We’ve written in the past on Adlaw by Request about pending legislation that’s winding its way through Congress to establish a new agency, the Consumer Finance Protection Agency (the “CFPA”). H.R. 3216, the Consumer Financial Protection Agency Act (the “Act”), seeks to protect consumers of financial products through the creation of a powerful independent agency with extensive rulemaking, oversight, and enforcement tools. The CFPA would be charged with overseeing a significant portion of the financial services industry (e.g., lending practices, financial fraud, structuring of personal and commercial loans, etc.), and in particular, the marketing and advertising of financial products and services.

Among the various new rules, regulations and initiatives that have been bundled within the Act, media outlets could be held liable for running financial advertisements that the CFPA deems misleading or fraudulent.  

The pending bill, in its most current form, would allow the CFPA to create rules for what would be unlawful to run in an ad, and then to assign liability to any party that “knowingly or recklessly provides substantial assistance to another person” by running an ad that the CFPA determines to be unlawful. According to the Advertising Coalition, a 14-member group that includes most all of the major advertising trade groups and several large corporations, “This language could create a very large net that reaches virtually anyone involved in preparing, placing, receiving, televising or printing an advertisement.” Media outlets might now be required to go as far as hiring financial experts to review and study advertisements from financial services companies before those advertisements are allowed to run or air. The Advertising Coalition has also raised the concern that such legislation could have the chilling effect of encumbering free speech, as media outlets will be likely to abstain from running questionable ads rather than expose themselves to liability, according to Jim Davidson, Executive Director of the Advertising Coalition. Good for the economy and an already struggling industry, probably not so much…

A core criticism that many experts have raised with the Act is the noticeably absent “unfairness” standards that would limit the CFPA’s rulemaking and enforcement authority. These fairness standards, which are set forth in a letter sent by the FTC in 1980 to Sens. Wendell H. Ford and John C. Danforth, establish the FTC’s position on the definition of “unfairness” in advertising, which is made up of a three-part test: (1) the injury must be substantial; (2) it must not be outweighed by countervailing benefits to consumers or competition; and (3) it must be an injury that consumers themselves could not reasonably have avoided. These standards have been both a beacon and a measuring stick for the FTC over the past 20 years. If a practice does not violate all three of the foregoing factors, the FTC is generally prohibited from concluding that such a practice is “unfair” and in violation of the FTC Act. The combination of broad financial services advertising oversight without the kind of checks and balances that exist within the FTC’s mandate has many experts understandably concerned over the CFPA’s broad rulemaking and enforcement authority. 

Another question that has many experts scratching their heads is the relationship between the CFPA and the Federal Trade Commission, the ad industry’s primary regulator today. The creation of the CFPA would likely have a dramatic restructuring effect on the FTC, as much of the FTC’s regulatory authority and resources would be shifted to the CFPA. By the CFPA assuming primary responsibility for advertising review and fraud prevention within the financial services industry, many are expecting both unnecessary overlap and near-decimation of the FTC’s role. It’s still somewhat of a mystery to many as to where the CFPA’s authority ends and the FTC’s authority begins. Thankfully, Rep. Barney Frank (D-Mass.), Chairman of the House and Financial Services Committee and Sponsor of the Act, has said that he still envisions a strong role for the FTC.

The Act is certainly on a fast-track, and the House of Representatives may even vote on some version of the bill before Congress breaks for Thanksgiving in November. We, at Adlaw by Request, will continue to cover these developments and elucidate for our readership how they are likely to affect both the financial services and advertising industries. Buckle up!