The FTC’s Magnuson-Moss Rulemaking Process – Still an Uphill Climb
We’ve been hearing a lot lately about the FTC’s rulemaking procedures under Section 18 of the FTC Act (also known as “Mag-Moss” rulemaking). Long decried as too burdensome and difficult to use on a regular basis, this tool is now being celebrated for its enormous, untapped potential to establish industry-wide standards and enable the FTC to get monetary relief in its cases, post-AMG. (AMG didn’t affect the FTC authority to obtain monetary relief when it’s enforcing a rule.)
Is the old view or the new one correct? Is Mag-Moss rulemaking really so cumbersome, as many FTC staff and observers have long claimed? Have those burdens been overstated, warranting the enthusiasm we’re now seeing among FTC Commissioners, consumer groups, and Congress? Did the FTC’s changes to its internal rules last July (see below) really “streamline” the process as the FTC claimed?
As suggested by the title to this blogpost, I have an opinion: Mag-Moss is still an uphill climb. However, to enable readers to decide for themselves, I detail below the Mag-Moss process as laid out in the law. Although the FTC’s July changes stripped away some extra steps it had previously imposed under its rules, the hurdles in the law remain formidable.
Background – The Changing Narrative Around Mag-Moss Rulemaking
For decades, the FTC has developed its consumer protection rules in one of two ways: (1) as directed by Congress in federal legislation or (2) under Section 18 of the FTC Act. While rulemakings in the first category generally follow the Administrative Procedures Act, Section 18 requires many more steps.
Most of these steps were added to the law in 1980, in response to perceived overreach by the agency during the Pertschuk era. According to Jeffrey Lubbers, a professor who has analyzed FTC rules developed under Mag-Moss (e.g., the Credit Practices and Used Car rules), the average time it took to complete them was almost six years, with some rules taking even longer. By contrast, the average time to complete rules under the APA (e.g., the COPPA and GLB rules) was less than a year. Due to this dramatic difference, Mag-Moss rulemaking has long been viewed to be extremely cumbersome – not a process to be launched lightly or with the expectation of rapid completion.
During the past year, however, the narrative around Mag-Moss has changed dramatically as the FTC has sought new ways to obtain monetary relief and strengthen its hand in privacy. In March 2021, the FTC formed a task force designed to identify possible candidate for Mag-Moss rulemaking, acknowledging its “bad reputation” but touting its capacity to deter harms through market-wide rules and civil penalties. Then in July, the FTC (by 3-2 vote) announced changes to its internal rules, stating that the changes would “streamline” the Mag-Moss rulemaking process, remove “decades of self-imposed red tape,” and allow the FTC to issue “timely rules” on a wide range of issues, particularly in the area of privacy.
One week later, the President’s Executive Order on Competition encouraged the FTC to issue a rule to address “unfair data collection and surveillance practices” – a call soon echoed in letters from Congress and consumer advocates. Then, on December 9, following a series of policy statements extolling the virtues of rulemaking vs. “whack-a-mole” enforcement, Chair Khan released an ambitious plan to launch multiple Mag-Moss rulemakings to “define with specificity” unfair or deceptive practices – including a range of “abuses stemming from surveillance-based business models.” (Khan also called for multiple rules to define “unfair methods of competition” – an equally bold and controversial move that implicates another part of the FTC Act.)
Presto! In just eight short months of (seemingly lockstep) messaging, the counter-narrative was complete: Mag-Moss rulemaking (lots of it) will enable the FTC to stop industry-wide harms, obtain penalties in a wide range of areas, and regain its leadership on privacy.
The Many Steps in the Mag-Moss Rulemaking Process
Now comes the hard part – actually developing these rules in the “timely” way that’s been promised. Of significance, Mag-Moss requires the FTC to prove that any practice it seeks to regulate is unfair or deceptive under the FTC Act – i.e., it doesn’t expand the FTC’s ability to reach conduct it can’t already reach in its enforcement actions. Here are the statutory requirements in greater detail:
- FTC publishes Advanced Notice of Proposed Rulemaking (ANPR) for public comment. ANPR must detail FTC’s area of focus and objectives, as well as possible regulatory alternatives. The FTC must send copies of the ANPR to its Congressional oversight committees.
- FTC publishes Notice of Proposed Rulemaking (NPR) seeking public comment. NPR must set forth the rule text, reasons supporting it, any alternatives, and a preliminary regulatory analysis assessing the costs and benefits of the proposal and alternatives. At the time of publication, FTC must have reason to believe (in the form of FTC cease and desist orders or other evidence of widespread conduct) that the practices are prevalent. FTC must make all comments public. Thirty days prior to publication, the FTC must send copies of the NPR to its Congressional oversight committees.
- Informal hearings. Any interested person may seek a hearing and present views. If FTC determines there are disputed issues, it must allow participants to submit rebuttal information and cross-examine other persons. (FTC may impose limits on this process but such limits are a basis for court review and reversal – see below.) A presiding officer shall make recommendations as to all relevant and material evidence.
- FTC publishes Final Rule. Rule must be accompanied by a Statement of Basis and Purpose detailing (1) the prevalence of the practices (2) how they are unfair or deceptive, and (3) the economic effect of the rule. Final regulatory analysis must assess the rule’s costs and benefits and why it was chosen over alternatives. Any person may petition FTC for exemption from the rule.
- Judicial review. Any person may seek review (in the D.C. Court of Appeals) within 60 days of promulgation. In addition to normal grounds for review under the APA, the court may (1) direct FTC to consider additional submissions (2) set aside the rule if it’s not supported by “substantial evidence” (a potentially different standard than “arbitrary and capricious”) (3) set aside the rule if FTC’s limits on rebuttal or cross examination precluded disclosure of material facts. Court decisions are final, subject only to Supreme Court review.
- Rule enforcement. When enforcing rules, FTC may seek penalties (now up to $50,120 per violation) and/or consumer redress in federal district court. However, to get penalties, FTC must show the defendant violated the rule with “actual knowledge or knowledge fairly implied,” and must refer the case to DOJ for review and filing.
As noted above, the FTC’s July rule changes stripped away some steps that had been added to the statutory requirements – including the need for a written staff report and provisions allowing the presiding officer to compel in-person attendance and production of documents and written answers to questions. However, even without these added steps, Mag-Moss remains a long and rocky road, especially for (1) complex rules with dozens of mandates, each of which must to shown to be unfair or deceptive, as well as prevalent and (2) controversial matters, which are likely to prompt multiple requests for hearings, cross examinations, rebuttals, exemptions, and court review. The FTC’s foray into “surveillance” and other broad privacy topics could crash into all of these obstacles.
On the other hand, for issues that are more straightforward, Mag-Moss may prove to be a valuable tool. On December 16, just a week after Khan announced her plan to develop multiple Mag-Moss rules, she called for a vote on the first of these efforts – a narrowly-tailored rulemaking to prohibit government and business impersonation fraud. Although Commissioners Phillips and Wilson had dissented strenuously from Khan’s broader plan (with Wilson dubbing it a Rule-a-Palooza), they voted to launch this first rule to deter a pernicious and pervasive fraud that had already been found to be illegal in numerous FTC cases.
We will see in the coming months how the FTC’s rulemaking efforts play out. Will the FTC’s “surveillance” rule reach as broadly as Khan suggested, or will the agency proceed more narrowly as it did for impersonation fraud? Will the FTC issue multiple rulemaking proposals at once, or will it proceed more methodically? Whether the rules are broad or narrow, many or few, the Mag-Moss process ensures that companies will have many opportunities to provide input.
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