is similarly named—Beneficial Finance

Company of Pittsburgh, or of Knoxville, or of Char-

lotte. Moreover, they are jointly identified through

advertising as the Beneficial Finance System, with

offices nationwide and around the world. Consumers

believed themselves to be dealing with a nationwide

Beneficial organization. (Tr. 375, 426). As in P. F.

Collier, supra, 427 F.2d at 269, Beneficial Corpora-

tion allowed its subsidiaries to trade on its own name

and good will. Moreover, by clothing its subsidiaries

with apparent authority to act for it, Beneficial Cor-

poration is liable when they use that authority to de-

42a

—

ceive the public. Cf. Goodman v. Federal Trade Com-

mission, supra, 244 F.2d at 591-93.

Fourth, Beneficial Corporation has set up a retire-

ment plan for all employees of the local loan com-

panies and the service subsidiaries and has contrib-

uted several million dollars to the plan. Beneficial

Corporation has also set up various other employee

plans, such as a stock plan and a Thrift Club plan.

(Tr. 208-20; I.D. 9 22).

Finally, the very advertising slogan which is a

subject of this case is copyrighted by Beneficial Cor-

poration. That the parent owns the slogan while the

subsidiaries use it is further evidence, if any is

needed, of the closely intertwined nature of Bene-

ficial Corporation and its flock of subsidiaries. But

the copyright ownership by itself is also sufficient to

fix liability on Beneficial Corporation. As respond-

ents vigorously point out when arguing to keep the

slogan, the copyrighted phrase is a property right.

And the law is clear that one who places into an-

other’s hand the instrumentality by which unfair or

deceptive acts or practices are accomplished may be

held responsible for those practices. Federal Trade

Commission v. Winsted Hosiery Co., 258 U.S. 483,

494 (1922); C. Howard Hunt Pen Co. v. Federal

Trade Commission, 197 F.2d 273, 281 (3d Cir.

1952).

As we have noted, a sufficient standard is whether

the parent, having latent power to halt illegal prac-

tices of its subsidiary, instead tacitly approved them.

That standard is clearly met. In fact, Beneficial

43a

Corporation’s control was more than latent, for the

parent was intimately entwined with the manage-

ment, the finances, the employees, and the marketing

practices of its subsidiaries. The paper division of

Beneficial’s business into 1,800 separate companies

does not mask overall existence of a single enterprise.

See Zale Corporation, et al. v. Federal Trade Com-

mission, 473 F.2d 1317 (5th Cir. 1973). Whether

looking at the pattern or framework of the whole

enterprise or at the individual factors mentioned,

we find Beneficial Corporation liable. Indeed, even

though the common law standard argued by respond-

ents is inapplicable, in this case that more stringent

standard is met as well, for the subsidiaries were

simply convenient fictions for Beneficial Corpora-

tion’s use. —

Il. INSTANT TAX REFUND ADVERTISING

As the Administrative Law Judge found, substan-

tially all of Beneficial’s tax preparation advertising

has featured the “Instant Tax Refund” theme. The

first advertisements, in late 1969 and early 1970,

gave little or no explanation of what Beneficial was

actually offering. For example, one radio commer-

cial states:

. . . Do you have a refund coming to you on

your income taxes this year? Well, there’s no

need to wait weeks for your refund check. Get

the money right now—even before you mail

your return—with a cash advance from Bene-

ficial. We call it the Instant Tax Refund, a

44a

special service of Beneficial Finance. Instant

Tax Refund. At Beneficial you’re good for

more. ... (CX 85(f)).

By February, 1970, after initial public response

demonstrated widespread misunderstanding of the

Instant Tax Refund (Tr. 65-66), Beneficial began

to alter its advertising. Broadcast advertisements

since then have variously referred to the “ ‘Instant

Tax Refund’ Plan” or “ ‘Instant Tax Refund’ loans,”

and have included such explanatory language as

“lend you the equivalent of your refund in cash” or

“qualify for a loan.” A typical television advertise-

ment is:

. . . And the Beneficial ‘Instant Tax Refund’

Plan. If you have a refund coming, Beneficial

will lend you the equivalent of your refund in

cash the instant you qualify for a loan... .

(CX 84(f)).

Print advertisements also changed somewhat from

their original form. After 1970 Beneficial placed an

asterisk after the Instant Tax Refund reference with

a corresponding asterisk below accompanied by ex-

planatory language, or otherwise used the words

“loan” or “Plan” with explanatory language. For

example, CX 63 states:

New income Tax Service offers

‘Instant Tax Refund’ Plan *

oe * & a

* When you get your taxes prepared at Bene-

ficial you can take advantage of our ‘Instant

Tax Refund’ Plan. The instant you qualify for

45a

a loan, Beneficial will lend you the equivalent

of your refund—in cash—instantly . . . even

before you mail your return... .

In truth, it is admitted, what Beneficial is offering

is its everyday loan service. The Instant Tax Refund

is not a refund at all but a personal consumer loan,

with regular finance charges, costs, and repayment

period. (Complaint, {7(1); Ans., {7; I.D. § 48).

Such a loan is always available to anyone meeting

Beneficial’s credit standards, whether or not the cus-

tomer is owed a tax refund by the government, but

Beneficial will not make any loan to a person failing

to meet its credit standards, even if the customer is

due a government refund. The size of the loan Bene-

ficial wishes to sell is not related to any tax refund,

but to the customer’s credit limit. (CX 143e, 143i;

Tr. 169).

A.

Beneficial takes a narrow view of the dispute on

appeal. According to Beneficial, the only issue which

its Instant Tax Refund advertising presents is wheth-

er Beneficial offers real tax refunds. The broader

issue, whether consumers are deceived over what

Beneficial actually does offer, is presumably irrele-

vant. Beneficial suggests that deciding this case on

other than the narrow issue of actual refunds will

import a new theory neither charged nor litigated.

We reject the idea that any such narrow question

is before us. Beneficial had ample notice of the is-

sues in this case, which were, and are, whether the

46a

Instant Tax Refund advertising is unfair or decep-

tive under the Federal Trade Commission Act, and

specifically whether the Instant Tax Refund adver-

tising misrepresents that Beneficial is offering no

more nor less than its normal consumer loan service

with its normal finance charges. The complaint

raises these issues by quoting Beneficial’s advertising

({ 5), charging that it seems to offer some “instant

refund” (6(1)), and then alleging that in fact

Beneficial is offering not a refund at all but a per-

sonal loan with finance charges (f 7(1)).? A clearer

and more precise allegation is difficult to conceive. It

certainly goes beyond the minimum standards of no-

tice pleading acceptable in administrative hearings.

A. E. Staley Mfg. Co. v. Federal Trade Commission,

135 F.2d 453, 454 (7th Cir. 1943).

During litigation, Beneficial clearly understood

that this case related to the total truth of its offer

and not just to actual tax refunds. Consistent with

? The full charging paragraphs read

PARAGRAPH SIX: [Respondents have represented

that]

1. Respondents will provide taxpayers who have their

returns prepared by respondents and to whom a refund

is owned by the Internal Revenue Service with an ‘in-

stant refund’ at the time their returns are prepared.

e * * *

PARAGRAPH SEVEN: In truth and in fact:

1. Respondents’ ‘instant tax refund’ is not a refund

but a personal loan and the recipient of the loan is re-

quired to pay finance charges and other costs for such

loan.

47a

the position taken in is pre-hearing brief before the

law judge that its advertisements “fairly and fully

inform the public precisely what is involved,” * Bene-

ficial asked each of its consumer witnesses if they

realized consumer loans with normal finance charges

were offered. (E£.g9., Tr. 364-65, 401, 460, 469-73).

Beneficial also attempted to show that consumers un-

derstand the word “loan” to imply finance charges.

(E.g., Tr. 56-58, 114-15). Even assuming that only

the narrow issue of actual tax refunds was alleged

in the complaint, which we do not find, we have con-

sistently held that a party cannot subsequently chal-

lenge as beyond the pleadings an issue which was

litigated, if he has had actual notice and opportunity

to defend. Grand Caillou Packing Co., 65 F.T.C. 799,

20-821 (1964), rev’d in part on other grounds sub

nom. LaPeyre v. Federal Trade Commission, 366 F.

2d 117 (5th Cir. 1966). See also, e.g., Armand Co.

v. Federal Trade Commission, 84 F.2d 973 (2d Cir.),

cert. denied, 299 U.S. 597 (1936); Rule 3.15(a) (2),

16 C.F.R. § 3.15(a) (2). In short, Beneficial has had

a full and fair opportunity to litigate whether its

advertising misrepresented the total truth of its of-

fer, and we will decide that point.

B.

Turning, therefore, to Beneficial’s advertising, we

conclude that the Instant Tax Refund advertisements,

in both their plain and adorned forms, had a capacity

*’ Respondent’s Trial Brief, before the law judge, October

30, 1973, at 4.

48a

and tendency to mislead the public about the truth of

Beneficial’s loan offer, and thus violated Section 5.

We find this both on the basis of our own expertise

and judgment, from having examined the advertis-

ing, see, e.g., Federal Trade Commission v. Colgate-

Palmolive Co., 380 U.S. 374, 391-92 (1965), and on

the basis of ample record evidence. (Z.9., Tr. 53-55,

115-18, 506-07, CX 159).

The early Instant Tax Refund advertising is, on

its face, totally misleading about the true nature of

Beneficial’s offer. Instead of making clear that Bene-

ficial is simply offering its everyday loan service, the

advertising implies that Beneficial will give a special

cash advance to income tax preparation customers

with a government refund due, in the amount of their

refund. The natural impression, since the Instant

Tax Refund is stressed as exclusive and special, is

that this cash advance is different from a normal

consumer loan.

Beneficial was acutely aware that the early adver-

tising was misleading consumers about the nature of

its offer, for it made all the subsequent changes in

an attempt to clarify the real meaning. (Tr. 53-55,

115-19, 504-08). The extent of the early advertising’s

deception is epitomized by a report from Beneficial’s

advertising agency on the consumer impact of its

first Instant Tax Refund campaign (CX 159):

Results of this initial wave of interest depend

on the office and its location. In center-city of-

fices, particularly those near ghetto areas, the

impression gathered from managers was that

49a

many of the phone calls came from totally un-

creditworthy ‘riff-raff’ . . . people with no steady

job record, with very low incomes, whose sole

concern was. in the Instant Tax Refund. Many

thought they could simply get their government

checks immediately at Beneficial. Others didn’t

have the required $5 deposit. There were many

loud arguments and unpleasantnesses . . . in-

cluding one or two incidents of violence being

threatened. Managers in these situations tend

to agree that advertising should have dealt more

directly with the qualifications required to ob-

tain an Instant Tax Refund.

In other offices—in steady, stable white middle

class neighborhoods—many customers also need-

ed explanations about the loan aspects of the

Instant Tax Refund. But naturally there were

fewer hopeless applicants, and managers in

places like that feel much better about the high

response level and are much calmer about the

advertising claim.‘

In the face of this, we are unpersuaded that, as Bene-

ficial argues, consumers could decipher the real mean-

ing of its advertising because the Instant Tax Re-

fund phrase was placed in quotations or because

Beneficial’s identity as a consumer loan business may

have given a clue. At any rate, consumers are not

obliged to guess about the meaning of advertising.

¢ Although we have rejected Beneficial’s narrow construc-

tion of the complaint, we note that this memorandum indi-

cates some consumers at least did believe Beneficial actually

would provide real tax refunds.

50a

Cf. Federal Trade Commission v. Standard Educa-

tion Society, 302 U.S. 112, 116 (1937).

Beneficial contends that it eliminated any early

faults by adding the explanatory language character-

istic of its later advertising. Although, as we dis-

cuss infra, the later advertising is not appreciably

less misleading than the early, even assuming that

Beneficial did discontinue its early deception in this

case we find it an insufficient defense. Whether a

cease and desist order should be entered when dis-

continuance is claimed rests within the discretion

of the Commission. Benrus Watch Co. v. Federal

Trade Commission, 352 F.2d 313, 322 (8th Cir.

1965), cert. denied, 384 U.S. 939 (1966). And the

Commission has required respondents to meet a heavy

burden to prevail on such a claim. Compare, e.g.,

Argus Camera, Inc., 51 F.T.C. 405 (1954), with Fed-

ders Corp., Dkt. 8932, 3 CCH Trade Reg. Rep.

] 20,825 (Jan. 14, 1975). Assuming discontinuance

of the early deception to have occurred, we can de-

tect no reason to accept that discontinuance as a

defense here, for we have no assurance that the de-

ception will not be resumed. Beneficial is still in

the tax preparation business and could revert at any

time to similar deceptive practices. See Giant Foods,

61 F.T.C. 326, 357 (1962), aff’d., 322 F.2d 977 (D.C.

Cir. 1963), cert. denied, 377 U.S. 967 (1964). More-

over, such changes as it made in its advertising came

partly from the prodding of various regulatory

agencies, so were not totally voluntary. (Tr. 11,

55, 70-71, 506-07). See Eugene Dietzgen Co. v. Fed-

5la

eral Trade Commission, 142 F.2d 321, 330 (7th

Cir.), cert. denied, 323 U.S. 730 (1944). ,

At any rate, no discontinuance occurred, for, as

we have noted, despite continual revision Beneficial’s

later advertising did not succeed in shedding the de-

ceptive and misleading characteristics. The addition

of the words “loan” and “plan” and “qualify” was

not, in our view, sufficient to clarify exactly what

Beneficial was really offering. As the law judge

noted, the advertising at best is open to two inter-

pretations. Though some consumers may understand

that regular consumer loans are offered,’ another in-

terpretation is that Beneficial is offering a special,

tax-related service apart from its everyday loan busi-

ness. Of course, where two interpretations of an ad-

vertisement are possible, one of which violates Sec-

tion 5, the advertising is unlawful. Murray Space

Shoe Corp. v. Federal Trade Commission, 304 F.2d

270, 272 (2d. Cir. 1962).

Beneficial insists that we examine the later ad-

vertisements in their entirety, and consider the over-

all explanation of the Instant Tax Refund phrase.

Cf. Parker Pen Co. v. Federal Trade Commission,

159 F.2d 509, 512 (7th Cir. 1946). We have done

so. But as noted we find the explanation confusing

and misleading. For example, addition of the sup-

5’ Beneficial produced a number of such consumers. It ap-

pears from their testimony, however, that most of them

understood the Instant Tax Refund for what it was because

of their prior dealings with loan companies and not because

they independently comprehended the advertising. (E.g., Tr.

871, 391, 423, 472, 480-81, 495).

52a

posedly explanatory word “plan” seems to us to

heighten the implication of the Instant Tax Refund’s

uniqueness, rather than clarify that it is not unique

at all. Thus, we have no occasion to determine

whether the explanation, considering the advertis-

ing as a whole, was sufficiently conspicuous to dispel

the impression generated by the dominant Instant Tax

Refund slogan, for nothing amounting to real ex-

planation was included. :

The testimony of consumers confirms our view that

the later advertising has a capacity to mislead in a

material respect. A number of consumers failed to

understand that Beneficial was offering only its nor-

mal loan service with normal finance charges. Their

reasonable impression was that they would pay only

a small fee and that the main qualification for the

Instant Tax Refund was being due an actual Gov-

ernment refund. (Tr. 663, 691, 713-16, 775, 808-

09). The consumers, had they realized from the ad-

vertising that the “Instant Tax Refund” was simply

Beneficial’s ordinary loan business, would not have

gone to Beneficial’s offices at all. (Tr. 665, 729, 745-

46, 778).

We may assume, as Beneficial would have us, that

respondents never intended to deceive consumers.

But intent is not an element of a deceptive advertis-

ing charge under Section 5. Regina Corp. v. Federal

Trade Commission, 322 F.2d 765, 768 (3d Cir. 1963).

The simple fact is that Beneficial’s Instant Tax Re-

fund advertising had a capacity and tendency to de-

ceive, and did in fact deceive, the consuming public.

53a

C.

The law judge’s order bans the use of the Instant

Tax Refund phrase or similar words. He found that

no qualifying language could remedy the deception

and that only purging Beneficial’s advertisements of

the phrase would suffice. Beneficial vigorously con-

tends that explanatory language could cure any fault

and that forced abandonment of its copyrighted and

heavily promoted phrase is unwarranted.

In some instances, it is true, respondents have

been allowed to retain trade names which had become

valuable business assets, because the misleading

qualities of the names could be dispelled by explana-

tion. E.g., Federal Trade Commission v. Royal Mill-

ing Co., 288 U.S. 212 (1933). But Royal Milling

and its progeny are not limitations on the Commis-

sion’s authority to enter a fully effective order. If

explanatory language is insufficient to qualify a de-

ceptive trade name or is inherently contradictory,

its effect is simply to confuse the public and the Com-

mission in framing a proper remedy must excise the

offending phrase altogether. See, ¢.g., Resort Car

Rental Systems, Inc. v. Federal Trade Commission,

F.2d —— (4th Cir. April 14, 1975); Bakers

Franchise Corp. v. Federal Trade Commission, 302

F.2d 258, 262 (3d Cir. 1962); Carter Products, Inc.

vy. Federal Trade Commission, 268 F.2d 461, 498

(9th Cir.), cert. denied, 361 U.S. 884 (1959) ; United

States Navy Weekly, Inc. v. Federal Trade Commis-

sion, 207 F.2d 17, 18 (D.C. Cir. 1953). Moreover,

the Commission has wide latitude in judgment, par-

54a

ticularly in determining whether qualifying words

will eliminate a deceptive trade name. Jacob Siegel

Co. v. Federal Trade Commission, 327 U.S. 608, 613

(1946).°

In light of these principles, we see no reason for

allowing Beneficial to retain the offending slogan.

The Instant Tax Refund advertisements, we have

held, have the capacity and tendency to mislead and

have in fact mislead consumers. In fact, since its in-

ception in 1969, the Instant Tax Refund phrase has

deceived continuously, and Beneficial’s repeated efforts

to explain it have not cured the false impression it

leaves. Beneficial’s inability to remedy the deception,

which persists even in the qualifying phrase it offers

on this appeal as a settlement, confirms what we

believe to be obvious. No brief language is equal to

the task of explaining the instant Tax Refund slogan,

for the phrase is inherently contradictory to the truth

of Beneficial’s offer. In truth, the Instant Tax Re-

fund is not a refund at all, but only Beneficial’s ev-

eryday loan service, complete with normal finance

charges and credit checks; nor is it in the least re-

lated to any tax refunds, for the size of the loan

Beneficial wishes to sell is geared to the customer’s

* Though we believe the Royal Milling line of cases is

compatible with our normal responsibility to enter effective

but not overbroad orders, to the extent it may actually be a

limitation or exception to the Commission’s authority to de-

vise fully effective remedies, then we decline to expand the

exception from trade names to advertising slogans. The

Instant Tax Refund slogan is unlike the established company

names in Royal Milling, for it is not the name of anything.

It is an empty promotional phrase referring to nothing.

55a

credit limit instead of his government refund and

many people due a government refund do not qualify

for an Instant Tax Refund loan at all; moreover,

depending on the season of the year or the customer’s

sales resistance, the Instant Tax Refund may be

called a Vacation loan, a Taxpayer loan, or a Bill

Consolidation loan.

Nor are we inclined to temper our conclusion to

ban the phrase simply because Beneficial has copy-

righted it and promoted it heavily. The phrase,

which is only six years old, has been deceptive from

the start, so to protect it is to protect Beneficial’s

investment in deception. We reject the idea that

the more heavily a false claim is advertised, the more

tenderly we must treat it.

Beneficial argues that excision of the Instant Tax

Refund slogan and words of similar import would

prevent any reference to the concept of tax refund

loans. This is quite true. The record is absolutely

clear that, in Beneficial’s business at least, no such

concept exists. If, however, Beneficial should begin

offering a special loan service actually related in

some way to income tax refunds, it may seek to re-

open the order. For now we believe the absolute pro-

hibition necessary.’

7 We are likewise unpersuaded by Beneficial’s argument that

the First Amendment bars this order. It is too clear to war-

rant discussion that the First Amendment does not protect

commercial speech which has been found to be deceptive and

misleading. Murray Space Shoe Corp. V. Federal Trade Com-

mission, supra, 304 F.2d at 272. There is no constitutional

56a

In light of what we have said we must affirm the

law judge’s order and reject Beneficial’s offer of set-

tlement.

Ill. MISUSE OF CONFIDENTIAL

RELATIONSHIP

Finally, respondents appeal the law judge’s con-

clusion that Beneficial misused confidential informa-

tion gathered in the course of its tax preparation

business, by using it to solicit loans without consent.

The law judge held Beneficial’s practices exploitative,

unscrupulous, deceptive, and unfair.

The essential facts are not contested. Beneficial

entered the tax preparation business for the explicit

purpose of generating loan customers. (I.D. § 54;

Tr. 84). In practice the tax service, which Beneficial

operated from the same offices as its loan business,

fulfilled this goal; it was in fact the greatest source

of new borrowers which Beneficial had developed in

some time. (I.D. J 55; Tr. 508).

Beneficial used two different procedures to turn tax

customers into borrowers. First, from the beginning

of its tax preparation venture in 1969 until De-

cember, 1971, Beneficial made no effort whatever

to limit the use of customers’ tax data to the prepara-

tion of tax returns. Under the procedure in effect

during this period, Beneficial’s employees prepared

a tax interview sheet for each customer who pre-

right to disseminate false or misleading advertising. EF. F.

Drew & Co. V. Federal Trade Commission, 235 F.2d 735, 740

(2d Cir. 1956), cert. denied, 352 U.S. 969 (1957).

57a

sented himself for tax preparation. This sheet, which

contained a variety of financial information, was sent

to a computer firm for actual preparation of the re-

turn, and the customer frequently had to return a

second time to pick up his completed return. (1.D.

958). Beneficial explicitly instructed its personnel

to use the tax data appearing on the information

sheet to solicit loans. For example, CX 26 states:

Right on the Tax Interview Form it shows

you what banks or loan companies the customer

owes. It is an easy matter to go on from there

and list other debts and show how all the bills

ean be consolidated, the bank loan can be paid

off, the loan company can be paid off, the balance

on the car can be cleared—all with a Bill Con-

solidation Loan.

In addition, if the customer were not sold a loan

during the first interview, Beneficial solicited again

during the second visit and continued to solicit there-

after by telephone and otherwise. (1.D. {|| 62, 64).

Personnel were instructed to run a credit check on

those who, on their first visit, were reluctant to

borrow money, (I.D. { 63), and to present these cus-

tomers on their second visit with completed loan

papers awaiting only a signature. (I.D. {| 62).

After December, 1971, Beneficial revamped its pro-

cedure because of the enactment of the Revenue Act

of 1971. Section 316 of that Act, 26 U.S.C. § 7216,

imposed criminal penalties upon commercial tax pre-

parers for using customers’ tax data for non-tax pur-

poses without consent. Under the new procedure,

58a

Beneficial continued to stress turning tax customei's

into loan customers, but Beneficial’s employees re-

quired each tax customer to sign a supposed consent

form before soliciting any loan. The form, which

Beneficial called a BOR-56 Authorization, purported

to authorize Beneficial to solicit the customer for

“any business” in which Beneficial may engage, and

to stipulate that any data appearing on a loan ap-

plication was not given for tax preparation. In ad-

dition to completing a tax interview sheet, Bene-

ficial’s employees were instructed to complete for

each customer a loan interview sheet containing

similar or identical financial information and to base

their loan solicitation on the latter document. Bene-

ficial maintained a separate “customer loan folder”

for the loan information. (1.D. {| 65, 66).

A.

Beneficial contends for two reasons that our con-

sideration of its loan solicitation practices should be

limited. First, the pre-Revenue Act conduct is sup-

posedly irrelevant, because, according to Beneficial,

the law judge drew no legal conclusions from his ex-

tensive factual findings on this issue; apparently

Beneficial argues that he tacitly dismissed this part

of the case and the Commission should not alter his

disposition. Second, the law judge’s post-Revenue Act

findings are, Beneficial says, beyond the scope of the

complaint and thus should be dismissed.“

* Apparently in connection with this second argument,

Beneficial also seems to argue that the law judge was im-

59a

Neither of these arguments is supportable. As to

the pre-Revenue Act conduct, the law judge’s opinion

clearly considered and drew legal conclusions from

the record evidence. In addition to entering detailed

factual findings (I.D. {] 53-64), the law judge ex-

plicitly held that Beneficial’s pre-Revenue Act prac-

tices were “offensive to the public policy, unethical,

unscrupulous, unconscionable and clearly unfair to

the consumer.” (1.D. at 36). Of course, even had the

law judge actually ignored Beneficial’s pre-Revenue

Act conduct, the Commission on review could itself

fully consider its lawfulness. Rule 3.54(a), 16 C.F.R.

§ 3.54(a).

Beneficial’s second argument—that the law judge’s

theory of post-Revenue Act violation is beyond the

scope of the complaint—must be rejected on the same

grounds that its similar claim respecting the tax re-

fund advertising was rejected. According to Bene-

ficial, the complaint, which alleged misuse of the

“tax return” and the tax “financial profile,” does not

encompass Beneficial’s post-Revenue Act procedure

of preparing a separate loan information profile for

loan solicitation instead of referring directly to the

tax documents. But we do not read the complaint

so restrictively. It plainly alleges misuse of a con-

fidential relationship by soliciting loans, without con-

properly influenced by a personal belief that a dual loan and

tax business is per se unfair. However, the law judge of-

fered no such opinion and in fact specifically declined to

rule on the issue. (I.D. at 37). The legality of dual opera-

tion was eliminated as an issue by complaint counsel on

March 13, 1974.

60a

sent, using information given for tax purposes. (Com-

plaint, 8). Since the law judge explicitly found

the post-Revenue Act consent form inadequate to dif-

ferentiate tax information from so-called loan in-

formation in customers’ minds, the law judge cor-

rectly construed the complaint when he applied it to

the post-Revenue Act procedures. Moreover, even ac-

cepting the argument that the complaint does not by

its explicit terms encompass the post-Revenue Act

procedures, we see no indication that the real sub-

stance of the dispute was not clarified for Beneficial

during adjudication. As we noted before, an ad-

ministrative complaint is a flexible document: seman-

tic deficiencies will not preclude full resolution of

the issues where the party proceeded against has a

reasonable opportunity to know the matters in con-

troversy. Avnet v. Federal Trade Commission, 511

F.2d 70, 76 (7th Cir. 1975). Beneficial has offered

utterly no information suggesting it was prejudiced,

or unfairly surprised, or otherwise unable to litigate

the legality of its post-Revenue Act conduct. In fact,

Beneficial itself highlighted the issue by raising the

supposed lawfulness of its post-Revenue Act conduct

as an affirmative defense.

We conclude, therefore, that the substantive law-

fulness of Beneficial’s conduct, both pre-Revenue Act

and post-Revenue Act, is properly before us.

B.

We first consider Beneficial’s pre-Revenue Act con-

duct. The law judge found this conduct unfair, be-

6la

cause it violated basic public policy respecting the

confidentiality of tax data, and deceptive, because it

was premised on omission of material facts.

In determining whether Beneficial’s conduct was

unfair, the appropriate standard is a broad one. The

Commission

does not arrogate excessive power to itself if,

in measuring a practice against the elusive, but

congressionally mandated standard of unfairness,

it, like a court of equity, considers public values

beyond simply those enshrined in the letter or

encompassed in the spirit of the antitrust laws.

Federal Trade Commission v. Sperry & Hutchinson,

405 U.S. 233, 244 (1972).

In accordance with this mandate, the law judge de-

termined the applicable public policy relating to use

of tax data from a wide range of relevant statutory

anid ethical sources. However Beneficial argues that

applicable public policy can only be found in a law

or canon running by its terms to Beneficial, and

that public policy deducted and synthesized from

analogous situations cannot govern its conduct. Ac-

cordingly, for the period before the Revenue Act ex-

plicitly applied a standard of confidentiality to its

business, Beneficial would find no applicable policy.

This argument totally misapprehends the scope of

unfairness under Section 5 of the Federal Trade

Commission Act. There is no doubt at this point that

the Commission may adapt the substance of Section

5 to changing forms of commercial unfairness, and

is not limited to vicariously enforcing other law.

62a

Therefore, in this case, as in others, those who engage

in commercial conduct which is contrary to a gen-

erally recognized public value are violating the Fed-

eral Trade Commission Act, notwithstanding that no

other specific statutory strictures apply. Federal

Trade Commission v. R. F. Keppel & Bro., Inc., 291

U.S. 304, 3138 (1934); Federal Trade Commission

v. Sperry & Hutchinson, supra. The passage of the

Revenue Act reiterated, but certainly did not create,

the policy of tax confidentiality which we apply here.’

The policy we apply is evident in the numerous

incarnations of our society’s concern for the con-

fidentiality and proper use of personal tax data.

This theme, broader than the letter of any one law,

plainly links those public statutes which variously

impose criminal penalties upon federal employees

for revealing a tax return,” or allow disclosure of

income tax returns only under Presidential order or

regulation,” or forbid disclosure of state income tax

*In light of the pervasive and specific policy of tax con-

fidentiality, we, like the law judge, have no need to decide

whether a broader consideration of personal privacy could

govern this case. In declining to reach that issue, however,

we do not suggest that a generalized right of personal privacy

and personal control over private data is an inadequate

foundation on which to ground a finding of unlawfulness

under Section 5. In fact, the right of privacy has become a

widely-valued public policy, with constitutional and statutory

underpinning. Cf., e.g., Roe v. Wade, 410 U.S. 113, 152

(1973); Privacy Act of 1974, 5 U.S.C. § 552a. Its violation

in a commercial context would likely be unlawful under the

Federal Trade Commission Act.

™ 26 U.S. § 7218.

26 U.S. § 6103.

63a

returns.” The same policy of tax confidentiality is

also manifested in the ethical standards of other

commercial tax preparers. Accountants,” certified

public accountants,“ and lawyers* would all be in

violation of their ethical canons if they used tax

information received from a customer to solicit a loan

without consent. While it is not our intent to inject

entire professional ethics codes into Beneficial’s busi-

ness, we believe the various similar fiduciary require-

ments of professional income tax preparers reflect a

basic ethical consideration which by its nature is

equally applicable to anyone in a position to abuse the

confidence of a client.”

The reason for this statutory and ethical concern

is obvious. Personal financial data is the private

business of ‘the individual to whom it relates. Its in-

herent confidentiality requires that the relationship

1 Code of Virginia, § 58-46; see also I.D. at fn. 5.

Tr, 134, 136, 148.

“Tr. 252, 255, 263.

** See Canon 4, Code of Professional Responsibility of the

American Bar Association (Disciplinary Rule 4-101) and

Ethical Consideration 4-5).

6 Beneficial argues that some professional income tax pre-

parers also solicit other business from their clients. However,

in using tax data to identify other specialized needs of their

clients, accountants and lawyers are fulfilling a professional

obligation markedly different from Beneficial’s practice of try-

ing to sell loans to each of its tax customers. (Tr. 142-45,

257-59). The point in looking to other income tax preparers

is not to make Beneficial and them indistinguishable, but only

to identify an irreducible minimum quantum of fairness and

commercial integrity.

..

64a

between the tax preparer and his customer be a fidu-

ciary one. This basic fiduciary nature is reflected in

the personal expectations of consumers. (Tr. 256,

778). Numerous witnesses testified that they expect

confidentiality from tax preparers and regard loan

solicitation based on tax data as breach of confidenti-

ality. (F£.g., 493-94, 666, 724-25, 809-10).

Beneficial argues however, that its misuse of tax

information was minimal because the information

was not transferred out of the company. However,

even putting aside the evidence that Beneficial did

in fact transfer the names of its tax customers out-

side the company while running credit checks, (CX

27, 34d; Tr. 37, 721-22), this argument ignores the

fact that the confidential relationship is breached

whenever the customer’s information is used for the

financial gain of the preparer. Whether or not re-

spondents brokered the confidential information to

other businesses, or simply capitalized on it them-

selves, is thus unimportant. By the same token, re-

spondents’ argument that customers expected to be

solicited for loans because of Beneficial’s reputation

as a consumer loan business, and were not shocked

at being solicited, ignores the record evidence that

customers would not approve of any such loan so-

licitation made on the basis of their confidential tax

data. (Tr. 667, 725). The fact that some tax cus-

tomers initiated loan discussions themselves, typically

by volunteering the amount of their anticipated re-

funds, demonstrates to us not their disinterest in

the confidentiality of their tax data, but rather the

65a

effectiveness of the Instant Tax Refund slogan in

falsely convincing them that a regular consumer

loan was somehow tax-related.”

Thus, we conclude that Beneficial’s loan solicita-

tion practices were indefensible. In the face of the

prevailing public policy, the common basic standards

of ethical behavior, and the widespread expectations

of consumers, Beneficial during the preRevenue Act

period engaged in wholesale and intentional disregard

of the privileged nature of its relationship with its

tax customers, and the confidential status of their

tax information. Its practices preyed on the vul-

nerability of customers who were entitled to expect,

and did expect, that their information would be

handled with integrity and discretion. We cannot dis-

agree with the law judge’s characterization of Bene-

ficial’s activities as, exploitative, unscrupulous, and

unconscionzble. We find Beneficial’s behavior legally

unfair.

The same public expectation of confidentiality

which makes Beneficial’s conduct unfair also makes

it deceptive. Although the public expects the fiduciary

character of a taxpayer-tax preparer relationship to

be honored, Beneficial entered such relationships with

no intention of guarding tax information from un-

17 One of the questions “most frequently asked,” according

to an instruction sheet issued to the local loan offices, is

“Do you have to see proof that the customer is really en-

titled to a tax refund loan?” (CX 143i). This question epito-

mizes the confusion generated by Beneficial’s advertising,

which seems to offer a special service based on income taxes,

but in reality it is not related to income taxes at all.

66a

authorized use, and in fact converted tax data for its

own profit. Beneficial’s failure to disclose these condi-

tions had the capacity to mislead consumers into be-

lieving that the information they provided would

only be used for preparing their tax returns. Such

an omission of facts which are material to an in-

telligent purchasing decision is unlawful. See, ¢.g.,

P. Lorillard Co. v. Federal Trade Commission, 186

F.2d 52, 58 (4th Cir. 1950). The law judge also

found that full disclosure of material facts is par-

ticularly important in a confidential relationship.

Though this is true, the genera! commercial duty to

disclose material facts is sufficient to make Bene-

ficial’s actions deceptive. )

Finally, the law judge found Beneficial’s conduct

deceptive because, in conjunction with the Instant

Tax Refund slogan, it is analogous to bait and

switch advertising. Although Beneficial’s practices

are not a classic bait and switch, the conceptual simi-

larities are striking. Bait advertising is an enticing

but insincere offer of goods or services, designed to

obtain leads for a different product or service. See,

e.g., 16 C.F.R. Part 238.0, Guides Against Bait Ad-

vertising. Beneficial’s tax advertising was conscious-

ly designed to generate customers for the loan busi-

ness and, even though the tax preparation service

itself was a legitimate offer, the Instant Tax Re-

fund advertised as part of the service was not a

legitimate offer at all. Since Beneficial’s tax adver-

tising was designed to attract customers with an al-

luring offer, and the tax service was designed to

67a

switch the customers unwittingly to Beneficial’s reg-

ular loan service, we find as an additional ground

of deception that the loan solicitation practices were

part of a pattern of conduct akin to bait and switch.

C.

We now turn to Beneficial’s post-Revenue Act con-

duct, which on its face at least was an attempt to

avoid use of confidential data. Beneficial argues that

its new procedures cured the unfairness and decep-

tion in its early practices because it never used tax

information to solicit loans after the Revenue Act

became effective. F

Even assuming this were true, it would not be an

adequate defense to Beneficial’s clear violations of

law prior’ to the Revenue Act. As we noted earlier,

discontinuance of unfairness or deception does not

render a cease and desist order improper. Coro, Inc.

v. Federal Trade Commission, 338 F.2d 149, 153

(1st Cir. 1964), cert. denied, 380 U.S. 954 (1965).

We have in rare occasions refrained from entering

an order where discontinuance was voluntary, pro-

longed, and likely to be permanent. But here the dis-

continuance, assuming there were any, occurred only

after a criminal statute prodded Beneficial into mak-

ing changes. Given Beneficial’s dual business and its

persistent desire to turn tax customers into loan

customers, we find no reason to refrain from issuing

an order in this case because of Beneficial’s sup-

posed curing of its unlawful conduct.

At any rate, the new procedures did not in fact

cure the deception and unfairness, Although the un-

inhibited conversion of private information which

characterized the earlier period gave way to pur-

ported authorization forms and separated “tax” and

“loan” folders, the net effect of the new procedure

was to confuse consumers and continue to abuse their

proper expectations concerning the use te which their

confidential] information would be put. We find Bene-

ficial’s post-Revenue Act practices unfair and decep-

tive in their own right.

The main factor distinguishing the new procedure

from the old was the BOR-56 Authorization form

which Beneficial required each tax customer to sign.

Only if this paper were adequate to allow informed

consumer consent to loan solicitation could a waiver

of the fiduciary tax relationship occur. However, the

law judge found the BOR-56 form totally inadequate

on its face as a consent form, and we agree. It does

not inform the customer that the fiduciary tax rela-

tionship is being terminated and that financial infor-

mation given thereafter will be used for loan solicita-

tion. Though it authorizes solicitation of “any busi-

ness” it does not disclose what kind of business and

it does not disclose that the solicitation is beginning

even as the customer signs the form. Our independ-

ent view of the release form’s inadequacy is rein-

forced by the testimony of consumer witnesses, some

called by Beneficial, who had various opinions of the

form’s purpose, all wrong. (E.g., Tr. 372, 395, 410,

486).

69a

Obviously consumers have a right to waive the

confidentiality of their tax data if they choose. And,

since Beneficial does offer a useful service in both the

tax and loan businesses, some tax customers will

presumably wish to forego their purely fiduciary re-

lationship with Beneficial, But this decision must be

based on full disclosure and informed consent.

In light of the inadequacy of the BOR-56 form, the

other changes in procedure after the Revenue Act

become purely formal and without significance.

Though Beneficial prepared what it called a Loan

Interview Sheet for each customer, from the unsus-

pecting customer’s point of view the information be-

ing gathered was still subject to the fiduciary tax re-

lationship. Though Beneficial scrupulously separated

what it called “loan” folders from the “tax” folders,

so far as the customer understood every folder was

a tax folder. For these reasons, we see no essential

difference between Beneficial’s post-Revenue Act con-

duct and its pre-Revenue Act conduct.

D.

The law judge entered an order designed to allow

consumers to make an informed choice over waiving

the confidentiality of their tax data. Beneficial argues

that for several reasons the order is inappropriate.

Beneficial first argues that the Revenue Act of

1971, which provides criminal penalties for tax pre-

parers, as a matter of law preempts the Federal

Trade Commission Act in this area and precludes

entering an order. Alternatively, Beneficial argues

o =i

70a

that, as a matter of administrative discretion, the

Commission should defer to the Revenue Act either

by entering an order coextensive with that Act or

entering no order at all.

The contention that the Revenue Act has pro tanto

deprived the Commission of authority over the com-

mercial misuse of income tax information is not

persuasive. The courts have repeatedly rejected the

argument that the Federal Trade Commission Act

is ousted because of the possibly concurrent opera-

tion of another statute enforced by a different agency.

The jurisdiction of the Commission has been seen as

cumulative. F.g., Federal Trade Commission v. Ce-

ment Institute, 333 U.S. 688, 689-95 (1948) (Jus-

tice Department); Warner-Lambert Co. v. Federal

Trade Commission, 361 F. Supp. 948, 953 (D. D.C.

1973) (Food and Drug Administration) ; American

Cyanamid Co. v. Federal Trade Commission, 363 F.2d

757, 771 (6th Cir. 1966) (Patent Office); Baldwin

Bracelet Co. v. Federal Trade Commission, 325 F.2d

1012, 1014 (D.C. Cir. 1963), cert. denied, 377 U.S.

923 (1964) (Tariff Commission). In Baldwin, as

here, the supposedly preemptive law was a criminal

statute implemented with Treasury Department reg-

ulations. See also Brandenfels v. Day, 316 F.2d 375,

378 (D.C. Cir.), cert. denied, 375 U.S. 824 (1968).

Had Congress intended to limit the jurisdiction of

the Commission, it would have done so explicitly, as it

has before. Cf., e.g., Packers and Stockyards Act,

42 Stat. 159, 169 (Aug. 15, 1921), amended, 72 Stat.

1749, 1750 (Sept. 2, 1958); McGuire Act, 66 Stat.

Tla

631, 632 (July 14, 1952). But the Revenue Act con-

tains no repeal, and the legislative history does not

refer to the Commission at all. Nor will we infer

repeal, for repeals by implication are not favored.

Only where two laws are clearly repugnant to each

other and both cannot be carried into effect will the

latter prevail. U.S. v. Borden Co., 308 U.S. 188, 198

(1939); L. Heller & Son v. Federal Trade Commis-

sion, 191 F.2d 954, 957 (7th Cir. 1951). Here,

though the civil requirements of the Federal Trade

Commission Act may impose more stringent demands

than the criminal standards of the Revenue Act, there

is no repugnancy. Like the law judge we view Bene-

ficial’s possible compliance with the Revenue Act as

irrelevant, and do not decide that issue.

Since the standards of the Revenue Act are ir-

relevant to this case, we see no reason to enter an

order coextensive with that Act or to defer altogether.

Our concern is to purge Beneficial’s unlawfulness

under Section 5. Because the fault we have found

lies in the undisclosed use of confidential data, the

law judge was correct in entering an order provision

requiring full disclosure and consent before loan so-

licitation may begin. Under the order, Beneficial

may not use any information given by a tax customer

wnless the customer has signed a consent form de-

tailing, inter alia, the specific purpose for the con-

sent, the exact information to be used, and the par-

tiewlar use intended. The lack of just this informa-

tion’ ie what makes the present BOR-56 form inade-

quate. Tis, tie order provision is more than just

72a

reasonably related to the offense found, Jacob Siegel

Co. v. Federal Trade Commission, supra, 327 U.S.

at 613; it is the most obvious and direct way te cure

Beneficial’s practices.

Beneficial also argues that the lack of a time limit

in the order would make it impossible ever to give

a loan to any tax customer who signed no consent,

even years later. If Beneficial wished te solicit such

a Joan using information obtained because of the tax

relationship, this is absolutely true. But if the loan

should arise from the customer’s wholly independent

action, in a context far removed in time from the

income tax experience, making the loan would likely

not violate the order. At any rate, Beneficial could

cure its supposed problem by securing a signed con-

sent before obtaining information for the loan.”

Finally, Beneficial argues that the order does not

allow it to solicit tax customers for additional tax

business. We will add appropriate language to rem-

édy this.

1® Beneficial has reised other hypotheticals which, it says,

demonstrate that the order may deprive it of loan business

even from willing tax customers. Hewever, we are not per-

suaded to modiffy the order by “fantasies.” Federal Trade

Commission v. National Lead Co., supra, 352 U.S. at 431.

Beneficial has recourse to our compliance procedures if actual

situations arise which may be presented in evidentiary form.

But Beneficial must expect some fencing in, and foregoing

the hypothetical loan business may be a necessary price of

simultaneously engaging im two essentially contradictory

businesses.

78a

IV. CONCLUSION

Having considered the entire record, the Initial

Decisio:i of the Administrative Law Judge, and the

briefs, the Commission affirms the law judge to the

extent set forth in this opinion. An appropriate

order accompanies this opinion.

July 15, 1975

74a

UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

Docket No. 8922

In the Matter of

BENEFICIAL CORPORATION, a corporation, and

BENEFICIAL MANAGEMENT CORPORATION,

a corporation

INITIAL DECISION

By Montgomery K. Hywn, Administrative Law

Judge.

David C. Fix, Esq. and

Rebert D. Friedman, Esc.

Counsel Supporting the Compiaint.

George W. Wise, Esq. amd

Timothy J. Bloomfield, Esq.,

Hogan & Hartson.

Washington, D.C..

Counse! for Respomdents.

PRELIMINARY STATEMENT

On April 10, 1973, the Federal Trade Commission

issued a complaint charging Beneficial Cearporaion

and Beneficial Management Corporatiom with a wio-

75a

lation of Section 5 of the Federal Trade Commission

Act (15 U.S.C. 45) by engaging in certain acts and

practices in connection with their income tax prepa-

ration business. Paragraphs Four through Seven of

the complaint allege that certain advertising claims

made by respondents in connection with their incorne

tax preparation business are false, misleading and

deceptive. Paragraphs Eight and Nine of the com-

plaint allege that respondents have used income tax

information obtained from their tax preparation

customers to solicit the latter for consumer loans and

that these practices are deceptive and unfair to the

consumer. By Answer duly filed, respondents denied

that any of their challenged acts or practices violated

Section 5 of the Federal Trade Commission Act.

Prehearing procedures commenced in May 1973.

In January 1974, the case was reassigned to the

present administrative law judge. Respondents’ two

motions to withdraw the matter from adjudication,

duly certified to the Commission by the administra-

tive law judges, were denied by the Commission in

August 1973 and April 1974. In November 1973,

counsel for the parties entered into a Stipulation For

Pertial Adjudicated Settlement, which was filed on

December 3, 1973. As a result, all of the advertising

issues in the complaint, except Paragraph Six (1)

and Paragraph Seven (1) dealing with respondents’

“Instant Tax Refund” advertising claims, were set-

tled. Evidentiary hearings with respect to the re-

maining issues were held in April, May and June

1974, in Washington, D.C. Following reception of

76a

further evidence upon a motion by respondents, the

evidentiary record was closed on July 23, 1974, and

the parties filed their respective proposed findings

and orders, and briefs on August 23, 1974.

Any motions not heretofore or herein ruled on

specifically or indirectly by necessary effect of the

conclusions of this Initial Decision are hereby denied.

The proposed findings, conclusions and briefs of

the parties have been given careful consideration,

and to the extent not adopted in this Initial Decision

in the form proposed or in substance, they are re-

jected as not supported by the evidence or as imma-

terial.

Having considered the entire record in this pro-

ceeding and the demeanor of the witnesses, together

with the proposed findings, conclusions and orders

and briefs submitted by the parties, the administra-

tive law judge makes the following findings of fact.’

FINDINGS OF FACT

I. Respondents and Their Business

1. Respondent Beneficial Corporation is a corpo-

ration organized, existing and doing business under

* References to the record are made in parenthesis, using

the following abbreviations:

CX —Commission Exhibit

RX —Respondents’ Exhibit

Tr. —Transcript of the testimony

CPF—Complaint Counsel’s Proposed Findings

RPF—Respondents’ Proposed Findings

CB —Complaint Counsel’s Brief

RB —Respondents’ Brief

TTa

and by virtue of the laws of the State of Delaware,

with its principal office and place of business located

at 1300 Market Street, in the City of Wilmington,

State of Delaware (Ans., par. 1).

2. Respondent Beneficial Corporation wholly owns

subsidiaries engaged in the consumer loan business;

many of those subsidiaries also operate a tax prepa-

ration business. In addition, Beneficial Corporation

wholly owns Western Auto Supply Company (a na-

tionwide merchandising company), Spiegel, Inc. (a

mail order merchandising company), and various

other companies engaged principally in the sales fi-

nance and creditor insurance business (CX 18 at p.

3). In 1972, Beneficial Corporation had a net in-

come of approximately $82 million (CX 18 at p. 6).

3. Respondent Beneficial Management Corpora-

tion is a corporation organized, existing and doing

business under and by virtue of the laws of the State

of Delaware, with its principal office and place of

business located at 200 South Street, in the City of

Morristown, State of New Jersey. It is a wholly

owned subsidiary of respondent Beneficial Corpora-

tion and provides various accounting, auditing, man-

agement services, including the formulation of ad-

vertising and sales policies, for the subsidiaries of

Beneficial Corporation who operate the local loan and

tax preparation offices (Ans. pars. 1; 2; Higgins,

Tr. 204).

4. Respondent Beneficial Corporation through its

subsidiaries has for many years been engaged in the

consumer loan business and more recently in the tax

6 Sa

Lea

78a

preparation business. Its subsidiaries, including re-

spondent Beneficial Management Corporation, have

formulated and caused the dissemination of adver-

tisements concerning income tax preparation services

throughout the United States. Respondents have

maintained a substantial course of trade in the offer-

ing of consumer loans and income tax preparation

services in commerce, as “commerce” is defined in

the Federal Trade Commission Act. At all times

mentioned in the complaint, respondents have been,

and now are, in substantial competition with indi-

viduals, firms and corporations engaged in the offer-

ing of consumer loans and income tax preparation

services of the same general kind and nature as of-

fered by respondents (Ans., pars. 1-5; CX 18, 33,

137; Snyder, Tr. 8).

II. Liability of Respondents

5. Beneficial Corporation is a conglomerate pri-

marily composed of the Beneficial Finance System (a

general term used to refer to the Beneficial Corpo-

ration subsidiaries which engage in the loan and fi-

nance business), Spiegel, Inc., and Western Auto

Supply Company (CX at p. 3; Higgins, Tr. 178;

Finding 2).

6. On December 31, 1972, there were approxi-

mately 1800 subsidiaries in the Beneficial Finance

System, 1505 of these in the United States. Each of

these U.S. local loan offices are owned and operated

by a separate subsidiary of Beneficial Corporation

[hereinafter local loan subsidiaries]. Approximately

79a.

1300 of these offices offer tax preparation services.

With the exception of a few shares of a few subsidi-

aries, Beneficial wholly owns all of the stock of the

local loan subsidiaries in the United States (CX 18

at pp. 8-9; Higgins, Tr. 179, 152). Beneficial Man-

agement Corporation, also a wholly owned subsidiary

of Beneficial Corporation, furnishes services at cost

to the local loan subsidiaries (Ans., par. 2; Higgins,

Tr. 204-05).

7. Beneficial Management Corporation of America

is a wholly owned subsidiary of Beneficial Corpora-

tion. It employs regional and field supervisors

throughout the country and is responsible for imple-

menting the procedures which are established by

Beneficial Management Corporation (Higgins, Tr.

205-06). ~

8. Beneficial Management Corporation formulated

and approved all the advertising challenged in the

complaint and in conjunction with the local loan sub-

sidiaries caused its dissemination to members of the

general public (Ans., par. 2; Snyder, Tr. 6-22; Find-

ings 36-38, infra).

9. Beneficial Management Corporation prepared

and disseminated to the local loan subsidiaries various

memoranda, directives, and other documents contain-

ing instructions on the use of tax information at

issue in this case (CX 19-34, 35, 38, 41; Ans. to

Requests for Admissions 1, 3, 4; Snyder, Tr. 24-25,

27).

10. Beneficial Corporation’s local loan subsidiaries

disseminated various point of sale and direct mail

advertising pieces which were prepared by Beneficial

Management Corporation. The local loan subsidiaries

pay for the cost of this advertising (Finding 38, in-

fra; CX 99-111, 124, 125, 162, 168, 164, 165; Snyder,

Tr. 19).

11. Telephone directory advertising is often placed

at the request of the local loan subsidiary and is

generally paid for by that subsidiary (Snyder, Tr.

18; Findings 36-41, infra).

12. The acts and practices relating to use of tax

information which are alleged to be unfair and de-

ceptive in Paragraphs Eight and Nine of the com-

plaint were actually committed by employees of the

local loan subsidiaries (CX 25-27, 29, 34, 35, 38(a) )

(Findings 59-64, infra).

13. Respondent Beneficial Corporation’s wholly

owned local loan subsidiaries committed the unfair

and deceptive acts and practices alleged in the com-

plaint (Findings 9-12, supra).

14. Respondent Beneficial Corporation is the sole

stockholder of the local loan subsidiaries and either

its Board of Directors or Executive Committee select

who are to be on the Board of Directors of the local

loan subsidiaries (Higgins, Tr. 196-97).

15. The officers of each of the 1143 local loan sub-

sidiaries are identical, except for the president who

is, in each region, the regional vice president of

Beneficial Management Corporation. This pattern ex-

isted throughout the period 1969 through 1974 (CX

145(a) ; Donohue, Tr. 225-27).

Sila

16. All of the officers and directors of the non-

New York local loan subsidiaries are employees of

either Beneficial Management Corporation or Bene-

ficial Management Corporation of America, both

wholly owned subsidiaries of Beneficial Corporation

(Higgins, Tr. 198-201; Findings 3, 6, 7, supra).

17. Beneficial Management Corporation of Amer-

ica employs between 75 and 100 persons. Its prin-

cipal offices are located in the same building as are

those of respondent Beneficial Corporation, in Wil-

mington, Delaware. It employs various field super-

visors and auditors, and regional personnel and pro-

motional supervisors throughout the county. Its only

function is to provide supervision over, and service

to, the local loan subsidiaries. It receives all of the

funds necessary for its operations from Beneficial

Corporation, and generally does not make a profit

(Higgins, Tr. 205-20; Donohue, Tr. 245).

18. Mr. Carroll Donohue, who serves as director

and vice president and secretary of all the local loan

subsidiaries, is not paid a salary by the local loan

subsidiaries for performing these services, but is paid

by Beneficial Corporation, though he is neither an

officer nor director thereof (Donohue, Tr. 220-21,

245).

19. All of the local loan subsidiaries rely solely

on Beneficial Corporation for the money that they

use in the operations. Funds are advanced to the

local loan subsidiaries initially as capital contribu-

tions, or as loans. When a local loan subsidiary needs

additional loans, it contacts the treasurer’s depart-

ment of Beneficial Corporation to arrange for the

needed financing. The decision whether to advance

funds in the form of additional capital contribution

or loans is made by the treasurer and comptroller of

Beneficial Corporation (Higgins, Tr. 192-93; CX 18

at p. 9; CX 150(Z) (34-50) ).

20. The accounting for the local loan subsidiaries

in the Beneficial Finance System is handled largely

by computer. Beneficial Data Processing Company,

a wholly owned subsidiary of Beneficial Corporation,

provides the computer service to handle the basic data

relating to the loan and finance business. It operates

a terminal and computer system in Morristown, New

Jersey, which has a terminal in every local loan

office. It obtains all the funds needed for its opera-

tion from Beneficial Corporation (Higgins, Tr. 207-

08).

21. Beneficial Corporation in effect provides all

the financing needed by the local joan subsidiaries for

their operations and maintains a close watch over

the financial operations of those subsidiaries (Find-

ings 19-20, supra).

22. Beneficial Corporation operates various: plans

for the benefit of the employees of the local loan sub-

sidiaries (Higgins, Tr. 208-11; CX 150(n), (Z) (57),

(Z) (67), (Z)(2), (Z) (24), 150(m), 150(c); (Z)

(13) ).

23. Respondent Beneficial Corporation owns and

effectively controls the local loan subsidiary corpora-

tions (Findings 10-21).

83a

24. Respondents obviously endeavor to have the

local loan subsidiaries identified in the public mind

as part of the “Beneficial Finance System.” All of

the local loan subsidiaries are called “Beneficial Fi-

nance Company of ” (the name

of the town in which they are located) (CX 18 at

p. 3; Finding 5, supra; Higgins, Tr. 178-79). The

name “Beneficial Finance” is displayed on the outside

of most of the local loan offices. All of the advertising

for respondents’ tax service uses the terms “Benefi-

cial” or “Beneficial Finance” (Findings 33-47, infra),

and stresses the fact that a large nationwide organi-

zation is the entity offering the income tax prepara-

tion service. The tax service is referred to as the

“Beneficial Income Tax Service.” For example, CX

165(b) states: “Beneficial Income Tax Service—A

Service of Beneficial Finance System—over 1700 loan

and finance offices coast to coast.”

25. There is evidence in the record that consu-

mers are of the belief that they are dealing with a

large nationwide company when they patronize a

Beneficial local loan subsidiary and that such belief

is one of the reasons they choose to have their taxes

prepared at Beneficial (Deveny, Tr. 375; McIntire,

Tr. 426).

26. The combined effect of respondents’ advertis-

ing and the names of the local loan subsidiaries is to

create the reasonable impression that the local sub-

sidiaries are local representatives of some nationwide

controlling “Beneficial” entity. That entity is in fact

Beneficial Corporation (Findings 24-25).

84a

27. Beneficial Management Corporation functions

as a service organization for the local loan subsi-

diaries of the Beneficial Finance System. Beneficial

Management Corporation does not directly engage in

loan or income tax preparation business. Among the

services it provides are supervision, audit, account-

ing, advertising, and legal services. It provides these

services to the local loan subsidiaries at cost and does

not make a profit. All of the funds for its operation

come from Beneficial Corporation, through capitali-

zation and advances of money as needed. Beneficial

Management Corporation has never utilized outside

sources of capital (Snyder, Tr. 6; Higgins, Tr. 204-

05).

28. Some of respondents’ “Instant Tax Refund”

advertisements have been copyrighted. These copy-

rights are held by Beneficial Corporation (CX 113-

20). |

29. On April 26, 1972, there were 17 members of

the board of directors of Beneficial Corporation. Of

these 17 members, six worked for Beneficial Cor-

poration or its subsidiaries: Messrs. Benadom,

Bowes, Burd, Fultz, Higgins and Tucker. The re-

maining directors were outside directors (Higgins,

Tr. 189-90).

30. Beneficial Corporation exercises control over

Beneficial Management Corporation primarily through

three men who hold key positions in both companies:

Edgar T. Higgins, Cecil M. Benadom and Robert A.

Tucker (CX 150).

85a

31. The significance of the overlap demonstrated

in Finding 30, supra, lies in the fact that during

most of the time period relevant to this case, these

individuals constituted a majority of the executive

and finance committees of Beneficial Corporation and

were the entire executive committee of Beneficial

Management Corporation. Much of the formal de-

cision-making responsibility of both corporations is

exercised by these committees as opposed to the en-

tire boards. Therefore, the three top executive of-

ficers of Beneficial Corporation are in a position to

control effectively the activities of Beneficial Man-

agement Corporation (CX 150(f), (s), (Z) (16),

(51), (63), (68), (18-34), (68-87); Higgins, Tr.

190-92; CX 178; Finding 14, supra).

32. The executive committee of the board of di-

rectors of Beneficial Management Corporation ap-

proved the decision to enter into the tax preparation

business and were aware of the advertisement used

with regard to Beneficial Income Tax Service (Sny-

der, Tr. 7, 10).

III. The Unfair and Deceptive Acts and Practices

A. Stipulation for Partial Adjudicated Settlement

33. On November 30, 1973, complaint counsel and

counsel for respondents entered into a Stipulation For

Partial Adjudicated Settlement which was filed on

December 3, 1973. The effect of this stipulation was

to settle all of the advertising issues in the complaint

except Paragraph Six (1) and Paragraph Seven (1)

which deal with respondents’ “Instant Tax Refund”

VS. Se

86a

advertising claims. Counsel stipulated that the cease

and desist order provisions set forth in Paragraph

Two of the Stipulation For Partial Adjudicated Set-

tlement were appropriate relief in the public interest

as to the acts and practices which were the subject

of the stipulation (see Order, infra). Counsel also

stipulated, inter alia, to the following facts concern-

ing these advertising representations:

(A) Subsidiaries of respondent Beneficial Cor-

poration disseminated the following advertisements:

Radio and Television

(1) “This year have your tax returns pre-

pared a better way ... by computer... at

Beneficial Finance. With Beneficial’s Income Tax

Service for as little as $5 .. . you get maximum

deductions .. . 100% accuracy ... Plus you can

get an Instant “Tax Refund’. The instant you

qualify for a loan—you get your refund...

in cash—instantly. So have your taxes done at

Beneficial Finance. and get your Instant ‘Tax

Refund’.” :

(2) “Where are the smart people having their

tax returns prepared this year? At Beneficial

Finance. That’s right, Beneficial Finance—with

its tiew, fully computerized Income Tax Service.

You get ail the deductions you’re entitled to—

and since your return is figured by computer, it’s

guaranteed accurate. Now .. . here’s the big

news: At Beneficial, and only at Beneficial, you

can get an Instant “Tax Refund.’ The instant

you sign your return and qualify for an on-the-

spot loan, Beneficial advances you the full amount

of your refund. So there’s no waiting all those

weeks and weeks for your check from the Gov-

87a

ernment. It’s the Instant ‘Tax Refund’—at

Beneficial Finance.”

(3) “If you haven’t done your income taxes

yet . . . if you’re worried about all those new

forms and regulations . . . if like so many of

us you just can’t get down to all that figure work

on your tax return—let Beneficial Finance take

the load off your mind! For as little as $5,

Beneficial’s Income Tax Service will do your re-

turn by computer. It couldn’t be simpler: Bene-

ficial’s computer figures out your maximum de-

ductions and prepares your return with 100%

accuracy. And, if you have a refund coming,

you can get it right away with Beneficial’s In-

stant ‘Tax Refund’ the instant you qualify for

a loan, and get your refund—in cash—instantly!

Just look in the white pages of your phone book

for the Beneficial office near you. And, call up

or come in... today.”

Newspaper and Direct Mail

(1) “New Income Tax

Service Offers

INSTANT

‘TAX REFUND’*

Beneficial Finance offers a complete tax prepara-

tion service, fully computerized to give you maxi-

mum deductions. Accuracy is 100% guaranteed.

(Beneficial pays any penalty or interest if it

makes an error!)

*If you have a refund coming, you don’t have

to wait weeks for a Government check. The

instant you sign your return and qualify for an

88a

on-the-spot loan, you get your refund—in cash—

instantly. Only at Beneficial.

This year, let Beneficial $5 and

prepare your tax returns! up.

And if you want cash to pay your taxes, or for

any good reason, remember: you’re good for

more at Beneficial. Offices everywhere . . . open

all year. Phone or come in... now! Avoid the

rush.”’ ’

(2) “Its a fact: 7 out of every 10 taxpayers

who have their returns prepared by Beneficial’s

Income Tax Service get refunds.”

(3) BENEFICIAL

INCOME TAX

SERVICE

.. for as little as $5

(B) By and through the use of the above-quoted

statement and representations, and others of similar

import and meaning, respondents and their represen-

tatives have represented, and are now representing,

directly or by implication, that:

(1) Respondents will reimburse the taxpayer

for any payments the taxpayer may be required

to make in addition to his initial tax payment,

if such additional payments result from an error

made by respondents and their representatives

in the preparation of the tax return.

(2) Respondents’ and their representatives’

tax preparing personnel are specially trained and

unusually competent in the preparation of tax

returns and the giving of tax advice, and that

they have the ability and capacity to prepare

and give advice concerning complex and detailed

income tax returns.

89a

(3) The percentage of respondents’ tax prep-

aration customers who receive refunds is demon-

strably greater than the percentage of the tax

paying public at large who receive refunds.

(C) In truth and in fact:

(1) Respondents and their representatives do

not reimburse the taxpayer for all payments he

is required to make in addition to his initial tax

payment if such additional payments result from

an error made by respondents and their rep-

resentatives in the preparation of the tax re-

turn.

(2) Respondents’ and their representatives’

tax preparing personnel are not specially trained

and unusually competent in the preparation of

tax returns and the giving of tax advice, and

they do not have the ability and capacity to pre-

pare and give advice concerning complex and

detailed income tax returns.

(3) The pergentage of respondents’ tax prepa-

ration customers who receive refunds is not dem-

onstrably greater than the percentage of the tax

paying public at large who receive refunds.

Therefore, the statements and representations set

forth above in Finding 34 (A) and (B), were and

are, false, misleading and deceptive in violation of

Section 5 of the Federal Trade Commission Act.

(Stipulation For Partial Adjudicated Settlement)

B. The “Instant Tax Refund” Advertising

34. From 1969 through 1973, Beneficial Manage-

ment Corporation either formulated or approved all

of the advertising material utilized by respondents’

2 +s eee

oN

90a.

income tax preparation business. The advertisements

were disseminated by subsidiaries of Beneficial Cor-

poration. All of respondents’ advertising introduced

into evidence in this case was in fact disseminated

(Ans., pars. 2, 4; Snyder, Tr. 8-12; CX 124). There

are in evidence advertising schedules showing re-

spondents’ radio and television commercials that were

run for the income tax seasons 1970 to 1973, and

the areas where said commercials were run (CX 84-

88; Ross, Tr. 79-80).

35. Films with audio, for two of the 1973 televi-

sion commercials, were shown during the hearings

and were introduced into evidence (RX 20A, B).

Scripts of these two commercials, accurately refiect-

ing the audio portion of each, were also received into

evidence (RX 20D; CX 84J). Tape recordings and

their transcripts of two of the 1973 radio commer-

cials were played during the hearings and were in-

troduced into evidence (RX 20C, E, F).

36. Telephone directory advertising of respond-

ents’ income tax preparation service was initiated in

the second half of 1970, and began appearing in di-

rectories published in late 1970 or during 1971. A

schedule showing the copy of the telephone directory

advertising utilized, and where and when placed, pre-

pared by respondents’ advertising agency, was re-

ceived into evidence (RX 89A-T; Ross, Tr. 79-80).

37. The format for newspaper advertisements

used during the 1971 tax season in approximately

six states was received into evidence (CX 56; Sny-

der, Tr. 20-21).

9la

38. Beneficial Management Corporation prepares

and causes to be printed various point of sale and

direct mail advertising pieces, which are then shipped

to the local loan offices for dissemination (Snyder,

Tr. 19). Examples of these were introduced into

evidence (CX 52-55, 57, 59, 76, 95, 100(B-C), 102

(B-C), 103(B-H), 104(B-C), 105(A-B), 106(A-

This text is long and has been trimmed here. Open the source document for the complete record.