President Obama has announced his intention to name Jon Leibowitz Chairman of the FTC. As a sitting FTC Commissioner, he does not need to go through the Senate approval process so he can step into his new role immediately. We expect to see Consumer Protection kicked up at least a notch or two under Leibowitz leadership. In particular, expect to see less emphasis on self-regulation and more consistent imposition of consumer redress. Commissioner Leibowitz has expressed his disagreement more than once over his colleagues’ clear focus on self-regulation to cure a variety of perceived harms. We do not predict he will replace self-regulation with enforcement in all areas, but we expect the two will not be mutually exclusive under his leadership. He has expressed his discomfort with relying entirely on self-regulation most recently in connection with the FTC Staff Report on Self-Regulatory Principles for Online Behavioral Advertising, warning that “to date data security has been too lax, privacy policies too incomprehensible, and consumer tools for opting out of targeted advertising too confounding. . . . Put simply, this could be the last clear chance to show that self-regulation can -- and will -- effectively protect consumers’ privacy in a dynamic online marketplace.” Leibowitz offered similar reservations about the effectiveness of self-regulation in his concurring statement with the FTC’s July 2008 report on Marketing Food to Children and Adolescents noting that while some companies had voluntarily taken steps to help curb the obesity epidemic that “others need to strengthen their voluntary measures . . . [because] a failure of self-regulation may make the next Congress -- and next administration -- more inclined towards government regulation.” Commissioner Harbour has agreed with these views so with the appointment of a new Commissioner by Obama to replace Leibowitz’s current clot, they will enjoy a majority position.
He will likely embrace and may even seek out expanded authority from Congress. Leibowitz has led the charge to obtain authority from Congress to amend the FTC Act to prohibit aiding or abetting a violation of any consumer protection statute enforced by the FTC. The Commission unanimously urged the repeal of the exemption for telecommunications companies regulated by the FCC Act, expressing its frustration to Congress at the difficulties this exemption has caused to investigate and seek remedies against all wrongdoers in, for example, the prepaid calling cards and mobile content marketing industries.
We will see an increase in remedies both in amounts paid generally and in monetary redress required for first time violators to settle with a consent order. Leibowitz has regularly spoken out about the need to punish Section 5 violators with more than an equitable remedy. His concurrence (again with Commissioner Harbour) in the Kmart case related to dormancy fees and expiration dates on store gift cards made clear he agreed with the injunctive result but thought the company should have disgorged ill-gotten profits and provided consumer redress. Leibowitz has been vocal before Congress of his belief that the FTC should have the power to seek civil penalties for all violations of the FTC Act rather than only in cases where there are violations of existing orders or in cases where statutes the FTC enforces authorizes penalties, such as the CAN-SPAM Act. In his testimony in support of the FTC Reauthorization that that would have expanded the FTC’s civil penalty powers, he said “Speaking for myself, I strongly support . . . the additional civil penalty authority. Your bill, I believe, will help give us the critical tools we need to successfully confront the antitrust and consumer protection challenges of the 21st century.”
Based on Obama’s priorities, we can expect to see the FTC Consumer Protection Bureau continuing its focus on consumer privacy and data security through both enforcement and policy making. Additionally, with the current financial crisis, the FTC has and will continue to focus on investigations in the subprime market and mortgage lending industry, as well as investigating those who prey on consumers through fraudulent mortgage rescue and debt collection relief schemes. With the expected revision to the Green Guides, we also expect to see enforcement activity related to environmental marketing claims.
Bottom line, expect more investigations and more penalties and redress for those believed to have violated Section 5. This makes it a prime time for companies to take a fresh look through a compliance-focused lens at their marketing campaigns and the means through which companies communicate to consumers to keep out from under the FTC’s radar screen.