Protocol | Policy

The FTC is losing power just when Congress wants it to rein in tech

After a brutal loss for the FTC in the Supreme Court, lawmakers have big decisions ahead about the agency that's supposed to police tech.

The FTC is losing power just when Congress wants it to rein in tech

Congress wants the FTC to police big tech, but following a Supreme Court loss for the agency, lawmakers are struggling to decide what powers it should have.

Photo: Darren Halstead/Unsplash

In recent years, the Federal Trade Commission has gone after COVID-19 scams, deceitful payday lenders, sham drug patent litigation and of course Facebook's acquisitions — all under the same legal authority that the Supreme Court gutted last week.

The high court issued a unanimous ruling Thursday in AMG Capital Management v. FTC, finding that the agency had spent four decades vastly overstating its legal ability to quickly secure money for consumers, particularly from fraud and scams.

The rebuke will force Congress to weigh in on one of the main tools the FTC uses to police ever-broader swaths of the U.S. economy, with partisan splits already emerging. As if relying on lawmakers' ability to compromise wasn't enough to put question marks around the agency's mission, the debate over what the agency actually can do comes just as the commission is increasingly called upon to beef up its oversight of the tech industry.

"They're asked to regulate or at least oversee incredibly sophisticated companies that increasingly dominate the landscape," said Justin Brookman, a former FTC official who is now director of consumer privacy and technology policy at Consumer Reports. "You're seeing a bipartisan recognition that the FTC hasn't done a good enough job on privacy, on competition, on consumer protection more broadly."

Despite a 40-year trend of decreasing staff, the FTC tends to be asked to absorb responsibilities such as watching over new sectors of the economy, considered part of its broad mandate to protect consumers from unfair and deceptive business practices. That's how cybersecurity breaches, children's online privacy and fake COVID-19 cure websites ended up the responsibility of an agency that began in 1914 to "bust the trusts" and now also oversees mergers and monopoly enforcement.

To cope with the increase in responsibility since the 1980s, the commission more frequently turned to its powers to seek injunctions in federal court under Section 13(b) of the FTC Act. The agency asserted that the provision also allowed it to go to court to try to force bad actors to make consumers whole monetarily, circumventing a more laborious internal process for retrieving ill-gotten gains.

Courts backed this interpretation often enough that the agency made its supposed powers under 13(b) into a key tool for getting money back from fraudsters, many of whom now operate online, sometimes through large platforms. Over the years, the agency also turned the provision into an important way to police a range of consumer protection concerns, and occasionally to claw back the gains of anticompetitive abuse. The FTC says it's secured more than $11 billion in consumer refunds over the last five years, and a top agency official testified Tuesday that the decision could put roughly 24 ongoing consumer protection and competition cases seeking billions at risk. The ability to seek injunctions under 13(b) is even at the heart of the FTC's competition case against Facebook, although the commission is not seeking monetary redress in that instance.

"It's a 13(b) machine," Stephen Calkins, a former FTC general counsel who now teaches at Wayne State University's law school, said of the agency. "That's what they do for a living." He called the Supreme Court decision "a gut punch."

Yet the backlash against that machine has been rising from corporate America. In AMG, the Court struck down the FTC's ability to get money under 13(b), forcing the commission to use its own infamously bureaucratic internal court and potentially putting its consumer protection program months or years behind. Even when money isn't on the table, though, companies including Facebook are now challenging the FTC's ability to curb years-old conduct. And corporate groups such as the U.S. Chamber of Commerce are pushing to limit any bill updating the FTC's authority only to cover egregious, ongoing conduct such as scams, and to exclude competition.

"The Chamber will continue to oppose changes to 13(b) that would dramatically expand FTC authority beyond the purported reason being given to justify the legislation," the business lobby said in a recent letter to Congress. It's been working since last year with Republican lawmakers in an effort to have them unveil a bill with a narrow vision of the agency's enforcement tools focused on fraud, and to push back against Democratic hopes for something wider, according to a person familiar with the Chamber's efforts.

The FTC's top consumer protection official, Daniel Kaufman, told a Senate hearing on Tuesday that such a limited bill would result in "bad policy," and said he "could not disagree more with so many of the propositions in the chamber's letter."

Wanting it both ways

Skepticism about granting the FTC broad powers has also popped up with some Republican lawmakers, who are often caught between their dislike of government power and their hopes to curb tech in particular.

"There is a history of regulatory overreach we must consider and how that impacts our business sectors as we rebound from the COVID-19 pandemic," Rep. Gus Bilirakis, the top Republican on a House Consumer Protection panel, said Tuesday, calling for "targeted, transparent" measures. One of the FTC's own Republican commissioners, Noah Phillips, also testified to Congress last week that any bill giving the FTC the ability to recover money should limit how much the agency can seek outside of cases of pure fraud, including potential limits for data breaches where customers still got the use of the goods or services despite having their data stolen.

Democrats, meanwhile, would like to replace the authority that the FTC just lost. The lack of agreement could signal that any future additions to the FTC's toolbox would be slow to come, with "fixes" for 13(b) potentially putting off other debates. While both sides in a recent Senate hearing did suggest they want to move quickly — there is some overlap in the current House Democratic proposal on the provision and a Senate Republican effort from last year — even non-controversial legislation can take months or years to make its way through Capitol Hill. Neither reform bill received endorsement from across the aisle, and the half dozen FTC bills that House Republicans also introduced this month say little about 13(b).

Delays could threaten the hopes of many lawmakers on both sides of the aisle, who increasingly demand that the FTC tackle the digital economy even when they can't agree on how. That includes policing not just consumers' and children's privacy but also big tech mergers and anticompetitive behavior, cybersecurity, artificial intelligence and "dark patterns" that nudge consumers to grant permissions or choose more expensive goods than they might otherwise prefer.

In order to oversee the digital sector, lawmakers are discussing granting the FTC more explicit powers over privacy (because the agency can only enforce businesses' own promises on the topic right now). Both the Democratic and Republican leaders of the Senate Commerce Committee unveiled partisan privacy bills in the last Congress, for instance, while lawmakers tried to keep a House effort bipartisan. Congress is also debating giving the FTC an easier path to issuing regulations that would govern tech, the ability to issue fines as a punishment and of course, more money.

"They're going to need a lot more than 13(b)," said Consumer Reports's Brookman. "The zeitgeist definitely seems to be arguing for a more empowered and a more aggressive Federal Trade Commission."

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