Advertising Law Blog

Many marketers may be in favor of the proposed Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173) recently passed by the House in December 2009 and currently before the Senate because the bill seeks to address elements which caused the current financial crisis. Unfortunately, the devil is in the details. The proposed legislation is purportedly intended to provide for financial regulatory reform, to protect consumers and investors, to enhance Federal understanding of insurance issues, to regulate the over-the-counter derivatives markets. However, hidden within the proposed legislation is the "Improvements to the Federal Trade Commission Act" and other provisions that would significantly expand the authority of the Federal Trade Com­mission (FTC) beyond the massive powers the agency already possesses. These proposed changes will place legitimate marketers, suppliers, and media businesses in an even more precarious position. Indeed, the DMA has gone so far as to call the proposed enhancements "The FTC on steroids."

There is no doubt that the primary focus of the bill are provisions aimed at the financial services industry. For example, the bill provides for the creation of a Consumer Financial Protection Agency (section 4101 - 4703), a new, independent federal agency to oversee virtually every aspect of consumer financial services, including mortgages, credit cards, debit cards, car loans, gift cards, credit reporting agencies, debt collectors, and financial advisers. Consumer financial protection functions would be transferred (section 4601) to the new Consumer Financial Protection Agency from the Federal Reserve Board of Governors, the Comptroller of the Currency, the Director of the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, the Federal Trade Commission, the National Credit Union Administration, and the Secretary of Housing and Urban Development The Consumer Financial Protection Agency would be responsible for enforcing laws governing consumer credit.

However, in addition to these and other financial-related changes, the bill would significantly expand the powers of the Federal Trade Commission, to include, among other things, the power to seek civil penalties and an expansive use of the "substantial assistance" enforcement. The proposed legislation provides for the following:

Expansion of "Substantial Assistance" Violations - Section 4901 of the Act would grant the FTC have significant new enforcement powers to sue companies for providing substantial assistance to another's violation of the FTC Act. The law creates Section 5 liability to any person who "knowingly or recklessly" provides "substantial assistance to another in violating any provision of this Act or of any other Act enforceable by the Commission that relates to unfair or deceptive acts or practices." Such an expansive enforcement power would likely be used against legitimate companies who are otherwise innocent other than supplying a marketer that has violated the FTC Act instead of pursuing the actual wrongdoer. We have seen that the FTC has already used such a provision in the Telemarketing Sales Rule to go after legitimate suppliers that have assisted or facilitated marketers that have violated the TSR, even where the suppliers lacked culpability and the agency has chosen not to pursue the actual wrongdoers.

Civil Penalty Authority - The FTC would receive authority to seek penalties not only for actual violations of the FTC Act, but also to deter potential violations. Currently, there are only defined instances in which the FTC can seek civil penalties - violation of a specific rule authorizing penalties or breach of a prior administrative order. Here, those powers would be significantly expanded.

Other Enhancements: The legislation would modify how the FTC promulgates new regulations permitting the agency to us­e the Administrative Procedure Act (APA) instead of the enhanced Magnuson-Moss procedure that it has used for three decades.

Marketers should carefully watch this legislation and share with their representatives in Washington their feelings on this aspect of what is being proposed and the risks it places on legitimate businesses.