By Jeffrey May, J.D.
Republican lawmakers contend that they are being left out of the process to rush through the proposed "Consumer Protection and Recovery Act," after FTC’s recent Supreme Court loss.
Acting FTC Chairwoman Rebecca Kelly Slaughter testified before the House Energy and Commerce Subcommittee on Consumer Protection and Commerce today on the need for a legislative fix in response to an April 22 Supreme Court decision holding that Section 13(b) of the FTC Act does not authorize the Commission directly to obtain court-ordered equitable monetary relief such as restitution or disgorgement. Slaughter told the subcommittee that Congress needed to take quick action on the proposed "Consumer Protection and Recovery Act" (H.R. 2668) proposed by Rep. Tony Cardenas (D., Calif.), which is intended to restore the agency’s authority.
The measure has the support of every Democratic member of the subcommittee. However, Republicans on the subcommittee expressed concerns that their voices were not being heard as the bill is being rushed through.
The legislation is a response to the April 22 Supreme Court decision in AMG Capital Management, LLC v. FTC. In a unanimous opinion written by Justice Stephen G. Breyer, the Court held in that case that Congress, in granting the FTC authority to seek a "permanent injunction" in federal court under Section 13(b), did not grant the Commission authority to obtain monetary relief directly from courts and thereby bypass the requirements of the administrative process. For about 40 years, until a split among the federal circuit courts surfaced, the FTC had used its Section 13(b) authority to return ill-gotten gains to consumers, according to the FTC’s prepared statement.
Slaughter noted that the Commission has 24 active federal court cases that rely exclusively on 13(b) for a monetary remedy, representing $2.4 billion that should be returned to injured consumers. She called the proposed legislative fix "clear, common-sense, reasonable legislation." Slaughter added that the legislation not only protects consumers, but also protects honest businesses who need to compete against businesses that engage in deceptive practices.
Democrat lawmakers focused on the urgent need to quickly pass the legislation. They cited the COVID-19 pandemic, among other factors.
"There are no adequate substitutes in the current law that can simply replace what the FTC lost," said House Energy and Commerce Chairman Frank Pallone (D., N.J.) in his opening remarks. "The remaining authority of the FTC is too weak and where available will take too long for meaningful relief for our constituents."
The bill could be tweaked to address some concerns expressed by Republican lawmakers. Pallone noted that the bill did not have to be reported out as it exactly as it stands.
The bill’s sponsor, Rep. Tony Cardenas (D., Calif.), said that the Consumer Protection and Recovery Act seeks to reaffirm the agency’s authority "so that the agency can continue to make consumers whole again."
"It is hard to imagine a more pressing issue for Congress to fix than the leading federal consumer protection agency losing its most effective weapon to help people during an unprecedented health crisis," he added.
Focusing on the urgent need for quick legislation, Rep. Jan Schakowsky (D., Ill.) said that today’s hearing was to address the Supreme Court decision and "right this wrong."
"While some will argue that the FTC has other tools, like Section 19 for example, those require years of process and by the time the cases are concluded the money is long gone leaving consumers out in the cold," said Schakowsky.
Republican lawmakers’ concerns. Republican lawmakers, including Subcommittee Ranking Member Gus Bilirakis (R., Fla.), expressed concerns about partisanship in the push to move the legislation forward. Bilirakis pointed out that other FTC reform legislation was not being considered at the hearing. Apparently, six Republican-sponsored bills that were ready and shared with the majority in time to be noticed to be part of the hearing were not included. And these bills were passed out of committee in previous forms in the past.
Bilirakis also expressed concern that under the proposed legislative fix the FTC might focus on past behavior instead of focusing on those currently committing harm.
Rep. Kelly Armstrong (R., N.D.) called for "real FTC reform that reflects a bi-partisan legislative accomplishment of this committee." He added that "the American people deserve a landmark consumer protection bill that meets the needs of the 21st century."
In addition, both Rep. Neal Dunn (R., Fla.) and Rep. Greg Pence (R., Ind.) said that they supported returning to the FTC Section 13(b) authority to provide restitution for consumers but with some "guardrails" to protect against unintended consequences for unsuspecting businesses. The congressmen warned that the FTC’s efforts in this area could be having a chilling effect on legitimate business.
The Republicans’ lone witness at the hearing reiterated the concerns about the possible chilling effect.
"The concern about chilling truthful claims is not merely theoretical," said J. Howard Beales III, Emeritus Professor of Strategic Management and Public Policy at George Washington School of Business and former FTC Bureau of Consumer Protection director, in his testimony before the subcommittee. He noted that the FTC’s requirement of randomized, controlled, double blind studies to support health-related claims would not be met for statements touting the benefits of wearing masks to reduce the risks of COVID.
"Suppressing such claims would harm consumers, not protect them," he said.
Beales supports FTC efforts to seek civil penalties under current laws. However, he pointed out that Section 13(b) "is essential to go after the fraudulent actors because those cases really need to start with an asset freeze."
"If you don't get an asset freeze at the beginning, the fraudsters will either spend the money or hide it and there won't be anything left for consumers," he warned.
Antitrust implications. Speaking to the use of Section 13(b) in the antitrust context, Beales noted that issues arise when the law might not be clear. In his testimony, he noted that this was the impetus for the Commission’s Policy Statement on Monetary Equitable Remedies in Competition Cases. The guidance, which was adopted unanimously in 2003, limited use of Section 13(b) to "exceptional cases" involving "clear violations" of the antitrust laws. Although the statement was withdrawn in 2012, Beales encouraged Congress to enact "the substantive limits adopted in the 2003 policy statement, limiting monetary relief to exceptional cases involving clear violations."
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