Federal Trade Commission (FTC) Chairwoman Lina Kahn, who took over the reins of the FTC in June, is making it clear that she is no fan of the direction some private equity-owned businesses have taken in recent years. She takes particular issue with, “extractive business models” that “centralize control and profits while outsourcing risk, liability, and costs.” She went on to say these business models, “warrant particular scrutiny, given that deeply asymmetric relationships between the controlling firm and dependent entities can be ripe for abuse.”

Kahn circulated a memo to commission staff and commissioners regarding the vision and priorities for the agency. In the memo, Kahn writes, “[t]he growing role of private equity and other investment vehicles invites us to examine how these business models may distort ordinary incentives in ways that strip productive capacity and may facilitate unfair methods of competition and consumer protection violations.”

By tying private investment to extractive business—and specifically to abuses that effect on marginalized communities—the chairwoman has put a target on these firms’ backs.

This message rings similar to criticism of private equity made by Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra, who had been a commissioner at the FTC. Both Kahn and Chopra have signaled a desire to see increased and more efficient use of strategic resources and enforcement power in consumer protection matters.

With M&A activity on the rise, private investors in industries, products, and services within the crosshairs of the FTC or CFPB should not ignore these risks. An investigation or enforcement action by either agency could impact a funds’ return on investment and could result in corporate and individual liability for officers, directors, and other control persons. At a minimum, diligence of a target company should include a close look under the hood of its product offerings, marketing practices, and compliance management system.

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Jonathan L. Pompan

Jonathan Pompan is co-chair of the firm’s Consumer Financial Services Practice Group and Consumer Financial Protection Bureau (CFPB) Task Force. Jonathan’s practice focuses on providing comprehensive legal advice and regulatory advocacy to a broad spectrum of clients, such as nonbank financial products and…

Jonathan Pompan is co-chair of the firm’s Consumer Financial Services Practice Group and Consumer Financial Protection Bureau (CFPB) Task Force. Jonathan’s practice focuses on providing comprehensive legal advice and regulatory advocacy to a broad spectrum of clients, such as nonbank financial products and services providers, advertisers and marketers, and trade and professional associations, before the CFPB, the Federal Trade Commission (FTC), state attorneys general, and regulatory agencies. At a time when government consumer protection agencies are stepping up their scrutiny, Jonathan develops strong and lasting relationships with clients by understanding their business objectives, helping them recognize opportunities and avoid legal pitfalls.

Alexandra Megaris

Alex Megaris focuses on complex regulatory investigations and government enforcement matters involving state attorneys general, the Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB), state regulatory agencies, and the U.S. Congress. Alex also works closely with Venable’s government affairs team in…

Alex Megaris focuses on complex regulatory investigations and government enforcement matters involving state attorneys general, the Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB), state regulatory agencies, and the U.S. Congress. Alex also works closely with Venable’s government affairs team in advocating for clients before these agencies. She has extensive experience with consumer protection laws, such as state unfair, deceptive and abusive practices (UDAAP) laws, the FTC Act, the Consumer Financial Protection Act, the FTC’s Telemarketing Sales Rule, and product-specific regulations, including those regulating credit reporting, loan servicing, and debt collection.