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The online ad industry doesn’t want to suffer for Wall Street’s mistakes

The online ad industry already has enough trouble with the Federal Trade Commission. They don’t want President Obama making any more.

Speaking in New York this week, Obama reiterated his interest in fixing Wall Street. But a Senate bill being drafted to achieve those goals, known as the Wall Street Reform and Consumer Protection Act, includes a provision that would also extend the reach of the FTC on advertising practices.

A group of advertising industry advocates is speaking out to get the revisions — that Former FTC chairman Jim Miller says would be “like putting the FTC on steroids” — dropped. If they fail, the FTC will have jurisdiction over many more businesses. And fines may start adding up.

Congress has frequently checked the FTC’s jurisdiction. In 1975 and in 1980, Congress implemented restrictions on the FTC’s rulemaking abilities.

But a bill to extend the FTC’s ability to deter false and misleading advertising has already passed in the House. If the Senate bill passes, changes would go into effect that give the FTC much more reach to fine companies than it currently has. To prevent that, a group of 30 companies, led by The American Association of Advertising Agencies, the Direct Marketing
Association and the American Advertising Federation, wrote a letter to the Senate this week and took out a full-page ad in the Washington DC paper Roll Call (image above and below).

According to Ad Age, the FTC’s regulatory — and fining — arm could soon extend past deceptive brands to the agencies and publications that work with them.

Furthermore, it could make ad agencies liable for flaws in the research of companies they work for. Dick O’Brien, exec VP of government relations for the 4A’s tells Ad Age:

“Today, if a client comes to an agency and says we’re going to make this
claim and here’s the substantiation from our scientists and experts,
the agency does the work. Now, the new legislation is basically saying
to ad agencies that if something is deemed to be wrong, you’re liable.
The first added cost is the agencies may no longer be able to rely on
the substantiation of the client. In theory, they would have to
duplicate it themselves, at their own costs before going forward, to
have their own peace of mind.”

Companies that have been charged with running deceptive ads can be fined up to $16,600 per viewer. The proposed wording changes could make both the ad agency that created ads and publications that print ads of previous violators culpable.

Since the larger bill has little to do with advertising, this provision has gone largely unnoticed. According to the letter sent to Congress this week, the current FTC safeguards went into place after Congress
found “that in many instances the FTC had taken actions beyond the
intent of Congress.”

Timothy Muris, another former FTC chairman,
testified before Congress last summer to oppose the removal of the safeguards in the House bill. He said:

“The administration’s proposal would do more than just change the
procedures used in rulemaking. It also would eliminate the requirement that unfair or
deceptive practices must be prevalent
, and eliminate the requirement for the Commission’s
Statement of Basis and Purpose to address the economic effect of the rule
. It also
changes the standard for judicial review, eliminating the court’s ability to strike down
rules that are not supported by substantial evidence in the rulemaking record taken as a
whole. The current restrictions on Commissioners’ meetings with outside parties and the
prohibition on ex parte communications with Commissioners also are eliminated. These
sensible and important protections should be retained.”

If passed, the loosened restrictions would mean that at a time when advertisers are becoming increasingly worried about bringing in revenues, they could come under a lot more fire from the FTC — and have far less room to defend their actions. Considering how these things have gone in the past, it could result in a lot of well-intentioned — but misguided — fining.

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