FTC Negative Option, Junk Fee, and Commercial Surveillance Rulemakings

Edith Harold: Hello everyone and welcome to this Federalist Society virtual event. My name is Edith Harold and I'm an Assistant Director of Practice Groups with the Federalist Society. Today we're excited to host this webinar on the FTC's Negative Option, Junk Fee, and Commercial Surveillance rulemakings, in which we will weigh costs, benefits, and litigation risk in a post chevron environment. This panel features Nina Frant, the Honorable Paul Ray Randall Shaheen, and Mary Sullivan as speakers and Svetlana Gans as moderator. Ms. Gans is a partner at Gibson Dunn and Crutcher, where she helps clients navigate complex consumer protection, privacy, and competition related regulatory proceedings before the FTC Department of Justice Antitrust Division, states attorneys general, and other enforcement bodies. Ms. Gans also assists on litigation matters and provides strategic counseling and advice related to public policy issues. If you'd like to learn more about today's moderator or speakers, their full bios can be viewed on our website, fedsoc.org. Near the end of the program, we'll turn to the audience for questions. If you have a question, you can enter it in the Q&A function at the bottom of your Zoom window and we will do our best to answer as many as we can. Finally, I'll note that as always, all expressions of opinion today are those of our guest speakers and not the Federalist Society. And with that, Svetlana, thank you for joining us today and I'll hand things over to you.

Svetlana Gans: Great, thank you so much Edith, and thank you to the Federalist Society for hosting this important panel on FTC rulemaking. As folks listening to this panel know, the FTC is engaged in a historic level of rulemakings and so we are blessed to have esteem experts on this panel to talk us through the current developments and what to expect in light of the recent Supreme Court holdings. So first, let me do brief introductions of the panelists. As Edith mentioned, the full panelist bios are available on the website and we have a robust discussion today and want to leave time for questions at the end. So please feel free to submit your questions either in the chat or at the end of the program. So first with introductions, Nina Frant is Special Counsel at Freshfields. She serves in the dispute resolution group with over a decade of public and private sector experience in the cross section of law and public policy.

Based in DC, her practice focus on government regulatory investigations with an emphasis on consumer protection and privacy and cybersecurity. She formerly served as attorney advisor to the Honorable Commissioner Christine Wilson and also served in the CFPB. Welcome Nina. Next we have the Honorable Paul Ray. He's the director of the Thomas A. Rowe Institute for Economic Policy Studies at the Heritage Foundation. He leads the Heritage's Foundation work on regulatory and economic policy as the director of the Thomas A. Rowe Institute for Economic Policy Studies. He brings to the role a wide level of experience at the high levels of government and private practice, including service as administrator of the Office of Information and Regulatory Affairs, which is quite relevant for today's discussion as we review independent agency rulemaking and how it may be better fit with OIA oversight. He is the founding member of several organizations and also served as the US counsel to the US Secretary of Labor and an attorney specializing in administrative law.

He is a frequent speaker in Washington and around the country on the federal regulatory system and we are thrilled that he's joining us today. Next we have Randy Shaheen. He's a partner at BakerHostetler where he is representing many of the leading consumer goods companies with respect to counseling and other issues. Before the Federal Trade Commission, state attorney's General CFPB and NAD, he's been involved in a number of groundbreaking matters, including several precedent setting FTC Safe Harbor provisions, the first NAD case involving CBD and one of the earliest challenges to the constitutionality of the CFPB. So welcome Randy. We're excited that you're here. Finally, we have Mary Sullivan, who is a visiting scholar of the Regulatory Studies Center at George Washington University. Before joining GW Regulatory Studies Center, professor Sullivan was an economist at the Federal Trade Commission. She was previously an Assistant Chief of the Competition Policy Section of the Antitrust Division at the US Department of Justice, and in academia she was on the faculties of both the University of Chicago School of Business and the George Washington School of Business. Her research focuses on regulation, antitrust and economics of brand names and trademarks.

While at the Federal Trade Commission she wrote an economic analysis of hotel resort fees, which will be discussed on today's program. She holds a PhD in economics from the University of Chicago and an AB in economics from Duke University. So with that, thank you all for being here. We're excited to dive in. So as folks may know, the FTC is engaged in a historic level of rulemaking covering everything from junk fees to negative option, and we are expecting quite broad rulemaking in the area of privacy and data security, which the FTC terms as commercial surveillance, this marks a grave shift from the typical FTC practice. Historically, the FTC was seen as law enforcer versus a rule maker.

So obviously this is in response to the Supreme Court case in a MG, but the question is how broad should the rulemaking go and what are the guardrails and other analysis the FTC should hold true based on its statute. We had an earlier panel focusing on this issue before some of these rulemakings came out focusing on cost benefit analysis with Paul Ray doing a great job discussing what the FTC should be doing in light of what other regulatory agencies are doing with cost benefit analysis. So with today's program, what we'll try to do is go through what the FTC is doing now with respect to its recent rulemakings, the changes that the FTC has made to the process of FTC rulemakings with respect both to the issues the FTC is identifying as material fact and also the process in terms of the investigational hearings and so forth.

We'll talk about how FTCs economy-wide rules should be evaluated given that its history is based on promulgation of sector specific rules. And then we'll go through some key lessons on what you all should be focused on as you consider submitting potential new comments in future FTC rulemakings. So with that background, Nina, let me turn it over to you. Can you talk about how the FTC has changed its internal process to make rulemaking more streamlined? As folks know, the FTC was subject to the cumbersome Magnuson-Moss procedure, and can you walk us through how the process has changed in order to streamline the rulemaking process at the agency?

Nina Frant: Sure, I'm happy to try and address that question. As you mentioned, Magnuson-Moss has sort of a number of procedural steps that the agency has to engage in to issue rules under its unfair and deceptive acts and practices authorities. So it's section five authority and prior to chair coming to the FTC, there's obligations under statute, but there were also sort of some norms that the FTC had built into the process to provide opportunities for public input and multiple to reflect on learning. And so let's go back to 2021. Chair Khan joins FTC, it's one of the first moves that she does in terms of joining the agency is, as you mentioned, makes changes to the internal FTCs rules of practice around magmas rulemaking. And so some of the ways that that process was changed was the identification of disputed issues of material fact, which are really sort of key considerations in rules where the business community, industry groups, consumer groups and the commission work through sort of the implications of the ruling practice used to be a much more iterative process. It was removed from recommendations from the, it was put into the hands of the commission to identify the issues of disputed fact rather than sort of a siding officer over the process. Joseph, let me pause there. Should I walk through what the process looks like or maybe just touch on the major changes in terms of your understanding of the audience?

Svetlana Gans: Yeah, I mean I think walkthrough generally, and I think just for the audience, we've seen a lot of press about competition rulemaking where the question there is statutory authority here we're talking about UAP rules under the unfair and deceptive prong of FTC Act and the rulemaking authority is clear, right? So here we're just talking about the requirements of FTC must go through internally in terms of promulgating the rule because it is not a rulemaking. The FTC has a special procedure under the Magnuson-Moss Act. So with that, Nina, do you want to just discuss just general provisions of the Magnuson-Moss requirements in terms of process and how that's changed just to give folks kind of a background and then they could ask questions at the end if they have any.

Nina Frant: Sure. So FTC has to kick off its Magnuson-Moss rulemakings with an ANPR. And in the past the agency would often introduce sort of narrow rules. They would sort of propose a general rule with sort of key parameters that put the consumers in the business community on notice of what a final rule may look like. And I think one of the big changes that we saw with this iteration of the commission is the breadth of ANPRs that they really were about help us think through what rule we might possibly bring versus we're considering a specific proposal. And so one of the big changes we've seen is the breadth of the ANPR. So from the start of the rulemaking process, people don't have clarity on what a final rule may look like. Following an ANPR. The FTC also then has to issue a notice of proposed rulemaking and a preliminary regulatory analysis.

In that notification they also include a potential list of disputed issues of material fact. It used to be that there was much more give and take between industry consumer groups and the FTC on what that list of disputed facts would be that now sits in the hands of the commission. And when I was at the commission, Commissioners Wilson and Phillips had raised concerns that there's an opportunity to politicize the facts that are in the rulemaking record because what is open to sort of a procedural process of an informal of hearing is in the hands of the majority of the commission. And so there's some concerns around the exploration and fact finding process getting politicized that was jumping ahead of the idea that the FTC is part of the Magnuson-Moss process, has to hold an initial, like an informal hearing if requested by parties. And there are opportunities for cross-examination and rebuttal evidence in that hearing if there are disputed issues of material fact.

What we have seen in this iteration is so far, and please correct me if I'm misremembering, that any of the recent rule proposals since 2021, the FTC has yet to put out a rule where they have identified any disputed issues of material fact upfront. The agency has had to consider some disputed issues through that informal hearing process. They had challenges from industry and an A LG determined, I think it was in the subscription rule, there were disputed issues that needed to be addressed. But the agency is sort of short circuiting some of that fact finding process by just declaring there are no disputed issues after the informal hearing after or the formal hearing of undisputed issues, the agency used to issue a staff report and a report from the officer overseeing the hearing. And that was a really important signal to consumer groups and industry on where the rule was going to land and sort of the justifications and substantiation for the rule proposals.

And it provided opportunities for the agency to pressure test a recommendation or a final rule analysis. And there were comment periods also on those reports that again, it was this engagement and a trust of industry and consumers that a more robust dialogue would create a better rule. Those were time consuming procedures to craft those reports. They have been stripped from the obligations under magmas rulemaking through the changes of the FT C rules of practice. So there's no longer a mandatory staff report and there's only a presiding officer report if there are identified disputed issues of material facts. So what you see now is the FTC can go from a very broad ANPR to an NPRM with, and I think we'll talk about this interesting cost benefit analysis or rule proposals go through a very perfunctory informal hearing where they basically have another round of public comments on the rule and then land at a final rule that they have made changes to the rules of practice to have the Magnuson-Moss process mirror more of an EPA rulemaking style.

Svetlana Gans: Interesting. Thank you. An interesting point you raised in terms of the issues of material fact, because that basically determines whether the stakeholders will be allowed an opportunity to cross examinee and present evidence at an informal hearing. And what I find the most interesting is that in the subscription rulemaking, it was actually a visiting SEC ALJ who determined that there were material issues of fact, just a few, even though stakeholders identified many. But if you fast forward to the junk fee rulemaking, the FTC ALJ determined that there were no material questions of fact and didn't even make an independent assessment it seemed in terms of whether there were independent issues of material facts. So it is very interesting in terms of the process and we'll see how that plays out perhaps in the next rulemaking. Did you want to comment on that, Nina?

Nina Frant: Oh, and I was just going to flag I think another thing, and this was I had been at the commission when the changes to the rules of practice were happening and we're trying to think about what would happen down the road with those changes. And at the time did not appreciate that the FTC also made a change that they could not be compelled to testify. So even if there are disputed issues of material fact, the ALJ cannot require the FTC to testify to sort of defend and support its own rule. And we saw that play out in the subscription rule that there was no witness from the FTC on some of the questions that were raised, which really does again impact that fact finding process, which was just there were so many small changes that as we're seeing them play out, you realize limit the opportunity for the public to pressure test FTC bill proposals.

Randal M. Shaheen: Yeah, I think that whole process also demonstrates the value of having bipartisan agency makeups because as Nina mentioned, the two republican commissioners at the time dissented from these changes. And then we went for a long time with just Democrats on the commission. So everything was going through 303030. But having the dissent really kind of laid, I feel like they really kind of laid the groundwork for potential procedural challenges to some of the rules. The FTC is now trying to promulgate in terms of whether there's the objectivity and full vetting that Congress sort of envisioned when they gave the FTC’s Magnuson-Moss rulemaking authority.

Svetlana Gans: That's a good point, Mary. Let me turn to you. In terms of the cost benefit analysis, it's interesting that historically most agency rules were sector specific rules and they seem to have a sector specific analysis for those rules. Fast forward, as Nina mentioned, a lot of the rules are economy wide rules. Can you tell us from your perspective as being in the agency for a long time, how the FTCs approach might have changed as to the cost benefit analysis with respect to its rules?

Mary Sullivan: Yes. Yeah, and thanks for inviting me and I would like to thank all the participants for joining in yet when I was at the commission or at the FTC rather, the rules as Nina pointed out, were these really small rules and often focused on a single industry. So we had things like the funeral rule or the fur rule, the care labeling rule, and these are all pretty small things, not that they're not important generally the were not involved in the actual rulemaking process, although they did have some involvement in rules and would go to meetings about how to revise rules and things like that. I did some preliminary research on the what turned into the junk fee rule and also on the auto dealer rule. But things have really changed now, as you said, the rules are more like these big economy-wise things and to deal with that, obviously the commission had to build up the infrastructure.

So now a lot of the rulemaking is done by additions that were made to the general counsel's office. And it's pretty clear from reading some of these rules that the economists are deeply involved in the economic analysis, the cost benefit analysis. And so that's great, but I think that these big rules despite the added infrastructure have a lot of problems. And you want me to talk a little bit about the junk fee rule just to illustrate? Sure, yeah. Okay. So the so-called proposed junk fee rule is actually technically called the proposed trade rule on unfair or deceptive fees. And the stated purpose of the rule is to require businesses to include mandatory fees in advertised prices and then it prevents misrepresentation about these fees. And that sounds reasonable, but I think the problem is, and what makes it so expansive and so broad is it never defines what a mandatory fee is.

And if you think about it, a mandatory fee can just be any fee and it's mandatory if you really want the thing that the fee is supposed to pay for. So they have taken liberties with that with non definition of mandatory fees. And now I want to talk a little bit about what you mentioned, how you do a cost benefit analysis for one of these economy-wide rules because the rule covers the entire economy of the US and what it did is it really justifies the rule. Does the economic analysis basis the cost benefit analysis on a very small narrow type of rule, which is a type of fee rather, which is the type of fee that hotels use in resort fees or the live event ticket fees, their fees with these very specific characteristics that many fees don't share, they're mandatory for everyone. They have no valid business purpose in the sense that the primary purpose of the fees is simply to make it harder to compare prices. They're well researched and studies have shown that they do harm consumers by making them pay more and buy more than they would if the fees were included in the posted price.

So they're known to be harmful. And if you read through the rule, you'll see the whole justifications based on this type of rule and it really sounds bad. However, a lot of the fees and practices they prohibit don't really fit that particular kind of rule. And I'm just going to give you a few examples of things that would, fees they've included that aren't as harmful or they have benefits or there are a lot of problems in complying with the rule that wouldn't pertain to things like resort fees, which for which compliance would not really be that difficult. Okay, so one thing that they would prohibit is, and this is just an example, credit card surcharges and who knows maybe for restaurants and maybe for other industries, but they don't really say that unlike the resort fees, surcharges have a business justification. They pay for the merchant fees that restaurants have to pay when their consumers or their customers pay with a credit card.

Eliminating these surcharges would require restaurants to raise prices which would cause people who want to pay with cash to pay more. And it could hurt some of the unbanked people who don't even have credit cards and they don't really want to spend as much money. 

So I'm not saying that credit cards surcharges are good or bad, but it's just something that they should take into consideration when they're talking about the rule. But this just slips into the one size fits all nature of the rule. It has these vague things that doesn't really explain, like it says it would prohibit sales that omit material terms such as requiring an additional purchase to make full use of the product. So I didn't really know what that meant, but if you follow the footnotes, it points to a footnote that contains a consumer complaint complaining about automobile subscription fees. Services in these pay subscription services are services like for navigational services that you might want to try without paying the cost for the whole thing. They reduce costs for automakers and it's just not clear whether they want to change that practice or if they just want to get rid of miss reps, which they could do simply with their enforcement authority under the FTC Act, it would regulate fees in industries that are already regulated by other agencies. Now this can cause big problems. I think just a couple of examples are financial services and then TV and broadband. 

The agencies who regulate the fees in these industries know a lot more about the industries than the FTC does. The FTC rule could encroach on whatever these other agencies have done and it makes it a lot more costly and difficult to know how to comply. There are fees with contingencies that make it hard to know how to comply, such as just simple things like delivery services like GrubHub and Uber Eats that deliver food for restaurants. Restaurants are supposed to report the total price, but they don't know what the delivery fee is going to be because they don't know the service that the consumer is going to choose. So how can they include it in the price or another restaurant delivery issue is a minimum order fee. You don't know if the order is going to be very, very small until the consumer hits the send button and you can't include it in the posted price. So the rule doesn't explain how to deal with any of these problems. Now another thing I just want to mention, this is not technically part of the rule, but it's suggested that commenters give their opinion on the possibility of adding it to the rule to ban excessive or worthless fees. Now this in my opinion, is outrageous. It's out and out price regulation in my opinion. It is just so crazy it won't be included in the final rule, but I think it's troubling that they even suggest this price regulation. I think we've learned that it doesn't really work.

So how does this proposed rule with so many different kinds of fees and practices and vagueness, how did they create a cost benefit for a rule like this? So essentially what they do is they do a cost benefit analysis for resort fees or short-term lodging and then live event tickets. They have data. I don't know if all their assumptions are correct, but they say how they do it, you could investigate it if you wanted to, and I think it's actually a very reasonable cost benefit analysis, but they don't have data on benefits for all the other industries in the 6 million or so other firms in the economy. So what they do is they basically use their assumptions about compliance costs in these small number of industries and they extrapolate them to the rest of the economy assuming that every firm in the economy is going to have the same compliance costs. And they end up concluding that when you divide these economy wide compliance costs by all the consumers in the economy, that if every consumer obtains benefits of $6.65 cents per year for 10 years, then the rule will break even. So given the wide variety of fees covered the compliance difficulties, the fees are already regulated, prohibited fees that do create some benefits. I do think that this cost benefit analysis is meaningless. One final point I'd like to make is the rule would undoubtedly be improved if it were subject to OIRA review. And this would definitely qualify as a major rule because estimated compliance costs are between four and a half and 13 billion, which might be an underestimate. So I'll leave it with that. But I think what you're seeing now is their method of creating an economy-wide rule and a cost benefit analysis for it has some serious problems.

Svetlana Gans: Great. Thank you so much, Mary, really appreciate that. Paul, let me turn it over to you from OIRA's standpoint, would OIRA analyze this and we know that FTC is not subject to the requirements, but what are your thoughts on Mary's statements?

Hon. Paul J. Ray: Yeah, so I thought Mary's critiques of the cost benefit analysis were spot on, were well taken. I'll just say that what was very striking to me in looking at that rulemaking and then at the negative options proposal as well is that notwithstanding the defects that Mary highlighted, that analysis is a paragon of thoroughness in comparison to the negative options regulatory impact analysis, which comes to less than three federal register pages, which was kind of astonishing. I was left looking to see if my printer hadn't printed the rest of the analysis, but no, that's all there is.

What was striking to me about the negative options analysis were a few things in addition to its brevity. One, it asserts, as you might imagine, the proposal asserts that it's responding to a real world problem and will make significant changes that benefit consumers. But then in the cost benefit analysis, the proposal asserts that it would have no substantial impact on costs. So it makes that assertion with respect to small businesses, but then it actually doesn't limit the claims to small businesses. It says further that it thinks that it would have no substantial cost impact economy wide. That's pretty hard to believe for a rule that the proponent's claim is responding to a significant real world need of course. And the OIRA also fails to take into account some important costs. It fails to account for the costs of lawyerly review of the final rule and then advising clients on how to comply with it.

It acknowledges that 106,000 entities could be affected by the rule, but nevertheless thinks that costs will be somewhere in the order of $5 million. So that's I think $50 per entity. Hard to imagine compliance with a significant rule coming in that low. So I just think there's a marked lack of thoroughness in the negative options. Rulemaking, I agree with Mary's critiques. I do think that the analysis on the junk fees rulemaking is more thorough. And I also agree with Mary's point that the analysis of the two specified sectors of most concern is a pretty reasonable analysis. I'll also say further that win agencies find themselves confronting a scarcity of data.

Often a liar will recommend a breakeven analysis as the agency has employed here. That's pretty par for the course. So I was glad to see it there. I don't think the problem is with the use of a breakeven analysis. 

The problem as I think as I take merit to be maintaining is the extrapolation from two sectors to all of the American economy. It's a kind of breathtaking move. And with a breakeven analysis, you need to have some degree of granularity and certainty on either costs or benefits. And a breakeven analysis is for use when you have some sort of reliable data for one but not the other. Here for the economy-wide analysis, there's not certainty on either prong or on either half of the equation. And so while breakeven analysis is what I would've recommended in a situation in which you have a lot of uncertainty, I would've insisted and OIRA would have insisted, had the rule gone through review, I'm sure that the kind of data that they're relying on is not enough.

Svetlana Gans: So if you were to receive those rules and if FTC had to send them to, what would you think would happen based on what we see now in terms of the breakeven analysis and the extrapolation? Would you send those back or what would you do in that instance?

Hon. Paul J. Ray: We're still yeah, so on negative options, frankly the draft would be sent back and the agency would be not returned. Just to be clear, returned is an larger term of art. It means OIRA would dismiss the rule from review or the agency would be requested to withdraw it. I'm not asserting that it would be returned, although it's conceivable, but I am saying that the draft would be sent back with high level criticism saying that the analysis was just not up to snuff and the agency needed to go back to the drawing board. I think on the junk fees rulemaking OIRA would ask the agency to think long and hard about whether this is the right rulemaking in which to impose an economy wide rule or whether it said it should limit itself to the two sectors of most concern. I thought that the agency's analysis on that last point was not compelling, understandable, but certainly not certainly compelling. So I think Lyra would've asked the agency to explain why it simply couldn't feasibly proceed in this rulemaking with respect to the sectors of most concern and maybe have a second rulemaking later on other sectors of the economy as a whole once it has better data.

Svetlana Gans: Right. Nina or Randy, we've talked a lot about different facets of the rulemaking. Mary mentioned how the economy wide rules could potentially duplicate with other federal agencies that have junk fee rules are all in pricing requirements. Let me turn it to you, Randy, let's go with you first. Any comments on anything discussed so far or any specific views on the potential duplication with other regulatory schemes?

Randal M. Shaheen: Thanks, Svetlana. I'll start with saying something nice, which is I think that historically the FTC I think has done a pretty good job of coordinating with FDA and on consumer protection issues and DOJ on antitrust. Those are, its kind of two closest cousins in the agency world and certainly now with former Commissioner Chopra at the CFPB, I imagine there's quite a lot of coordination taking place there. But I think what we're seeing is other agencies starting to swerve into the FTCs lane, so the SEC with all their potential rules and requirements around sustainability and green claims. And then as Mary was saying, the FTC beginning to issue or think about rules that go much broader, the junk fee rule, the commercial surveillance potential rule, which really could sweep in other agencies that they haven't interacted with as traditionally. So it is not clear to me that the FTC is really going to think about, oh, do we need to coordinate outside of where we've kind of traditionally looked?

And there may well be a need to. And I think the other issue that, oh, this flurry of rulemaking really raises or the bigger issue potentially is coordination with states because with the privacy rules, negative option rules, the green guides, the junk fee rule, the states have all jumped into these spaces in a way that they haven't traditionally done. The original green guides were intended to keep the states out of the environmental area. And so I think that's also a huge problem in terms of companies trying to comply with not just an FTC rule, but 14, 15, 16 different state laws.

Svetlana Gans: Yeah. Nina, before turning over to you, that raises an audience member question on that specific point. So Randy, let me ask you. California and Minnesota pass junk fee laws, will the FTCs rule preempt state law or will the FTC rule operate like other commission rules that allow states to enact more robust measures?

Randal M. Shaheen: I mean, traditionally the FTC has been, preemption has been kind of radioactive to the FTC, so I can't imagine particularly this FTC that's going to preempt any state statute. I do think it raises, California has, as Paul was saying, California has enacted a junk fee law that is more narrow. In some ways they've carved out exceptions for restaurants and different other things. So it'll be interesting to see how the FTC reacts or adapts to some of what the states are doing if they try to conform in some respects.

Mary Sullivan: Yeah, I could add to that. I agree with what Randy says. I haven't read these state laws very carefully, but I'm under the impression that they are narrower than the FTCs rule. But I also think that they're compatible with the rule in the sense that the things that the states prohibit are also prohibited by the junk fee rule, but that the junk fee rule will just cover much more.

Svetlana Gans: Great. Thanks. Nina, let me turn it back over to you. Do you want to talk about the overlap with other regulatory schemes point or anything else you want to talk about that we've covered so far?

Nina Frant: I think the only thing that I'd point out is that the breadth of where the FTC is going or some of its overlap in some ways aligns with the Biden administration's push for an all of government response to consumer issues. And so you are seeing the administration lean into how can every tool and lever in the government be pulled to create outcomes aligned with the policy priorities of this administration. And so I don't know that there's that same sensitivity between jurisdictional overlap between the agencies, but that begs the question around good governance and efficient use of resources and making sure that the expert agency, as Mary was mentioning earlier, with a deep understanding of the markets and the applications our crafting the right industry rules to achieve those policy outcomes that the Biden administration is pushing. So I think the breadth that you're seeing from the agency is reflective of a Biden administration wide goal of an administration wide approach to solving consumer problems, but that may not be good governance.

Svetlana Gans: Okay. And Paul, what's your sense from your former OIRA role in terms of how OIRA would approach duplication and perhaps inconsistencies between regulatory schemes?

Hon. Paul J. Ray: So avoiding duplication and especially conflict is one of all OIRA's core equities. It's one of the core reasons for OIRA review. So I think when all I review was created, a number of folks involved in the creation had a sense that the independent agencies each were sort of in their own silo doing their own thing and they didn't raise a lot of the same concerns that other agencies did, which are affecting cross economy issues and definitely need a lot of deduplication and deconfliction. I don't think that view is widely shared today. I think there's a perception, I think the perception is accurate that more and more independent agencies are doing just the same kinds of rulemakings that executive branch agencies do rulemakings that are economy wide, that cut across many different issues that implicate concerns of many peer agencies, both other independent agencies and then executive branch agencies. And so to my mind, that's a very strong reason to favor OIRA review of rules by independent agencies. Of course there are counterpoints to be made there about agency independence and I think it's out of scope here. I do have a paper which I think is on the webpage for this event about application of OIRA review to independent financial regulators. I was thinking of the SEC and CFTC and a few others in that context, FTC less. But I think what I argue in that paper would apply to the FTC as well.

Svetlana Gans: Alright, great. I hope folks check it out and we would love your thoughts on the paper. Alright, let's with the moments we have left and we have another audience question, so thank you audience for participating and please keep them coming. We'll get to them right after we conclude with our q and a. In terms of my Q&A, I wanted to ask Nina and Mary and Randy in terms of key best practices practitioners should keep in mind as they navigate future FTC rulemakings, whether it is responding to notices of proposed rulemakings or navigating existing rules in play right now. Nina, let me turn it over to you. What are the key lessons practitioners should take away from this conversation and help them prepare for potential comments and other work with respect to FTC rulemakings?

Nina Frant: I think there's a couple of key lessons that I'd plug. One, this rulemaking process is going to move much faster than what we had seen in the past. It used to be mag moss took five to seven years, we're seeing two years right now from a rule proposal to a rule of finalization. So the time is now to participate. So you see an A NPR participate, you see an NPRM participate because the opportunities for engagement may be limited to just that ANPR and informal hearing. And then any advocacy you do on your own, you may not be given opportunities to comment on reports. You may not be given opportunities to participate in workshops. I mean, the agency used to regularly host workshops to do deeper dives and deeper studies on potentially controversial or complex parts of rule proposals and we're not seeing that in the process anymore.

So take the opportunities the FTC gives you to participate. And then I think the other thing that I would flag, and it sort of touches on points that Randy raised earlier, anticipate follow on state action in these spaces where the FTC is making role proposals, they're making economy-wide rules that are providing roadmaps to state houses on consumer policy issues. And if you have any concerns in terms of on a federal level on a single rule, being able to have a compliance program that works with regulatory obligations assume there's going to be follow on states and they're less likely going to be some conflicts. And so just be prepared to deal with both FTC rulemaking, but follow on state rulemaking.

Svetlana Gans: Randy, how about you? And maybe you could also talk a little bit about the impact of the recent Supreme Court decisions and how that plays in with strategy?

Randal M. Shaheen: Maybe I'll try to focus, I thought Nina's list was great and I know we're trying to cover some other topics as well. So I'll try to focus more on maybe the Chevron issue. And I do think it creates more opportunity in terms of making a record in terms of not so much anticipating you're going to derail the rules because that's not likely to happen, but laying more of a thinking about what kind of record do you want to establish for an eventual court challenge. The FTC certainly can't be happy with the Supreme Court these days. And I do think Nina talked about this is all happening fast. I think it will continue to happen fast and we've got an election coming up soon, so the clock may be ticking on a number of these rules, although some do have bipartisan support, but I think the FTC may have to slow down a little bit just to be a little more careful recognizing they may not get the same deference.

And a lot of these rules, the modification to the health breach notification rule garnered dissents from the two new Republican commissioners because they said it goes beyond the scope of the statute currently they're trying to create a negative option rule basically as an end run around, they're interpreting an existing statute, which is online automatic renewal type plans. They're interpreting it in a way that I think clearly conflicts with the statute. And so they're fixed with that is to generate a rule that puts that differing interpretation into a rule. And how are courts with no deference, how are courts going to react to the FTC trying to basically make an end run around Congress wasn't tough enough in the law. So we're going to create a rule that's even tougher and is that really going to hold up in a post chevron environment. And then there's a number of unfairness initiatives the FTC has taken that could also run into some issues in a post chevron world.

Svetlana Gans: Nina, what about other potential issues like major questions and non delegation?

Nina Frant: Yeah, I think, well there are fewer avenues to participate in FTC rulemaking for the public or consumer groups or industry. I think there are lots of avenues now open to industry and the public and consumer groups to challenge FDC rules that are finalized or in action. And I do think especially for a rule like junk fees where they've gone economy wide, there are questions of whether or not there how you define what if junk fees is about advertising versus price setting. There are questions of whether or not there's major questions doctrine. So I do think non delegation authority, some of those due process questions as well as major questions are absolutely going to factor into legal challenges for rules going forward. There's a deference question, but then there's just a straight up jurisdiction. Does the FTC have even the authority to be crafting these rules? Yeah,

Randal M. Shaheen: I think the one, oh, sorry, real quick. I was say I think the one fascinating issue, the question to me as far as major questions too is even if the individual rules themselves don't create a major questions issue, although I think some do when you look at the broad scope like the FTC, if all these rules got promulgated, basically almost every commercial consumer transaction in the country would be covered by a rule. And is that really what Congress intended when they gave the FTC rulemaking authority is to create so many rules that virtually nothing is exempt. And I wonder if there's some kind of aggregation issue that a court might grapple.

Svetlana Gans: Yeah, well interestingly the FTC was called the national nanny and by Congress. So maybe what comes around goes around. We'll come full circle to that. Paul, what about you from the administrative law standpoint, constitutionality standpoint, anything to add to this discussion on breadth of proposed rules?

Hon. Paul J. Ray: Just to say that the court has become more and more skeptical over the last couple of years of expansions of agencies into areas they've not traditionally regulated. And some of these rules seem to fall within that description. So I do expect to see, I don't know if a major questions challenge prevails, so I'm sure they'll be made and I think the course will take them quite seriously.

Svetlana Gans: Alright, so I want to be mindful to accept audience questions. So folks, if you could please put your questions in the Q&A and we'll start with questions. We do have one right now. Okay. One panelist says, great panel, can you please discuss the interplay between substantial impact and widespread pattern of UDAP as required by magmas? Is it even possible to thread the needle conceptually by arguing that a UDAP  is widespread but a remedial rule would not have substantial impact? Who wants to take that one?

Hon. Paul J. Ray: I mean, that seems like a really hard case to make, right? I suppose you could. You could say there's a deleterious practice, it's very widespread and it will be almost costless to remedy. I don't know, it's going to cost everybody a nickel or something like that to stop doing the bad thing they're doing. So I suppose it's conceivable, but I mean that's basically what the agency argues in the negative options case. They say over a hundred thousand entities affected, but compliance costs of around 5 million total. So 50 bucks or so an entity. That's not plausible to me, but I suppose the agency can argue it.

Svetlana Gans: Mary, did you want to share a view on this question?

Mary Sullivan: No, to me, I'm just an economist and that's sort of a lawyer type question.

Svetlana Gans: Well, you're a very important economist. So Randy and Nina, how about you?

Randal M. Shaheen: I mean, I'll jump in real quick. I mean I agree with Paul. I think it is a difficult needle to thread. I've tried to think of any of the proposed rules out there that may become closest to threading it. And it's not a rule that's gotten a lot of attention, but there is a potential for a rule on earnings claims for multi-level marketers and so forth where for example, they may just say, you can only give what the average earnings are. You can't have these, I made a million dollars and bought a yacht footnote. First person made 25 bucks a month. And they argue that's a widespread practice but not much impact. And maybe they're the proposed fix is so easy and so to implement that maybe it doesn't have a substantial impact. But I think it's hard.

Svetlana Gans: I have one question in terms of the breadth of the rules and the economy wide scope, we mentioned that we're expecting the commercial surveillance rule to issue at some point given the breadth of the advance notice with 95 questions presented that Nina talked about, how does one even prepare to respond with any type of identification of material facts or cost benefit analysis given that you really don't have a clear idea on where the rule goes following the publication of advanced notice. So any advice in terms of best practices between those two phases or how to respond given that you might have 30 or maybe 60 days if you're lucky? Nina, I'll turn it over to you.

Nina Frant:

I was going to say I hope considering the impact of a commercial surveillance rule that the agency would give at a minimum 60 but likely longer for folks to be able to get some of their analysis together or be open to extensions. And I think the other guidance is involve an economist like you've heard from Mary, you've heard from Paul today. They have an exceptional understanding of the weaknesses of any FT C rule proposals. And so you need to think through the critical evidence that you can be introducing, not opinion but facts that you can be introducing into the record that doesn't necessarily necessarily contradict the FTCs position, but raises questions about the FTCs position. And so engage economists, think about the facts you have on hand, be prepared to put in facts, which I know is really hard for companies in a public rulemaking setting to be willing to talk about the impact of a rule on their day to day. But the FTC has made it clear that's the level of evidence they need to even consider a disputed issue of material wealth fact. And so I think with a broader a and p like that, ask for time, get people involved early and really get your facts as developed as quickly as you can.

Hon. Paul J. Ray: Yeah, I'll second all of that. I'd say also it's clear from these rulemakings that the FTC has a real dearth of data and in particular a real dearth of data about compliance costs in certain sectors. It has data about other sectors, but about many, it has none. So I would say yes, employ an economist who can estimate compliance costs across a sector. If you can't do that, just say what your compliance costs would be, right? The agency has to engage comments like that, right? I mean, if the agency's rule is premised on entities being able to comply for 50 bucks an entity and you say, no, this is going to cost me $5,000. You may not be able to claim that everyone will have the same cost that you do, but you don't have to claim that, right? The agency, the burden on establishing the rationality, the regulations on the agency. So if you say that there are some entities and you know this because you are one of them who will have much higher costs, well then the agency has to give a reason to think that most entities costs will be a lot lower. And yeah, sorry. I think firm specific comments can be very helpful.

Randal M. Shaheen: And what we've been counseling our clients that want to comment too is to pick your spots. You don't have to comment on everything. Comment in areas where you really have somewhat of a unique perspective and not just file a me too comment just to have something in there. What's really going to stand out and really potentially make a difference and provide the facts or insight that Paul's talking about.

Svetlana Gans: Mary, outside of folks hiring you to help them with FTC work, what other advice do you have in terms of rulemaking process?

Mary Sullivan: So what I wish, and this is very hopeful just to take a step back in what the economists should be doing in antitrust, there's a huge interest of economists in developing what we call theories of harm. And those go back before you even get to data issues. Just really explaining or analyzing whether whatever you're planning to do, whatever the agency is planning to do, whether it's good or bad, and analyze the conduct or whatever it is that's going to be regulated. But there's less of that in consumer protection. And I think that's just because there's a tradition in consumer protection that it's a little bit more considered a per se. If somebody is engaging in deceptive or unfair behavior, you generally don't need an economist or you generally don't think you need an economist to tell you whether this is good or bad. But what I think that some of these consumer behavior related rules could benefit from is more economists in the community studying the conduct and studying the rules to see if they basically make sense before you even get into measuring things. I think that the FTC rules could certainly benefit from that.

Svetlana Gans: Great. One other audience question, has the FTC fairly and systematically considered the business justifications for their regulated practices? And how has this analysis changed? Nina?

Nina Frant: So I think this is a tough question. So one of the things that I would say is there has been a significant mobilization from consumer groups to participate and comment on rules. And there has been a willingness of the agency as they should to consider these consumer comments. Even anonymous consumer comments about sort of their own personal experiences with junk fees or with subscriptions and a lot of weight given to those personal experiences and they are aligned with, and they are sort of compared to a business response in the same way. So an anonymous comment may get the same weight as a business explanation of a rules impact on their business. And I think that is some of the changes that you're seeing that we're seeing a lot of consideration of consumer comments. Again, not saying that is wrong, but there are some weights around the business justifications that now have to sort of clear some hurdles of the countering of the consumer responses.

Svetlana Gans: Randy or Paul, any comments on that question?

Randal M. Shaheen: I was just going to say I think they've done an okay job of coming up with kind of the rationale or business justification for the existence of the problem. But as Mary was saying, with respect to junk fees earlier, probably less thinking, less of a good job coming up with the business justification for the solutions because I think the solutions often create their own problems or issues.

Svetlana Gans: All right. So with one minute left, I'm going to have a speed round of a last question for each of you, but please limit to 15 seconds. If you were at the FTC right now advising the commissioners on rulemakings, what the FTC should do on rulemakings or change process or otherwise, what's one thing you would want to say? Go ahead, Nina. I'll start with you.

Nina Frant: You are facing Congress who wants to cut your budget and think about how you can spend your money in the most impactful way to protect consumers from bad actors.

Svetlana Gans: All right, Randy.

Randal M. Shaheen: So the dissent from the procedural changes cited the same tidbit example you mentioned Svetlana, and said those who fail to learn from the past are doomed to repeat it. And I think that's wise advice for the commissioners

Svetlana Gans: Mary?

Mary Sullivan: I would recommend that the commission get the economists involved in the rulemaking process at the very beginning and not just wait until they want a cost benefit analysis done.

Svetlana Gans: Alright, Paul?

Hon. Paul J. Ray: Be thorough and granular and if that means that you can only regulate sector by sector rather than regulating the whole American economy, well that's okay and better.

Svetlana Gans: Alrighty, so on that note, let me thank all of our panelists for their time and preparation for today's webinar. And thank you so much listeners for joining us and I'll turn it over to Edith to close this out.

Edith Harold: On behalf of the Federalist Society, thank you so much to Nina, Paul, Randy, and Mary for speaking, and Svetlana for moderating. We appreciate you giving us your time and expertise today. And thank you also to our audience for joining us. We greatly appreciate your participation. You can stay up to date with announcements and upcoming webinars on our website fedsoc.org or on all major social media platforms. Thank you once more for tuning in and we are adjourned.