• by Wendy Davis  @wendyndavis, November 1, 2009

The online ad industry is sounding the alarm about a new bill currently pending in Congress that would expand the Federal Trade Commission's power by making it easier for the agency to create rules and to bring civil lawsuits.

"There are reasons why there have been limits on the FTC, and we want to see those limits preserved," says Mike Zaneis, vice president for public policy at the Interactive Ad Bureau. "This is legislative priority No. 1 for our industry."

The Consumer Financial Protection Agency Act (H.R. 3126) cleared the House Energy and Commerce committee last week and now moves to the full House, where it's expected to pass. But the proposal's fate in the Senate is uncertain.

The current House version creates a new consumer protection commission while also beefing up the FTC's power in a few key ways. The bill removes administrative hurdles to the FTC's rulemaking ability, makes it easier for the agency to pursue civil litigation, and allows the FTC to target ad companies that aid and abet unfair practices.

These new powers are so significant that industry observers are already saying the bill would effectively make FTC Chair Jon Leibowitz an "Internet czar."

For his part, Leibowitz said in a statement to the energy and commerce committee that the "modest new authority" given to the commission "will help ensure that we have the tools necessary to fight fraud and go after those who perpetrate it."

Industry executives say that the existing curbs on rulemaking ability have contributed to the FTC's decision to support industry self-regulation of matters like online behavioral targeting and privacy.

"We'd hate to see them move directly to government regulation in all of these areas, but that's the prospect that we're facing if this is enacted," Zaneis says.

Currently, the FTC can only make rules aimed at curbing a prevalent practice. But the bill would remove that restriction, allowing the agency to enact regulations as long as there's a rational reason to believe the rule would stem from unfair and deceptive conduct. The bill also would provide for a faster rulemaking procedure.

A host of consumer groups and privacy advocates, including the American Academy of Child and Adolescent Psychiatry, Consumers Union, Center for Digital Democracy and the Electronic Frontier Foundation, are advocating in favor of the bill. They argue that the current restrictions on the FTC hinder its effectiveness.

"We believe that the FTC must play a more proactive role addressing critical consumer concerns, including privacy, online marketing, and food advertising to young people," the groups wrote last week to the leaders of the House Energy and Commerce Committee.

The bill also would enable the FTC to pursue civil actions without prior review by the Department of Justice. In addition, the measure would let the FTC impose civil penalties without prior rules or orders.

A provision that would allow the FTC to prosecute companies that aid or abet an unfair act could be especially damaging to marketers and intermediaries, says the Association of National Advertisers. "This would have serious implications for advertising agencies, media companies and other companies that play any role in the communication/sale/delivery process," ANA Executive Vice President Dan Jaffe said last week in a letter to lawmakers.

Observers say the full House will probably pass the bill by the end of the calendar year. The proposal is expected to move more slowly in the Senate, where lawmakers are still hammering out a draft of the bill.