211215 Coalition H R 5376 FTC Provisions Senate

Published

December 15, 2021

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TO THE MEMBERS OF THE UNITED STATES SENATE:

On behalf of the undersigned associations representing millions of legitimate businesses that seek to serve consumers and create jobs, we oppose the inclusion of Sections 31501 and 31502 in H.R. 5376, the “Build Back Better Act.” These provisions would create an unprecedented and unjustified broad civil penalty authority under Section 5 of the Federal Trade Commission (FTC) Act that does not presently exist in the law. This would constitute a major policy shift in FTC enforcement authority that would unfairly erode due process and would impose significant new costs on companies acting in good faith when serving consumers.

The business community respectfully requests that these provisions be removed from the reconciliation bill on the following grounds:

Faulty CBO Score. The Congressional Budget Office’s (“CBO”) projected revenue from the FTC penalty provisions is based on unconstitutional presumptions of guilt. FTC and CBO estimates presume that companies will violate the FTC Act and the FTC’s authority under this section to impose fines in the first instance of an alleged violation will bring in $3.6 billion[1] in revenue for privacy violations alone, leaving aside other actions that could be brought by the Commission under this new penalty authority. Not only is the revenue estimate inappropriately relying on a presumption of guilt (instead of the constitutional presumption of innocence) for defendants, but the scoring methodology also represents a stark departure from the FTC practice of not projecting future violations.[2]

The Provisions Violate the Byrd Rule. The projected revenues from the anticipated use of the new civil penalty authority should be considered “extraneous provisions” because they are “merely incidental to the non-budgetary components of the provision,” which is one of the principal factors under the Byrd Rule for removing a provision from a reconciliation bill.[3] The non-budgetary components of the provision are the entire provision itself, which would significantly alter the enforcement authority of a federal enforcement agency by granting a new, permanent civil penalty authority to enforce all alleged unfair and deceptive acts or practices under Section 5 of the FTC Act—broad new authority that Congress has never granted the agency.

The Provisions Stifle Innovation.The new civil penalty authority will create a significant chilling effect on industry innovation in the provision of goods and services. The mere threat of being levied a very costly fine (up to $43,792 per violation per affected consumer) by the FTC in an alleged first instance of an FTC Act violation will significantly harm economic growth and competition because companies will operate under the constant pressure of potential arbitrary enforcement without sufficient due process by an agency that has not fairly given it prior notice as to what specific business conduct or practice constitutes a violation of the FTC Act in order for that business to avoid such a fine.

Congress specifically balanced its current enforcement regime to prevent unfair enforcement under the FTC Act’s vague and broad prohibition on unfair and deceptive practices.[4] The approach proposed in H.R. 5376 permanently removes statutory due process protections. At a time when the Commission has demonstrated willingness to exceed its authority, such a policy change would be highly detrimental to legitimate businesses because the FTC would become the lawmaker, prosecutor, judge, and jury all at once, where businesses may never know which of their practices may later be adjudged to be illegal. The threat will be particularly severe for smaller companies that lack the legal expertise and capital to hire outside counsel to contest the FTC’s proposed settlements backed by the threat of potentially bankrupting fines regardless of whether they believe their activities are completely lawful.

In conclusion, for all the above reasons, the FTC civil penalty authority should not be granted by Congress as part of a reconciliation bill, and it should be removed from H.R. 5376 by the Parliamentarian under the Byrd Rule. The overall negative impact of this provision on our national economy and American jobs, coupled with projected legal expenses and lost revenue chilled by a lack of due process, will cost U.S. industry and American consumers billions of dollars that far exceed the revenue projected by FTC and CBO.

We respectfully urge you to preserve the benefits consumers reap from continued innovation in the delivery of goods and services and protect the due process of legitimate businesses from an unbounded agency by opposing the proposed FTC civil penalty authority provisions in H.R. 5376.

Sincerely,

10th District American Advertising Federation (Arkansas, Louisiana, Oklahoma, Texas)

Ad2 Houston

Ad2 SoCal

American Advertising Federation

American Advertising Federation Amarillo

American Advertising Federation Birmingham

American Advertising Federation Austin

American Advertising Federation Corpus Christi

American Advertising Federation Dothan

American Advertising Federation Dubuque

American Advertising Federation Greater Flint

American Advertising Federation Houston

American Advertising Federation Midlands

American Advertising Federation Mobile Bay

American Advertising Federation Montgomery

American Advertising Federation Nebraska

American Advertising Federation New Mexico

American Advertising Federation Northeast Louisiana

American Advertising Federation Roanoke

American Advertising Federation South Dakota

American Association of Advertising Agencies (4A's)

AFSA—American Financial Services Association

AHLA—American Hotel & Lodging Association

American Escrow Association

American Transaction Processors Coalition

Alabama Retail Association

ANA-Association of National Advertisers

Arizona Chamber of Commerce

Association of Test Publishers

California Retailers Association

Connecticut Business & Industry Association (CBIA)

Connecticut Retail Merchants Association

Consumer Consent Council

Consumer Data Industry Association

Council for Responsible Nutrition

DSA—Direct Selling Association

Electronic Transactions Association

Florida Retail Federation

FMI—The Food Industry Association

Georgia Retailers

Greater North Dakota Chamber

Idaho Advertising Federation

Idaho Falls Advertising Federation

Illinois Chamber of Commerce

Indiana Retail Council

Innovative Payments Association

Insights Association

International Franchise Association

Interactive Advertising Bureau (IAB)

Iowa Retail Federation

Kansas Retail Council

Kentucky Retail Federation

Louisiana Retailers Association

Mason City (Iowa) Chamber of Commerce

Maryland Retailers Association

Michigan Retailers Association

Missouri Retailers Association

Montana Retail Association

National Business Coalition on E-Commerce & Privacy

National Council of Chain Restaurants

National Retail Federation

National Restaurant Association

Nebraska Retail Federation

NetChoice

New Hampshire Retail Association

New Jersey Retail Merchants Association

North Carolina Retail Merchants Association

North Dakota Retail Association

Ohio Council of Retail Merchants

Pennsylvania Retailers Association

Professional Association for Customer Engagement

Real Estate Services Providers Council

Retail Council of New York State

Retail Merchants of Hawaii

Retailers Association of Massachusetts

Security Industry Association

South Carolina Retail Association

South Dakota Retailers Association

Upstate (South Carolina) Chamber Coalition

U.S. Chamber of Commerce

Utah Retail Merchants Association

Vermont Retail & Grocers Association

Virginia Chamber of Commerce

Virginia Retail Federation

Washington Retail Association

West Virginia Retailers Association

[1]https://www.cbo.gov/publication/57623

[2] Asked by the House Commerce & Consumer Protection Subcommittee Ranking Member whether the Federal Trade Commission “was able to predict how many violations would occur each year,” former Democratically appointed Director of Consumer Protection Jessica Rich answered a resounding “No.https://www.youtube.com/watch?v=IhNbL12rjqw (December 9, 2021).

[3] See text of Byrd Rule in Appendix of The Budget Reconciliation Process: The Senate’s “Byrd Rule”, Congressional Research Service, November 22, 2016, accessible here: https://www.senate.gov/CRSpubs/95a2a72a-83f0-4a19-b0a8-5911712d3ce2.pdf

[4] “The compromise was you’ve got to do what the FTC says, but before it tells you to do something, it will find that what you’re doing now is wrong.AMG Capital Management, LLC v. Federal Trade Commission, J. Breyer during Oral Argument, No. 19-508 (2021) (emphasis added).