AAF Government Report

November 6, 2009

Clark Rector Jr., Executive Vice President – Government Affairs

Special Report

The U.S. Congress is considering major changes to the jurisdictional mandate of the Federal Trade Commission, including in its ability to regulate advertising. These changes, which would transform a regulatory structure that has worked well since the 1970’s, have received very little scrutiny through the normal process of congressional hearings and debate.

H.R. 3126, the Consumer Financial Protection Agency Act, would create a new agency with wide jurisdiction over many financial services. The jurisdiction would extend to the advertising of those products, which currently resides with the FTC. While the FTC would seemingly lose some authority, its powers would be greatly expanded over those areas where jurisdiction remains. The legislation would do away with many of the protections previously enacted by Congress to protect industry from the over-reaching of the Federal Trade Commission in the 1970’s. The bill is waiting to be considered by the full House of Representatives. Similar changes have been proposed and are likely to be considered in the Senate.

Over 30 years ago, the Congress enacted procedural safeguards for rulemaking and enforcement procedures undertaken by the Federal Trade Commission. The safeguards included:

  • A requirement that the FTC give the Justice Department 45 days notice before proceeding with an enforcement action or forego the imposition of fines for injunctive remedies.

  • A requirement that the FTC find that a type of consumer deception is prevalent and not just limited to one instance before proceeding with a rulemaking to address the deceptive activity.

  • A requirement that a rule be supported by substantial evidence on the record as a whole and not just reviewable by a court on a determination that the agency was arbitrary or capricious.

  • A requirement that if there is a disputed issue regarding a material fact in a rulemaking that the FTC must permit cross-examination of witnesses.

  • A requirement that a statement as to the economic impact of a proposed rule be included in the record.

  • A requirement that in deciding what act or practice may be unfair to consumers, the FTC not only may consider established public policies as evidence but the policy consideration may not be the primary basis for the finding of unfairness.

Collectively, these requirements are known as Magnusson-Moss rulemaking procedures after the then chairmen of the House and Senate Commerce Committees. Senator Warren Magnusson, D-Wash. and Representative John Moss, D-Calif. were considered strong proponents of consumer protection.

Proponents of the changes argue that the FTC should be able to undertake rulemakings under more streamlined procedures enjoyed by most other federal agencies. However, other agencies have a narrow jurisdictional mandate (for example, financial markets for the Securities and Exchange Commission, food and pharmaceuticals for the Food and Drug Administration) and therefore an inherent expertise in the subject matter. The FTC has broad jurisdiction over much of the economy, and thus no inherent expertise. It is this lack of expertise that make the Magnusson-Moss procedures necessary.

The American Advertising Federation and our allies in Washington will continue to warn lawmakers as to the negative implications of moving hastily and without adequate consideration to change a regulatory structure that has worked well for many years on behalf of both consumers and businesses.

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