If there were any question whether the current Federal Trade Commission (FTC) was reenacting the 1970s, that question has been put to rest. And unfortunately, it’s not about seeing Grace Jones, Liza Minnelli and Andy Warhol at Studio 54 or wearing our finest velour shirts; the 1970s also saw quite a lot of rulemaking at the FTC.
But before we turn to the meeting, we do have to observe that this was the first public meeting after Commissioner Noah Phillips left the agency for other pursuits. We will miss his monthly insights and thoughtful analysis of the issues facing American consumers. And, of course, we will also miss his expert turn of phrases and seeing his kids’ most recent masterpieces proudly displayed behind him. We wish him the best, and the commissioners all had similar sentiments.
So today is all about rulemaking – two new ones and one old one. And for those new to the issue of FTC rulemaking, here is a primer. But what you should know is that it is a complex process, and for these rulemakings, the FTC will have to demonstrate that the practices at issue are deceptive or unfair and are prevalent in the marketplace. These rulemakings take many years to complete. But rules are important for the agency because they are a vehicle that can allow the agency to seek civil penalties and/or consumer redress.
On the new-rule front, the meeting kicked off with a discussion of a proposed new rule on “junk fees,” a name that struck us as somewhat judgy and quite vague, particularly for rulemaking. The FTC described it as an Advance Notice of Proposed Rulemaking (ANPR) that would address “fees that are charged for goods or services that have little or no added value to the consumer.” This raised all sorts of questions for us, most notably how one would assess what sorts of fees are of little or no added value in a broad range of industries and how this would become a rule. We have seen FTC law enforcement directed at companies that poorly disclose fees and some commentary and warnings on “drip pricing”, but this appears to be a rulemaking focused on the fees themselves as well as the process. Oddly, we did not get to see the usual FTC staff presentation, where they would outline the contours of the ANPR. That is set forth in more detail in the related press release. But the commissioners all had strong thoughts and feelings.
A few of our concerns were raised by Commissioner Christine Wilson, who let’s just say had a few strong words to say about the rulemaking and then some. Although she had a strong dissent, she emphasized her admiration and respect for staff, whom she called the “crown jewels.” She explained that there were aspects of the ANPR that she supported, but it was sweeping in its breadth, is untethered from FTC enforcement, relies on broad assumptions and vague definitions, ignores market differences, and is inconsistent with some existing rules and regulations. She also observed that the broad scope might make this subject to the major question doctrine that the Supreme Court recently discussed. Further, the lack of FTC cases on drip pricing made it questionable whether the agency would meet the required legal standard, and she had major issues with the ANPR definition of junk fees. Finally, if that wasn’t enough, she expressed real concern that the wave of rulemaking at the agency was diverting resources from the core law enforcement function of the agency.
For those wondering, the ANPR defines junk fees as:
unfair or deceptive fees that are charged for goods or services that have little or no added value to the consumer, including goods or services that consumers would reasonably assume to be included within the overall advertised price; the term also encompasses “hidden fees,” which are fees for goods or services that are deceptive or unfair, including because they are disclosed only at a later stage in the consumer’s purchasing process or not at all, whether or not the fees are described as corresponding to goods or services that have independent value to the consumer. These terms may overlap – a junk fee can be a hidden fee, but not all junk fees are hidden fees.
This ANPR was voted out with the support of three commissioners. Chair Lina Khan discussed “arbitrary and opaque fees” and focused on practices that prevent consumers from knowing the real price of a product until they are far into the transaction and do not have the ability to comparison shop. She also discussed the effect on competitors that might not be adding surprise fees. Commissioner Rebecca Slaughter talked about the universal frustration of the advertised price differing from the price at the register. And Commissioner Alvaro Bedoya was quite concerned about the pervasive pattern of surprise fees, which the agency needs to explore.
The next rulemaking was on fake reviews and endorsements. The FTC has been quite focused on this area for some time, with Notice of Penalty Offense Letters as well as the recent proposed revisions to the Endorsements and Testimonial Guides and business guidance on consumer reviews. But now it appears that reviews may star in their very own rule.
Chair Khan talked about the importance of reviews, particularly for online purchases, and discussed suppressed reviews, fake reviews and compensated reviews. Firms can face powerful incentives to game the system, and she also raised concerns about platforms that may turn a blind eye to bad practices. Commissioner Slaughter talked about her experience finding a refrigerator repair service and the importance of consumer reviews in finding assistance. (Fortunately it sounds like those reviews were quite helpful, and we hope no ice cream melted.) Commissioner Bedoya discussed the importance of reviews to local businesses.
Commissioner Wilson, in her turn, talked about the rulemaking avalanche – with six new consumer protection rules being proposed. She wondered whether the FTC is a law enforcement agency anymore or if, instead, it has become a legislature, and she continued her discussion on the diversion of important resources to excessive rulemaking. She has specific concerns about this proposed rule because the agency already has a multipronged approach in this area, and she thinks the agency could focus on utilizing the notice letters that have already taken up a good deal of resources. (And it’s worth noting that later on, Commissioner Slaughter pushed back on the notion that the agency was acting as a legislature, and said she thinks the resources are an investment in future law enforcement.)
We did see unanimity on the funeral rule rulemaking, which has been in effect for many years. The Commission had kicked off a rule review in 2020, and the question today is whether to consider amending the rule to, among other things, require funeral providers to display their price information online and through electronic means (this rule was originally crafted pre-Internet). Chair Khan noted that an FTC survey showed that more than 60 percent of funeral provider websites provided little to no information about their prices. Commissioner Slaughter talked about the huge costs of funerals and costs incurred under incredible stress, particularly during COVID-19 times. Commissioner Bedoya emphasized the importance of staying up with technology in this area. Commissioner Wilson is on board with this rule because of the information dissymmetry that may exist, and this rulemaking is carefully tailored.
On an unrelated but more personal front, Commissioner Wilson noted that she enjoys working with Commissioners Slaughter and Bedoya even when they have disagreements. Hmmm, was there a deliberate omission there? We all can figure that out for ourselves.
As for the consumer portion of the show, there were quite a lot of speakers addressing drip pricing and concerns about broad rulemaking and lots of folks talking about the funeral rule.
And finally, since rulemaking is clearly fully back in vogue, we would like to put in a formal request that the agency bring back the frosted cocktail glass rule. Yes, this was an actual thing that the agency rescinded decades ago, but now appears to be as good a time as any to bring it back.
Long meeting adjourned.