A Lawyer for Payday Lenders Is Confirmed for F.T.C. Job


WASHINGTON — The new director of the Federal Trade Commission’s consumer protection unit, a watchdog with broad investigative powers over private companies, stands out even in an administration prone to turning over regulatory authority to pro-industry players.

The director, Andrew M. Smith, has recently represented Facebook, Uber and Equifax — all companies with matters before the commission — and plans to recuse himself from dozens of cases now that he has been confirmed for the post.

And in 2012, Mr. Smith was also part of the legal team that defended AMG Services, the payday lender founded by the convicted racketeer Scott Tucker, whose predatory practices against impoverished borrowers eventually led to a $1.3 billion court-ordered settlement, the biggest in the commission’s history.

“It’s outrageous the F.T.C. would pick the lawyer for a criminally convicted racketeer’s payday loan company as consumer protection chief,” said Senator Elizabeth Warren, Democrat of Massachusetts, who opposed Mr. Smith’s selection. “The agency should pick someone with a track record of protecting consumers, not companies that cheat people.”

Mr. Smith was confirmed by the commission on Wednesday, with the agency’s three Republican commissioners voting in favor of and the two Democratic commissioners voting against his appointment.

Rebecca Kelly Slaughter, a Democratic commissioner, said she voted against Mr. Smith because requiring him to step aside from the consumer protection bureau’s most high-profile investigations “undermines the public’s confidence in the commission’s ability to fulfill its mission.”

But the commission’s chairman, Joseph J. Simons, a Republican, said he was “disappointed that two of my new colleagues have chosen to turn Mr. Smith’s appointment into a source of unnecessary controversy.”

Mr. Smith, regarded as a hard-working and knowledgeable lawyer even by critics, worked as a lawyer for the commission in the early 2000s, drafting many of its regulations on credit reports and identity theft. In private practice for much of the last decade, he has represented industry groups, including payday lenders. He has also appeared before Congress to argue for loosening regulations and scaling back aggressive enforcement of existing laws.

Mr. Smith “has defended the worst of the worst,” said Karl Frisch, the executive director of Allied Progress, a progressive advocacy group based in Washington that opposed the appointment.

Mr. Smith, in an interview on Wednesday, pointed to his previous work at the commission and said he would continue the mission at the Bureau of Consumer Protection.

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Andrew Smith, was confirmed on Wednesday as the next director of the Federal Trade Commission’s consumer protection bureau.CreditCovington & Burling

“I look forward to working with all the commissioners to do what’s best for consumers,” he said. “I obviously don’t think I’m disqualified because of prior client relationships. I have a long history of service to consumers, to the industry and the profession.”

As a lawyer with Covington & Burling, Mr. Smith has represented dozens of companies over the past two years, including many banks, lenders, credit-reporting agencies and technology companies, which will force him to recuse himself from any potential investigations or enforcements against those organizations, according to two people with knowledge of the situation.

But Mr. Smith’s work for AMG raised new questions about his fitness to run a division that polices payday lenders among many other industries accused of fleecing consumers.

In early 2012, the Federal Trade Commission filed a court case against AMG, arguing that the firm — a complex web of companies overseen by Mr. Tucker — had engaged in an array of deceptive and fraudulent business practices, including the illegal use of threats against borrowers who were unable to pay back high-interest loans.

Mr. Smith, then a lawyer with Morrison & Foerster, met with the agency’s lawyers and other defense counsel on at least one occasion, a group that included Mr. Tucker’s personal lawyer, Timothy Muir. Mr. Muir would later be charged and convicted of helping Mr. Tucker run what prosecutors described as a $3.5 billion criminal enterprise.

Mr. Smith said his work had been limited to advising his client, technically a company overseen by an Indian tribal council, on the commission law. He said the Morrison & Foerster team worked on the case for about six months.

In October 2016, a federal judge in Nevada hit AMG with a $1.3 billion settlement and held Mr. Tucker personally liable for setting up the complicated enterprise. In January, he was sentenced to over 16 years in federal prison “for operating a nationwide internet payday lending enterprise that systematically evaded state laws for more than 15 years in order to charge illegal interest rates as high as 1,000 percent on loans,” according to a news release from the Justice Department. (Mr. Tucker had used his profits from the payday lending scheme to fund a side career as a racecar driver.)

Mr. Muir, his lawyer, received a seven-year sentence.

Mr. Smith declined to say whether he had spoken with Mr. Tucker, saying he was unsure whether answering would violate confidentiality agreements with his former clients.“And does it matter?” he said.

Asked whether he had second thoughts about representing companies that had helped Mr. Tucker bilk vulnerable people out of millions of dollars, he said: “I think all lawyers think about that. I was a part of a team at MoFo, and I think that everyone deserves a good defense.” He said the Native American firms he represented believed they were helping people.

Mr. Smith also declined to name other companies on his recusal list. He said many we re banks, and were thus typically not regulated by the Federal Trade Commission. He added that he would still stay busy at the agency because there were many companies that were not on his list. “It’s a big world and the F.T.C. has very broad jurisdiction,” he said.

Mr. Smith’s selection comes at a time of drastic deregulation of financial services — especially enforcement of laws meant to protect poor people — led by Mick Mulvaney, the interim director of the Consumer Financial Protection Bureau. In recent weeks, Mr. Mulvaney has scaled back the bureau’s investigations into student loan abuses and payday lenders while calling for the elimination of an online database of complaints against banks.

Federal Authorities Crack Down on Vaping Industry for Items Resembling Juice Boxes and Candy


Some of the companies also sold products to minors. Federal officials said even if the products were not sold to minors, a child could be mistakenly poisoned because the packaging so closely resembled food and candy.

“The images are alarming, and it’s easy to see how a child could confuse these e-liquid products for something they believe they’ve consumed before,” Dr. Scott Gottlieb, the F.D.A. commissioner, said in a telephone call with reporters on Tuesday.

Child poisonings from ingesting liquid nicotine have recently increased. Such poisonings can be deadly and can cause seizures, comas and respiratory arrest. There is no evidence the products under scrutiny this week caused any child deaths, officials said.

Nevertheless, “it takes a very small amount of these e-liquids, in some cases less than half a teaspoon, to be at the low end of what could be a fatal effect for a kid, and even less than that to make them very, very sick,” said Mitch Zeller, the director of the F.D.A.’s Center for Tobacco Products.

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The products, sold through multiple online retailers, were designed to look like Warheads candy, Reddi-wip, or one, called “Twirly Pop,” which came with a real lollipop.

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U.S. Food and Drug Administration

Some of the products even smelled like the food they were imitating, said Maureen K. Ohlhausen, the acting chairwoman of the F.T.C. The apple juice product came in a cardboard box, with the corners sealed and folded over just like the shelf-stable boxes sold in supermarkets, according to the warning letter. It also smelled like apple juice, even without opening the package.

“These companies are marketing their e-liquids in a manner that the product particularly appealing to young children,” she said.

Nick Warrender, the owner of Lifted Liquids, said he removed the Vape Heads product from his inventory and redesigned the packaging about six months ago to address officials’ concerns over marketing such products. “It was something we already saw as a problem,” he said.

He said that the products were never marketed to children, but were designed to appeal to adults’ nostalgia. “Our goal is complete compliance with the F.D.A. and the F.T.C.,” he said, but added that he also wanted to create products that will be attractive to consumers.

“Our goal is also to provide products that are going to give adult smokers the ability to get away from cigarettes and also something they are going to enjoy.”

Mr. Warrender said his products are sold in childproof packaging and that any online sales go through a rigorous vetting system.

Other companies could not be reached immediately for comment. F.D.A. officials said all of the companies sent warning letters on Tuesday had recently sold the products.

Last summer, Dr. Gottlieb issued a reprieve to manufacturers of electronic cigarettes by delaying regulations that could have removed many of their products from the market, while at the same time announcing an initiative that will push tobacco cigarette makers to reduce the levels of nicotine in their products.

Dr. Gottlieb said the action on Tuesday, as well as the crackdown last week on the Juul products, were part of a longer-term campaign aimed at reducing the use of vaping products by minors.

While he said there is value in encouraging the development of alternatives that could lure smokers away from harmful cigarettes, public health officials needed to be vigilant about not addicting a new generation of young people to vaping products.

“These are just the initial steps in what is going to be a sustained campaign,” Dr. Gottlieb said. “There are bad actors out there.”

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Drug Company ‘Shenanigans’ to Block Generics Come Under Federal Scrutiny


Legislation to ensure access to drug samples for generic drug manufacturers has broad support in Congress, from Senator Patrick J. Leahy, Democrat of Vermont, on the left to Senator Mike Lee, Republican of Utah, on the right. A similar bill in the House also has diverse backers, including Representatives Peter Welch, Democrat of Vermont, and Mark Meadows, Republican of North Carolina, who is the chairman of the conservative House Freedom Caucus.

Under the bill, a generic drug developer could file a lawsuit, and a federal court could require a brand-name drug maker to provide samples of its product to a generic company “on commercially reasonable, market-based terms.” The court could also award damages if it found that a drug maker had refused to sell samples “without a legitimate business justification.”

Brand-name drug companies make several arguments against the legislation. First, they say, it is not needed. The F.D.A. approved 1,027 generic drugs last year, a record number, and nearly 90 percent of prescriptions are filled with generic medicines, suggesting that generic manufacturers have generally been able to obtain the samples they need, the brand-name companies say.

Second, they say, the bill would be a boon to trial lawyers, giving them an incentive to sue brand-name pharmaceutical companies for damages, which could be worth more than sales of the proposed generic drug.

Finally, they say, the legislation could endanger patients because generic drug developers might not follow the strict safety protocols that the government requires for some brand-name drugs.

But the F.D.A. says that “no additional requirements are needed to protect patient safety” in tests to show the equivalence of generic and brand-name drugs. The “testing typically involves a relatively small number of human subjects and a small number of doses and therefore a relatively low level of risk,” the agency said.

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The secretary of health and human services, Alex M. Azar II, has repeatedly said that drug prices are too high.

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Lawrence Jackson for The New York Times

At a time when researchers are using sophisticated science to develop new treatments and cures, the fight over physical samples — a few thousand pills — sounds mundane. But it has huge implications for consumers’ access to affordable medicines.

The F.D.A. says it has received more than 150 inquiries from generic drug companies unable to obtain the samples needed to show that a generic product works the same as a brand-name medicine. Some of the disputes over samples involve drugs that are costly to patients and to the Medicare program and that have experienced sharp price increases in recent years.

“Without generic competition, there is no pressure to drive down the costs of these medications,” the food and drug agency said. Under current law, it said, it cannot compel a brand-name drug manufacturer to sell samples to a generic company.

The Congressional Budget Office estimates that the legislation would save the federal government $3.8 billion over 10 years, mainly because Medicare, Medicaid and other health programs would spend less on prescription drugs. Savings for consumers and private health insurance plans could be much greater.

Lawmakers of both parties pushed for the legislation to be included in a far-reaching budget bill signed by Mr. Trump in February, but it was dropped at the last minute.

Even without action by Congress, generic drug companies say the denial of drug samples needed for testing may violate federal antitrust law because it tends to perpetuate a monopoly for the makers of some brand-name medications. But it typically takes years for courts to resolve such claims.

Mylan, a generic drug company, wants to obtain samples to develop a generic version of Revlimid, a brand-name cancer medicine sold by Celgene. At a court hearing in Newark in December, Jonathan M. Jacobson, a lawyer for Mylan, told a federal district judge that “Revlimid costs patients who are dying $20,000 a month.”

“These are some of the most ill patients in the world,” he said, and “if there were generics on the market, the price would be much lower, and people would live longer.”

Celgene said in court papers that it had no obligation to help a potential competitor and that it had “valid business justifications for declining to sell samples on the terms demanded by Mylan.” Moreover, Celgene said its overriding concern was for the safety of patients.

But Mylan, the generic drug company, said this was no excuse because it had devised safety protocols similar to those followed by Celgene.

The secretary of health and human services, Alex M. Azar II, has repeatedly said that drug prices are too high. The administration, he said, will soon roll out “a whole slate” of proposals to reduce those prices.

Mr. Azar has suggested that private companies — pharmacy benefit managers — should have a role in negotiating prices for drugs under Part B of Medicare. Those drugs are typically administered by infusion or injection in doctor’s offices and hospital outpatient departments.

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YouTube Is Improperly Collecting Children’s Data, Consumer Groups Say


YouTube’s distinction between its main product and YouTube Kids is significant because of the rules on disclosure and parental consent that kick in for sites with “actual knowledge” that they are trafficking in the personal information of children under 13.

Those rules were first detailed in the Children’s Online Privacy Protection Act of 1998, known as Coppa. The Federal Trade Commission expanded the act in 2012, noting that it needed to be updated for the age of mobile devices. The revised rules made clear that companies must obtain parental consent before collecting details that could be used to identify, contact or locate a child. These included photos, video, audio and the location of a child’s mobile device.

In the complaint that will be filed on Monday with the commission, the advocacy groups say YouTube is able to collect data on children under 13 through its main site, where cartoons, nursery-rhyme videos and those ever-popular toy-unboxing clips garner millions of views.

YouTube’s terms of service hold that visitors to its main site are affirming that they are at least 13 and agree to Google’s privacy policy, which outlines how the company collects information on individuals and then tailors ads and services to them. By watching a YouTube video, the policy says, viewers give Google permission to collect data tied to their device, location, browsing habits, phone number and more.

The groups say this kind of tracking requires parental notification and consent first. While companies can collect some of that information from children to deliver relevant ads, they are supposed to obtain parental consent to use it for more tailored purposes, like behavioral advertising or profiles of individuals. The YouTube Kids app, for example, specifies in its privacy policy that it “does not allow interest-based advertising or re-marketing.”

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YouTube has sought to define its main site and app as destinations for viewers 13 and older, while directing younger children to its YouTube Kids app.

“We haven’t received the letter yet but look forward to reviewing it,” a spokeswoman for the Federal Trade Commission said in an email. She added that the commission took enforcement of Coppa “very seriously” and had brought more than two dozen cases tied to the rule.

YouTube provided an emailed statement that said the platform had not yet received the complaint but that “protecting kids and families has always been a top priority for us.”

”We will read the complaint thoroughly and evaluate if there are things we can do to improve,” the company went on. “Because YouTube is not for children, we’ve invested significantly in the creation of the YouTube Kids app to offer an alternative specifically designed for children.”

Josh Golin, executive director of the Campaign for a Commercial-Free Childhood who is also leading the coalition, said YouTube had been “actively packaging under-13 content for advertisers.”

To bolster their case, the groups shared screenshots of Barbie advertisements set to appear between videos aimed at children. They also pointed to a number of channels for toddlers and preschoolers within “Google Preferred,” a collection of top videos on the main YouTube site and app that are vetted and packaged for advertisers.

As YouTube’s popularity has surged, it has faced a string of issues related to content geared to children, from inappropriate videos that have appeared on its YouTube Kids app to deceptive advertising.

YouTube said this year that human beings working for the platform would screen all videos from creators whose work appeared on Google Preferred, which the consumer advocates cited as proof that Google employees “have actual knowledge that the content is child-directed.” YouTube has also brokered ad deals with toy companies like Mattel, and has noted how its video ads have helped children’s channels attract specific audiences, like American parents with children under 5.

Mr. Golin said he believed that YouTube was aware it was collecting and monetizing the data of children with such videos, and that the company should simply shift all the videos aimed at children to the YouTube Kids app.

“We know kids are primarily consuming this through iPads and mobile phones, which are not particularly conducive to group watching,” Mr. Golin said.

The complaint comes during a public reckoning around the collection and use of personal data by technology companies after revelations that Cambridge Analytica, a British political data firm, improperly harvested the information of possibly more than 80 million Facebook users. It also strikes a warning note for Google and YouTube overseas as Europe prepares to roll out new data privacy rules. Mr. Chester said the groups will encourage consumer advocates in Europe to file similar complaints about Google and YouTube under those rules, where penalties for companies will be stiff.

Dylan Collins, chief executive of SuperAwesome, a privacy technology firm used by companies that market to children, said questions around data collection would only grow as children continued to flood huge tech platforms that were built for adults.

“Silicon Valley now has a responsibility to figure out how to move from building adult tech into building kid tech,” Mr. Collins said. “I don’t think any company, whether it’s Facebook or YouTube or Snapchat, can hide from the fact that there are about 10 times more kids online today than there were six or seven years ago when their products were being designed or built.”

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Facebook Comes Under F.T.C. Scrutiny as Stock Slides


“I’m sure this is much bigger than Cambridge Analytica and I’m sure there are other Cambridge Analyticas out there,” said Senator John Kennedy, Republican from Louisiana, in an interview. “Facebook isn’t just a company, it is so powerful it is like a country.”

Senator Chuck Grassley, Republican of Iowa and chairman of the Senate Judiciary Committee, invited Mr. Zuckerberg on Monday to testify about privacy standards next month and also extended the invitation to Google’s chief executive, Sundar Pichai, and Twitter’s chief executive, Jack Dorsey.

And a group of 37 attorneys general on Monday sent a letter to Mr. Zuckerberg asking for details about Facebook’s privacy safeguards.

“Facebook has made promises about users’ privacy in the past, and we need to know that users can trust Facebook,” the group wrote. “With the information we have now, our trust has been broken.”

Some lawmakers, such as Senator Richard Blumenthal, Democrat from Connecticut, asked the F.T.C. to look into whether Facebook should pay damages to users.“The sphere of scrutiny must be broader than just the consent decree,” he said in a statement. “There is no excuse for delay.”

Facebook has been targeted by several lawsuits and investigations from governments and shareholders since reports detailed the use of Facebook user information by Cambridge Analytica.

Many users have threatened to deactivate or delete their accounts in protest. The #deletefacebook campaign, as it has been called, has even received support from a creator of WhatsApp, one of Facebook’s most popular services, who sold his company to the social media giant for $19 billion in 2014. Elon Musk, the chief executive of SpaceX and Tesla, removed the Facebook pages of both companies on Friday.

Regulatory pressure on Facebook has been building for years.

In the European Union, officials have taken an aggressive attitude toward Facebook and other American technology giants. The company has been the subject of several privacy investigations and charges by European regulators.

Europe has approved a new privacy law, which takes effect in May, that will give users of Facebook, Google and other internet services more control over how their data is collected and what Silicon Valley companies know about them.

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Editorial: Facebook Leaves Its Users’ Privacy Vulnerable


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Credit
Tim Peacock

Facebook is once again struggling with revelations that manipulative characters exploited the vulnerabilities of its platform during the 2016 election to put Donald Trump in the White House. The company said last week that it was suspending the accounts of Cambridge Analytica, a company that worked for the Trump campaign, and a professor, Aleksandr Kogan, who is said to have deceptively amassed information from more than 50 million people without their consent. That may sound like decisive action, but it came more than two years after Facebook learned of the problem.

Starting in 2014, Mr. Kogan got the data, using a quiz app, under the guise of academic research. He handed the information to Cambridge Analytica, which used it to build profiles of voters’ personalities, according to reports in The New York Times and The Observer of London on Saturday.

What is particularly disturbing about this case is that Facebook has not yet identified and alerted users whose profile information was vacuumed up by the app, most of whom had never used it but were friends with somebody else who had. Further, Facebook did not verify that Cambridge Analytica and Mr. Kogan deleted the data after the social media company told them to in 2015. The Times reported that Cambridge still had most or all of the data.

Facebook’s response so far is reminiscent of its slow, defensive reaction to the spread of pro-Trump fake news on its platform during the 2016 presidential campaign. Days after the election, Facebook’s founder and chief executive, Mark Zuckerberg, said it was a “pretty crazy idea” to suggest that fake news had influenced the outcome. It took months for him to admit that he was wrong to so cavalierly dismiss the importance of hoaxes spread on Facebook, many of them by people working on behalf of the Russian government.

It is hard to know just how useful the profile information from Facebook was in Cambridge’s effort to help elect Mr. Trump. The company has offered contradictory statements about its use of what’s called “psychographic data” for the campaign, which included targeting political messages to voters receptive to them. The trove contained enough details about roughly 30 million people, including where they lived, that the company was able to build detailed profiles by linking the data to other sources of information.

Officials in the United States and the European Union are investigating Cambridge Analytica, and others say they might, including members of Congress and the attorney general of Massachusetts, Maura Healey. In Britain, regulators and lawmakers are looking at whether the company tried to illegally influence the “Brexit” referendum of 2016.

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F.T.C. Investigating Facebook in Use of Personal Data by Firm Tied to Trump


The Federal Trade Commission has opened an investigation into whether Facebook violated an agreement with the agency on data privacy, after reports that information on 50 million users was improperly obtained by the political consulting firm Cambridge Analytica, according to a person with knowledge of the inquiry.

The investigation, started in recent days, adds to the mounting pressure against Facebook in the United States and in the United Kingdom about its handling of the data. Cambridge Analytica used the information to help President Trump’s presidential campaign profile voters during the 2016 election.

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Maureen Ohlhausen, the acting chairwoman of the Federal Trade Commission. The agency reached a settlement with Facebook in 2011 on data privacy.

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Susan Walsh/Associated Press

The F.T.C. and Facebook reached a settlement in 2011 after the agency accused the company of deceiving customers “by telling them they could keep their information on Facebook private, and then repeatedly allowing it to be shared and made public,” according to a statement at the time.

Among several violations, the F.T.C. found that Facebook told users that third-party apps on the social media site, like games, would not be allowed to access data. But the apps, the agency found, were able to obtain almost all personal information about a user.

“We are aware of the issues that have been raised but cannot comment on whether we are investigating,” a F.T.C. spokeswoman said in a statement on Tuesday. “We take any allegations of violations of our consent decrees very seriously.”

The investigation was reported by Bloomberg earlier on Tuesday.

Senators Amy Klobuchar, a Democrat from Minnesota, and John Kennedy, a Republican from Louisiana, have asked to hold a hearing on Facebook’s links to Cambridge Analytica. Republican leaders of the Senate Commerce Committee, led by John Thune of South Dakota, wrote a letter on Monday to Mark Zuckerberg, Facebook’s chief executive, demanding answers to questions about how the data was collected and if users were able to control the misuse of data by third parties.

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