At her first FTC meeting earlier this month, newly confirmed FTC President Lina Khan proposed, and the Commission approved (by a 3-2 vote), changes to the drafting process. of the FTC rules. The changes could help the efforts of the Democratic FTC commissioners to advance White House political goals and lead to new UDAP rules.
In accordance with the Magnuson-Moss Warranty Act of 1975, instead of using the rule-making process of the Administrative Procedure Act, the FTC must follow specific procedures for the promulgation of trade regulation rules under the ‘Section 18 of the FTC Act. Section 18 empowers the FTC to prescribe “rules that precisely define which acts or practices are unfair or deceptive acts or practices in or affecting commerce.” Further procedural requirements were placed on the FTC Section 18 regulation by the Federal Trade Commission Improvement Act of 1980 and the Rules of Practice adopted by the FTC.
Pursuant to Section 19 of the FTC Act, violations of Section 18 rules may result in civil penalties and fair remedies that the FTC may seek by filing a complaint in a federal district court. Section 19 authorizes district courts to grant “such remedies as the court deems necessary to redress the harm caused to consumers”, including through “reimbursement of money or goods”. Article 19 limits the possibility of recourse for consumers to cases in which a person has “to engage[d] in any unjust or deceptive act or practice… in respect of which the Board has issued a final cease and desist order that applies to that person. “
The FTC’s action earlier this month revises the rules of practice. According to the Commission statement regarding revisions, “the imposition of requirements [in the Rules of Practice] beyond what Congress has provided in law, some commentators and policymakers are convinced that rule-making under section 18 is too difficult to tackle many of the unfair and deceptive practices that prevail in today’s economy.
The revisions include the following changes:
- The rules previously provided for the Chief Administrative Law Judge to act as the Chief Chairperson and be empowered to choose the chairperson who would oversee the rule-making hearing process. Under the revised rules, the president of the FTC will serve or designate the president.
- Under the revised rules, the presiding officer will have less control over the hearing process. They allow the Commission, rather than the President, to set the agenda for the hearing, to choose the issues to be discussed and to select the persons authorized to testify, to cross-examine and to present a case. counter-evidence.
- Under section 18, interested parties have the right to participate in a hearing by cross-examining witnesses and to present rebuttal evidence if “the Commission determines that there are disputed matters of material fact that it is. is necessary to solve ”. The rules previously provided for the presiding officer to finalize disputed matters of material fact after an opportunity for public comment. The revised rules allow the Board to identify disputed matters of material fact earlier in the rule-making process with the publication of the Notice of Proposed Rulemaking.
- Under the revised rules, a staff report analyzing the regulatory file and making recommendations on a final rule is no longer required.
The statement released by the Democratic majority of the Commission and the dissenting statement published by the two Republican commissioners describe the revisions in radically different terms.
According to the Democratic majority:
Revitalizing the Commission’s ability to issue timely Section 18 trade regulation rules will provide much-needed insight into how our century-old law applies to contemporary economic realities and allow the FTC to define with clarify which acts or practices are unfair or deceptive under section 5 of the FTC…. While rulemaking does not replace a permanent solution to our Article 13 (b) authority to achieve monetary relief, trade rules can help ensure that businesses will no longer be able to take advantage of consumers and to consolidate their position in the market by engaging in practices that really hurt people until we catch them and bring them to justice for the first time …. With the adoption of these streamlined procedures, we wish signal a change in the practice and ambition of the Commission: that we intend to fulfill our mission to protect against unfair and deceptive commercial practices and to provide consumers and businesses with due process, clarity and transparency while making the rules for doing it.
The majority statement is in line with expectations that the FTC will rely more on Section 19 for monetary relief after the recent U.S. Supreme Court ruling in AMG capital management finding that the FTC did not have the capacity to obtain such relief under Section 13 (b).
According to the dissident Republican commissioners:
- Revisions to the chairperson “allow the chairperson to choose the chairperson, opening the door to an investigative process organized to fit the agenda of a majority of commissioners”, and give the majority of the Commission “a greater ability to control what facts are on the record, laying the groundwork for distorted regulation designed not to benefit the consumer but rather to satisfy the majority of the Commission.” “
- The revisions concerning the designation of contentious matters of material fact allow “a majority of the Commission [to] more easily ignore conflicting views by omitting contentious issues from the NPRM and the original Notice of Hearing. Replacing the independent and objective analysis of controversial issues in the agency’s rule-making procedures with a “majority rules” regime not only makes the resulting regulations less likely to benefit consumers, but also less likely. likely that trade regulatory rules will survive legal scrutiny. “
- Overall, the revisions “adopted by the majority … without public input undermine the goals of participation and transparency that Congress sought to advance when it passed and amended Article 18. The changes will facilitate more rules, but not better ”.