FTC’s credibility tarnishes as its privacy offensives grow

Having worked for an FTC commissioner, I've seen first hand the commission's regulatory successes. Imbued with the powers of competitive oversight and consumer protection, the Federal Trade Commission (FTC) was a beacon for other governmental agencies.

Unfortunately, times have changed. The commission's recent obsession with media exposure has darkened the FTC's luminescence.  The FTC has forgotten its core foundational tenet: identify practices that actually harm consumers.

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And I'm not alone in seeing this growing shadow. Many others including former Commissioner Wright have lamented the growing gloom at the FTC. Much of this tarnish comes from the commission’s consumer online privacy actions that focus more on flash than substance and elevates privacy mantras over true consumer protection.

Gotcha enforcement actions may get the FTC flashy headlines but they aren’t addressing any real harm to consumers.

For example, a September enforcement action against Nomi Technologies imposed a 20-year consent decree without baseline economic analysis.  Rather than encouraging Nomi’s privacy-by-design approach and innovative user controls, the FTC used an immaterial error in Nomi’s privacy policy to justify the enforcement action. Two of the commissioners penned strong dissents noting concern over how the incorrect statement was not material to consumers and worrying that the FTC’s action discourages companies to provide opt-outs or even meaningful privacy policies.

The lack of consumer-benefit analysis and summary judgments doesn’t end with the enforcement actions – it carries through to the commission’s reports and workshops.  Rather than analyzing and presenting substantiated data of privacy ills, the FTC relies on bombastic language and slogans to create the perception of privacy problems.

The commission’s “Internet of Things” Staff Report minimized the benefits of these new technologies for consumers – devoting only about six paragraphs to benefits in a 71-page document.  And the report made recommendations for industry without any cost-benefit analysis.  One such recommendation was that business throw away valuable data assets even though they could provide incredible benefits such as identifying new ways to save energy and helping to find missing children.  Due to these shortcomings, the typical FTC staff report was challenged by two commissioners noting the lack of cost-benefit analysis and use of hypothetical harms to justify overly prescriptive recommendations.

Likewise, in its “Big Data” workshop the FTC focused on theoretical harms and anecdotes about big data to drive the conversation without identifying real world harms.  And based on the agenda for its PrivacyCon event, it looks like the FTC is doubling down on policymaking through anecdotes, speculation and hypotheticals.

It’s not just the lack of consumer-benefit analysis that is so discouraging. The commission is overly focused on theoretical internet privacy harms (nearly a third of all workshops in 2014 were on internet privacy) when most consumers are complaining to the FTC about other real harms.

The commission’s own reports on complaints by consumers show that for the past three years complaints about internet privacy have declined.  In the 2014 FTC report of top ten consumer complaints, internet privacy ranked last, accounting for less than 2 percent of all complaints. In contrast, identity theft accounted for 13 percent of all complaints (double those in 2010) and fraud a whopping 60 percent.

We must ask whether the fundamental purpose of the FTC is to earn media attention or protect consumers. Every dollar the FTC spends on privacy is a dollar not being spent fighting the fraudsters, scammers, and identity thieves that consumers are really complaining about. Perhaps Congress should look to see if the FTC has gone astray and, if so, adjust its funding to help the FTC refocus on consumers’ real problems.

Spending more time on stump-speeches than on analysis corrodes the FTC’s economic core and stains its reputation.  And that certainly isn’t in the best interest of consumers.

Perhaps with the new year, the FTC can refocus and become the shining beacon of consumer protection that I know it can be.  If not, it’s up to Congress to do something about it.

Szabo is policy counsel for NetChoice.

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