The Supreme Court let stand yesterday a ruling that the government says ultimately could "seriously handicap" its ability to protect the public from false or misleading advertising.
The case involved Beneficial Corp., which in 1969 established an income tax preparation service at the approximately 1,500 local loan offices it operates.
Beneficial promoted the service with now-discontinued broadcast and print advertisements offering what it termed " an instant tax refund."
Actually, the FTC said, the "refund" was an everyday personal consumer loan offered to customers who were owed tax refunds - and who would pay regular finance charges and costs to Beneficial while they waited for the refunds to arrive.
The commission ordered the company the stop using "instant tax refund" or other words of similar meaning.
The company appealed and won a substantial victory. The Third U.S. Circuit, while agreeing with the FTC that the phrase was deceptive, ruled 2 to 1 that in banning it the agency had "exceeded its remedial authority."
The heart of the issure is the degree of constitutional protection to be accorded commercial speech. "It is now established beyond dispute that there is no commercial speech exception to the First Amendment," the appeals court majority said.
The majority cited a milestone decision in a Virginia case last May in which the Supreme Court gave commercial speech some First Amendment protection by striking down a state law prohibiting licensed pharmacists from advertising the prices of prescription drugs.
Applying that decision in the Beneficial case, the appellate court held "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 remedial objective of preventing the violation."
With that, the court sent the case back to the FTC for new proceedings designed to consider whether it would be feasible to require "merely that advertising copy be rewritten in lieu of total excision of the offending phrase."
Trying its hand at writing ads, the court suggested acceptable texts, such as: "Beneficial's everyday loan service can provide to regularly qualified borrowers an instant Tax Refund Anticipation Loan whether or not the borrower uses our tax service."
The dissenter, Judge Francis L. Van Dusen, pointed out that the Supreme Court, in the Virginia case, said it was construing the First Amendement in a way that "does not prohibit the state from insuring that the stream of commercial information flows cleanly as well as freely."
Van Dusen also said the majority opinion "overlooks" a commission finding that it knew of no way to purge "instant tax refund" of deception and that only elimination of the phrase from ads would suffice.
He also said he did not believe that sample ads drafted by the majority judge - John J. Gibbons, joined by Judge Max Rosenn - would make it clear to consumers that Beneficial was offering them "an everyday consummer loan having no relationship to tax refunds and no special features."
The original ad said, "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 . . ."
The company later modified the text. The commission ban on "instant tax refund," issued in October, 1974, upheld a staff cease-and-desist complaint of April, 1973.
Yesterday's Supreme Court action leaves the appellate court order in effect only in the Third Circuits, - Delaware, New Jersey, Pennsylvania and the Virgin Islands. In other circuits, the FTC is currently litigating cases that also raise issues of its power to regulate commercial speech to prevent deceptive advertising. Thus the stage is being set for an ultimate Supreme Court review of the issue.
An unrelated action by the high court concerned dredging operations by the Army Corps of Engineers that stir up massive amounts of bottom sediments and degrade water quality in the Mississppi River, Lake Superior and elsewhere.
In a case brought by Minnesota and supported by six other states, the Eighth U.S. Circuit Court of Appeals held last October that state water pollution control rules must give way to the congressional policy of improving navigability. The Supreme Court, with three justices dissenting, dismissed Minnesota's apppeal.