The Federal Trade Commission has voted to approve an approximately $5bn settlement with Facebook over privacy violations, in a record deal that will also overhaul how the social media giant handles user data.
In a decision split down party lines, the three Republican commissioners voted in favour of the settlement, with two Democrats coming out against it, according to a person familiar with the deal.
The fine and the changes to Facebook’s business practices must now be reviewed by the US Department of Justice before they are formally announced. It is unclear how long this will take, though the DoJ rarely rejects FTC settlements.
The terms of the settlement are “very granular”, said the person familiar with the deal. These include proposals to change how Facebook handles and stores user data and what customers know about those practices, the person said, as well as making the company more transparent to the FTC.
If approved, the $5bn figure would be the largest civil penalty handed out by the FTC to date and is at the higher end of the $3bn to $5bn range that Facebook said earlier this year that it was expecting.
But the details prompted huge criticism from Democratic lawmakers arguing the terms should be more draconian and that the penalty represents a fraction of Facebook’s revenues, which were $55.8bn in 2018.
Facebook shares rose almost 2 per cent after the settlement was first reported, closing at $204.87 each.
The FTC first launched its investigation into the social media giant in March last year, in the wake of the Cambridge Analytica data scandal in which user data were leaked to a political research group through a third-party app.
It has been investigating whether the company breached an earlier settlement that it signed with the FTC in 2011, which required it to be clear to users about the privacy of their personal information and get explicit permissions if it changed the way their data were shared.
That earlier order was agreed after the FTC found that the company had “deceived consumers” by saying their information was private but then “repeatedly allowing it to be shared and made public”.
In its first-quarter earnings this year, the company set aside $3bn to cover the new FTC penalty, in keeping with accounting guidelines, hitting its profits. It is unclear whether Facebook will set aside a further $2bn in its forthcoming earnings release later this month to account for the rest of the fine.
Any settlement could set the tone for ongoing investigations in both the US and EU looking at the company’s data practices with regard to the Cambridge Analytica scandal and other data breaches.
It comes at a time of concern among the public and government officials about the power of big technology companies and their policies around privacy and transparency.
Last year the EU introduced new rules dictating how companies can store and use personal information, called the General Data Protection Regulation, while similar privacy laws are due to come into force in the state of California next year.
Separately, the FTC was recently granted purview for examining antitrust issues at Facebook, while some lawmakers argue that the company had become a monopoly that should be broken up.
David Cicilline, the Democratic head of the House of Representatives antitrust subcommittee, said in a statement that a $5bn fine on Facebook amounted to a “slap on the wrist” for “such serious misconduct”.
The congressman added: “It won’t make them think twice about their responsibility to protect user data . . . If the FTC won’t protect consumers, Congress surely must.”
Democratic senator Richard Blumenthal said in a tweet: “The FTC must be held accountable for this seemingly inadequate, unconscionably delayed and historically hollow result. There must be congressional hearings.”
Facebook, the FTC and the DoJ declined to comment.