At her first FTC meeting earlier this month, newly-confirmed FTC Chair Lina Khan moved, and the Commission approved (by a 3-2 vote), changes to the FTC’s rulemaking process.  The changes could assist the efforts of Democratic FTC Commissioners to further White House policy goals and lead to new UDAP rules.

Pursuant to the 1975 Magnuson-Moss Warranty Act, instead of using the Administrative Procedure Act rulemaking process, the FTC must follow specific procedures for the promulgation of trade regulation rules under Section 18 of the FTC Act.  Section 18 authorizes the FTC to prescribe “rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce.”  Further procedural requirements were imposed on the FTC’s Section 18 rulemaking by the Federal Trade Commission Improvement Act of 1980 and Rules of Practice adopted by the FTC.

Pursuant to Section 19 of the FTC Act, violations of Section 18 rules can result in civil penalties and equitable remedies that the FTC can seek by filing a suit in federal district court.  Section 19 authorizes district courts to grant “such relief as the court finds necessary to redress injury to consumers,” including through the “refund of money or property.”  Section 19 limits the availability of consumer redress to cases in which a person has “engage[d] in any unfair or deceptive act or practice…with respect to which the Commission has issued a final cease and desist order which is applicable to such person.”

The FTC’s action earlier this month revises the Rules of Practice.  According to the Commission’s statement regarding the revisions, “the imposition of requirements [in the Rules of Practice] beyond what Congress provided in the statute has led to the widespread belief among some commentators and policymakers that Section 18 rulemaking is too difficult to address many of the unfair and deceptive practices prevalent in the economy today.”

The revisions include the following changes:

  • The rules previously provided that the Chief Administrative Law Judge serves as the Chief Presiding Officer and is empowered to pick the Presiding Officer who would oversee the rulemaking hearing process.  Under the revised rules, the FTC Chair will either serve as or designate the Presiding Officer.
  • Under the revised rules, the Presiding Officer will have less control over the hearing process.  They allow the Commission, rather than the Presiding Officer, to set the hearing agenda, choose the issues to be discussed, and select who will be permitted to testify, conduct cross-examination, and offer rebuttal evidence.
  • Pursuant to 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 issues of material fact it is necessary to resolve.”  The rules previously provided for the Presiding Officer to finalize the disputed issues of material fact after an opportunity for public comments.  The revised rules allow the Commission to designate disputed issues of material fact earlier in the rulemaking process with the issuance of the Notice of Proposed Rulemaking.
  • Under the revised rules, a staff report analyzing the rulemaking record and making recommendations as to a final rule is no longer required.

The statement issued by the Commission’s Democratic majority and the dissenting statement issued 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 Trade Regulation Rules under Section 18 will provide much needed clarity about how our century-old statute applies to contemporary economic realities and will allow the FTC to define with specificity what acts or practices are unfair or deceptive under Section 5 of the FTC Act….While rulemaking is no substitute for a permanent fix to our Section 13(b) authority to obtain monetary relief, trade rules can help insure that businesses will no longer be able to take advantage of consumers and cement their market position by engaging in practices that do people real harm until we catch them and take them to court for the first time….With the adoption of these streamlined procedures we wish to signal a change in Commission practice and ambition: that we intend to fulfill our mission to protect against unfair and deceptive practices in commerce and provide consumers and business with due process, clarity, and transparency while crafting the rules to do so.

The majority’s statement is consistent with expectations that the FTC will rely more heavily on Section 19 for monetary redress after the recent U.S. Supreme Court ruling in AMG Capital Management finding that the FTC did not have the ability to obtain such relief under Section 13(b).

According to the dissenting Republican Commissioners:

  • The revisions regarding the Presiding Officer “enable the Chair to hand pick the presiding officer, opening the door for a fact-finding process gerrymandered to fit the agenda of a majority of commissioners,” and give a majority of the Commission “a greater ability to control which facts make it into the record, laying the groundwork for skewed rulemakings designed not to benefit the consumer but instead to satisfy the Commission majority.”
  • The revisions regarding the designation of disputed issues of material fact allow “a majority of the Commission [to] more easily ignore contradictory views by omitting disputed issues from the NPRM and the initial hearing notice.  Replacing independent and objective analysis of controversial issues in the agency’s rulemaking proceedings with a ‘majority rules’ regime not only makes it less likely that the resulting regulations will benefit consumers, but also less likely that trade regulation 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 enacted and amended Section 18.  The changes will facilitate more rules, but not better ones.”