Direct response marketers are under assault not only from the Federal Trade Commission (FTC) but also from class action mills that are targeting the advertising of dietary supplements and other consumer products. The financial consequences of an attack from either front can be devastating. Compliant business practices normally are good enough to keep the FTC at bay, but the same can’t always be said for plaintiffs’ lawyers who specialize in the art of the shakedown. Playing the odds, they know that the threat of a class action, even against law-abiding marketers, can be enough to extract a hefty settlement and payday for themselves.

Fortunately, the U.S. Supreme Court, in a series of recent decisions, has given marketers new armor with which to defend themselves preemptively against plaintiffs’ suits: mandatory arbitration of consumer disputes. Last month, in CompuCredit Corporation v. Greenwood, its latest pronouncement on the subject, the Supreme Court barred a class action for violation of the Credit Repair Organization Act (CROA) on the grounds that CompuCredit’s credit card agreement required arbitration, and that CROA did not prohibit arbitration as the sole method of dispute resolution.
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Last July, the new Consumer Financial Protection Bureau (CFPB), conceived by Congress in the post-crash financial regulatory overhaul, came into being with great fanfare, carrying hopes it would champion consumer interests against the types of predatory practices that had helped bring about the “Great Recession.” Six months later, the question can be asked: was the CFPB stillborn, a victim of “infanticide” by the same Congress that gave it birth?

Under its statute, the CFPB cannot carry out its most important functions, including regulating “non-bank” financial businesses, such as payday lenders, mortgage companies and debt collection agencies, until it has a director. Exploiting this leverage, Republican senators recently filibustered the nomination of President Obama’s choice to head the agency, former Ohio Attorney General Richard Cordray, a highly qualified candidate whose credentials were not in dispute. These senators opposed the appointment of a director until the structure and powers of the CFPB were fundamentally altered by replacing a single head with a bipartisan commission, subject the agency’s budget to the congressional appropriation process (funding currently comes from the Federal Reserve), and making it easier for other banking regulators to veto the CFPB’s rules.
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While the 2012 election is likely to stall congressional momentum on online privacy legislation, it isn’t slowing down the Federal Trade Commission (FTC). Privacy has become one of its two main priorities, along with protection of the “Great Recession Consumer” from financial scams, according to FTC Chairman Jon Leibowitz. During the past several years, he recently told Congress, the FTC has brought more than 100 cases dealing with online privacy issues, including behavioral advertising, spyware and data security.

The year 2011 will be remembered as the Year of Privacy at the FTC – the time in which it tackled the “Four Horsemen of the Internet” to make the loudest statement possible about privacy standards it expects online firms and social media networks to uphold. First came Twitter, which agreed in March to settle charges of data security breaches and to put in place a comprehensive information security program that will be subject to independent audits over 10 years.
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Forever, it seems, the Federal Trade Commission (FTC) has been socking it to the direct response marketing industry, seizing a company’s (and its owners’) assets before they’ve even had their day in court, installing receivers to shut down the business, and then extracting punitive redress awards in coercive settlements that leave the defendant in financial ruin. Conversely, it has laid nary a hand on members of the more traditional (and in its view, it would seem, more “respectable”) advertising establishment – Fortune 500-type national advertisers – when they were accused of false marketing.

Usually, the FTC would challenge them in the more “gentlemanly” forum of an administrative proceeding, rather than resorting to the ex parte temporary restraining order (TRO)/asset freeze ambush route in federal court they’ve perfected against smaller, weaker DR firms. It then would let them off with a slap on the wrist consent agreement and no monetary penalty whatsoever.
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