Federal Trade Commission Extended The Power Under The Financial Reform Bill – Networks Beware

The Financial Regulatory Reform Bill currently slated to be voted on by the Senate shortly would so sweepingly expand the regulatory and enforcement powers of the Federal Trade Commission (FTC) over the entire business community that former FTC Chairman Jim Miller described it as “putting the FTC on steroids.”

Over thirty years ago, Congress passed the Magnuson-Moss amendment to the FTC Act in response to claims of abusive rule making by the FTC. These amendments created a procedure the FTC was required to undertake before it could engage in rule making. Magnuson-Moss requires, amongst other things that prior to the institution of a new rule the FTC must publish its proposed rule, obtain comments on its proposed rules and the effect they will have on industry, provide a legal review of the proposed rule and only then issue a final rule. Not surprisingly, instead of broad rulemaking, the FTC has for the past thirty years relied on individual law enforcement actions. The revocation of the Magnuson-Moss amendment as set froth in the current financial regulatory reform bill means rule making by the FTC needs no review and can broadly address entire areas of commerce the FTC has decided contain problematic conduct.

The current senate financial regulatory reform has buried in it three sweeping changes to the Federal Trade Commissions authority: (1) It repeals the Magnuson Moss rulemaking procedures, including the requirement that an activity be “prevalent” in an industry before Commission action, and allows the Commission to promulgate broad industry-wide rules on any consumer protection matter in a highly expedited procedure and it lowers the standard of judicial review; (2) Expands the Commission’s authority to immediately impose civil money penalties for any violation of the FTC Act without the involvement of the Department of Justice; and (3) Provides for new liability for “aiders and abettors” of companies that violate the FTC Act, potentially putting thousands of companies at risk by running ads and imposing liability upon the networks.

These changes are not limited to financial products and services. Rather they would apply to the broad regulatory authority the FTC has over almost every segment of the internet community. Chairman Leibowtiz has already told what the first rule making authority it going to be: 1) inform consumers in plain English and large type what information is being collected and let them choose whether they want that data collected; 2) store that data securely; 3) explain any policy changes clearly; and 4) sensitive data collection [meaning all data] must be collected by an affirmative opt-in, meaning companies have to get affirmative consent.

Good or bad for the industry is yet to be determined. But change of your policies and the manner and method in which you collect, use and disseminate consumer information is about to change.

Comments are closed.