Lawmakers Question FTC About Ad Fraud

Citing concerns that online ad fraud will result in higher prices for consumers, two lawmakers are asking the Federal Trade Commission what steps it's taking to address fake traffic on the Web.

"Bots plague the digital advertising space by creating fake consumer traffic, artificially driving up the cost of advertising in the same way human fraudsters can manipulate the price of a stock by creating artificial trading volume," Sens. Mark Warner (D-Virginia) and Charles Schumer (D-New York) say in a letter to FTC Chairwoman Edith Ramirez.

The senators add that many bots are "advanced enough to analyze consumer web activity in order to retarget advertisements based on individual browsing preferences."

The letter cites a well-publicized study by White Ops and the Association of National Advertisers, which found that ad fraud will cost advertisers $7.2 billion globally this year.

"The cost of pervasive fraud in the digital advertising space will ultimately be paid by the American consumer in the form of higher prices for goods and services," they write. "Just as federal regulation has evolved to keep pace with the ever-growing sophistication of our financial markets, so must oversight of the digital advertising space."

The lawmakers ask the FTC numerous questions, including how to "reform opaque advertising exchanges" and what steps the agency is taking "to protect consumer data and mitigate fraud within the digital advertising industry."

Other queries include whether the FTC has observed trends in ad fraud, and what can be done "to more closely align the incentives of ad tech companies with publishers, advertisers and consumers."

Warner and Schumer acknowledge that the online ad industry's Trustworthy Accountability Group has taken steps aimed at combating ad fraud, but express doubt about whether the initiative will succeed. The letter specifically referenced TAG's "fraud threat list" -- which collects known sources of fraudulent traffic.

"It remains to be seen whether voluntary, market-based oversight is sufficient to protect consumers and advertisers from digital advertising fraud," the lawmakers write. "And in the interim, consumer confidence in digital advertising markets has eroded, as evidenced by user adoption of ad blocking tools."

Mike Zaneis, CEO of the Trustworthy Accountability Group, suggests that other agencies are better suited to deal with online ad fraud. Earlier this year the Trustworthy Accountability Group held a discussion with representatives from Homeland Security Investigations and the FBI. "We have seen it as imperative to partner with criminal law enforcement," Zaneis says.

Tags: ad fraud, ftc
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