The late Will Rogers, that wonderful American humorist from Oklahoma, once said: "This country has come to feel the same when Congress is in session as when the baby gets hold of a hammer." Presumably, the image conjured up by that remark relates to just how much damage can be done before someone takes the hammer away! Well, in those days, Mr. Rogers lauded then-President Franklin D. Roosevelt for taking the hammer away from Congress before they did too much damage. If the strong response the newest Administration/Congressional initiative has evoked from the banking, advertising and media industries is any indication, one might conclude that President Obama has been providing too many hammers these days. This may be a little longer than my usual blog post, but read on . . . you won’t be disappointed.
To provide a little context for the consternation, a few months ago, gift cards were inserted (for the first time) into federal legislation, ostensibly targeted at the practices of financial institutions applicable to credit cards. Where previously state legislation reigned supreme, the promotion of gift cards, disclosures regarding dormancy or inactivity fees, expiration dates, among other things, became part of U.S. federal law under the new Credit Card Act of 2009.. The legislation was intended to prevent abuses in the credit card industry and protect consumers, and in that spirit, a section covering gift cards seemed like a nice idea. But when it came to gift cards, it was unclear what problems had arisen that were not already (or couldn’t be) dealt with by state law – what was broken that needed to be fixed by federal regulators. Is concentrating regulatory power and discretionary rulemaking in the hands of federal agencies, simply for the sake of control, always a good thing?
So in case you haven’t heard, let’s talk about the newly proposed Consumer Finance Protection Agency (the “CFPA”). The CFPA is part of the Administration’s regulatory reform proposal submitted to Congress a few months ago, intended to provide a new regulatory framework for the financial services industry and, among other things, prevent practices and problems that led to the current crisis in the financial industry. Well, if you are a banker, broker-dealer, insurer or a financial officer, you probably already know the government is considering such major reforms and a restructuring of the current regulatory scheme.
BUT, have the finance folks told the marketing and advertising professionals to start worrying too? Perhaps now would be a good time to do so! In referring to the CFPA, Edward L. Yingling, President of the American Bankers Association, has said, “This agency would have broad powers that go beyond every consumer law that has ever been enacted.” You see, the newly proposed Consumer Financial Protection Agency Act of 2009, now fast-tracking its way through the U.S. House of Representatives, would restructure the Federal Trade Commission and give much of its current responsibility for regulating financial services-related advertising and marketing to a brand new regulatory agency – the newly proposed CFPA. I direct your attention to Subtitle C – Specific Authorities (Sections 131 – 139) of the Act, which would give the new CFPA the authority to review not only consumer lending practices, but also fraud and deceptive advertising, to determine and establish rules governing whether or not marketing practices and advertising are misleading, or if consumer financial products and services are being advertised and marketed fairly to consumers. By the way, the CFPA would also be empowered to interpret and enforce the new Credit Card Act of 2009 noted above. Would it surprise you that the Association of National Advertisers and the U.S. Chamber of Commerce would worry about what a new and potentially confusing and overlapping regulatory scheme, and a completely new regulatory agency, will mean for the advertising, agency and media industries?
If you thought all you had to worry about were things like privacy, behavioral advertising, free speech, blogger liability for claims, ‘Net neutrality, cloud computing, celebrity endorsements and social media – tweet, tweet – think again. Just yesterday, Advertising Age reported that some media industry professionals fear certain aspects of the new legislation will hold media liable for simply running advertisements related to financial services and products that the newly created CFPA believes are misleading. That would effectively push media into the role of de facto censors of advertising content. In other words, it would be a "safer" path (read less legal liability) to simply refuse to accept or run advertising that it determines might be too risky. One section of the proposed bill would empower the CFPA to create standards regarding what is or is not lawful in financial services advertising. Another section could be construed to extend liability to anyone in the chain of development, insertion, creation, displaying or broadcasting an unlawful advertisement. Could that be you?
Want an example? You have a co-branded credit card tied to a loyalty rewards program. You charge, pay the bill and earn points. Those points can be redeemed for television sets, trips to Steamboat Springs, hotel stays or Diamond Club tickets at Yankee Stadium for the World Series (just some wishful predictive thinking here). So credit card issuer A, co-branding partner B, and rewards program merchant participants C and D co-sponsor advertising promoting the use of the card, earning points and the wonderful rewards available. Not too far fetched is it? BUT, if the new CFPA determines these points really aren’t "free" and neither are the rewards you "earn," but rather the costs and expenses are implicitly part of the credit card interest rates or annual fees that apply – does that mean everyone, including the media or network that ran the ads, is liable, too? Could be, at least the way the legislation is currently worded. Hmmmm. . . does it feel chilly yet?
Let us not forget that the Administration and Congress have been confronted with a regulatory framework that many would argue did not work and is not aligned with changes that have taken place in the financial services industries for decades. Let us also not discount the fact that with good intentions, both the Administration and Congress are seeking to provide a more effective and sensible regulatory framework for financial institutions and protection for consumers and business. But, much like the Credit Card Act of 2009 and its inclusion of gift cards, this new legislation would appear to go well beyond its intended purpose, in areas that have drawn significant criticism.
By asking "if it’s not broken why fix it," critics argue that it makes no sense to move much of the authority of the FTC, which currently regulates financial services fraud, and unfair, misleading and deceptive advertising practices, to an entirely new agency with even broader powers. On the other hand, supporters, including John Taylor, President of the National Community Reinvestment Coalition, believes that “It’s obvious from the history of the last 20 years that the regulators never understood that protecting consumers is also a way of ensuring the safety and soundness of financial institutions.” Regardless of which viewpoint you subscribe to, in my view, whether the financial regulatory system is broken and needs fixing isn’t even the right question to ask. Instead we should be asking why we should regulate or re-regulate more than is necessary, and invite confrontation. We should ask if Congress seeks to make changes for the sake of change, or are there actual or perceived failings – at the FTC, among financial regulators, or in the enforcement of existing advertising and media regulations – that require new or re-regulation? If you listen to the debate, no less than free speech, freedom of the press, interstate commerce, and states’ rights issues are at stake. At a minimum, it would seem the inclusion of sweeping, and potentially contentious and/or confusing, changes – to the regulators, to the regulatory framework, and to the allocation of legal risk and liability – are a needless distraction from an already complex and difficult challenge: financial regulatory reform. Ignoring these issues may trigger another two laws – Murphy’s Law and the Law of Unintended Consequences.
Need to understand more? Want to have a voice in the process? Need experienced counsel or guidance? Call me, Joseph I. Rosenbaum, or Douglas J. Wood or Leonard A. Bernstein, or the Rimon attorney with whom you regularly work.