Wheeler-Lea Act of 1938
The Wheeler-Lea Act of 1938 was a significant legislative amendment that expanded the powers of the Federal Trade Commission (FTC) to protect consumers from false and misleading advertising. This act arose from growing public concern over deceptive advertising practices, particularly highlighted by tragic incidents such as the 1937 elixir sulfanilamide disaster, which resulted in numerous deaths due to unsafe products. Prior to this amendment, the FTC had limited authority mainly focused on regulating unfair competition among businesses, but the Wheeler-Lea Act allowed the agency to directly address consumer protection issues.
Under this act, false advertising was clearly defined, enabling the FTC to regulate advertisements aimed at the public. It granted the FTC the authority to issue fines and cease-and-desist orders against companies that engaged in misleading advertising practices. Although the act represented a significant step forward in consumer protection, some critics argued that it did not impose stringent enough penalties for violations. Moreover, the act intentionally left certain advertising practices, such as puffery, unregulated. Overall, the Wheeler-Lea Act established important procedures for consumer protection that continue to influence advertising regulations today.
Wheeler-Lea Act of 1938
The Law Amendment authorizing the Federal Trade Commission to regulate deceptive advertising
Also known as Advertising Act
Date Enacted March 21, 1938
Adopted in 1938, the Wheeler-Lea amendment broadened the Federal Trade Commission’s original 1914 authority regulating unfair or deceptive acts or practices between businesses to include advertising. After passage, the focus turned to the prevention of false advertising directed at consumers.
The Federal Trade Commission (FTC) was created by the 1914 Federal Trade Commission Act. Section 5 of that legislation attempted specifically to regulate unfair methods of competition between businesses. Its goal was to enforce antitrust laws, such as the Sherman (1890) and Clayton (1914) acts. One major activity was protecting small businesses from the competitive clout of large, national chains. The five-member panel appointed by President Woodrow Wilson had the authority to file civil lawsuits and conduct public hearings. However, it had little clout for punishing guilty parties.
The act’s narrow powers were confined to protecting the marketplace from unfair competition. The topic of advertising was not addressed directly within the original FTC act and was not addressed at all until the Supreme Court decision in FTC v. Winstead Hosiery Company (1922) supported the FTC’s ruling that false advertising should be considered an unfair method of competition. Thus, FTC jurisdiction was expanded to protect consumers by including advertising. However, such powers were eliminated less than ten years later when the Supreme Court ruled the FTC was overstepping its jurisdiction. In Federal Trade Commission v. Raladam Co. (1931), the Court determined that the commission could not prohibit false advertising unless outright injury to a competitor was clearly evident.
Consumers of the 1930’s did not take such a backward step lightly. The consumer movement, which had seen glimpses of hope, did not let that 1931 ruling dim its outlook. Alerted to the dubious practice of false advertising, the American public complained and called for solutions. Many consumer complaints stemmed from poor enforcement of the 1906 Pure Food and Drug Act, which included cosmetics, the ever-expanding supply of patent medicines, and the advertising of these and similar products. Muckraking journalists were pointing out the dangers of such practices in their publications.
About one hundred state laws regarding drugs, for example, went into effect in 1935 and 1936. A national furor was raised in 1937 when Massengill marketed its liquid sulfa drug, elixir sulfanilamide. As a result of the antifreeze components within the drug, more than one hundred individuals died. A national groundswell of support for action to control deceptive advertisements was endorsed by women’s organizations, including the powerful League of Women Voters. Congressional hearings led to the Wheeler-Lea amendment. Introduced by Senator Burton Kendall Wheeler, a Democrat from Montana, and Representative Clarence Frederick Lea, a Democrat from California, a bill expanding the FTC’s power was passed by the House and sent to the Senate on March 29, 1937. Political discussion of that bill and the Food, Drug, and Cosmetic Act proposal delayed official action for almost one year.
After passing on March 21, 1938, the Wheeler-Lea amendment granted the FTC a broader scope of authority to protect consumers from unethical ads. False advertising was clearly defined as any advertising that contained or omitted information relevant to the consumer’s decision or use of that product under ordinary circumstances. Given this clause, the FTC could regulate advertising directed toward the public, not simply businesses. Rather than merely holding hearings, the FTC was empowered to issue fines and cease-and-desist orders for deceptive advertisements. Jurisdiction over unfair or deceptive ads for food, drugs, and cosmetics was officially handed over to the FTC. The Food and Drug Administration maintained authority over the labeling and contents of all such products. Even advertising developed for food, drug, and cosmetic products but not yet published could be prohibited by the commission. A penalty of up to five thousand dollars for each violation could be levied by the FTC against an offending company for ignoring its cease-and-desist order. Despite such protections for the public, critics maintained that the Wheeler-Lea amendment did not go far enough with enforcement penalties. An unscrupulous advertiser could go ahead with false or misleading claims, only to withdraw them when ordered to by the FTC. The topic of puffery, which allows advertisers to brag about their products or services, was intentionally not targeted by the 1938 legislation.
Impact
The 1938 Wheeler-Lea amendment broadly expanded the Federal Trade Commission’s 1914 powers to include protection for consumers against false and misleading advertising. Spurred on by a growing consumer movement, the act put in place procedures still in use.
Bibliography
Belch, George, and Michael Belch. Advertising and Promotion: An Integrated Marketing Communications Perspective. New York: Irwin/McGraw-Hill, 2008.
Pember, Don R., and Clay Calvert. Mass Media Law. 17th ed. New York: McGraw-Hill, 2011.