House Bill Restoring FTC Monetary Relief Tool Stretches ‘Look Back’ Authority From 3 To 10 Years

Limiting FTC authority to enforcement started after legislation passes rather than all pending complaints as House bill allows could be divisive. But consumer health marketers question number of years before a complaint is filed agency can allege a business used false and misleading advertising under legislation the House passed.

House legislation allowing the Federal Trade Commission to impose monetary relief orders against marketers linked to false advertising goes to the Senate, where a similar bill filed in 2020 would have allowed a more limited application of the authority.

While limiting the FTC’s authority to enforcement started on or after legislation is passed rather than all complaints pending at that time as the House bill allows could be a divisive issue, consumer health and personal care product manufacturers and marketers could question the number of years before a complaint is filed that the legislation the House passed on 20 July allows the agency to allege a business used false and misleading advertising.

In nearly strictly party-line voting of 221-205, the House passed the Consumer Protection and Recovery Act, H.R. 2668, Democrat-sponsored legislation to amend Sec. 13(b) of FTC’s regulations to make explicit its authority to obtain injunctive and equitable relief in court, including monetary redress for consumers for all violations of the laws it enforces.

Notably, the bill states, “the amendments made by this section shall apply with respect to any action or proceeding that is pending on, or commenced on or after, the date of the enactment of this act.”

No companion bill has been introduced in the Senate, which also has a Democrat majority. The Biden administration also supports granting the FTC the authority.

The language in H.R. 2668 allowing the FTC to retroactively apply the legislative fix to cases already pending is a crucial difference from a Senate bill filed by Republicans during the previous session of Congress in September – the “Setting an American Framework to Ensure Data Access, Transparency and Accountability Act,” S. 4626. It didn't get a committee hearing. (Also see "Congressional Split Looms Over Including Retroactive Reach In FTC Monetary Relief Authority" - HBW Insight, 26 Apr, 2021.) 

"The existing statute already allows FTC to look back 3 years, not 10, for monetary relief in fraud cases after a proceeding within the FTC to find fraud. Three years seems like a reasonable time frame." – David Spangler, CHPA

The Senate bill, which has not been re-filed, didn’t allow for retroactive applicability. It stated the amendments made “shall apply with respect to any action or proceeding that is commenced on or after the date of enactment of the act.”

Democrats currently have a slim majority in the Senate not large enough to ensure passage of legislation under the chamber’s requirement for 60 votes to bring most bills to a vote. Democrats, including independents Bernie Sanders, VT, and Angus King, ME, number 50 in the Senate, as do Republicans; Vice President Kamala Harris gives Democrats a majority as Senate president allowed to cast tiebreaking votes.

3 Years 'Reasonable Time Frame’

Amending FTC regulations to add the authority was proposed by Senate Republicans and in H.R. 2668  during the current session because the Supreme Court was expected to rule that Sec. 13(b) concerned prospective injunctive relief and didn’t grant the FTC authority to obtain court-ordered retrospective monetary relief, even though the commission had been using the provision for that purpose since the section was added to the act in 1973. (Also see "Congress Likely To Legislate Monetary Penalty Authority In FTC Enforcement If SCOTUS Strikes It" - HBW Insight, 2 Mar, 2021.)

The section also didn’t allow the FTC to allege false advertising for 10 years before it files a complaint, the Consumer Healthcare Products Association notes.

The CHPA supports restoring the authority for the FTC but questions why the House bill extends the number of years the agency can reach back to allege false advertising.

“After the Supreme Court case earlier this year narrowed the scope of FTC’s equitable remedy tools in enforcement actions, we certainly understand and support giving FTC appropriate tools to efficiently enforce against frauds and scams. And yes, that includes monetary relief as a remedy,” said David Spangler, the trade group’s senior vice president, legal, government affairs and policy, told HBW Insight.

“But we, like many others in the advertising community, have concerns with the House bill. The existing statute already allows FTC to look back 3 years, not 10, for monetary relief in fraud cases after a proceeding within the FTC to find fraud. Three years seems like a reasonable time frame,” Spangler added in his email.

CHPA also supports limiting equitable relief to appropriate cases, such as fraud, he said.

Is Senate Interested?

Details of a bill aside, at the Natural Products Association, president and CEO Daniel Fabricant doesn’t anticipate that a majority of the Senate would pass legislation rebuking a Supreme Court decision.

“I can’t see 50 Republican senators agreeing to say we’re going to overturn the Supreme Court on this,” he said in an interview.

In Supreme Court ruling, "a criminal payday lender was found to have defrauded consumers of $1.3 billion, but that money could not legally be returned to the victims.” – House Energy and Commerce Chairman Frank Pallone, D-NJ

Even if all Democrats supported a bill, they wouldn’t have 60 votes needed under Senate rules to bring it to a floor vote. Making legislation restoring the FTC authority part of a budget reconciliation bill, which can be moved to a vote with simple majority approval, is unlikely.

“I can’t see that happening either,” Fabricant said.

As important as the FTC’s authority is to firms marketing consumer health as well as other products for the purpose of stopping false advertising, Senate members might not consider it important enough to move on as a standalone bill.

“You have to ask, how big of a priority is this,” Fabricant said.

‘Unjust Result Remains Law Of Land’ – Pallone

The Supreme Court, in April two days after H.R. 2668 was introduced, published its unanimous opinion written by Justice Stephen Breyer striking Sec. 13(b) in  AMG Capital Management LLC v. FTC. Breyer wrote that statutory language establishing Sec. 13(b) didn’t authorize the commission to seek and for courts to award equitable monetary relief as restitution or disgorgement.

The opinion, however, also noted that the FTC can use other mechanisms under its regulations to obtain monetary relief. “If the Commission believes that authority too cumbersome or otherwise inadequate, it is, of course, free to ask Congress to grant it further remedial authority,” the court said.

House Energy and Commerce Committee Chairman Frank Pallone, D-NJ, noted in floor remarks that Congress should take the court’s suggestion.

“Congress must act now because … the Court ruled that the FTC could only seek injunctions to stop bad actors from violating the law. In the case before the Court, a criminal payday lender was found to have defrauded consumers of $1.3 billion, but that money could not legally be returned to the victims,” according to Pallone’s prepared remarks.

“Without this legislation, that unjust result remains the law of the land,” he said.

Since the FTC’s start in 1914, it’s been authorized to enforce its regulations through its administrative proceedings. However, in the 1970s Congress added to Sec. 13(b) to the FTC Act permitting the agency to proceed directly to court to obtain a “temporary restraining order or a preliminary injunction” and allows it “in proper cases” to obtain a court-ordered “permanent injunction.”

The FTC started using the provision and the words “permanent injunction” to obtain court orders for redress in consumer cases “without prior use of the administrative proceedings.” In the 1990s, it began using the provision’s “permanent injunction” authority for monetary awards in antitrust cases, such as restitution and disgorgement, again without prior use of administrative proceedings.

The FTC uses the mechanism directly in court “with great frequency,” including 49 complaints in federal court and 81 permanent injunctions and orders in fiscal year 2019 resulting in $723.2m in consumer redress or disgorgement, the order noted.

In defense of its use of the provision without administrative proceedings, the FTC referenced decisions where the Supreme Court interpreted provisions authorizing injunctive relief to authorize equitable monetary relief as well

Breyer pointed out in those cases, however, that the court didn’t purport to set a universal rule of interpretation and the cases swung on different statutes.