On October 19, 2020, the Federal Trade Commission issued its annual report to Congress regarding the FTC’s efforts to protect senior citizens from fraud and abuse. In the report, the FTC noted that adults over 60 are more likely to report losing money to certain types of alleged scams, including romance scams, imposter scams, and online shopping programs. Moreover, the FTC reports that seniors were more than six times more likely than younger consumers to report that they lost money because of tech support phishing activities, and three times more likely to report losing money because of lottery scams.

In a separate statement, Commissioner Rohit Chopra said the agency’s analysis suggests the need for two key actions. These actions, and Commissioner Chopra’s statement generally, indicate that the FTC is considering how to move forward in the face of the Supreme Court’s potential erosion of its favored enforcement tool—Section 13(b).  His comments also have important implications for payment processors and other financial intermediaries that are facing inquiries from the FTC.

First, he recommended that the agency focus its enforcement actions on “larger, established firms,” rather than “smaller-scale scammers.” As an example, he pointed to the FTC’s settlement with payment processor Fiserv (formerly known as First Data) as a “model[] for the entire agency.” Commissioner Chopra believes that such enforcement actions against larger corporations would be a “better use of resources” and “more likely to lead to effective relief and systemic impact.”

Second, Commissioner Chopra questioned the FTC’s current emphasis on Section 13(b) enforcement actions, highlighting certain limitations in relying primarily on Section 13(b) to pursue alleged wrongdoers. First, he expressed reservations regarding Section 13(b) because it did not allow the FTC to maximize consumer recovery because monetary relief is generally “capped at direct harm.” In doing so, he appears to acknowledge that Section 13(b) is not the optimal tool to use against intermediaries—like payment processors—that may not be directly liable for a merchant’s conduct that harms a consumer. Moreover, he acknowledged that the FTC’s ability to recover funds under Section 13(b) “is in jeopardy” in light of the Supreme Court’s forthcoming decision in FTC v. Credit Bureau, which will decide whether the FTC is entitled to recover monetary relief under Section 13(b).

Because of this perceived lack of deterrence and consumer remedies available under Section 13(b), Commissioner Chopra urged the FTC to pivot its enforcement efforts to Section 19 enforcement actions. Section 19 authorizes the FTC to pursue civil penalties and damages for violations of FTC-promulgated rules. Commissioner Chopra, however, recognized the current limitation on the FTC’s ability to proceed under Section 19—a lack of FTC-promulgated rules addressing conduct the FTC now targets. Thus, he has urged the FTC to “restat[e] existing legal precedent through rulemaking.”

Commissioner Chopra’s recommendation to commence large-scale rulemaking, however, appears to overlook the complex nature of FTC rulemaking. Historically, Congress granted the FTC broad rulemaking authority. In fact, in the 1970s, the FTC was issuing a rule a month—a blistering pace. In reaction to what Congress and the public viewed as this aggressive regulatory overreach, Congress passed the Federal Trade Commission Improvement Acts of 1980. The statute requires the FTC to engage in “hybrid” rulemaking, which adds more onerous requirements to the traditional notice-and-comment requirements for “informal rulemaking” under section 553 of the Administrative Procedure Act, including (1) when seeking to make an interpretative rule or general policy statement, demonstrating that the act or practice to be proscribed is “prevalent”; and (2) conducting informal hearings, during which the presiding officer must make findings of fact and conclusions of law and allow interested parties to cross-examine. Thus, the pivot that Commissioner Chopra advocates to rule-focused enforcement actions may be easier said than done.

Whether Commissioner Chopra’s comments are shared by others at the Commission is unclear, and no other Commissioner joined his statement. The FTC’s powers are in flux, and Commissioner Chopra is thinking creatively about ways to boost the FTC’s enforcement heft. Whether his views on enforcement remain his own or are adopted by the Commission will depend on the election and other factors. Stay tuned.

Venable has the experience needed to help clients navigate these issues. We have handled numerous FTC investigations and lawsuits involving direct-response marketers, payment processors, lead generators, fulfillment companies, and others who assist in sales. We will continue to monitor developments relevant to the FTC’s enforcement authority on this blog.

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Photo of Leonard L. Gordon Leonard L. Gordon

Len Gordon, chair of Venable’s Advertising and Marketing Group, is a skilled litigator who leverages his significant experience working for the Federal Trade Commission (FTC) to help protect his clients’ interests and guide their business activity. Len regularly represents companies and individuals in…

Len Gordon, chair of Venable’s Advertising and Marketing Group, is a skilled litigator who leverages his significant experience working for the Federal Trade Commission (FTC) to help protect his clients’ interests and guide their business activity. Len regularly represents companies and individuals in investigations and litigation with the FTC, state attorneys general, the Department of Justice (DOJ), and the Consumer Financial Protection Bureau (CFPB). Len also represents clients in business-to-business and class action litigation involving both consumer protection and antitrust issues. He also counsels clients on antitrust, advertising, and marketing compliance issues.

Ellen T. Berge

Ellen Berge provides counsel on regulatory compliance, government investigations, contract negotiations, and general business matters. Ellen focuses on advertising, marketing practices, payment processing, and merchant services. Her clients include major brand advertisers and direct-response retailers, and lead generators, telemarketers, media agencies, software providers…

Ellen Berge provides counsel on regulatory compliance, government investigations, contract negotiations, and general business matters. Ellen focuses on advertising, marketing practices, payment processing, and merchant services. Her clients include major brand advertisers and direct-response retailers, and lead generators, telemarketers, media agencies, software providers, and others who serve them. On the merchant services side, she leads a practice that works with banks, processors, sales agents, payment facilitators, independent software vendors, and fintech and financial services businesses. Ellen also serves as the firm’s managing partner of Professional Development and Recruiting.