Pahl pledges greater focus on economics in enforcement decisions

By Kirk Victor and Claude R. Marx. Originally published on FTC:Watch on June 30, 2017

Though it's been four years since Thomas Pahl worked at the Federal Trade Commission, he told FTC:WATCH that the thing that surprised him the most since returning as acting director of the Bureau of Consumer Protection is how little has changed.

"What made the FTC a special place to work — its creativity, its adaptability and the legal talent — that's all still here and it's probably something I had taken for granted working elsewhere," he said during a wide-ranging interview in his office on June 27.

Pahl is a familiar figure at the agency, having served in a range of posts starting in 1990, including as assistant director of the division of advertising practices and the division of financial practices. He advised former Commissioner Mary Azcuenaga. He and acting Chairman Maureen Ohlhausen became good friends while serving as attorney advisers to former Commissioner Orson Swindle.

Pahl left the FTC in 2013 to work at the Consumer Financial Protection Bureau, where he headed up its debt collection rulemaking efforts. He later briefly joined Arnall Golden Gregory before accepting Ohlhausen's offer to return to the FTC in February (see FTC:WATCH, No. 911, Feb. 17, 2017).

In the interview, Pahl spoke of his enforcement priorities and about changes in policy being made that are consistent with Ohlhausen's mantra of the need for "regulatory humility."

Edited excerpts of the interview follow.

FTC:WATCH: What are your priorities?

Pahl: We want to focus more of our resources on fraud cases. We have always done a lot of that at the FTC, but we want to do even more. That's very helpful from a consumer perspective because that's where most of the harm is. It's also a good place for the agency to be because there is a consensus that we should be bringing these kinds of cases. The commission has gotten in trouble on Capitol Hill and with the administration when it has strayed from cases that relate to consumer injury, like fraud cases.

The second priority is maintaining the FTC's role as the federal government's leading privacy and data security agency. We may do some things differently than we've done in the past, but want to be sure that the FTC remains in its leading role.

FTC:WATCH: In the LabMD case, the Eleventh Circuit Court judges seemed skeptical of the FTC's approach to data security. Any reaction?

Pahl: Without speaking to LabMD, there are a few things we want to continue to emphasize. We want to make sure that privacy promises to consumers are honored. We want to make sure that truly sensitive information of consumers is not misused. And we want to make sure that our enforcement in the privacy area does a good job of buttressing the Privacy Shield framework that's been put in place. We want more cases where harm is more concrete and more likely.

Another thing about privacy enforcement that will be different is increasing the role of economic analysis. The acting chairman has started the Economics of Privacy Initiative which the Bureau of Economics is running. We are going to look at all the privacy cases we have brought over the years and see if we can articulate a strong economic foundation for what we are doing.

FTC:WATCH: There hasn't always been a kumbaya relationship between your bureau and the Bureau of Economics. How do you see the Bureau of Economics' role?

Pahl: We have changed things so the bureau is involved in these cases from the word go. We've consulted with them about target selection for investigations. We make a point of keeping them engaged and involved in all the meetings. When I make decisions about whether to grant consent authority, they always weigh in.

FTC:WATCH: Some consumer activists say that while actual harm is important, sometimes you need to take strong action to prevent bad things from happening. What do you say?

Pahl: One can conjure up fact patterns where there is value in acting before harm occurs. That is baked into some of what the FTC's standards are. Our statute reflects some notion that the FTC doesn't have to wait until harm occurs before it acts. That being said, if you go too far the other way and you don't have a close enough link to the harm being likely, you can be trying to prevent harms that are never going to occur.

FTC:WATCH: You said before taking this post that the Obama administration brought some cases that you were skeptical about. What were they? And what's your view of enforcement? Did they rely on enforcement too much?

Pahl: I prefer not to get into individual cases. But from my perspective, when you really need enforcement is when a company has available to them an adequate basis for knowing what the legal standards are and that they have violated them. If there is a difference [between administrations, it's] how quick one is to sue — whether there should be more or less guidance given prior to suing. We are trying to give more guidance, partially because it's in our own interest, because every time we sue, it is expensive in terms of resources.

FTC:WATCH: Congress is unlikely to pass data breach legislation. With less national activity, will state attorneys general ramp up enforcement in this area?

Pahl: You will see continued federal and state enforcement. You may see some cases that we don't bring now and might have in the past. The states may bring those cases. But there won't be a void in the system due to lack of FTC enforcement. And the lack of a national data breach standard might cause additional state action on the margins, but generally, based on my conversations, they are happy to partner with us.

FTC:WATCH: What is the impact of having only two commissioners?

Pahl: As a practical matter, not much. Staff used to say, 'We have two votes for an action, oh no.' Now they say, 'oh yes.' [chuckles] If you go back to the idea of the FTC, it was designed to be a five-member body with experts from a wide variety of perspectives. Over the long term, having two commissioners rather than five, you are losing some part of what the agency's function is supposed to be. That being said, on a practical day-to-day basis, between acting Chairman Ohlhausen's leadership and the commitment that both she and Commissioner McSweeny have to continuing to get things done, for the most part, has allowed us to continue to function with only two commissioners. It won't work permanently, but for the short term, we are getting things done with two commissioners.

FTC:WATCH: The CFPB is target No. 1 for Congress. If its powers are truncated, can the FTC step in to fill in the void?

Pahl: It depends on how they are truncated. There are some functions that the CFPB performs, such as supervision and examination of financial firms, that we just don't do and don't have the authority to do. The area where you see the most overlap is enforcement. Most of the enforcement we do in financial services, the CFPB can do it, too. So, if the CFPB had limitations placed on its enforcement authority or if they had the CFPB having fewer people doing enforcement, then the FTC would have the authority to step into that void. That said, since our budget is relatively flat, we don't necessarily have more people to replace people at the CFPB.

FTC:WATCH: You have said that the CFPB is a sleeping giant on data security. You hoped it wouldn't be awakened because that is the FTC's strength. Do you still see it that way?

Pahl: Yes. They have only brought one case involving data security. The FTC's data security work is fundamentally founded on our [statutory] authority, and the CFPB has [the same authority]. There is absolutely no reason why they couldn't take unfairness and deception and essentially start a data security program based on the same legal authority. The FTC has done data security work, done it very well — brought 60 cases — so my point is it would be unnecessary and potentially harmful if the CFPB stepped in and started doing its own cases with its own standards.

FTC:WATCH: How much progress have you made on streamlining document production?

Pahl: We are making good progress. We have set up a working group to look at what we do with civil investigative demands in investigations. It's being run by Reilly Dolan, one of my deputies. We should be in a position soon to announce changes in how we approach CIDs. To make some of them work will require some changes in culture — how you approach investigations. We took a look at what the American Bar Association's presidential transition report identified as issues and took a look at some of the things there were in the FTC reform bills in Congress and used that as a starting list.

FTC:WATCH: In April you sent a letter to 90 influencers about the rules for disclosing ties to companies whose products they are promoting. Public Citizen questioned the efficacy of sending letters and suggested you should take enforcement actions. What's your response?

Pahl: The [Public Citizen] letter came in yesterday so we haven't had a chance to confirm that in fact some of these endorsers are not making the disclosures. A really good way of proceeding in this area is almost like progressive discipline. You start by articulating the standards, you follow that by a warning letter, and if that doesn't result in compliance you have to take sterner measures. The notion is when we send out warning letters telling people, 'look you really need to do this to comply with the law,' we need to make sure that they take those seriously, and we will.

FTC:WATCH: Give us a sense of where the agency is on advertising issues.

Pahl: Social media didn't exist or barely existed a decade ago [about when Pahl was assistant director of advertising practices]. The FTC has done a very good job of keeping up to date on how to apply fundamental principles to new technology.

One thing that we should focus on is probably to be more rigorous in some of our work on substantiation. There is some very old and good case law that the FTC developed — Pfizer factor case — and our advertising substantiation policy statement. I want us to do a complete analysis using all of those factors to figure out what's the proper level of substantiation.

FTC:WATCH: How long will you stay at the agency?

Pahl: I serve at the pleasure of the acting chairman and as long as she'll have me, I'm glad to stay. I believe in what she's trying to do. She's great for the agency — both her program and her personality are well-suited to running the place. She's a great person to be in charge at a time of a lot of change.

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