The wave of Federal Trade Commission (FTC or the Commission) rulemaking has begun, and it raises many questions: Most notably, how big is this wave going to be, why is the FTC doing this and do I have time for this? Although there has been a great deal of concern raised about whether and why to engage in broad rulemaking, the two rulemakings that have commenced in the past two months did get voted out unanimously. Now, to be clear, Commissioners Noah Phillips and Christine Wilson have expressed very strong objections to a broad regulatory agenda, with Commissioner Wilson noting her “general aversion to rulemaking … rooted in historical experience” and Commissioner Phillips stating that it would “recast the FTC as a mini-Congress, without any of the accountability that comes with it.” Nevertheless, two rulemakings have kicked off – impersonation fraud and moneymaking claims.
Based on statements made at the public Commission meetings where the two rulemakings were discussed, it is safe to say that the initiation of these rulemakings obtained unanimous agreement in large part because rules in these areas could potentially fill the monetary-relief void created by the AMG decision. In the past, the FTC was able to use Section 13(b) of the FTC Act to obtain monetary relief in cases such as tech-support fraud, where there is frequently impersonation of well-known tech companies, or in matters alleging various get-rich-quick schemes, but that ended with AMG. Final rules in these areas would potentially provide for monetary relief in federal court (administrative litigation would still create a path to recovery, but there are limitations and challenges with that approach, particularly in fraud areas). Indeed, Commissioner Wilson stated that if an AMG fix was instituted by Congress, she would likely move to terminate the moneymaking rulemaking.
A privacy-related rulemaking appears poised to take off, presumably when and if Alvaro Bedoya is confirmed as the fifth commissioner. The FTC’s Statement of Regulatory Priorities indicates that this rulemaking will focus on what it describes as “abuses stemming from surveillance-based business models” and indicates that the Commission is “considering whether rulemaking in this area would be effective in curbing lax security practices, limiting intrusive surveillance, and ensuring that algorithmic decision-making does not result in unlawful discrimination.”
Rulemaking is generally a time-consuming and resource-intensive activity for any government agency. But Mag-Moss rulemaking at the FTC is a longer, and more complex and cumbersome, process. And at its core, any successful Mag-Moss rule has to have sufficient specificity and be premised on a full record that the activities that are addressed by the rule are deceptive or unfair acts or practices. And back in the 1970s, at least one FTC Mag-Moss rule was set aside by a court because of the lack of specificity. The Commission cannot just make a rule based on the notion that things should be different – the FTC Act’s prohibition on unfair or deceptive acts or practices sets forth the overall parameters of what a rule can address.
There are many opportunities for interested parties to provide comments on a rulemaking – and these comments can be particularly important and valuable to help inform an appropriate and balanced final rule. Comments can also call into question some of the foundational premises that may underly a potential rule. The comment period for the impersonator Advance Notice of Proposed Rulemaking (ANPR) has closed, and 168 comments were received by the FTC; the moneymaking ANPR comment period is currently open. And there will be many opportunities to comment and participate going forward, including at the Notice of Proposed Rulemaking stage, where the agency presents a proposed rule as well as a detailed analysis of the many considerations that went into the rule, and the informal hearings, which provide more commenting opportunities.
In addition to the complex procedures of Mag-Moss rulemaking, it is important to note that at the end of the day – when a court inevitably reviews the final rules – even the standard of review is more onerous for the agency. Whereas most rules are evaluated to see whether they are “arbitrary and capricious,” Mag-Moss rules are reviewed differently. The FTC Act states that any person may seek review of a final rule in the U.S. Court of Appeals for the District of Columbia within 60 days of promulgation. The statute also provides that the court may “hold unlawful and set aside” a rule if the court finds that “the Commission’s action is not supported by substantial evidence in the rulemaking record … taken as a whole.” The court can also set aside the rule if it decides that there were certain procedural infirmities in the way that the rulemaking was conducted, particularly in the informal hearings portion. In effect, the appeals process provides both substantive and procedural checks, which require the agency to be quite mindful of the Mag-Moss procedural requirements.
Given the complexities of the Mag-Moss process, the general consensus is that these rulemakings will take many years; and in most cases, the Commission that initiates a Mag-Moss rulemaking is very different from the Commission that finalizes the actual rule, because of elections, departures and new appointments over the years that ensue. And of course, the more complicated the rule, the more time-consuming. The Commission may be able to act more expeditiously on a narrower rule such as imposter fraud, but rules on moneymaking appear inherently more complex and will likely take more time. And of course, any sort of privacy rulemaking will be exceedingly complex and raise a wide range of challenging and thorny issues – and any of these rules would have to be specific enough and premised on deception or unfairness.
More FTC rulemaking appears inevitable, and we will keep you informed as developments happen