Last year at this time, we were awaiting the inauguration of President Trump and forecasting the potential impacts to federal and state consumer protection inherent in a transition to a Republican administration. Here’s a recap of how our predictions panned out and a new set of predictions for 2018.
Who would have predicted that, one year in, the FTC would be operating with only two Commissioners and that President Trump would have only reported Commissioner nominations to the Senate just last month?
In late 2016, we cited rumors that Utah Attorney General Sean Reyes was a frontrunner for Chairman. Mr. Reyes’ candidacy never materialized, however, and the President has since nominated Joe Simons, a Republican and former Director of the Bureau of Competition. Also nominated are Rohit Chopra, a Democrat and former Assistant Director of the CFPB; Christine Wilson, a Republican and currently in-house counsel at Delta Airlines; and Noah Phillips, a Republican staffer for Senator John Cornyn of Texas. Acting Chairman Maureen Ohlhausen (R) has been nominated to the Court of Federal Claims. Commissioner McSweeny (D) will depart as soon as new Chairman Simons is confirmed. Senator Chuck Schumer’s Chief Counsel, Rebecca Slaughter, is reportedly a candidate for the second Democratic spot. None of the impending nominations are expected to face significant opposition.
The nominees are carefully being slotted into specific vacancies to ensure a Republican majority persists on the Commission. Commissioner terms are staggered in order to avoid an exodus every two years. That broke down over the last two years, however, as the Commission suffered attrition. Now, Mr. Simons has been tagged to occupy departing Commissioner McSweeny’s seat, giving him the longest available term. By contrast, Mr. Chopra has been tagged to serve out former Commissioner Josh Wright’s term. Since Mr. Wright had resigned early, his term is up in September 2019. Thus, Mr. Chopra will have a short, roughly 2+ year term, unless nominated again in 2019.
We also predicted that FTC enforcement would likely diminish in severity and frequency. This came half-true, but the FTC also brought notable privacy and data-security actions against TaxSlayer, Uber, and Vizio, among others. We also foresaw continued enforcement by the FTC in its traditional consumer protection role, such as seals and certifications, green claims, negative-option marketing and testimonials and endorsements. These things happened, too. Lesley Fair of the FTC has a characteristically informative “year in review” post up on the FTC’s Business Blog.
In 2018, we predict a somewhat softer year from the FTC in consumer protection matters, given the uncertainty surrounding Commission staffing, the onboarding of new Commissioners, and the overall deregulatory agenda. We likely will not experience the routine demands for monetary relief that were the norm during the Obama years. Moreover, some of the more notable actions coming out of the FTC Bureau of Consumer Protection in 2018 may be to revisit prior orders that are found after review to be outdated and too onerous. For example, a notable petition for relief has been submitted by Sears, which is currently under order regarding consumer internet-tracking practices it engaged in prior to 2008, and the FTC may be tempted to exhibit a newfound flexibility and willingness to reconsider certain terms.
The FTC will also have grapple with continuing fallout from cases that were commenced in the waning days of the Obama presidency. These cases include FTC v. DIRECTV, Inc., No. 4:15-cv-01129 (N.D. Cal.), in which the FTC sought $3.9 billion in damages arising out of allegations that DIRECTV had misled its customers by failing to include material disclosures in its advertising regarding promotional end dates and total subscription fees. After hearing the FTC’s case-in-chief at trial, however, the United States District Court for the Northern District of California stayed the proceedings and, signaling the Court’s deep reservations regarding the government’s case in chief, requested that DIRECTV file a motion for partial judgment. The case has substantial ramifications and could signal a stronger judicial focus on the FTC’s burden of proof in the future. If it comes out as many predict, it could also embolden more defendants to take their cases to court instead of settling.
The FTC is also attempting to overturn a decision out of the Ninth Circuit in FTC v. AT&T Mobility LLC, No. 15-16585 (9th Cir. Aug. 29, 2016), in which the court held that the FTC lacks jurisdiction over ISPs, because of the common carrier exemption. The case has since been re-argued to the court en banc and a decision is pending. In the meantime, as discussed below, the FCC has removed ISPs from Title II classification and rescinded its Net Neutrality order.
Finally, the FTC is appealing an order from the Southern District of New York in which the court dismissed its complaint against Quincy Biosciences, makers of a dietary supplement claimed to improve memory function. FTC v. Quincy Bioscience Holding Company, 17 Civ. 124 (LLS) (Sept. 28, 2017). We wrote about this decision at length here. It is a certainly notable loss for the FTC, especially at such an early stage of the litigation and, like DIRECTV, could embolden more defendants to oppose the FTC in court. The FTC Watchnewsletter quotes an FTC spokesperson regarding the case as saying, “Staff cannot recall another advertising substantiation case being dismissed at this stage.”
The FTC has typically enjoyed bipartisan support from the Hill. The newly proposed Commissioners are all highly experienced and qualified and will likely enjoy Congressional support. There is no reason to believe that the FTC will swing wildly away from traditional principles of consumer protection as applied in prior administrations. However, it is a safe bet that the Commission will be more cautious in the cases it brings.
FCC: Net Neutrality
Our predictions for the FCC were accurate. Chairman Ajit Pai followed through on his promise to repeal Net Neutrality. Perhaps more surprising was Chairman Pai’s cheeky video defending the action, which we could never have predicted. Assuming the FCC’s about-face is not successfully challenged in court, ISPs will henceforth be able to manage traffic on their networks as they see fit, provided they disclose the management practices to consumers. A number of ISPs have publicly reiterated voluntary commitments to abide by net neutrality principles, so the FCC’s decision seems unlikely to result in any immediate changes to the internet.
There is a movement afoot in Congress to overturn this FCC decision under the Congressional Review Act (CRA), through which Congress has plenary review of any major agency rulemaking within 60 days of the decision. We predict that such an effort will not muster enough votes to succeed.
There is also substantial, state-based activity to impose net neutrality requirements. First, 21 states have sued the FCC, arguing that its decision to rescind the rule was arbitrary and capricious. Several states have pending bills that would impose net neutrality on a statewide level (notwithstanding Commerce Clause concerns). New York has announced that it will not contract with any ISP that does not commit to net neutrality principles.
A key debate point in net neutrality is the issue of paid prioritization. For example, an ISP could sell special access (e.g., faster downloads or better streaming) to a content provider wishing to ensure its customers a better viewing experience. Proponents say that such prioritization deals benefit consumers and foster investment in innovation. Opponents decry them as harbingers of a downward spiral whereby ordinary internet users will lose access to services, receive degraded services, and the internet will slowly transform into a walled garden. In the current political environment, there is unlikely to be any Congressional groundswell in favor of reinstituting a net neutrality rule. However, these things might change very rapidly in the midterm elections.
Sometimes the battle ends with a whimper, not a bang. The year began with Director Richard Cordray engaged in a public tug of war with the President over his continued tenure at the helm of the CFPB. But Director Cordray stepped down in November, sparking a highly unusual battle for succession more reminiscent of England in 1066 than modern-day Washington. On his way out the door, Cordray attempted to appoint Leandra English as Acting Director, while President Trump appointed former Budget Director Mick Mulvaney to the same job. Thus, for a day or two, the agency was subjected to the demoralizing spectacle of English and Mulvaney occupying separate “Director” offices within the same building.
For the last month, it appeared that Mulvaney had the upper hand, having won all court battles to date and worked swiftly to roll back many of the Cordray-led initiatives. However, in a 7-3 en banc decision issued very recently in the landmark PHH v. CFPB case, the D.C. Circuit held that the CFPB Directorship structure is indeed constitutional and insulated from at-will termination by the President. Notably, the DOJ filed an amicus brief against the CFPB, which has been representing itself. DOJ argued that the President has the authority to hire and fire the Director, but otherwise stopped short of asserting the agency itself is unconstitutional. The Court disagreed, holding in part that “federal law providing the Director of the CFPB with a five-year term in office, subject to removal by the President only for ‘inefficiency, neglect of duty, or malfeasance in office,’ is consistent with the President's constitutional authority.”
At this point, one would likely have better luck prognosticating the lifespans of characters in Game of Thrones than predicting the CFPB’s future rulemaking and enforcement activities. Acting Director Mulvaney appears to be working as fast as he can to defang the agency in whatever time he has remaining in his tenure. Within the last month, he has (a) requested $0 for the agency’s budget, (b) stripped the agency of enforcement powers over anti-discrimination lending rules, (c) rolled back rulemakings and dropped a litigation targeting payday lenders, and (d) in a leaked memo to staff, stated that his agency will no longer “push the envelope.”
The turmoil at CFPB has resulted in a staff exodus. During this period of uncertainty, it is safe to say that there will be no major rulemaking initiatives from the Board, and enforcement will center only on clear-cut evidence of financial fraud.
The states have stepped into the void. Now, the hottest jobs in consumer protection are those in State Attorneys General offices. A reinvigorated National Association of Attorneys General Consumer Protection Committee is coordinating a large number of multistate consumer protection investigations. The NAAG has formalized training and coordination on consumer protection investigations, aiming to build state expertise to take on more complex, multistate cases.
States typically operate pursuant to “Little FTC Acts” that give them authority closely modeled on that of the FTC itself. In many cases, those state laws directly incorporate by reference FTC guidance, so the state laws often magnify and provide more expansive authority to take action against alleged consumer deception and unfairness.
Some of the most complex multistate cases focus on the nation’s opioid abuse problems, as well as student lending, financial services, cybersecurity, Medicaid fraud, drug pricing, and other matters of national importance. As discussed above with respect to the Net Neutrality litigation, the states have also been increasingly emboldened to oppose the federal government. These are trends that will continue to accelerate over the next several years.
As the federal government pulls back from consumer protection, states, private litigations and self-regulation step forward to fill the gap. In many ways, this reduces uncertainty for industry, which must monitor a wider, more complex, and less predictable threat environment. We don’t foresee any blockbuster changes in 2018, although a change in Congressional control after the midterm elections could disrupt matters in 2019.