AAF: FTC Power Grab Hidden in Finance-Regulation Bill

Language Would Repeal 'Safeguards' that Keep Rulemaking in Check

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NEW YORK (AdAge.com) -- The American Advertising Federation sent an e-mail today to its members warning them of impending legislation that it claims, if passed, could give the Federal Trade Commission "dramatically increased power," allowing it to easily enact industry-wide rules limiting advertising. Clark Rector, exec VP-government affairs at the AAF, said the legislation could be passed shortly after Congress gets back from its recess early next month.

Mr. Rector said the legislation is part of a financial-regulation reform bill, which has already passed the House, and that language "buried" in that bill would repeal the safeguards that have kept FTC rulemaking on advertising in check for over 30 years. (See text of H.R.4173, better known as the Wall Street Reform and Consumer Protection Act of 2009.)

Under the current law, the FTC, before enacting industry-wide rules, is required to hold hearings on the proposed rules, prepare a statement of basis and purpose including the economic impact of a rule and identify an actual harm that a proposed rule is designed to address.

The new rulemaking procedures, according to the AAF's e-mail, would allow the FTC to issue rules "by simply publishing them in the Federal Register, wait 60 days for comments, and then issue a final rule." Mr. Rector said the most serious of the proposed changes issued by the commission would require a "court to determine that the FTC was arbitrary or capricious or abused its discretion before the court could overturn a rule, which is an almost impossible standard to meet if challenging a rule." Today the courts can send a rule back to the FTC if there is a lack of substantial evidence to uphold it.

Citing the "voluntary" federal guidelines, passed last December, dictating which foods could be advertised to children and youths under 18, Mr. Rector said this new rulemaking procedure, should it be passed, would allow the FTC to make such guidelines mandatory. "[Marketers] should be very concerned because this is as big an issue we have faced in a long time in Congress," Mr. Rector said. The e-mail implores AAF members to call their senators to tell them they oppose "the new authority given to the FTC in the House financial regulatory reform bill."

Asked what he thought the FTC should do with the legislation, he said he'd like to see the commission just drop it. "We don't feel like it's needed," he said. "But if the commission can make a case that there is a problem and show us where the problem is, the industry would be more than willing to work to get any problem fixed. But at the moment it's a bit of throwing the baby out with the bath water."

Mr. Rector said he is a fan of the FTC and believes that the ad industry and consumers benefit when the commission does its job as an enforcement agency. "The problem with the rule-making is that we are getting beyond enforcement and into the area of policy-making," Mr. Rector said. "And it's there that they need to proceed with more caution."

The FTC was unable to comment before press time.

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