Monday, April 14, 2008

Federal Trade Commission Testimony Supports Proposed 2008 Reauthorization Act

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

All four current FTC commissioners testified before the Senate Commerce Committee on April 8, discussing a proposal to reauthorize the agency for the next seven years. The Commission generally supports the proposed “Federal Trade Commission Reauthorization Act of 2008” (S. 2831), according to the prepared congressional testimony.

FTC Chairman William E. Kovacic began by telling the committee that the agency “welcome[d] and encourage[d] [Congressional] efforts to continue to see that the agency [was] put on a footing that permits it to deliver effective competition and consumer protection programs.”

He was encouraged by the legislation's efforts to increase agency funding and its long-range approach. The bill would provide Fiscal Year 2009 funding at $264 million and would increase the budget by 10 percent per year for the next seven years.

Authority to Seek Civil Penalties

The Commission testimony supported provisions in the proposed legislation that would enable the agency to seek civil penalties for knowing violations of Section 5 of the FTC Act. The Commission reiterated its support for new authority to seek civil penalties in areas where its existing remedies are insufficient to achieve the law enforcement goal of deterrence, such as spyware, data security, and telephone records pretexting.

In addition, the FTC supported the bill's grant of authority to litigate its own civil penalty cases. Currently, the agency is required to refer civil penalty cases to the Department of Justice.

Commissioner Jon Leibowitz reported that the FTC “unequivocally supports” Section 7 of the proposed 2008 FTC Reauthorization Act, which would give the FTC the ability to challenge practices that aid or abet violations of the FTC Act.

“Making it easier for the Commission to challenge those who provide assistance to others who are violating Section 5 of the FTC Act could help the agency attack the infrastructure that supports Internet fraud,” according to Commissioner Leibowitz’s testimony.

Repeal of Common Carrier Exemption

The Commission testified in favor of the bill's proposed repeal of the telecommunications common carrier exemption. This “outdated” exemption bars the FTC from reaching certain conduct by telecommunications companies, according to the agency. Its repeal would allow the FTC to protect consumers who are dealing with unfair or deceptive practices in consumer billing and advertising by phone companies and wireless service providers.

Extension of Jurisdiction over Nonprofits

Currently, the FTC’s jurisdiction over nonprofits is limited by the definition of “corporation” in the FTC Act. The Commission supports the bill's efforts to extend its jurisdiction to certain nonprofit entities, according to the testimony. Section 6 of the proposed 2008 FTC Reauthorization Act would reach nonprofit entities that have tax-exempt status under Section 501(c)(3) of the Internal Revenue Code.

The Commission said that it would benefit from broadening this provision to cover certain other nonprofits, such as Section 501(c)(6) trade associations.

Rulemaking Proceedings

The proposed FTC reauthorization bill would allow the FTC to conduct rulemaking on consumer protection issues under the streamlined rulemaking procedures of Section 553of the Administrative Procedures Act (APA), which are generally available to federal agencies. APA procedures would be much less time-consuming than procedures under the agency's current Magnuson-Moss authority.

In light of the issues in the subprime mortgage lending industry, “the FTC believes that it should have the authority to use APA procedures to promulgate rules whenever the banking agencies and National Credit Union Administration commence rulemaking under the FTC Act.”

Noting differing views among the commissioners on the subject of adopting APA rulemaking on a notice-and-comment basis, Commissioner J. Thomas Rosch expressed his personal view that “APA rulemaking authority for consumer protection matters would greatly increase the Commission's effectiveness in dealing with certain types of practices.” Rosch pointed to the subprime lending area as an example.

Recent Enforcement Efforts

In addition to addressing the proposal introduced by Senator Byron Dorgan (North Dakota), the prepared testimony recalled some FTC law enforcement actions since September, when the Commission last provided reauthorization testimony. Commissioner Pamela Jones Harbour covered the enforcement highlights in her oral statement.

The text of the prepared testimony appears here on the FTC website and will be reported at CCH Trade Regulation Reports ¶50,228. A videocast of the testimony appears here at the Senate website.

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