Facebook and the Federal Trade Commission are reportedly nearing a settlement on a complaint over the company’s privacy policies.

In December 2009, the Electronic Privacy Information Center filed a complaint with the regulatory agency the the social network had switched on “simplified” privacy policies that were “unfair and deceptive.”

The center asked that several specific settings be restored to “private by default,” including name, current city and friends.It also wanted Facebook to restore the privacy setting that let users opt out of revealing personal information to third parties.

In the two years since that original complaint, EPIC has continued to question Facebook’s privacy practices, charging that the company’s policy changes aren’t in line with the agreements that many of its users signed on to when they created their accounts.

Facebook is, at its heart, a tool for sharing. But it has made several changes to how news is shared over the network introducing levels of sharing by individual posts, That means users have more control over who can read what they post, but they also have to work with more menus and options on a regular basis. The changes have been confusing for many who use the site.

EPIC’s executive director, Mark Rotenberg, said the group disagrees with about how Facebook tweaks its privacy settings — particularly regarding what information it shares by default — and pointed to the graphic below, created by Matt McKeon, to demonstrate how much information is available to the general public by default.

In 2005, according to this infographic from Mike McKeon, nothing was, by default, public to the entire Internet. Above, the default settings as of April 2010. (Matt McKeon)

The settlement, according to the Wall Street Journal, would make it mandatory for Facebook to get an okay from its users before making “material retroactive changes” to privacy policies. The company would also have to submit to annual third-party audits of its privacy policies, which the report said would continue for 20 years.

The company has been making efforts to let users know about their privacy options and controls.

In an interview with Charlie Rose, Facebook chief operating officer Sheryl Sandberg said that “privacy is the most important thing we do.”

In that interview, Facebook chief executive Mark Zuckerberg acknowledged that privacy settings have had to evolve as Facebook has grown to appeal to a wider audience. When the company was started, he said, tech-savvy users had an intuitive understanding of how sharing on the site worked. But now, he said, “it’s getting more and more important to be increasingly clear and give people those controls. And that’s what we’re trying to do. And I don’t think we’re at the end.”