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FTC strikes $5B Facebook settlement against fierce Democratic objections

Wednesday, July 24th, 2019

Nancy ScolaSteven Overly The FTC on Wednesday officially unveiled its $5 billion data privacy settlement with Facebook — adding to the outrage of Democratic lawmakers and regulators who called the provisions far too mild to hold the social media giant accountable or deter future misdeeds.

In addition to the fine — by far the largest privacy-related settlement the FTC has ever won from a company — the agreement calls for Facebook to establish an internal privacy oversight committee, according to the agency, “removing unfettered control by Facebook’s CEO Mark Zuckerberg over decisions affecting user privacy,” the FTC said in a statement Wednesday that came just as special prosecutor Robert Mueller’s long-awaited testimony in Congress was commanding people’s attention throughout Washington.

“The magnitude of the $5 billion penalty and sweeping conduct relief are unprecedented in the history of the FTC,” said FTC Chairman Joe Simons when announcing the settlement. “The relief is designed not only to punish future violations but, more importantly, to change Facebook’s entire privacy culture to decrease the likelihood of continued violations.”

The settlement, though, does not hold Facebook executives, including CEO Mark Zuckerberg, personally liable for privacy violations at the company. (The extent of Zuckerberg’s personal exposure under the settlement is a requirement that he certify to the FTC on a quarterly basis that the company is carrying out a privacy program for assessing and disclosing privacy risks.) And the $5 billion fine is far lower than the sum that agency employees had initially discussed seeking to collect from Facebook — a figure that could have been greater than $30 billion, according to a House Judiciary Committee aide briefed on the negotiations.

FTC officials “had been discussing a much more substantial fine, so I’m very disappointed” with the $5 billion figure, House antitrust subcommittee chairman David Cicilline (D-R.I.) told POLITICO in an interview Tuesday.

Wednesday’s FTC announcement confirmed that the two commission’s two Democratic members, who favored stiff punishment for Facebook, had voted no when its five-person board approved the deal behind closed doors earlier in July.

Democrat Rohit Chopra explained Wednesday that he voted against the deal in part because of its treatment of Facebook’s top officials.

“It doesn’t fix the incentives causing these repeat privacy abuses. It doesn’t stop $FB from engaging in surveillance or integrating platforms. There are no restrictions on data harvesting tactics — just paperwork,” Chopra said on Twitter. “Mark Zuckerberg, Sheryl Sandberg, and other executives get blanket immunity for their role in the violations. This is wrong and sets a terrible precedent. The law doesn’t give them a special exemption.”

And the commission’s other Democrat, Rebecca Slaughter, said in a statement, “I believe we should have initiated litigation against Facebook and its CEO Mark Zuckerberg. The Commission would better serve the public interest and be more likely to effectively change Facebook by fighting for the right outcome in a public court of law.”

The FTC case, inspired by Facebook’s involvement in last year’s Cambridge Analytica data scandal, was widely viewed as a test for the agency and its Trump-nominated chairman, Joe Simons, on their ability to hold tech companies accountable for their privacy practices. But early rumblings about the outlines of the settlement in mid-July prompted Facebook’s stock price to jump — a sign that investors believe the company had escaped serious harm — and brought criticism from lawmakers of both parties.

Under the settlement, which binds the company for 20 years, Facebook agreed to restrictions on specific data-handling practices. The company, for example, may not use phone numbers collected from users for security reasons to advertise to them. And it must both make plain how it is using facial recognition technologies in its products and ensure that user passwords are encrypted.

Facebook, for its part, said the deal would reform how the company handles user privacy — while also making clear that it’s being held to a higher standard than other U.S. corporations.

Facebook general counsel Colin Stretch said in a statement, “The agreement will require a fundamental shift in the way we approach our work and it will place additional responsibility on people building our products at every level of the company.” Added Stretch, “The accountability required by this agreement surpasses current US law and we hope will be a model for the industry.”

But critics who believe the agency failed its test to make a tech giant answer for privacy failures may have to turn to Congress as their best hope for doing what they believe the Trump administration won’t.

“This fig leaf deal releases Facebook without requiring any real privacy protections — no restraints on future data use, no accountability for top executives, nothing more than chump change financial fines,” Sen. Richard Blumenthal (D-Conn.) said in a statement. “This tap on the wrist, not even a slap, makes Congressional action all the more urgent to set strong privacy rules and enforce them vigorously.”

The FTC case was provoked by last year’s revelations that Cambridge Analytica, a now-defunct political consulting firm that had worked for President Donald Trump’s 2016 campaign, gained improper access to information on tens of millions of Facebook users.

The scandal prompted additional federal action announced in tandem with the FTC’s settlement Wednesday. The agency also said it’s suing Cambridge Analytica after the firm, which is no longer in operation and filed for bankruptcy last year, didn’t settle allegations that it engaged in false or misleading behavior about its actions and lied about complying with the EU-U.S. privacy shield agreement, a legal safe harbor for transatlantic data transfers. In announcing the lawsuit, the FTC said further that it did settle with two central figures in the scandal — former Cambridge Analytica CEO Alexander Nix and app developer Aleksandr Kogan — who agreed to accept restrictions on future business dealings and delete and destroy any personal data collected.

Separately, the Securities and Exchange Commission announced Wednesday that Facebook will pay $100 million to resolve charges that it withheld information about the Cambridge Analytica flap from shareholders. The company for more than two years failed to properly disclose that Cambridge Analytica had compromised Facebook user data, the SEC had alleged.

The FTC action against Cambridge Analytica drew unanimous support from the commission, throwing into sharper relief the partisan split on the larger move against Facebook itself. That divide echoes a broader dynamic of Washington in the Trump era, in which members of both parties have castigated abuses by the tech industry but Democrats accuse Republicans of taking actions that only further empower the moneyed giants of Silicon Valley. The president has pilloried the tech industry time and again, accusing Amazon of skimping on its taxes and ripping off the U.S. Postal Services, and alleging that Facebook, Twitter and Google censors conservatives. Yet none of the president’s critiques have resulted in action, and the industry has ultimately prospered under the administration’s 2017 tax overhaul.

And tech has spent recent years amassing an army of allies to try and ensure that its Washington fortunes remain rosy despite criticism from both sides of the aisle. Companies like Facebook, Google and Amazon have spent record sums bankrolling lobbyists, trade associations and think tanks with influence across the political spectrum — with Facebook and Amazon each spending more than $4 million on federal lobbying alone during the quarter that ended on June 30.

Some industry critics fear U.S. regulators remain outmatched by Silicon Valley’s deep pockets and technological savvy. Facebook alone is worth a half-trillion dollars and has nearly 30 employees for every one of the FTC’s.

Still, the FTC action could give new momentum to the efforts of lawmakers eager to check the power of big tech companies.

Members of both parties routinely condemn the data-collection practices of the big internet firms, and bipartisan negotiations are underway in Congress to develop a national data protection law. Despite early optimism on both sides, those talks have dragged on without results as partisan sticking points have emerged. In particular, many Democrats want a law to let Americans sue corporations over privacy failures, and they oppose any federal measure that would weaken privacy rules in California and other states.

The settlement, however, could help lawmakers break through their apparent impasse, giving Democrats — and the handful of GOP critics of the settlement, such as Sens. Josh Hawley of Missouri and Marsha Blackburn of Tennessee — an even greater sense of urgency behind the need to get firm privacy rules on the books.

For now, the biggest privacy gauntlet that U.S. tech firms face is in Europe, where a sweeping privacy law enacted last year gives regulators the authority to impose multibillion-dollar fines over data violations. European regulators have faced accusations of failing to wield that power aggressively, but the law opens an additional dimension to the scores of EU investigations and massive fines that Silicon Valley firms have faced over issues like antitrust.

Trump has shown some signs of favoring a European-style approach. Asked in a June CNBC interview about the market power of U.S. tech giants, the president suggested following Europe’s lead.

“They get all this money,” he said. “Well, we should be doing — they’re our companies. So they’re actually attacking our companies. But we should be doing what they’re doing.”

John Hendel and Zachary Warmbrodt contributed to this report.

This article was originally published by Politico on July 24, 2019. Reprinted with permission. 

About the Author: Nancy Scola is a senior technology reporter for POLITICO Pro. For more than a decade, Scola has covered the intersections of technology, politics, and public policy for a wide variety of outlets. She has served as a tech policy reporter for the Washington Post, a contributing writer at Next City, and a tech and politics correspondent for the Atlantic. As a freelance writer, she has contributed to the Atlantic, Washingtonian, Reuters, and many other publications.

Scola grew up in northern New Jersey and is a graduate of both the George Washington University and Boston University, with degrees in anthropology from each. She lives in Capitol Hill.

About the Author: Steven Overly covers technology policy and politics for POLITICO with a special focus on the industry’s effort to influence decisions in Washington. He previously spent seven years as a reporter and editor at The Washington Post. Steven holds a degree in journalism from the University of Maryland, College Park, and a master’s degree from Columbia University, where he studied as a Knight-Bagehot Fellow in Economics and Business Journalism. A native of the Washington metro region, Steven currently resides in the District.

Breaking Up Amazon Doesn’t Go Far Enough—We Must Put It Under Public Control

Tuesday, July 23rd, 2019

What should be done with Amazon? While some parts of the company should indeed be broken up, its sprawling scale is not its only problem. Much of what Amazon does is harmful for reasons inherent to the logic of private ownership, and would remain so at any scale. While the public probably does not need to own, say, The Marvelous Mrs. Maisel, much of Amazon can and should be nationalized and put to use to build a democratic economy.

David and others suggest that breaking up Amazon would restore some semblance of market fairness and that regulatory action could keep the power of its remnants in check. But historically, breakups of monopolies have been relatively inefficient. The Bell System, led by AT&T, was broken apart in 1984 and is today on track to be even larger, as the AT&T-Time Warner merger proceeds. Antitrust mechanisms can temporarily roll back monopolies, but the preference to dominate, rather than compete, survives.

Even should antitrust action succeed, it’s not clear that restoring competition would be better for society at large in the case of Amazon’s primary application—connecting buyers with sellers. Online platforms attain a natural monopoly when a certain level of market share is achieved and competition becomes next to impossible. What little competition among platforms remains doesn’t produce better outcomes, but instead creates a race-to-the-bottom to cut costs. Take Amazon’s new promise of one-day delivery; Walmart quickly followed suit. While it might appear convenient, neither entity has to account for the intensifying extraction from workers and the environment; both can continue to externalize these costs. Profit-driven private ownership of the Amazon marketplace will continue to create “innovation” at the expense of public good.

While David does suggest that the Amazon marketplace could operate under public ownership, he doesn’t seem to see the significance of such a “nationalized digital mall.” Amazon’s ownership of this digital mall is what allows its success, using its primacy to extort and manipulate the market in its own interests. It is Amazon’s profit imperative, not an inevitable function of a marketplace platform, that drives it to pressure third-party sellers, squeeze workers, and recommend products that fail consumers. By becoming the market, Amazon has effectively become the market’s regulator. Such powers should belong to the public.

Democratic public ownership of the marketplace platform could retool this infrastructure for public good. The People’s Amazon—call it Ourmazon—could guarantee access to the marketplace for smaller producers rather than driving down the cost of their goods and services. As a public distribution network, Ourmazon could stabilize prices at a point that ensures viability and competitiveness for small businesses at a cost that benefits consumers.

Critics of nationalization contend that the government would be forced to adopt Amazon’s extractive practices to operate at an enterprise scale. But if those practices are indeed necessary for efficiency, why would new regulations produce different outcomes? A nationalized platform could shift the definition of efficiency to include metrics beyond shareholder value.

One of Amazon’s key (and controversial, due to real privacy concerns) features is the massive amount of data it harvests and leverages to maximize its profits. In its current position, Amazon picks winners and losers for its own ends, with algorithms that impact prices, order search results and collate recommendations. That data could instead be optimized for a wide array of economic priorities, from reducing greenhouse gas emissions to hobbling products with labor abuses in their supply chains. A nationalized entity, managed along democratic priorities, could advantage small businesses, unionized businesses, or worker-owned businesses.

There are still more clear benefits to the public ownership of Amazon’s distribution and logistics infrastructure. The promise of one-day shipping, unchecked, poses a logistics nightmare, creating precarious work conditionsand significant environmental impact. Democratic public ownership could ensure that the flow of goods meets labor and environmental standards. Amazon’s HQ2 fiasco epitomizes race-to-the-bottom urban planning, while democratically decided plans could incorporate considerations like resiliency to natural disasters or areas needing an economic revival.

Amazon is dominating its way to becoming the backbone of the U.S. economy. A nationalized company could play the backbone of a more equitable system. As Amazon expands into activities like providing easier-to-access credit cards, it is creating new markets out of sectors that would be better served with social provisions. Similarly, look at Amazon’s move into online pharmacy. We can imagine how powerful a publicly owned pharmacy could be, expanding access to affordable medication, driven by care rather than profit.

The flaw of antitrust is that the problem of power is reduced to a matter of scale, when power should be rooted in democratic control and ownership. Who owns the data? Who programs the algorithm? Who governs the platform? Breaking up Amazon may be necessary, but some of its pieces would inevitably become natural monopolies that would be better served as publicly owned platforms operated for public benefit. Public ownership of Amazon would enable a redesign to maximize public benefit over profit.

This article was originally published at In These Times on July 22, 2019. Reprinted with permission. 

About the Author: Katie Parker is a Washington, D.C.-based researcher focused on regional planning and community economic development. Adam Simpson is a Washington, D.C.-based researcher and writer as well as a co-host of the podcast Future Left.

18 states are suing Betsy DeVos for putting for-profit college fraudsters over student borrowers

Friday, July 7th, 2017

Betsy DeVos is making it harder for students to get loan forgiveness after being cheated by for-profit colleges, but Democratic attorneys general across the country are challenging her in court. DeVos has had the Education Department put a hold on new rules that were supposed to take effect on July 1 protecting student borrowers—protecting student borrowers is definitely not what Betsy DeVos is about, let’s be clear on that—and 18 states are going to court to get the rules put back in place.

An existing federal law allows borrowers to apply for loan forgiveness if they attended a school that misled them or broke state consumer protection laws. Once rarely used, the system was overwhelmed by applicants after the wave of for-profit failures. Corinthian’s collapse alone led to more than 15,000 loan discharges, with a balance of $247 million.

Taxpayers get stuck with those losses. The rules that Ms. DeVos froze would have shifted some of that risk back to the industry by requiring schools at risk of closing to put up financial collateral. They would also ban mandatory arbitration agreements, which have prevented many aggrieved students from suing schools that they believe have defrauded them.

DeVos really is stepping in in favor of fraudulent schools over defrauded students—and taxpayers—in other words.

“Since day one, Secretary DeVos has sided with for-profit school executives against students and families drowning in unaffordable student loans,” said Maura Healey, the Massachusetts attorney general, who led the multistate coalition. “Her decision to cancel vital protections for students and taxpayers is a betrayal of her office’s responsibility and a violation of federal law.”

Two students left with debts after their school lied to them about their job prospects are also suing the Education Department over the same issues.

This blog was published at DailyKos on July 6, 2017.  Reprinted with permission. 

About the Author: Laura Clawson is labor editor at DailyKos.

CFPB Hearing: Data on One Side, Empty Rhetoric on the Other

Wednesday, March 11th, 2015

GabeHopkinsLarge In today’s era of Big Data, analytics, and sabermetrics, the cheeky motto “in God we  trust, all others must bring data” has never seemed more relevant. Well, in the arena of  mandatory arbitration provisions in consumer contracts the data is in, and the verdict is  clear: mandatory arbitration is unfair to consumers and harmful to the public interest.

Yesterday, the Consumer Financial Protection Bureau officially released its long-  awaited report on the use of mandatory arbitration clauses in consumer financial  services contracts. At a field hearing in Newark, N.J., CFPB Director Richard Cordray  discussed the report’s essential findings, noting that it was “the most comprehensive empirical study of consumer financial arbitration ever conducted.”

I’ll briefly outline the results, but what was really interesting – and what I’ll discuss below – is the discussion among panelists at the hearing Tuesday.

The 768-page report, three years in the making, was mandated by Congress in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. It analyzed six different consumer financial markets to compare the relative value of arbitral forums and courts for resolving disputes between customers and service providers. The evidence led to several key conclusions:

  • Mandatory arbitration clauses affect tens of millions of Americans. In both the credit card and checking account sectors, half of all accounts were covered by such provisions. The CFPB estimates that 80 million credit card holders are subject to mandatory arbitration.
  • Consumers don’t know they’ve signed away their rights. In a survey conducted for the report, 75% of consumers did not know whether they were subject to mandatory arbitration clauses. Of the 25% who thought they did know fully half were wrong about the true nature of the contracts they had signed. The survey also revealed that only a small fraction of consumers actually understand what mandatory arbitration and class action bans really mean for their rights.
  • Consumers rarely act on an individual basis. Over a three-year period, consumers filed only 1,800 claims in arbitration and 3,500 individual claims in federal court. Evidence from small-claims courts showed that individuals rarely turn to that forum for redress, and that most activity in those courts was by companies filing debt-collection suits against consumers.
  • Consumer class actions work. Over a five-year period 420 class action settlements in federal court netted $2.7 billion in cash, fees, and other relief. Contrary to the familiar protests of industry advocates, only 18% of this money went to plaintiffs’ lawyers, meaning $2.2 billion accrued to the benefit of affected consumers, with approximately half paid directly to consumers in cash payouts. These settlements benefitted at least 34 million consumers across America, not to mention all those protected by the settlements’ deterrent value.
  • Companies use arbitration clauses to kill class actions. Companies rarely invoke arbitration clauses to move individual suits out of court. In contrast, such provisions are raised in nearly two-thirds of class actions, and almost all arbitration clauses prohibit class treatment in the arbitral forum.
  • Arbitration does not make financial services cheaper for consumers. There is no evidence for the claim that arbitration clauses make the cost of doing business cheaper for companies who pass those savings onto consumers. Indeed, after four large credit card issuers removed arbitration clauses from their form contracts under an antitrust settlement, they did not significantly increase costs or reduce access to credit compared to other unaffected companies.

At the hearing in Newark, Director Cordray’s overview of the report’s findings was followed by a panel discussion between advocates for the financial industry and consumer protection advocates, including Public Justice Executive Director Paul Bland.

Given the reams of empirical data contained in the report, the industry-side panelists had little ground to stand on. Their responses consisted largely of nit-picking about the report’s methodology and doubling-down on their belief that arbitration is cheaper, faster, and fairer for consumers. For example, Ballard Spahr attorney Alan Kaplinsky  cited “studies” and his own “personal experience” representing financial institutions to back up these claims. , but did not cite any specific study by name. . He protested that it’s too early to judge how consumers fare in arbitration compared to court because arbitration is “in its infancy,” ignoring the fact that the report analyzed three years’ worth of data from the nation’s largest arbitration provider.  He also raised the familiar bugbear of the predatory plaintiffs’ bar, which reaps untold profits from “frivolous” lawsuits without any real benefit for their clients. His most intriguing comment, if only for its irony, was that his clients in the financial sector are regulated well enough by the CFPB and other federal and state agencies. Leave enforcement to government actors, he argued, they are far better at protecting consumers than the private sector.

Probably the most interesting comments from the industry side of the aisle came from Louis Vetere, president and CEO of a New Jersey credit union. Though he also did not grapple directly with the report, he agreed with his ideological colleagues that arbitration was good for consumers. However, he also repeatedly clarified that his company did not mandate arbitration in its contracts, nor did it think doing so was proper. Rather, he preferred to offer arbitration as an option when disputes with depositors arose, ultimately accepting whichever forum the depositor felt most comfortable with.

The panel’s consumer advocates fired back on several fronts, refuting both the specific arguments made by the industry advocates, and pointing out the many systemic problems caused by mandatory arbitration. Jane Santoni, a consumer lawyer in Maryland, said that arbitration was never a better option for her clients. More troubling to her was the fact that she has had to turn away the majority of prospective clients who have meritorious claims because as individual cases they are simply untenable for her to take. From her perspective mandatory arbitration has an “astronomical chilling effect” on the civil justice system.

Myriam Gilles, professor at Cardozo School of Law, noted that deciding consumer law cases in the “hermetically sealed” forum of private arbitration rather than in public court proceedings undermines the common law system in which future decisions build upon past precedents. She also pointed out that companies put mandatory arbitration clauses in their contracts because it’s in their interests and is a matter of “common sense” from their perspective: as the report clearly bears out, arbitration is not about dispute resolution. It’s about avoiding liability.

Public Justice’s Paul Bland drove this point home in his remarks, noting that the innocent-sounding claim that arbitration is just about moving disputes to a simpler, easier forum is a “fairy tale.” He noted that mandatory arbitration prevented consumers from protecting themselves, particularly as marginal financial actors such as payday lenders move their practices online, burying arbitration agreements in tiny-text terms and conditions on obscure webpages, all to avoid answering to consumers and government overseers when they violate consumer protection statutes. Mandatory arbitration does little more, he argued, than permit companies to break the law with impunity by taking away people’s basic constitutional and statutory rights via mouse print contracts.

The hearing closed with comments from the assembled audience. Dozens of consumer advocates stood up and added further arguments against the use of mandatory arbitration. The points raised were remarkably varied, ranging from the practical – poor consumers can’t even afford the AAA’s $200 filing fee – to the theoretical – pre-dispute arbitration agreements violate consumers’ First Amendment right to petition for redress in a government court. One common refrain in the public comments, made in response to industry panelists’ claims that consumers enjoy the simplicity and informality of arbitration, is that if arbitration is such a good deal for consumers, it should be offered as a choice rather than being forced upon them as a condition of signing up for a credit card, cell phone or car loan.

Now that the data is in, the CFPB will soon announce what, if any, action it should take to regulate the use of mandatory arbitration provisions in consumer financial services contracts. Given the content of the report, the wealth of arguments supporting its conclusions, and the empirically bankrupt arguments from the other side, it is hard to imagine that the Bureau won’t come down hard on these clauses, perhaps even banning them outright. We here at Public Justice certainly hope that it does.

This post originally appeared at http://publicjustice.net/content/cfpb-hearing-data-one-side-empty-rhetoric-other. Reprinted with permission.

About the Author: Gabriel Hopkins joined the Public Justice DC Office in September 2014 as the Thornton-Robb Attorney. Before joining Public Justice he spent a year clerking on the New York State Court of Appeals for the Honorable Susan P. Read.  Gabriel attended New York University Law School and received his J.D. in 2013. While at NYU he worked with attorneys from the New York Civil Liberties Union to sue the New York Department of Corrections over its unconstitutional use of solitary confinement to discipline prisoners, securing significant relief from this practice for minors and the mentally ill in the prison system. He also summered at the New York Attorney General’s Civil Rights Bureau, and the Los Angeles civil rights firm Schonbrun DeSimone Seplow Harris & Hoffman, where he helped partner Paul Hoffman bring the landmark international human rights case Kiobel v Royal Dutch Petroleum to the US Supreme Court.

 

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