Congressional Democrats Sound the Alarm, Rally In an Effort to Restore Pre-AMG 13(b) Enforcement Authority

Congressional Democrats Sound the Alarm, Rally In an Effort to Restore Pre-AMG 13(b) Enforcement AuthorityYesterday, less than a week after the Supreme Court’s unanimous decision in AMG Capital Management v. FTC, two Congressional committees zeroed in on the FTC’s hollowed-out Section 13(b) authority, the fate of which now lies squarely with Congress. Leading Democrats in both chambers have expressed the urgent need for legislation to clarify and strengthen the statute in AMG’s wake. As stated by House Energy and Commerce Committee Chairman Frank Pallone (D-NJ) on Tuesday, “What my colleagues and I have been saying for over a year was a problem is now an emergency.” Republicans, on the other hand – while sympathetic to the FTC’s plight – are increasingly advocating for “guardrails” to prevent unbounded use of the agency’s Section 13(b) authority, should it be restored.

On the House side, the Energy and Commerce Committee’s Subcommittee on Consumer Protection and Commerce held a legislative hearing on H.R. 2668, the Consumer Protection and Recovery Act, introduced last week by Representative Tony Cárdenas (D-CA). As we wrote previously, H.R. 2668 would amend 13(b) to explicitly authorize the FTC to seek permanent injunctions and other equitable relief. Acting FTC Chair Rebecca Slaughter, who was the hearing’s sole witness for more than two hours Tuesday, hailed the Cárdenas proposal as “clear and straightforward legislation that would affirm Congress’s intent that the FTC be able to go to federal court to stop bad conduct, disgorge ill-gotten gains, and provide restitution.” Acting Chair Slaughter and several key Democrats brushed aside arguments that the agency has other enforcement tools (e.g., Section 19), suggesting there is no substitute for 13(b) in terms of both scope and consumer relief.

Hours earlier, Senate Commerce Committee Consumer Protection, Product Safety, and Data Security Subcommittee Chair Richard Blumenthal (D-CT) kicked off a hearing on COVID-19-related fraud by highlighting the need to “restore 13(b) authority that was taken away by the Supreme Court when it caved to a shadowy campaign to disarm the FTC.” While Senate Commerce Committee Democrats have yet to put forward legislative text, their reaction to AMG not-so-subtlety suggests they favor granting the agency broad authority to seek injunctive and monetary relief under Section 13(b). In the Senate hearing, Acting Director of the FTC’s Bureau of Consumer Protection Daniel Kaufman lamented the Supreme Court’s decision, noting that it will “dramatically curtail the ability of the FTC to effectively protect consumers.”

In Tuesday’s parallel hearings, Acting Chair Slaughter and Acting Director Kaufman advocated for a return to the FTC’s decades-long interpretation of its 13(b) authority, now invalidated by the Supreme Court. In pressing for expeditious action, they both highlighted the dozens of pending 13(b) cases involving fraudsters and scammers representing upwards of $2.4 billion in consumer redress potential. Unfortunately, however, very little air time was dedicated to the question that should have been at the center of yesterday’s day on the Hill.

It is not surprising that Tuesday’s testimony, which sounded the alarm regarding the consumer harm posed by “fraudsters” and “scammers,” captured the attention of lawmakers. After all, there is no lobby for companies engaged in fraudulent activity and there should be no sympathy from either side of the aisle for obvious bad actors.

As the Supreme Court made clear in its unanimous decision, however, Section 13(b) was not intended to be used as the FTC has used it for the past 40 years. While a legislative fix could provide the FTC with what it needs to combat dishonest or fraudulent conduct, the real question is whether Congress should go any further. In deciding issues of claim substantiation, for example, why isn’t the FTC’s existing Section 19 authority adequate when there is a legitimate difference of opinion on whether there is a reasonable basis for a claim? This authority has almost entirely been ignored, contrary to what was intended when the law was originally drafted by Congress.

It is disappointing that the congressional committees did not spend more time considering this issue, although there was some critical attention focused on other aspects of the bill. During Acting Chair Slaughter’s testimony, Representative Kelly Armstrong (R-ND) expressed due process concerns stemming from the application of any newly-granted authorities to pending federal court cases. Notably, in contrast to the Cárdenas bill, a 13(b) fix put forward by Republican Senator Roger Wicker (R-MS) during the last Congress would only apply to agency proceedings commenced post-enactment.

More broadly, several House Energy and Commerce Committee Republicans cautioned that the authority in the Cárdenas proposal should be more narrowly targeted. In addition to concerns with the bill’s 10-year statute of limitations, they questioned its broad application, potentially ensnarling legitimate businesses and products rather than targeting outright fraudulent acts. During the hearing’s second panel, Republicans were receptive to an approach offered by former Bureau of Consumer Protection Director Howard Beales, who argued that “Congress should explicitly authorize the Commission to pursue equitable relief under Section 13(b), subject to the substantive standards set forth in Section 19” and, further, that Congress should dictate the standards for when monetary relief is appropriate.

Energy and Commerce Committee Chairman Pallone concluded his opening remarks Tuesday by encouraging his Republican colleagues to work toward a bipartisan solution; whether Democrats will accept any tweaks to a bill so enthusiastically endorsed by the FTC’s Acting Chair remains an open question. Those hoping for additional guardrails may have more luck in the Senate, where action is notoriously slower and the threat of the legislative filibuster can drive bipartisan negotiations and, occasionally, consensus.

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