On February 4, 2021, the House Energy and Commerce’s Subcommittee on Consumer Protection and Commerce held a hearing entitled, “Safeguarding American Consumers: Fighting Scams and Fraud During the Pandemic.”  The hearing focused on the FTC’s ability to obtain equitable monetary relief under Section 13(b) of the FTC Act – an issue that is currently being considered by the Supreme Court in AMG Capital Management LLC v. Federal Trade Commission.

To gain a better understanding of the deceptive marketing campaigns seeking to exploit the ongoing public health crisis and the challenges the FTC faces in fighting fraud, the Subcommittee invited Bonnie Patten, Executive Director of TruthInAdvertising.org; Jessica Rich, former Bureau of Consumer Protection Director and Distinguished Fellow of the Institute for Technology Law & Policy at Georgetown Law School; William E. Kovacic, former FTC Chairman and Global Competition Professor of Law at George Washington University Law School; and Traci Ponto, Spokane COPS Crime Victim Advocate at Spokane Community Oriented Policy Services.

In their opening remarks, the Chairwoman of the Subcommittee, Janice D. Schakowsky (D-IL-09), and Ranking Member Gus M. Bilirakis (R-FL-12) expressed concern over the increasing number of fraudulent and deceptive marketing schemes that have arisen to take advantage of the COVID-19 pandemic and related economic crises.  Chairwoman Schakowsky lamented that “unfortunately [the FTC’s Section 13(b)] authority is under assault at the Supreme Court and the FTC may find itself deprived of a critical tool.”  She also warned that while the FTC has been very aggressive with investigating pandemic-related fraud, it has not gone after the major cause of the problem, negligence by platforms.  She remarked that these “partners in profit … must demonstrate real efforts to keep scammers off their sites.”

Four themes emerged during the hearing:

  • Safeguarding the FTC’s Section 13(b) Authority: Both Democratic and Republican members expressed concern that the Supreme Court could curtail the FTC’s authority and urged Congress to amend Section 13(b) of the FTC Act to make clear that the agency can bring federal actions.  Witnesses underscored the importance of Section 13(b), noting that if the FTC were forced to scale back its litigation efforts, consumers would face more deceptive claims and states would need to shift resources to secure relief for consumers.  However, the Ranking Member of the full committee, Cathy McMorris Rodger (R-WA-05), repeatedly warned of the potential for the FTC to abuse its authority to force settlements without affording defendants due process.  She advised that Congress take a “holistic view” as it considers legislation adjusting the FTC’s enforcement authority.
  • Increasing the FTC’s Consumer Redress Capacity: Witnesses also called on Congress to expand the FTC’s resources and penalty authority.  Former Chairman Kovacic advocated for increased funding to align its salaries with those of other U.S. financial services regulators and ensure adequate staffing levels for the FTC to meet its expansive mandate.   Patten proposed authorizing the agency to issue penalties for first-time violations and adopt a civil penalty fund, an approach also found in the Consumer Online Privacy Rights Act (S.2968).  As with the fund managed by the Consumer Financial Protection Bureau, this proposed civil penalty fund would allow the FTC to use restitution obtained in one case to make victims whole in other civil penalty cases.
  • Educating Consumers and Improving Collaboration: Many witnesses underscored the importance of helping consumers stay vigilant by educating them about deceptive marketing schemes and encouraging them to report violators to law enforcement.  They also urged more extensive collaboration between the FTC and other consumer protection bodies.  Although the consumer protection regime is a decentralized system, they argued that a more collaborative approach will ensure federal and state officials can respond more quickly and effectively to fraud and patterns of misconduct.
  • Duty of Platforms to Combat Fraud: Finally, witnesses expressed concern over the lack of action taken by platforms to screen out fraudulent content.  Witnesses remarked how the FTC faces obstacles in holding them accountable, in part because of the argument that Section 230 shields platforms from liability for deceptive marketing statements made on their website by third parties.  They proposed a range of solutions, from excluding Section 230 protection for commercial speech to establishing additional duties for social media companies to monitor content on their platforms.  Chairwoman Schakowsky also cited the bill she introduced last year, the Inform Consumers Act (R.7756), as a way to force companies to verify the identity of their third-party sellers.

Their written statements, as well as other information about the hearing, are available here.  We will continue to monitor developments regarding the FTC’s Section 13(b) authority and the FTC’s consumer protection enforcement agenda here on Inside Privacy.