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Marketing regulations: Does consumer protection have the potential to overreach?

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While much of the recent public debate over regulating Internet marketing has focused on behaviorally targeted advertising, another key battle is looming over a proposed law that would broaden the Federal Trade Commission’s ability to regulate marketing messages.

As part of federal consumer protection legislation working its way through Congress—integral to the overall effort to regulate the financial industry in the wake of the economy downturn—are provisions that would extend to the FTC the power to impose civil penalties on companies that engage in what it considers “unfair” or “deceptive” marketing practices.

Currently, the FTC can flag such practices, but must undergo congressional review and request public testimony before penalties can be imposed.

National advertising organizations are hoping to draw attention to the possibility of expanded FTC powers and derail it.

“The creation of the new Consumer Finance Protection Agency is intended to protect consumers and stop things that led to the economic meltdown,” said Linda Woolley, exec VP-government affairs with the Direct Marketing Association. “And all that is fine. But it also would give back to the FTC the expanded powers that were taken away from it in the 1970s.” Congress passed acts in 1975 and 1980 to rein in the FTC’s then-broad powers, creating a series of checks and balances prior to the setting of any penalty.

“We’re not against the financial regulatory stuff, but we are against the FTC getting back these expanded powers,” Woolley said.

The proposed change is included in the Wall Street Reform and Consumer Protection Act of 2009, which was passed by the House of Representatives in December. The bill now is under review by the Senate’s Committee on Banking, Housing and Urban Affairs.

Rather than merely exercising the notification and mediation powers it has today, the FTC would be able to promulgate trade regulations that define certain acts as “unfair” or “deceptive,” as well as impose civil penalties on targeted businesses.

Critics of the proposed change in the advertising industry say that “unfair” and “deceptive” are subjective terms and that procedural safeguards are necessary. Further, they say, the law would extend FTC enforcement powers over those providing “substantial assistance” in a violation.

“If a company has an ad that contains unfair or deceptive claims, the FTC would have enforcement authority over that company as well as anybody connected to that ad—including the publisher of the ad and the creative people behind it—as aiding and abetting the practice,” Woolley said.

A broad mandate
The 1914 act that created the FTC defined its mandate “as broadly as you can imagine,” said Mike Zaneis, VP-public policy with the Interactive Advertising Bureau. If the proposed legislation becomes law, he said, the FTC’s expanded powers “also would define their rule-making authority.”

This issue has been overshadowed by the ongoing battle over federal regulation of behavioral advertising, ads that are served up based on viewers’ previous online activities.

That issue will be addressed this week, on March 17, when the FTC holds its third and final workshop on Internet privacy and the practice of collecting Internet user data to fine-tune behaviorally targeted ads.

While the FTC has so far bowed to the advertising industry’s pledge that it can self-regulate its use of behavioral ads and consumer data, some feel the commission is inching closer to recommending regulatory law, perhaps by June or July.

Hoping to convince the FTC that the advertising industry can regulate itself, a group of five organizations—the American Association of Advertising Agencies, the Association of National Advertisers, the Council of Better Business Bureaus, the DMA and the IAB have promulgated guidelines for self-regulation.

But many within those organizations view the issue of expanded FTC powers as even more threatening.

“Our No. 1 legislative priority is making sure the FTC doesn’t get unlimited rule-making authority, because they abused that authority back in the 1970s,” Zaneis said.

Also opposed to expanded FTC power is NetChoice, a coalition of trade associations and e-commerce businesses that promotes Internet commerce. Coalition members include IAC/InterActiveCorp., News Corp. and Yahoo.

According to NetChoice, if the existing strictures on FTC oversight are repealed, the commission could regulate notice-and-choice processes used online in exchange for free services. That might include such offers as white papers and e-newsletters.

“The FTC has a vital and challenging job in protecting American consumers,” said Steve DelBianco, executive director of NetChoice, in a statement. “But we’re now faced with a situation where the public needs to be protected from an FTC with carte blanche regulatory authority.”

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