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Like a Kid in a Candy Store, Parental Supervision Still Needed for FTC Rulemakings

kid in a candy store Congress gets dinged a lot for slowing down innovation, but sometimes that is just what the doctor ordered. Thirty-five years ago, a Democratically controlled Congress passed the Magnuson-Moss Act in an attempt to check a hyperactive FTC.


Like a kid set loose in a candy store, the FTC at the time had gone on a binge of overreaching and harmful regulation. The core enabler of this action is the exceptionally broad mandate bestowed on the agency to regulate all “unfair” consumer activity. Unlike regulating the structural stability of bridges or safety in food, “fairness” is a subjective concept.


Congress’ prudent action to place special restrictions on FTC rulemaking [15 U.S.C. Sect. 57a(b)(2)(A)] was in direct response to the agency’s overreach and regulation of activities that would have included advertising children’s products – in essence, acting like a kid in a candy store. Magnuson-Moss was the equivalent of putting the candy behind the counter, providing Congress and courts control over how much candy was appropriate.


Now, 35 years later, the FTC has that ‘unfairness feeling’ again. In a NY Times interview last month, FTC Chairman Jon Leibowitz signaled his intent to change standard marketing tactics of disclosure and opt-out, by requiring users to opt-In for collection of information for targeting ads.   They are concerned about what’s “fair” in advertising, but we know that low rates of opt-in will reduce ad revenue. If the change were put into effect, free online services might have to charge a “fare” to users.


At the same time, the FTC is seeking to shed what the Chair called “medieval restrictions” on its rulemaking powers.  A change that would allow the FTC to move quickly to require opt-in. Taken together, these threats to online services and e-commerce are #1 on the 2010 iAWFUL list.


Earlier in the 111th Congress, legislation was passed in the House to reform financial services regulatory mechanisms. The bill expanded FTC rulemaking authority, even though the FTC wasn’t blamed for failing to regulate trade that contributed to the financial crisis.


A similar Senate bill addressing financial regulatory reform did not change FTC rulemaking powers.  Fortunately, at a Senate Commerce hearing on February 4, several Senators challenged Chairman Leibowitz as he made the case for an expedited rulemaking process.


The specific purpose of the Magnuson-Moss Act was to enact safeguards that restrain the FTC’s ability to unilaterally deem certain practices “unfair” and, in turn, to expand its authority in many areas including banning broad categories of advertising.


These safeguards include important procedures that allow for enhanced stakeholder participation, require a detailed evidentiary record before the FTC can create new rules, and enable courts to scrutinize rulemakings as a valuable check to ensure proper process and evidentiary support.

The current process through which the FTC promulgates rules, as established by the long standing Magnuson-Moss Act, is a proven and effective vehicle for the regulation of business that provides the Commission with authority to punish businesses that act in a deceptive manner.


Chairman Leibowitz argued that his agency strains to make timely rules. But Congress has demonstrated time and again that when it wants the FTC to move quickly, it will direct the FTC to do so. For example, both the COPPA and CAN-SPAM laws gave the FTC rulemaking authority – under the expedited APA process [5 U.S.C. Sect 553] – allowing the FTC to issue regs quickly.


The bottom line is that new regulations are not necessary to hold legitimate businesses accountable for their actions. Outlaws who spam and scam are STILL spamming and scamming after the FTC issued regulations.


A new era of increased regulatory promulgation at the FTC would harm law-abiding competitors and consumers while failing to address those who operate outside the law. To address these individuals, aggressive enforcement seems more relevant than expanded regulation.


This is why the FCC’s campaign for an expedited rulemaking process is the equivalent of handing a child the keys to a candy store, and the reason why it tops the 2010 iAwful list.