DMA’s Woolley Asks Senate to Limit FTC Power Expansion

If House bill H.R. 4173 becomes law, it will broaden the Federal Trade Commission’s powers far beyond where they are now—with unforeseen and potentially chilling consequences for direct marketers.

Linda Woolley, the Direct Marketing Association’s executive vice president of government affairs, brought this message to the Senate in an effort to pare back some of the bill’s provisions. She was part of a panel that testified Wednesday afternoon before the Senate Commerce Committee’s Consumer Protection, Product Safety, and Insurance Subcommittee.

According to a written copy of her testimony, Woolley argued that the proposed legislation would remove checks and balances that govern the FTC’s rule-making ability. The bill would also eliminate some of the justice processes on which challenged marketers rely. Her written testimony was wider-ranging than what she ultimately presented, as she ran up against time constraints.

Woolley’s testimony repeatedly referenced the Magnuson-Moss Act, which provides safeguards to accused entities when FTC investigates “unfair and deceptive” practices. According to Woolley, “Prior to the implementation of the Magnuson-Moss safeguards in 1975 and 1980… the commission exercised little restraint and began conducting rule-makings on a wide range of subjects,” including gasoline additives, eyeglasses, and paperback-book distribution. Its efforts even included an attempt to ban all children’s advertising, according to Woolley.

She also noted that, unlike other federal agencies that focus on specific industries (such as pharmaceuticals) wherein staff members can become experts on topics relevant to that industry, “the FTC has authority to determine on its own what constitutes an ‘unfair or deceptive’ practice and to regulate such a practice wherever it occurs.”

The potential repeal of the Magnuson-Moss Act was the biggest concern of all she addressed, Woolley said when questioned by Sen. Mark Pryor (D-AR).

The FTC is sufficiently able to effectively oversee and correct marketing malfeasance under its current restrictions, Woolley argued. And her written testimony cited FTC chairman Jon Leibowitz’s chronicle of the commission’s success.

“The FTC is primarily a law-enforcement agency, and it has used its authority proactively to protect financially distressed consumers,” Woolley’s testimony quoted Leibowitz as saying.

She went on with the Leibowitz quote: “In many of these cases, the commission has used its powers to seek temporary restraining orders, asset-freeze orders, and other immediate relief to stop financial scams in their tracks and preserve money for ultimate return to consumers.”

Woolley advocated case-by-case regulation, saying, “If there are specific areas in which such streamlined rule-making authority is necessary, then we believe that Congress should consider and pass legislation detailing those areas.” Her testimony cited the past appropriateness of rule-making authority in the “children’s privacy, commercial e-mail, telemarketing, and (jointly with other financial regulators) financial privacy,” adding that Congress had recently given the FTC authority to address specific concerns within the mortgage industry.

But a danger, according to Woolley, is in H.R. 4173’s potential repealing of what she calls the “prevalence” requirement currently in place under Magnuson-Moss.

“This provision requires the FTC to issue a finding that an ‘unfair or deceptive’ practice has become ‘prevalent’ in the marketplace before proceeding with a rule,” Woolley wrote in her prepared remarks. “Requiring that the commission show prevalence of an ‘unfair or deceptive’ practice by industry ensures that responsible businesses across the country are not burdened with regulations that stifle innovation or legitimate commerce as a result of the bad practices of a few actors.”

In short, it prevents a knee-jerk bit of legislation in response to a few sensational cases of deception. During a question-and-answer period, former FTC commissioner and fellow panelist Timothy Muris said the commission defined “prevalence” as any industry in which two entities agreed to consent orders—a standard he felt was low.

There’s an additional hazard for direct marketers, according to Woolley: Absent prevalence, popular regulations designed to protect consumer information could be put in place, without appropriate consideration for long-term effects.

“Such unchecked regulation might occur in areas such as information-sharing, privacy, Internet advertising and marketing, mobile marketing, affiliate marketing, targeted marketing, online behavioral marketing, marketing to children and teenagers, and numerous other topics where the best intentioned rule-making almost certainly cannot anticipate innovation and change, and may not be able to achieve its intended purpose without significant unintended consequences,” according to Woolley.

The DMA, through Woolley, is also raising a red flag over an “aiding and abetting” clause in H.R. 4173. According to Woolley, under this provision the FTC would have authority to “treat persons that ‘knowingly or recklessly’ provide ‘substantial assistance’ to others in committing ‘unfair or deceptive’ acts or practices as primary wrongdoers even when they lack actual knowledge of a violation.”

Within the direct marketing community, this clause “would put a wide range of service providers in the position of policing the actions of clients over which they exercise no control,” Woolley’s testimony claimed.

She went on, stating that “examples of service providers who would be put in the position of having to police the actions of their clients—were the FTC to have authority over aiders and abettors—include agencies involved in the creation of a campaign advertising a product that was later found to be faulty, printers of catalogues, web hosting companies, or publishers who place advertisements in their newspapers or on their websites.”

Finally, Woolley’s testimony gave voice to the DMA’s opposition to proposals that would grant the FTC independent litigating authority to seek civil penalties. According to Woolley, such proposals would remove the current requirement that the FTC provide the Department of Justice with 45 days to determine whether it will take a case on behalf of the FTC.

As a result, the FTC would be able to bring suits immediately on its own. Including the Department of Justice in the decision to seek civil penalties, Woolley indicated, “provides a check on agency discretion and… has the added benefits of promoting orderly access to the federal courts, as well as providing for consistent and coordinated federal litigation.”