What are FTC Informal Hearings

What are FTC Informal Hearings?

Those paying close attention to Federal Trade Commission rulemakings have likely noticed the FTC is conducting "informal hearings" in connection with its rules. These hearings are a unique feature of FTC rulemaking and have historically been criticized as roadblocks allowing rule opponents to delay the rulemaking process. While the FTC is required to conduct these hearings and advocates may not wish to affirmatively request them, there are opportunities to support the FTC and its rulemakings in the context of informal hearings.

Background

The FTC has prioritized rulemakings as one of the measures to fill a significant gap created by the Supreme Court in 2021 when it curtailed the FTC's ability to obtain relief for consumers through enforcement actions. For over 50 years, the FTC used its authority under Section 13b (prohibiting unfair and deceptive acts and practices) of the FTC Act to force bad actors to return money to defrauded consumers. However, in 2019, the Supreme Court restricted the ability of the FTC to carry out its mission in AMG Capital. Undeterred, the FTC pivoted to less frequently used statutory tools, such as notice of penalty offenses[1] and rulemaking. Critically, the FTC can obtain refunds for consumers when a defendant has violated a trade regulation rule.

The FTC can adopt rules through Section 18 of the FTC Act (also referred to as "Magnuson Moss" rulemaking), and through the Administrative Procedure Act (APA). Section 18 of the FTC Act sets forth a rulemaking process that includes additional steps compared to what is required under the APA. This includes an advance notice of proposed rulemaking (ANPRM) that is open for public comment, followed by a notice of proposed rulemaking (NPRM) with a public comment period, the possibility of informal hearings, and a final rule. These informal hearings are unique to FTC Section 18 rulemaking, and as the FTC continues to promulgate new rules, informal hearings are making a resurgence.

What Triggers an FTC Informal Hearing?

Informal hearings can occur in two situations: at the request of a commenter to an NPRM, and at the discretion of the FTC. In the NPRM, the FTC may designate a "list of disputed issues of material facts," about which the FTC may wish to hold an informal hearing. This is rare, and when the FTC has not identified any such issues, the NPRM allows commenters to request an informal hearing within the public comment period. Such a request must include a statement identifying the requester's interest in the proceeding and any proposed disputed issues of material fact.[2] If the FTC elects to hold a hearing, or if a commenter requests a hearing, the FTC will publish a notice of the hearing. Notably, even if the FTC does not agree with commenters that there are disputed issues of material fact, it will still conduct a hearing, but the structure of the hearing depends on whether such an issue has been properly raised.

If a disputed issue of material fact has been properly raised, the parties may conduct witness cross-examination and introduce rebuttal evidence necessary to resolve the issue.[3] If there is no issue of disputed material fact, the FTC has permitted parties to provide oral presentations about their positions and interests in the proceeding.

Since the resurgence of rulemaking after AMG Capital in 2021, the FTC has published notices of four informal hearings, and it has not identified disputed issues of fact in any of them.[4]

What is a Disputed Issue of Material Fact?

A disputed issue of material fact "must raise specific facts that are necessary to be resolved." Whether something is a disputed issue of material fact is interpreted narrowly, and it is given the same meaning that courts employ in deciding whether to grant summary judgment in litigation.

Commenters increasingly request informal hearings in FTC rulemakings, often attempting to raise disputed issues of material fact. The FTC's consideration of these potential issues raised by commenters is instructive and it is helpful to consider what does not constitute a disputed issue of material fact as set forth by the FTC:

It is not an issue of legislative fact. Section 18 distinguishes issues of "legislative fact" from specific facts to be resolved. These "specific fact" issues must be capable of and suited for cross-examination and rebuttal. Legislative facts, in contrast, are not suitable for cross-examination or rebuttal because they concern issues of law and policy. The FTC has clarified that commenters who question whether the practices targeted by the FTC are unfair or deceptive, articulate general concerns about overall marketplace effects of a rule,[5] and raise potential overlap/conflict with existing regulations[6] are raising legislative facts - not "specific facts."

It is not a mere assertion of disagreement with the FTC's findings. Parties asserting that there is a disputed issue of material fact must be prepared to introduce its own evidence to support a conclusion that the FTC's findings in the record are insufficient. The party must show that there is a "genuine, bona fide dispute over material facts that will affect the outcome of the proceeding." The FTC has made very clear that "unsupported statements, predictions about how businesses might respond to the proposed rule, [and] general requests for further analysis" are not sufficient.[7] Any party challenging the FTC's findings as insufficient must be prepared with empirical evidence and data. The FTC has stated as much when parties have raised potential disputed issues regarding the sufficiency of its cost-benefit analysis and the prevalence of the practices targeted by the rulemaking.

What Happens During an Informal Hearing?

Informal hearings usually consist of either oral presentations by parties who requested a hearing but did not articulate disputed issues, or evidentiary hearings to resolve properly raised disputed issues. In both settings, a presiding officer is appointed by the FTC and has latitude in establishing rules to administer the hearing efficiently and without delay. Informal hearings are limited to five days over a 30-day period.

Disputed Issue Hearings

In hearings where an issue of disputed material fact is properly raised and articulated, the FTC may identify witnesses and allow for cross-examination and rebuttal. Cross-examination and rebuttal are "available only to address disputed issues of material fact necessary to be resolved."[8] Participants seeking to conduct cross-examinations or provide rebuttal submissions must demonstrate why these particular methods are necessary to resolve the issue, rather than oral presentations or written rebuttals. The presiding officer has broad discretion over these proceedings, as they can require advance submission of the questions[9], group together participants with similar interests, or conduct the cross-exam themselves. These evidentiary hearings have a 'trial" atmosphere, resulting in a decision by the presiding officer within 60 days of the hearing date.

Non-Issue "Oral Presentation" Hearings

Section 18 provides that, even if there are no disputed issues of material fact, if a commenter requests a hearing, the FTC will hold a hearing and allow for oral presentations.[10] In the FTC's NPRM regarding unfair or deceptive fees ("junk fees"), several commenters (including CFA) stated that while they did not believe there were any disputed issues of material fact, they wished to participate in an informal hearing conducted by the FTC.[11] In response, the FTC's Notice of Informal Hearing in the junk fees rulemaking finds that there are no disputed issues of material fact and identifies 17 participants to testify - including advocacy groups who did not affirmatively identify or articulate disputed issues.

The presiding officer may "at any time" modify or add designated disputed material issues of fact, both on its own and at the petition of interested persons who demonstrate good cause. In the context of informal hearings regarding the Negative Option Rule, the presiding officer identified two disputed issues of material fact after the FTC determined that there were none.[12]

How Can Advocates Support the FTC in an Informal Hearing?

With these unique hearings come unique opportunities to further advocate for strong consumer protection rules. Consumer organizations have been supportive of the FTC's rulemaking efforts to crack down on egregious conduct that harms consumers, set clear guidelines for businesses, and promote competition in the marketplace. Advocates may not wish to affirmatively request hearings or articulate disputed issues, but advocates can ask to "conditionally participate" in any hearings the FTC holds, as many commenters did in response to the junk fees NPRM. During the hearing, advocates can continue to identify the harms that would be addressed by the rule and ways the rule can be improved to help consumers. Advocates can also follow the hearings on regulations.gov, and identify opportunities provided by the presiding officer to file comments or send letters.[13]

While informal hearings can slow down rules, Section 18 intentionally includes mechanisms to avoid undue delay. These hearings should not be viewed or employed as a tool to roll back the work of FTC staff, which often takes years to develop and coalesce into a well-founded, durable rulemaking which responds to unfair and deceptive conduct affecting consumers. The burden on interested persons to properly establish a disputed issue of material fact and demonstrate the necessity of cross-exam and rebuttal evidence should be high to avoid unfounded, last-minute attempts to delay the process. Since the resurgence of rulemaking by the FTC, these hearings have served as a fairly straightforward step in the rulemaking process.

[1] 15 U.S.C. § 45(m)(1)(B); Section 5(m)(1)(B) of the FTC Act. See also https://www.ftc.gov/enforcement/penalty-offenses.

[2] 16 C.F.R. § 1.11(e).

[3] 16 C.F.R. § 1.12(b).

[4] Rule on the Use of Consumer Reviews and Testimonials (notice of informal hearing) Jan. 16, 2024, 89 Fed. Reg. 2526 available at https://www.federalregister.gov/d/2024-00678;

Negative Option Rule (notice of informal hearing) Dec. 8, 2023, 88 Fed. Reg. 85525, available at https://www.federalregister.gov/d/2023-26946;

Trade Regulation Rule on Impersonation of Government and Businesses (notice of informal hearing) March 30, 2023, 88 Fed. Reg. 19024, available at https://www.federalregister.gov/d/2023-06537 ;

Trade Regulation Rule on Unfair or Deceptive Fees (notice of informal hearing) March 27, 2024, 89 Fed. Reg 21216, available at https://www.federalregister.gov/d/2024-06468

[5]See Consumer Reviews notice, 89 Fed. Reg at 2528.

[6]See Unfair or Deceptive Fees notice, 89 Fed. Reg. at 21219-20.

[7]Id. at 21220.

[8] 16 CFR § 1.12(b).

[9] 16 C.F.R. § 1.13(b)(2).

[10] 16 C.F.R. § 1.12(a).

[11]See Unfair or Deceptive fees notice, 89 Fed. Reg. at 21217.

[12]See Order in Negative Option Rule, (Jan. 25, 2024) available at https://www.regulations.gov/comment/FTC-2024-0001-0014.

[13]See Letters to Presiding Officer Foelak filed by CFA, the National Consumers League and the National Consumer Law Center in the "click to cancel" informal hearings on Feb. 8 and Feb. 22, 2024, available at https://consumerfed.org/testimonial/consumer-groups-support-ftc-in-click-to-cancel-informal-hearing/.

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