The possible creation of a new consumer financial protection agency has been the subject of significant media coverage and speculation. As the spirited debate continues as to whether the best way to protect consumers from financial fraud is to create a new agency or expand the resources of the FTC, the FTC has taken this opportunity to lobby for enhanced powers overall, regardless of whether enforcement power for consumer financial protection is ultimately ceded to a new agency.
The Consumer Financial Protection Agency Act of 2009 (H.R. 3126) was originally introduced on July 8, 2009. Although the primary purpose of the bill is to establish a Consumer Financial Protection Agency, it also contains provisions amending the Federal Trade Commission Act (FTC Act) to enhance the FTC’s current enforcement authority. The House Committee on Financial Services voted to approve the bill on October 22, 2009, and the House Committee on Energy and Commerce followed one week later. No similar bill has yet been introduced in the Senate, though Senate Banking Committee Chairman Chris Dodd released a draft proposal regarding financial reform on November 10, 2009. His draft proposal does not include similar provisions expanding FTC authority.
The Administration has urged a number of enhancements to the FTC’s authority in conjunction with legislation regarding financial reform including:
- Expanding when the FTC is authorized to seek civil penalties;
- Permitting the FTC to exercise enforcement authority over those who aid and abet in a violation; and
- Streamlining the process by which the FTC promulgates rules.
FTC Chairman Leibowitz, testifying before the House Energy and Commerce Committee’s Subcommittee on Commerce, Trade and Consumer Protection on July 8, 2009, urged the Subcommittee to not only enhance the FTC’s enforcement authority, but also to give the FTC independent authority to bring litigation in which it seeks civil penalties. Under current law, the FTC must first present the case to the Department of Justice (DOJ), which has 45 days to determine whether to file the action itself. 15 U.S.C. § 56(a)(1). Additional enforcement authority, Leibowitz argued, “would allow the Commission - the agency with the greatest expertise in enforcing the FTC Act - to bring cases more efficiently while retaining the option of referring appropriate matters to the DOJ.” Commissioner Kovacic dissented from the portion of the testimony supporting changes to the FTC’s rule-making authority and the broad civil penalty authority, expressing concern that the routine availability of civil penalties would “risk constraining the development of doctrine[.]”
H.R. 3126 includes many of the requested enhancements to FTC authority. Specifically, it provides that the FTC may seek a civil penalty for any violation of the Federal Trade Commission Act, whereas currently the FTC Act provides only that the FTC may seek a civil penalty for violations of a “rule under this chapter respecting unfair or deceptive acts or practices…” H.R. 3126 also makes it unlawful for any person to provide “substantial assistance” to another in violating the FTC Act or any other act enforceable by the FTC. To do so would be considered an unfair or deceptive act under Section 5 of the FTC Act, and thus subject to FTC enforcement. H.R. 3126 finally streamlines the rulemaking proceedings under the FTC Act to dispose with numerous existing notice and comment requirements. This change essentially would give the FTC the authority to use the Administrative Procedure Act notice and comment procedures to promulgate rules rather than the more cumbersome and time-consuming procedures outlined in Section 18 of the FTC Act.
The further authority requested by Chairman Leibowitz to pursue civil penalty actions was not included in the version of H.R. 3126 approved by the House Committee on Financial Services. In anticipation of the markup of H.R. 3126 by the House Committee on Energy and Commerce, Chairman Leibowitz sent a letter to the Committee members urging that the FTC be provided with authority to independently litigate civil penalty cases. Chairman Leibowitz expressed his strong support for providing the FTC with additional tools stating that “[n]ew tools for the FTC are critical for the FTC to provide the strongest possible protection for consumers and President Obama has expressed his support.”
At the October 29, 2009 markup, the House Energy and Commerce Committee adopted an amendment proposed by Representative Waxman providing that, in addition to exclusive authority to commence civil actions relating to injunctive relief and consumer redress, the FTC has exclusive authority to commence actions to obtain civil penalties. Chairman Leibowitz issued a statement expressing appreciation, particularly for Waxman’s work.
No further action is scheduled for H.R. 3126 at this time, though differences between the approaches of the two House Committees with respect to various provisions have led both Barney Frank, Chairman of the Financial Services Committee, who characterized a Waxman amendment relating to the leadership of the proposed new agency as a “big mistake,” and Waxman, who indicated that he would have further changes during the floor debate, to suggest that resolving differences may have to wait until H.R. 3126 reaches the floor of the House.