Beneficial Corp. v. F.T.C.
Decision Date | 14 September 1976 |
Docket Number | No. 75-2102,75-2102 |
Parties | , 76-2 USTC P 9801, 1976-2 Trade Cases 61,066 BENEFICIAL CORPORATION, a Delaware Corporation, and Beneficial Management Corporation, a Delaware Corporation, Petitioners, v. FEDERAL TRADE COMMISSION, Respondent. |
Court | U.S. Court of Appeals — Third Circuit |
E. Norman Veasey, R. Franklin Balotti, Richards, Layton & Finger, Wilmington, Del., for petitioners.
Robert J. Lewis, Gen. Counsel, Gerald P. Norton, Deputy Gen. Counsel, Gerald Harwood, Asst. Gen. Counsel, William A. E. Doying, Atty., Washington, D. C., for the Federal Trade Commission.
Before VAN DUSEN, GIBBONS and ROSENN, Circuit Judges.
We here consider a petition for review of a final order of the Federal Trade Commission, filed pursuant 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 business. 1 Beneficial challenges both the Commission's violation determinations and the breadth of its remedy. We enforce the Commission's order in part, but vacate and remand in part because we conclude that the order is overbroad in one respect.
On April 10, 1973, the Federal Trade Commission filed a complaint charging Beneficial with unfair and deceptive trade practices in connection with the preparation 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 Federal Trade Commission Act, 15 U.S.C. § 45. Beneficial, through 1400 branches operated by wholly-owned subsidiaries comprising the Beneficial Finance System, engaged in the business of making loans to members of the public based on their credit-worthiness. 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 information necessary for a computer to prepare tax returns accurately and at reasonable cost. The decision 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 refunds. Beneficial decided to advertise a loan providing 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 bearing. The parties differed on (1) whether the advertising 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 evidentiary hearing an administrative law judge on October 21, 1974, found Beneficial to be in violation in both respects. The Commission affirmed this decision on July 15, 1975, and entered a cease and desist order which, among other things, prohibited Beneficial 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 advertising typically used a text such as the following:
"
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 modifications and qualifications with the result that Beneficial's radio and television advertisements at the time of the Commission's order typically were like the following:
The Commission concluded that both the original advertising and the modified copy were false and misleading, and that the proper remedy was a total prohibition 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.
shall be guilty of a misdemeanor, and, upon conviction 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 Beneficial. Treasury regulations adopted in 1974 under the authority of § 7216(b)(3), however, permit 2 the use of such information with the customer's written consent. 3 The new law compelled Beneficial to alter its solicitation practices. In attempting to comply with the requirements, Beneficial adopted a Form BOR-56, reproduced in the margin in its entirety, 4 and required that its loan officers first procure a tax return customer's signature on that form before soliciting 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 relationship, in violation of § 5. It also held that Form BOR-56 was inadequate as an informed consent. Without deciding whether Beneficial's present practices violated the Revenue Act of 1971, the Commission held that those practices continued to violate § 5 and entered an order prohibiting Beneficial from:
"7. Using information concerning any customers of respondents, including the name and/or address of the customer, for any purpose which is not essential or necessary to the preparation of a tax return if such information was obtained by respondents as a result of the preparation of the customer's tax return which includes any information given by the customer after he has indicated, in any way, that he is interested in utilizing respondents' tax preparation services, unless prior to obtaining such information 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 consent is being signed
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 information will be made available
7. The date on which such consent is signed
8. A statement that the tax return information may not be used by the tax return preparer for any purpose other than that stated in the consent, and
9. A statement by the taxpayer that he consents to the use of such information for the specific purpose described in subparagraph (3) of this paragraph;
Provided, however, that nothing herein shall prohibit respondents from using names and addresses only of customers for the purpose of communication with such customers solely concerning 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 Commission's decision and order.
At the outset, Beneficial contends that the Commission's finding that its "Instant Tax Refund"...
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