President Obama's call yesterday for reform of the regulatory regime governing financial institutions promises to bring additional federal scrutiny to the rest of the Web as well.
The White House plan would create a new Consumer Financial Protection Agency (CFPA), an independent federal body with broad authority to set and enforce consumer-friendly standards for loans, savings products, and other financial offerings. However, there is more to the plan than that. Here's a couple things I saw in the 88-page document explaining the plan.
Privacy Authority to Remain with Stronger Federal Trade Commission
The president's proposal was explicit that the FTC will stay on the privacy beat:
The FTC should also remain the lead federal consumer protection agency on matters of data security, with front-end privacy protection on financial issues moved to the CFPA.
But President Obama believes that the FTC needs more manpower and more authority to carry out its mission. The president called for increasing the FTC's "human, financial, and technical resources," which I take to mean personnel and budget. More importantly, perhaps, the president would like to see the commission's rulemaking authority substantially broadened:
The FTC should be authorized to conduct rulemakings for unfair and deceptive practices under standard notice and comment procedures, and to obtain civil penalties for unfair and deceptive practices.
This is a change from the current situation, in which the FTC's rulemaking authority is confined to specific statutory delegations from Congress and to Magnuson-Moss-style rulemakings. Whether or not the FTC has general authority to enforce FTC Act Section 5 ("unfair or deceptive acts or practices") via notice-and-comment rulemaking is a highly debatable point, from what I can tell. The president is proposing to end that debate in favor of expanding the FTC's rulemaking authority. If the president gets his way, the FTC will have a broad mandate to write rules for all aspects of the business-to-consumer game.
Financial Consumer Protection Rules Will Bleed Over to Non-Financial Commerce
Among the mandates for the new CFPA are (1) ensuring that consumers "have the information they need to make responsible financial decisions" and (2) ensuring that consumers "are protected from abuse, unfairness, deception, or discrimination." Carrying out this aspect of the new agency's mission will necessarily entail promulgating new rules for online disclosure of the terms under which financial services are being provided, such as privacy and data security policies, as well as normative rules regarding forbidden contract terms. One such norm is prohibiting mandatory arbitration clauses -- something that the president's proposal says the CFPA should have the authority to do.
The president's plan also has quite a bit to say about disclosures to consumers:
We propose a new proactive approach to disclosure. The CFPA will be authorized to require that all disclosures and other communications with consumers be reasonable: balanced in their presentation of benefits, and clear and conspicuous in their identification of costs, penalties, and risks.
We propose the following initiatives to improve the transparency of consumer product and service disclosures.
Make all mandatory disclosure forms clear, simple, and concise, and test them regularly. Mandatory disclosure forms should be clear, simple, and concise. This means the CFPA should make judgments about which risks and costs should be highlighted and which need not be. Consumers should verify their ability to understand and use disclosure forms with qualitative and statistical tests.
Note the part about how the CFPA should make judgments about which risks should be highlighted. "Self-regulation" and market forces are not welcome here. And the president is proposing that the CFPA's rules be "a floor not a ceiling," thus inviting additional consumer protection attention at the state level.
It is difficult to see how these new rules on transparency and on "abuse, fairness, deception, or discrimination" in the financial services market will not eventually supply the standard for fairly dealing with consumers in all other aspects of online commerce. In fact, my reading of the president's proposal didn't turn up any language limiting his consumer protection proposals to the financial services market.
Nobody can know which if any of the president's proposals will survive the legislative process, of course. And I hate hyperbole, but there it is. How could a new federal consumer protection agency, and a beefed-up FTC, not be pervasive regulators of online commerce?
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