New House Bill Could Make Media Culpable for Financial-Service Ad Claims

ANA, 4A's Say Proposal Unfairly Sweeps Ad Industry Into Banking Overhaul

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WASHINGTON ( -- If you think privacy and blogging rules are the biggest regulatory issues in Washington this fall, think again.

Controversial legislation winding its way through the House to create a Consumer Finance Protection Agency would establish a whole new regulatory system for financial-services advertising. One provision, according to media industry advocates, could make media outlets liable for running financial advertisements the new agency deems misleading.

Those advocates raise the specter of media outlets being forced to hire experts to study advertisements from financial services companies.

The legislation would also restructure the Federal Trade Commission, the ad industry's main regulator, by shifting much of its regulatory authority and resources to the new agency.

"The whole advertising community should be concerned about this," said Dan Jaffe, exec VP of the Association of National Advertisers.

Overhauling financial-services industry
The advertising industry is being swept into the legislation designed to overhaul the financial-services industry. The bill creates a new agency that would examine lending practices, look for financial fraud of all kinds and judge whether loans are issued and marketed fairly.

The ANA and the American Association of Advertising Agencies oppose the bill in its current form, along with a wide swathe of business groups, including the U.S. Chamber of Commerce. They are worried about the sweeping regulatory authority the legislation would give the CFPA.

Given a boost last week in a speech by President Barack Obama, who is eager to speedily accomplish some elements of his financial-system overhaul, the legislation appears to be on the fast track, with some observers expecting it to be voted on in the House before Thanksgiving.

"We think this has some broad-based widespread appeal on the Hill," said Adonis Hoffman, senior VP of the 4A's.

In effect, the new agency would take over much of the financial fraud now overseen by the FTC. Advertising industry groups argue that this may decimate the agency and create confusing areas of regulatory overlap. For instance, the legislation gives authority for financial fraud committed via telemarketing to the new agency, but leaves authority for telemarketing fraud in general with the FTC.

The ANA sent a letter to Barney Frank (D-Mass.), chairman of the House Financial Services Committee, that raises questions about the extent to which knowledgeable staff and resources would be transferred away from the FTC, decimating the agency. FTC commissioners also opposed the new agency at hearings in July.

"It's not clear what's left of the FTC if this happens," Mr. Jaffe said.

Mr. Frank has said, however, that he envisions a strong role for the FTC.

"I don't think advertisers and marketers would see a major change," said David Berenbaum, exec VP of the National Community Reinvestment Coalition, pointing out that the intent of the new agency will be to pursue instances of fraudulent advertising.

Unintended consequences
However, media groups are worried that, perhaps as an unintended consequence of the new language, the legislation could force media companies to worry much more about the content of the advertising that they sell.

One provision allows the new agency to create new rules for what is unlawful to run in an ad, and another expands the liability for running an unlawful add to anyone who "knowingly or recklessly provide[s] substantial assistance to another person."

"This language could create a very large net that reaches virtually anyone involved in preparing, placing, receiving, televising or printing an advertisement," according to the Advertising Coalition, a 14-member group that includes almost all of the advertising trade groups and big companies.

Jim Davidson, executive director of the group, gave the example of an advertisement for a complicated mortgage product with a very high upfront fee that might be considered usury. If the new agency deemed it unlawful, a media outlet would be liable for running it.

The provisions raise free-speech issues, said Mr. Davidson, noting that eventually such restrictions would have a chilling effect.

"If the standard is gray as opposed to black and white, you are not going to err on the side of exposing your company to liability," Mr. Davidson said.

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