Chair Khan Faces Skeptical Appropriators - Controversial Initiatives Imperil Budget Increase

The FTC with a cavalier attitude is weighing in on areas that are outside its authority and deciding issues on subjective means…. I can’t support a massive increase for the Commission’s budget, especially given the FTC’s recent track record and given the nation’s current fiscal outlook.Steve Womack (R-AR)

When a Chairman opens an appropriation hearing with these words, an agency seeking funds has a tough task ahead. Undaunted, FTC Chair Lina Khan turned on the charm and often mollified her critics. Appropriators pressed her about the FTC’s proposals to ban non-compete clauses and regulate auto dealers. They complained about reports of scams and fraud on the rise while the FTC pursued subjective notions of competition. In the end, she fared better than all the Commissioners did a week earlier in oversight hearings, but she did not hear an endorsement of her budget request.

Here is our rundown of the biggest issues on this Committee’s radar and the Chair’s responses:

Consumer Protection versus Competition Promotion

The FTC has requested a budget of $590 million for fiscal year 2024, a $160 million increase that would add 300 staffers to the agency. This request comes just as the House passed a bill on Wednesday, April 26, slashing trillions of dollars in government spending.

Leading the questions was Womack, Chairman of the Fiscal Services and General Government Subcommittee of the House Appropriations Committee, and he asked Khan to explain why FTC wanted larger increases for competition than consumer protection. She explained that a competition case can require two or three times as many lawyers and ten times as much money for expert witnesses. Merger activity has been off the charts,” she said, with a 70% annual increase (although she noted a recent decline from the peak).

The FTC’s merger challenges then drew fire. Members like Joyce (R-OH) and Bishop (D-GA) criticized recent cases involving nascent competitors, and Moolenaar (R-MI) questioned FTC’s coordinating with U.K. authorities to prevent deals among American companies. Khan credited the agency’s international office to a former Republican Chair and dodged questions about individual cases, but the Members returned to concerns about dubious competition policy and declining consumer protection. They implored Khan not to lose sight of scams affecting the elderly and military families. When Ciscomani (R-AZ) relayed the concerns of his constituents about robocalls, Khan touted FTC attacks on the platforms and networks that scammers use. She reported that complaints overall had declined, but he was skeptical, responding that his constituents had not noticed the drop.

Khan reassured the Members that the Commission still addresses fraud and consumer protection along with the increased competition activity. A cut in government spending, she warned, would be devastating to consumers. FTC would have to freeze or even reduce the resources that battle fraud if funding is not maintained.

FTC Morale & Transparency

Womack, Moolenaar, and Cloud (R-TX) raised the annual Federal Employee Viewpoint Survey, which reported that the percent of employees at the FTC who strongly agreed that the senior leaders maintain high standards of honesty and integrity” dropped from 57.6% in 2020 to 22.5% in 2022. The Members wanted to know what Khan was doing to improve morale. She admitted that mistakes were made early in her tenure and said that she had streamlined decision making and increased transparency by holding meetings with senior staff members.

Moolenaar asked if the FTC will comply with an outstanding subpoena from the House Judiciary Committee. Khan responded that FTC staff is working with the Committee staff and has offered confidential briefings as well as documents.

This was not enough for Amodei (R-NV), who inquired as to what exactly Khan means when she says she is happy to engage with the staff and see what she can share” as she did to Rep. Duncan during last week’s Energy & Commerce committee meeting. Amodei had spoken with Rep. Duncan, who said that FTC had not yet engaged. Khan conveyed her impression that the FTC’s Office of Congressional Relations had done so. Amodei planned to check.

Motor Vehicle Trade Rule

The FTC’s proposed regulation of motor-vehicle retailing took Congressional heat for the second consecutive week. Hinson (R-IA), Carl (R-AL), and Joyce criticized the proposal for adding confusing paperwork to every transaction and other measures that had not been adequately tested or assessed. They wanted to know why the FTC had declined to extend the comment period on a rule that could add over a billion dollars to automobile prices. Comment periods in other rulemakings had been extended. These Members criticized the lack of clarity in the proposed rule and the lack of consideration for independent car dealerships.

Khan defended the proposal and refusal to grant an extension. FTC economists, she reported, had done a cost-benefit analysis indicating that consumers would save money by avoiding bait-and-switch practices and hidden fees. But doesn’t the FTC Act already reach those practices? Yes, she said, but the rule would codify illegal practices” providing better notice about what is unlawful. Hinson delivered a stern admonition that it is Congress’s job, not the FTC’s, to decide what should be codified.

The Rule Notice received over 10,000 comments, said Khan, which the FTC is working through. Finally, she defended the comment period by citing the authority of the Dodd-Frank Act, which authorized the FTC to regulate dealers, and to follow APA procedures (rather than Magnuson-Moss). Hinson also asked whether the FTC would reverse course if the enacted rule turned out to be a damaging one, to which Khan explained that if the data showed it wasn’t working then the FTC would revisit it.

Non-Compete Rulemaking

Cloud told Khan that small businesses are concerned about the Proposed Rule eliminating non-competes and that employee contracts should be left to the marketplace to regulate. Amodei objected to a one-size-fits-all approach. Different states had long adopted different approaches. Khan did not yield any ground, noting that small and new businesses also have a hard time obtaining talent. She reported that the FTC had received 26,000 comments on the proposal, which the staff is just starting to assess. She did not say and Members did not ask how much the rulemaking would cost the Commission to complete.

Other Topics

Data Privacy. While data privacy remains a hot topic nationally, it was not as popular for this hearing as it has been in past hearings (as we reported here, here, and here). Nevertheless, both Pocan (D-WI) and Torres (D-CA) questioned Khan about the FTC’s actions regarding companies who sell sensitive data. Khan touted the GoodRx and BetterHelp settlements, as well as the ongoing litigation against Kochava, a data broker that allegedly sold sensitive geolocation data. Khan explained FTC enforcement is particularly focused on business models structured to vacuum up endless amounts” of data, which came up in discussions of TikTok and some Ed-Tech companies.

Right to Repair. Joyce expressed concern over the increase in price of auto parts. Khan agreed that this is an important issue. She further highlighted that when congress legislates, in this case regarding the Right to Repair, it offers clarity and boosts the FTC’s enforcement authority.

Franchises. Carl asked Khan whether she had evidence of the unfair and despicable practices” that the Request for Information regarding franchises is based on. She explained that the FTC repeatedly heard in their public meetings about practices involving franchises that were harmful enough to request information to determine if they are anecdotal stories or if it is a problem worth addressing. Carl questioned whether people at meetings could provide anything more than anecdotes in a country with many thousands of franchises.

Independent Consultants. In response to the Inspector General report that raised concerns that the FTC may have overused non-government consultants, Khan explained that the report helped the agency put in place guidance and guard rails that ensures consultants’ are not doing work that should be done by federal employees.

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That’s our summary for now. Stay tuned as we continue to track updates from the FTC.