Protecting consumers in the marketplace

Congress is currently debating whether the Federal Trade Commission should be granted four new tools.  As a former director of the FTC’s Bureau of Consumer Protection (in the early 1970’s), a member of the Special Committee to Study the Role of the FTC in 1989, and as a current Commissioner, perhaps I can inform that debate.
 
The FTC is seeking these modest new tools to protect consumers and legitimate businesses alike.
 
The FTC needs the same type of rulemaking – called APA rulemaking – the SEC and other federal agencies have, that allows enforcement with civil penalties.  The need for this rulemaking authority is rooted in the fact that our basic organic statute – Section 5 – is a very broad statute.  On the consumer protection side, it prohibits all unfair or deceptive acts or practices.
 
Rules fleshing out this broad statute are good for both consumers and the industry.  They describe with specificity what the rules of the road are.  Take for example, the Franchise Rule and the Funeral Rule.  They inform businesses about the particular information they must provide to consumers during their transactions, and the ways in which to provide it, in order to prevent deception.  To be sure, they may apply to firms that are good actors as well as firms that are bad actors.  But, as the adage goes, “a bad apple can spoil the barrel.”  So a rule that can be enforced against the bad actors can help the good ones too.
 
Nor can any adverse inference be drawn from the FTC’s existing Magnuson-Moss rulemaking procedures, under which rules can be enforced with civil penalties.  I know because I was “Present at the Creation” in 1974 when the Magnuson-Moss Act was enacted.  We had rulemaking authority at the time, but not the authority to enforce a rule with civil penalties.  We at the Commission suggested the current Magnuson-Moss statute to give us both.  That statute has turned out to be enormously burdensome and expensive, involving lengthy hearings and cross-examination (in essence a trial), but nobody knew that then.  Both the FTC and the Congress felt, as I say, that rules that had teeth in them were a good thing for both consumers and good corporate citizens.
 
The second tool is enhanced new civil penalty authority.  Let me make clear what I don’t support and what I do support.
 
I don’t support a scenario where the FTC ourselves can order civil penalties for violations of Section 5.  I think my colleague, Commissioner Kovacic, is right that coupling that kind of civil penalty authority with a statute that is as expansive as Section 5 needs some checks and balances.
 
However, I support a grant of authority to enable us to seek civil penalties for Section 5 violations in federal district court, where a federal judge would ultimately decide whether and how much of a civil penalty would be obtained.  Settlements involving civil penalties also would be filed in federal district court and be subject to court review.  As I say, that wouldn’t be radical.
 
The third tool is independent litigating authority.  As matters now stand, any cases seeking civil penalties must be referred to the Department of Justice.  As a result, we at the FTC often have to make a choice–even before the facts of a case have been thoroughly investigated–between seeking immediate relief and pursuing consumer redress, or instead seeking civil penalties by referring the case to Justice (and foregoing the ability to pursue relief such as a temporary restraining order or asset freeze).  That makes no sense.  We should have the authority to pursue the most appropriate remedy in order to protect consumers.  Again, other agencies, such as the SEC, routinely file such cases on their own behalf.
 
The fourth tool is clarification of our aiding and abetting authority.  Historically we operated with the understanding that there was an implied cause of action for aiding and abetting under Section 5 of the FTC Act.  Unfortunately, the 1994 decision in Central Bank of Denver threw this into doubt.  I’d encourage Congress to clarify the law and provide us with explicit authority to take law enforcement action against those who provide substantial assistance to another while knowing, or consciously avoiding knowing, that the person is engaged in unfair or deceptive acts or practices in violation of Section 5 of the FTC Act.
 
These four modest new proposals could help us better protect American consumers and businesses. 

J. Thomas Rosch is a commissioner at the Federal Trade Commission