ADventures in Law

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There are generally two paths that the Federal Trade Commission (FTC) takes for rulemaking. First, there may be a specific statute that gives the FTC specific rulemaking authority, such as the Children’s Online Privacy Protection Act, which authorizes the agency to engage in certain specified rulemakings. Then there is what is known as Mag-Moss rulemaking, by which the FTC can promulgate rules around unfair or deceptive business practices. Rulemaking under this section, Section 18 of the FTC Act, with regard to public involvement typically follows a very predictable schedule. At a high level, the FTC first will publish an advance notice of proposed rulemaking (ANPR). The ANPR gives a broad overview of the rule and opens a period for public comment. After this period, the FTC issues a notice of proposed rulemaking (NPR), which contains the proposed text of the rule as well as the rule’s purpose. The NPR also opens a period of public comment. After the NPR’s public comment period, a final rule may then be developed and promulgated.

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As far as FTC rulemaking cases go, <em>National Automobile Dealers Association v. FTC</em> is fairly atypical. At the center of the case is the finalized Combating Auto Retail Scams Rule (CARS Rule), which the FTC promulgated pursuant to specific authority it was given via the Dodd-Frank Act. In 2022, the FTC, without issuing an ANPR, published an NPR for the CARS Rule. Following a public comment period, the FTC published the final CARS Rule in January 2024, with an effective date later in the year. However, that same day, the rule was challenged in the 5th Circuit, with petitioners arguing that the rule should be set aside because, among other reasons, the FTC did not issue an ANPR. The FTC countered by claiming that the statutory authority for this rule came not from Section 18 of the FTC Act but instead from Section 1029(d) of the Dodd-Frank Act. This section, the FTC argued, exempted it from ANPR requirements. The 5th Circuit disagreed. In its opinion invalidating the rule, the 5th Circuit concluded that although the Dodd-Frank Act did “lower[] the procedural floor” for certain types of rulemaking, the FTC’s internal regulations, which require additional procedural safeguards, were not abrogated – thus an ANPR was required. Finding that the FTC’s error was not harmless, the court ultimately invalidated the rule.

Although this case is not a typical FTC rulemaking case, it may have some very important takeaways. On one hand, this is one case related to one specific rule, tied to the FTC’s powers under the Dodd-Frank Act. On the other hand, this case is another in the wave of recent court decisions illustrating a growing skepticism of agency rulemaking authority. As FTC rules and rulemaking authority continue to be challenged, it is apparent that any procedural issue will be scrutinized very closely. Significant deference to agencies is a thing of the past.

5th Circuit Slams the Brakes on FTC’s CARS Rule