FTC’s Smith’s Equifax Recusal Raises Conflict Concerns

By Evan Weinberger

The Federal Trade Commission’s top consumer protection official has recused himself from the agency’s investigation into the Equifax Inc. data breach amid concerns that his extensive history representing companies and industry groups could compromise the FTC’s work.

Andrew Smith, the director of the FTC’s Bureau of Consumer Protection, told Bloomberg Law on Sept. 6 that he had stepped back from any part of the agency’s investigation into the Equifax breach, which saw hackers get access to around 145 million individuals’ personal information over the span of about three months last year. The FTC has been one of the lead agencies probing how the breach happened, and Equifax’s response to it.

The former Covington & Burling LLP partner represented not just Equifax but also Experian Inc., another of the big three consumer credit reporting bureaus, and the Consumer Data Industry Association, the industry group for those companies, according to Smith’s financial disclosure form.

Those conflicts raise questions for consumer advocates about how the FTC will be able to conduct its investigation into Equifax with its top consumer protection official sidelined, as well as the FTC’s plans for how it will handle Smith’s recusals.

“If you cannot engage in the single biggest investigation that the agency will likely engage in, why are you in that job?” Remington Gregg, the counsel for Public Citizen’s Civil Justice and Consumer Rights division, said in a Sept. 10 phone interview.

Democrats’ Opposition

The FTC voted in May to appoint Smith, a veteran of the FTC’s consumer protection bureau prior to his more than a decade working in private practice at both Covington and Morrison & Foerster LLP.

However, unlike other appointments under current FTC Chairman Joseph Simons, Smith’s nomination was opposed by the two Democratic commissioners, Rohit Chopra and Rebecca Kelly Slaughter. Both said Smith’s extensive history representing companies, particularly Equifax, would lead to extensive recusals.

“The director should be our quarterback on the agency’s top priorities. But, I fear our quarterback will be spending too much time on the sidelines,” Chopra’s dissenting statement said.

The scope of Smith’s potential recusals go beyond credit reporting agencies, however.

Smith has represented a host of big banks, including Wells Fargo Bank N.A., Bank of America Corp., JPMorgan Chase & Co., Goldman Sachs Group Inc., and Capital One, according to his financial disclosure.

Smith has also represented fintech firms such as PayPal Inc., Elevate Credit Inc., and Plaid Inc., pawn broker Cash America International Inc., and companies from other industries.

Smith has also represented industry groups including the American Financial Services Association, the Online Lenders Alliance and the Pharmaceutical Research and Manufacturers of America, to go along with the consumer credit bureau industry.

While Chopra and Slaughter said they doubt Smith would let his past work affect his work at the FTC, the conflict of interest rules are meant to do more than just stop the industry from having undue influence on the regulatory process.

“The law is not only trying to protect the public from impropriety but the appearance of impropriety,” Gregg said.

Industry Group Issues

Federal ethics rules are not designed to deal with an official’s previous experience representing industry groups, instead mandating that officials step aside when they have a relationship with a specific company or entity over a set period of years, according to Jeff Hauser, the executive director of the Revolving Door Project, which monitors federal ethics compliance.

Current ethics guidelines do not require Smith to recuse himself from broader rulemaking efforts or other consumer protection work that implicates industrywide issues rather than company-specific work, he said.

“He can work on broader matters that will impact many companies in a field, and so long as a policy is broadly impactful, his conflicts will not be,” Hauser said in a Sept. 6 phone interview.

To date, the FTC has yet to release its plans for handling Smith’s recusals.

Smith’s chief of staff and FTC ethics lawyers handle all decisions on recusals, Smith told Bloomberg Law in a Sept. 6 interview on the sidelines of an Electronic Transactions Association conference in Washington.

But he said he is “quite sensitive” to following the ethics rules.

“The consequences of not doing so are trouble,” he said.

Plan Unclear

Public Citizen submitted a request for the FTC’s plans for handling Smith’s recusals under the Freedom of Information Act. The agency replied with 479 pages, nearly all of them heavily or partially redacted.

Gregg said he plans to appeal the FTC’s response.

“I don’t think they will be able to justify all the redactions,” he said.

Public Citizen was not the only group to raise concerns about Smith’s recusals. Sens. Elizabeth Warren (D-Mass.), Richard Blumenthal (D-Conn.), and Brian Schatz (D-Hawaii) sent a letter in May questioning Smith’s potential conflicts.

And Slaughter, one of the FTC commissioners to vote against Smith’s appointment, raised the issue in her dissent.

“To date, the plan for Bureau leadership on matters implicated by the full range of Mr. Smith’s conflicts remains unclear to me,” she said in her May 16 dissent.

The FTC did not respond to questions from Bloomberg Law about the agency’s plans for dealing with Smith’s potential conflicts. Instead, Peter Kaplan, an FTC spokesman, pointed to Simons’s statement upon Smith’s appointment.

In the statement, Simons lauded the FTC’s career staff and noted that much day-to-day work is handled by dedicated federal employees.

“When Mr. Smith is recused on a matter, I know BCP’s career managers and staff will ensure that American consumers are still well protected,” he said.

--With assistance from Lydia Beyoud

To contact the reporter on this story: Evan Weinberger in New York at eweinberger@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com

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