A Compromise to Fund the Federal Trade Commission’s Office of Technology

Congress appears to have developed a troubling pattern: shrinking the Federal Trade Commission’s (FTC’s) budget just as consumer protection concerns grow. The FTC has also adopted a practice of coming close to infringing on Congress’s legislative authority by broadly interpreting its rulemaking authority, at least in the eyes of members. Given the threats posed to consumer well-being by rapidly evolving and sophisticated artificial intelligence (AI) systems, this stalemate needs to come to an end. The solution is relatively straightforward: investing in the nation’s primary consumer protection agency—specifically, the FTC’s Office of Technology. And, in turn, the FTC should prioritize use of its investigatory authority over contested rulemakings.

The FTC’s Office of Technology

Formed in early 2023, the Office of Technology aims to “provide technical expertise across agency matters and strengthen the agency’s ability to enforce the nation’s competition and consumer protection laws.” While the Office is new, its raison d’être is not. In many ways it reflects the Commission’s perpetual struggle to stay abreast of the latest threats posed to consumers by emerging technology. When deceptive ads became common on the radio waves, for example, the FTC responded by launching a Special Board of Investigation. This investigatory investment increased the Commission’s ability to collect and analyze “a massive volume of radio transcript data,” according to the FTC. 

Today, the FTC again faces a capabilities question due to expansive and expanding digital marketplaces, as well as the sophisticated technical tools bad actors use to deceive and defraud consumers in those spaces. According to Stephanie Nyguen, the FTC’s first Chief Technology Officer, the FTC again must “strengthen [its] in-house capacity to develop new skills and methods to investigate and mitigate widespread consumer harms.” 

U.S. officials on both sides of the aisle appear to agree. FTC Commissioner Melissa Holyoak, one of two Republicans on the commission, expressed a “commitment to using [the agency’s] existing authorities and applying the Commission staff’s expertise to understand evolving markets, and to act accordingly to enforce the law as new circumstances may require.” While not an explicit endorsement of the Office, retention of the expertise sought by Holyoak comes at a cost. She likewise applauded innovative investigatory measures, further indicating her support for the Office. More specifically, she acknowledged the value of the commission’s Voice Cloning Challenge. That challenge solicited from the public various strategies to detect AI-generated voices that may facilitate fraudulent activities. The creation and success of such challenges depends on the FTC’s own technical expertise. 

In calling for increased funding for the FTC, Rep. Debbie Dingell (D-Mich.) stressed the technical complexity of many consumer protection matters. She listed concerns arising from data brokers, facial recognition technology, and automated robocalls as among the issues in the commission’s ballpark. Her explicit focus on these novel threats speaks to the ongoing importance of the Office of Technology. 

But scattered examples of bipartisan support does not add up to a fully functioning government office. The required level of funding will come only through a greater show of congressional support. Technologists are in short supply, and demand is high. The upshot is that Congress cannot be stingy when it comes to investing in this critical source of consumer protection.

The Status Quo

Despite the appearance of a bipartisan agreement around the importance of in-house expertise to the FTC’s mission, a broader partisan skirmish may undermine the Office of Technology. In short, many members of the House GOP think FTC Chair Lina Khan is pushing an extreme, progressive agenda through an unconstitutional extension of the commission’s rulemaking authority. Khan’s supporters, by contrast, see her efforts as in line with the original vision of the commission—an agency that conducts regular, thorough analysis of business practices. Given this ongoing battle, a Republican-controlled Congress may vote to slash the FTC’s budget, leading the agency into a reduction in force involving potentially significant staffing cuts. Meanwhile, the FTC seems likely to push ahead with expansive rules, despite Congress considering legislation on the same topics. 

An already decades-long decrease in the FTC’s regulatory capacity may continue if Congress and the agency cannot reach some sort of compromise. When Khan visited the House Subcommittee on Innovation, Data, and Commerce earlier this summer, she found herself in an odd position. She had a litany of statistics ready to make the case for increased investment in the FTC. Per the FTC’s math, in fiscal year 2023, for each $1 invested in the agency, it returned $14 in benefits to Americans. In total, the agency saved the public nearly $3 billion through consumer protection and competition law enforcement efforts. 

Yet Khan acknowledged a sustained decrease in congressional support for the agency. Back in 1980, more than 1,700 full-time employees worked for the FTC. That number has withered to just 1,349 as of 2024 and will decrease if the House passes its proposed fiscal year 2025 budget. Khan anticipates that under the proposed House budget, the FTC would see a reduction in its capabilities brought by cuts to its consumer complaint database as well to its personnel. Her estimates may be conservative. The House budget would result in a $37 million cut from the prior enacted level and fall more than $146 million short of the FTC’s request.

Congress’s calculus turns on different factors. Rather than measuring the benefits derived from the FTC’s enforcement actions, some members and interest groups seem focused on instances of alleged financial mismanagement. The Competitiveness Coalition, for instance, has questioned the financial costs of Khan’s speaking engagements and the use of FTC staff to assist with the implementation of the Digital Markets Act in the EU. Individuals opposed to further investment in the FTC have also pointed to the agency’s adoption of “loss to win” strategy—bringing novel enforcement actions in the hopes of incrementally changing the law. 

The agency’s willingness to engage in substantive rulemaking under a novel interpretation of the FTC Act has likewise drawn negative comments, including from recently appointed Republican FTC commissioners, Andrew Ferguson and Holyoak. Holyoak testified to the subcommittee that “the Commission is at its best when it focuses on enforcing the law, not writing it.” Members have echoed that sentiment. Rep. Jim Jordan (R-Ohio) contends that Khan has pursued a “radical agenda detached from the FTC’s legal mandates.” He oversaw an interim staff report by the House Judiciary Committee that included interviews of FTC employees who complained of FTC leadership bypassing staff input when pursuing rules and policy changes. This report and related stories explain why some members of Congress care less about the benefits of the FTC’s work than they do about the opportunity costs incurred when the agency strays from more traditional FTC tasks. 

The Compromise

To the extent Congress is hesitant about funding the Office of Technology, much of their concern seems to arise out of rulemakings done in response to the office’s work more so than the office’s investigations. The focus of Congress’s ire on FTC rulemaking opens the door for a political compromise. The FTC should consider specifying that the office, its experts, and its resources will focus almost exclusively on conducting Section 6(b) studies.

As noted by Commissioner Ferguson, “The Commission’s investigative and report-writing power pursuant to Section 6 of the FTC Act is a valuable tool in the agency’s policymaking toolbox.” He explains, “Section 6(b) studies and reports contribute greatly to the Commission’s successes in serving the public interest.” Such studies are of particular value when analyzing complex markets and novel technologies. If the FTC were to charge the office with conducting such studies, opposition on the Hill may diminish—it might not disappear entirely, but skeptical members of the House might at least walk back some of the proposed cuts. 

This compromise would mark a substantial concession by Khan and other Democratic commissioners. They may feel as though the good odds of a Harris administration and potential increases in the Democrat’s share of the House and Senate warrant holding out. Why give in to Republican pressure if those members may soon find themselves in the minority? 

Such a gamble risks too much given the importance of increasing the commission’s technical capacity. Though this handshake agreement may limit the FTC’s rulemaking, the investment in expertise will result in compelling studies that will produce significant pressure to adopt laws that mirror the regulations the commission would have otherwise pursued. Put differently, robust, thorough, and sophisticated studies have the potential to inform and galvanize the public. The end result of this path then would essentially be the same, though the new law would come from Congress rather than the FTC.

The Stakes

Democratic commissioners tempted to hold out for a more favorable political climate should consider that the consumer protection issues raised by AI are just beginning. A new front in the battle to protect consumers will soon open. AI agents, AI systems that can take actions without recurring instructions from humans, will soon become ubiquitous. “Such agents are hard to understand, evaluate, or counter, and once set loose, they could operate indefinitely,” warns Jonathan Zittrain of Harvard Law. The impending deluge of AI agents will put immense pressure on the FTC to respond with timely guidance for Congress. Absent thorough, regular, and accurate investigations of this new manifestation of AI, legislators and, by extension, the American public will be subject to the worst forms of this technology. 

Beyond reports on the technology itself, Congress will require actionable information on how adoption of AI agents and related technologies are changing our culture, economy, and politics. Congress may find itself dealing with an even more severe mental health crisis than the one caused by social media. Researchers at the MIT Media Lab anticipate that humans may soon form digital attachment disorders—forming addictive relationships with AI systems. They expect AI labs will take a page out of the social media platform playbook by designing AIs that keep users continuously engaged with and increasingly dependent on the AI. So-called addictive intelligence will not only harm individual users but, if common enough, disturb larger social dynamics. If the FTC lacks the technological expertise to deal with these and other concerns, it will fall short of a key part of its original mandate—“facilitat[ing] nuanced and fact-specific analysis and well-tailored remedies.”