Andrew Smith was recently named Director of the FTC’s Bureau of Consumer Protection. With a strong background in financial matters, businesses can expect Smith to focus on issues affecting consumer financial services.

Smith is not a stranger to federal positions. Although most recently a Partner in the Regulatory and Public Policy Group at Covington & Burling LLP and Co-Chair of the firm’s Financial Services Group, Smith previously held roles as Senior Counsel and Acting Assistant General Counsel at the SEC from 1997 to 2000 and as the Assistant to the Director of the Bureau of Consumer Protection from 2001 to 2005. During Smith’s time at the FTC, he focused largely on consumer financial protection policy—mainly through enforcement and rulemaking. For example, while serving as the program manager for the Fair and Accurate Credit Transactions Act of 2003, Smith helped to draft ten rules and six studies.

Smith’s interest in financial services has followed him throughout his career. His practice at Covington focused specifically on financial privacy—including regulatory compliance, consumer financial services laws, and enforcement actions and investigations. He also serves as the Chair of the ABA’s Consumer Financial Services Committee.

Notably, in January of this year, Smith testified before the House of Representatives Subcommittee on Financial Institutions and Consumer Credit about fintech policy. His statements suggest that he is in favor of an increased role of fintech in the banking industry, although he proposes passing legislation that clarifies the role of banks as lenders, regardless of the vendor or service provider. Further indications of Smith’s interest in the fintech space come from an editorial he authored in The Hill in February of this year. He advocates collaboration between fintech and banks to offer the middle class more financial options, e.g., point-of-sale lending. In Smith’s words, “the future of banking is the internet, and brick-and-mortar is the past.” His piece supports the Modernizing Borrower Credit Opportunities Act of 2017, a bipartisan bill to regulate the fintech industry introduced in November of 2017.

Another indication of Smith’s likely priorities as Bureau Director may be the people he worked with during his prior stint at the FTC. For example, he worked closely with Howard Beales who served as the Director of the Bureau of Consumer Protection from 2001 to 2004. Regarding advertising specifically, Beales advocates for a flexible “reasonable basis” standard for substantiation requirements, as opposed to more stringent evidentiary standards. This position favors the view that consumers benefit from having access to information. Having served with Beales, Smith may take a similar approach to substantiation requirements as Director.

Despite Smith’s previous experience, however, his appointment has not been without controversy. While at Covington, Smith represented Facebook, Uber, and Equifax in both investigations and FTC settlements regarding data breaches. Although Smith plans to recuse himself from these high profile cases in his new role, opponents have noted that Smith’s representation of these companies may put him at odds with the FTC’s consumer protection mission. Senator Richard Blumenthal stated that he could “imagine worse choices [for Bureau Director], but not many,” noting that Smith was “on the wrong side of [the] issues” in his testimony on behalf of Equifax last fall. During that testimony, Smith indicated that credit bureaus should not have a fiduciary duty to consumers from whom they collect data, and that current industry regulations were satisfactory to protect consumers. Senator Elizabeth Warren called Smith’s appointment “corruption, plain and simple,” referring to him as “Equifax’s hired gun.” Further, David Vladeck, who was Bureau Director from 2009 to 2012, noted that Smith’s recusing himself from some of the agency’s most important cases is an unusual position for someone in his role and wondered “how far-reaching the recusals will be.”

The FTC’s newly-appointed Democratic Commissioners had similar concerns, turning a usually perfunctory vote into a point of contention. Rebecca Slaughter noted that appointing a Director “who is barred from leading on data privacy and security matters that affect so many consumers, command so much public attention, and implicate such key areas of the law potentially undermines the public’s confidence in the commission’s ability to fulfill its mission.” Rohit Chopra, a fellow Democrat, agreed, noting that Smith’s conflicts “[raise] many questions,” and would put Smith “on the sidelines” in some of the agency’s most important cases. He also noted that FTC Chairman Joe Simons made the pick without a Commission meeting. Simons, however, called the appointment a “source of unnecessary controversy,” indicating that “it is impossible to attract high caliber professionals to the FTC without encountering some conflicts,” and noting that the agency can readily handle recusals.

Although we may have some insight into Smith’s new role as Director, his position on consumer protection issues outside of the financial industry, and the effects of his recusals, are left to be seen. We can expect, however, that helping to regulate fintech, and other financial security issues, will likely be high on his list of things to do.

FTC Commissioner Terrell McSweeny is scheduled to resign effective April 28 and may leave with acting Chairman Maureen Ohlhausen as the sole commissioner. Law360  published an article by partner John Villafranco and professor Stephen Calkins that discusses whether the FTC can take formal action by a 1-0 vote and when does a commission cease being a commission? To read the full article, please click here.

The Federal Trade Commission announced yesterday that it has approved final amendments to Commission Rule 1.98 that adjust the maximum civil penalty dollar amounts for violations of 16 provisions of law the FTC enforces, as required by the Federal Civil Penalties Inflation Adjustment Act of 2015 (“Adjustment Act”), which requires federal agencies to implement a “catch up” adjustment in 2016 to address due to inflation since the civil penalties in their jurisdiction were last set or adjusted by statute.

The maximum civil penalty amount has increased from $16,000 to $40,000 for the following violations and others listed in the Federal Register Notice:

  • Section 5(l) of the FTC Act, which pertains to violations of final Commission orders issued under section 5(b) of the FTC Act; and
  • Sections 5(m)(1)(A) and 5(m)(1)(B) of the FTC Act: trade regulation rules issued by the Commission under section 18 of the FTC Act that address unfair or deceptive acts or practices.

The new maximum civil penalty amounts will take effect on August 1, 2016, as required per the Adjustment Act.  Following this initial catch-up, the Adjustment Act directs agencies to adjust their civil penalties for inflation every January thereafter.

The Adjustment Act applies to civil penalties assessed after the effective date of the applicable adjustment, including civil penalties whose associated violation predated the effective date.  The Adjustment Act does not retrospectively change previously assessed or enforced civil penalties.  In addition, the Adjustment Act does not alter an agency’s statutory authority to assess penalties below the maximum level; however, to the extent that minimum penalties exist for violations, those are subject to adjustment as well.

How Penalties Were Selected For Adjustment

The Adjustment Act defined “civil monetary penalty” as “any penalty, fine, or other sanction that

(A)(i) is for a specific monetary amount as provided by Federal law; or

(ii) has a maximum amount provided for by Federal law; and

(B) is assessed or enforced by an agency pursuant to Federal law; and

(C) is assessed or enforced pursuant to an administrative proceeding or a civil action in the Federal courts.

Agencies were responsible for identifying applicable civil penalties.

Calculation of Inflation Adjustments

The catch-up adjustment is defined as the percentage by which the U.S. Department of Labor’s Consumer Price Index for all-urban consumers (“CPI-U”) for the month of October 2015 exceeds the CPI-U for the month of October for the year in which the amount of the penalty was last set or adjusted pursuant to law.  The Adjustment Act limits the amount of the catch-up increase for 2016 to 150% of the amount of the civil penalty in effect on November 2, 2015.

Guidance regarding calculation of future adjustments is forthcoming.  The Office of Management and Budget will issue adjustment rate guidance no later than December 15 each year to adjust for inflation in the CPI-U as of the most recent October.

Notice and Comment Not Used

The Commission did not engage in notice and comment prior to adopting this interim final rule.  Per the Commission, “advance opportunity for notice and comment are not required ‘when the agency for good cause finds (and incorporates the findings and a brief statement of the reasons therefore in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.’”  5 U.S.C. 553(b)(3)(B)  In short, because the Adjustment Act directs agencies to promulgate the adjustment through an interim final rulemaking no later than July 1, 2016, and prescribes the formula for making the adjustment, the Commission determined that good cause exists to forego prior public notice and comment under the Administrative Procedures Act.

On Monday, the FCC and FTC published a Memorandum of Understanding in which the two agencies agreed to engage in greater coordination and collaboration on consumer protection issues, with greater respect for each agency’s jurisdiction. The MOU comes at a time when both agencies are seeking to position themselves as protectors of consumers in the digital economy.

In the MOU, the agencies agreed to coordinate with one another “to protect consumers from acts and practices that are deceptive, unfair, unjust and/or unreasonable” and, specifically, to:

  • Coordinate on initiatives where one agency’s action will have a significant effect on the other agency’s authority or programs;
  • Consult on investigations or actions that implicate the jurisdiction of the other agency;
  • Meet regularly to review current marketplace practices, to share each agency’s work on consumer protection matters of common interest, and to exchange information about “the evolution of communications markets”;
  • Share enforcement techniques, tools, intelligence, expertise, and best practices in response to reasonable requests for assistance;
  • Collaborate on consumer and industry outreach and education efforts;
  • Engage in joint enforcement actions, where appropriate, and coordinate public statements; and
  • Share data regarding consumer complaints to the extent feasible, including through the FTC’s Consumer Sentinel Network.

The agencies also addressed the scope of the common carrier exemption, which exempts from the FTC’s jurisdiction common carriers subject to the Communications Act. Specifically, the FCC and FTC “expressed their belief” that the exemption does not extend to non-common carrier activities engaged in by common carriers, and that exercise of enforcement authority within one agency’s jurisdiction should not be taken to limit the authority of the other. While approaching jurisdictional issues more gingerly will certainly promote better relations between the agencies in the near term, ultimately, the scope of the “common carrier exemption” is an issue for the courts and Congress, and is unlikely to be solved soon.

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