S. HRG. 111–904 FINANCIAL SERVICES AND PRODUCTS: THE ROLE OF THE FEDERAL TRADE COMMISSION IN PROTECTING CONSUMERS—PART II HEARING BEFORE THE SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT SAFETY, AND INSURANCE OF THE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION UNITED STATES SENATE ONE HUNDRED ELEVENTH CONGRESS SECOND SESSION MARCH 17, 2010 Printed for the use of the Committee on Commerce, Science, and Transportation ( U.S. GOVERNMENT PRINTING OFFICE 57–895 PDF WASHINGTON : 2011 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 06:14 Mar 11, 2011 Jkt 057895 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 S:\GPO\DOCS\57895.TXT SCOM1 PsN: JACKIE SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION ONE HUNDRED ELEVENTH CONGRESS SECOND SESSION JOHN D. ROCKEFELLER IV, West Virginia, Chairman DANIEL K. INOUYE, Hawaii KAY BAILEY HUTCHISON, Texas, Ranking JOHN F. KERRY, Massachusetts OLYMPIA J. SNOWE, Maine BYRON L. DORGAN, North Dakota JOHN ENSIGN, Nevada BARBARA BOXER, California JIM DEMINT, South Carolina BILL NELSON, Florida JOHN THUNE, South Dakota MARIA CANTWELL, Washington ROGER F. WICKER, Mississippi FRANK R. LAUTENBERG, New Jersey GEORGE S. LEMIEUX, Florida MARK PRYOR, Arkansas JOHNNY ISAKSON, Georgia CLAIRE MCCASKILL, Missouri DAVID VITTER, Louisiana AMY KLOBUCHAR, Minnesota SAM BROWNBACK, Kansas TOM UDALL, New Mexico MIKE JOHANNS, Nebraska MARK WARNER, Virginia MARK BEGICH, Alaska ELLEN L. DONESKI, Staff Director JAMES REID, Deputy Staff Director BRUCE H. ANDREWS, General Counsel ANN BEGEMAN, Acting Republican Staff Director BRIAN M. HENDRICKS, Republican General Counsel NICK ROSSI, Republican Chief Counsel SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT SAFETY, AND INSURANCE MARK PRYOR, Arkansas, Chairman ROGER F. WICKER, Mississippi, Ranking BYRON L. DORGAN, North Dakota OLYMPIA J. SNOWE, Maine BARBARA BOXER, California JIM DEMINT, South Carolina BILL NELSON, Florida JOHN THUNE, South Dakota CLAIRE MCCASKILL, Missouri JOHNNY ISAKSON, Georgia AMY KLOBUCHAR, Minnesota DAVID VITTER, Louisiana TOM UDALL, New Mexico (II) VerDate Nov 24 2008 06:14 Mar 11, 2011 Jkt 057895 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 S:\GPO\DOCS\57895.TXT SCOM1 PsN: JACKIE C O N T E N T S Page Hearing held on March 17, 2010 ............................................................................ 1 Statement of Senator Pryor .................................................................................... 1 Statement of Senator Wicker .................................................................................. 2 Prepared statement of Hon. William E. Kovacic, Commissioner, Federal Trade Commission submitted by Hon. Roger F. Wicker ........................... 6 Statement of Senator Klobuchar ............................................................................ 9 Statement of Senator Udall .................................................................................... 17 WITNESSES Rosch, Hon. J. Thomas, Commissioner, Federal Trade Commission .................. 10 Prepared statement .......................................................................................... 12 Mierzwinski, Edmund, Consumer Program Director, U.S. Public Interest Re- search Group ........................................................................................................ 20 Prepared statement .......................................................................................... 22 Pridgen, Dee, Associate Dean and Professor of Law, University of Wyoming College of Law ...................................................................................................... 26 Prepared statement .......................................................................................... 28 Woolley, Linda A., Executive Vice President, Government Affairs, Direct Mar- keting Association, Inc. ........................................................................................ 34 Prepared statement .......................................................................................... 36 Muris, Hon. Timothy J., Foundation Professor, George Mason University School of Law, and Of Counsel, O’Melveny & Myers LLP ............................... 41 Prepared statement .......................................................................................... 42 APPENDIX Rockefeller IV, Hon. John D., U.S. Senator from West Virginia, prepared statement .............................................................................................................. 69 Hutchison, Hon. Kay Bailey, U.S. Senator from Texas, prepared statement ..... 70 Letter, dated March 17, 2010, to Hon. Mark Pryor and Hon. Roger Wicker from Daniel L. Jaffe, Executive Vice President, Association of National Advertisers (ANA) ................................................................................................ 71 Letter, dated November 24, 2009, to Hon. Christopher J. Dodd from J. Thom- as Rosch, Commissioner, Federal Trade Commission ....................................... 74 Letter, dated July 16, 2009 to Hon. Barney Frank, from J. Thomas Rosch, Commissioner, Federal Trade Commission ........................................................ 76 Response to written question submitted to Hon. J. Thomas Rosch by: Hon. Tom Udall ................................................................................................ 81 Hon. Roger F. Wicker ....................................................................................... 81 Hon. David Vitter ............................................................................................. 91 Response to written question submitted by Hon. Tom Udall to Edmund Mierzwinski .......................................................................................................... 92 Response to written questions submitted by Hon. Roger F. Wicker to Hon. Timothy J. Muris ................................................................................................. 93 (III) VerDate Nov 24 2008 06:14 Mar 11, 2011 Jkt 057895 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 S:\GPO\DOCS\57895.TXT SCOM1 PsN: JACKIE VerDate Nov 24 2008 06:14 Mar 11, 2011 Jkt 057895 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 S:\GPO\DOCS\57895.TXT SCOM1 PsN: JACKIE FINANCIAL SERVICES AND PRODUCTS: THE ROLE OF THE FEDERAL TRADE COMMISSION IN PROTECTING CONSUMERS—PART II WEDNESDAY, MARCH 17, 2010 U.S. SENATE, SUBCOMMITTEE ON CONSUMER PROTECTION, PRODUCT SAFETY, AND INSURANCE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC. The Subcommittee met, pursuant to notice, at 3:06 p.m. in room SR–253, Russell Senate Office Building, Hon. Mark L. Pryor, Chairman of the Subcommittee, presiding. OPENING STATEMENT OF HON. MARK L. PRYOR, U.S. SENATOR FROM ARIZONA Senator PRYOR. I’d like to call this hearing to order. I want to welcome everyone to the Consumer Protection Product Safety and Insurance Subcommittee of the Senate Commerce Com- mittee. And today our hearing is on Financial Services and Prod- ucts: the Role of the Federal Trade Commission in Protecting Con- sumers, Part 2. This is the second in a series of two, and Senator Rockefeller was gracious enough to allow us to do this today. And we’re going to have two panels, and I would like to ask the witnesses to please limit their opening statements to 5 minutes each, and then I’m sure my colleagues have a series of questions. Today, we will examine the Federal Trade Commission’s role in protecting consumers in the context of financial services reform. This is the second hearing, as I mentioned before. Senator Rocke- feller heard the first Commerce Committee hearing on the subject on February 4. Today, we continue that dialogue and I look forward to robust debate. Let’s see. As Chairman of the Subcommittee last year, we held a series of hearings on deceptive advertising, frauds, and scams in the distressed economy; and the Federal Trade Commission’s ac- tions to protect consumers from unfair and deceptive practices in these areas. This is a tough economic environment America finds itself in, and unfortunately, our citizens are repeatedly targeted for fraudulent and unscrupulous actors seeking to exploit their vulnerabilities. Consequently, I think it’s proper for us to look at what’s working, look at what’s not, talk to the FTC about how things could be strengthened or changed to make what they do work better and be more effective. (1) VerDate Nov 24 2008 06:14 Mar 11, 2011 Jkt 057895 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\GPO\DOCS\57895.TXT SCOM1 PsN: JACKIE 2 On Monday, Senator Dodd unveiled financial regulatory reform legislation he has been crafting over the past several months, and they’ve spent a lot of time on it in the Banking Committee. And I look forward to looking at that legislation as it is rolled out. I will be keeping a sharp eye for—as I’m sure people on this committee will, for the Federal Trade Commission’s authority and the Con- sumer Financial Protection Bureau, proposed by Senator Dodd, that will be housed in the Federal Reserve. As the Committee considers FTC authorities in light of proposed Financial Regulatory Reforms, I think it’ll be important to make sure this agency’s core consumer protection mission is properly pre- served, and also to make sure that we don’t create any gaps that might occur if we’re not careful in how we draft that other piece of legislation. It is also