For 40 years, whenever a federal agency found itself in a dispute over the meaning of an ambiguous term in a statute that it administered, the agency could stand before a court, utter the magic word “Chevron,” and reliably expect that its interpretation would prevail. Under the Supreme Court’s 1984 decision in Chevron v. Natural Resources Defense Council, courts followed a two-step framework when reviewing an agency’s interpretation. First, the court looked to see whether Congress had spoken directly to the question at issue. If it had, “that is the end of the matter, for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” If the statute was unclear, the court determined whether the agency’s interpretation was “based on a permissible construction of the statute.” In essence, “even when a reviewing court [read] the statute differently,” the court was required to defer to the agency’s reasonable interpretation.
Chevron was anchored in the presumption that ambiguities are policy delegations to administrative agencies. “While agencies are not directly accountable to the people, the Chief Executive is, and it is entirely appropriate for this political branch of the Government to make such policy choices—resolving the competing interests which Congress itself either inadvertently did not resolve, or intentionally left to be resolved by the agency charged with the administration of the statute in light of everyday realities.” The Chevron court believed that where there was “a gap left open by Congress,” it was desirable for expert agencies, rather than judges, to have the final say on policy.
In June, in Loper Bright v. Raimondo, the Supreme Court overruled Chevron, bringing an end to four decades of deference to agencies. The Supreme Court found that “[a] statutory ambiguity does not necessarily reflect a congressional intent that an agency, as opposed to a court, resolve the resulting interpretive question.” Moreover, such ambiguities do not “somehow [relieve]” courts “of their obligation to independently interpret statutes.” In addition, over the years Chevron had proven to be unworkable and did not provide “the sort of ‘stable background rule’ that fosters meaningful reliance.” Every change of administration could presage a change in an agency’s interpretation of a statute, a state of affairs that Justice Gorsuch referred to as causing “regulatory whiplash.”
In the wake of Loper Bright, when faced with a statutory ambiguity, “instead of declaring a particular party’s reading ‘permissible’ in such a case, courts use every tool at their disposal to determine the best reading of the statute and resolve the ambiguity.” Agencies no longer have an automatic edge in litigation over matters of statutory interpretation, and perhaps there will be fewer “convulsive change[s]” to the meaning of a law accompanying the transition of power after a presidential election.
Like other administrative agencies, the Federal Trade Commission (“FTC” or “Commission”) benefited from Chevron deference when facing challenges to its rules and its enforcement authority. While the Supreme Court specified that the Loper Bright decision does not disturb the holdings of any cases decided under Chevron, in the future the FTC will need to convince courts that its interpretations are not just reasonable, but the best reading of the statutory language. This article discusses how Loper Bright might impact the Commission’s consumer protection rulemaking and enforcement work going forward.
The Commission issues consumer protection rules under two distinct authorities: the Administrative Procedure Act (“APA”) and Section 18 of the FTC Act. Loper Bright is bound to have an effect on rules issued under both processes.
The FTC does not have general APA rulemaking authority, but Congress sometimes directs the Commission to issue specific rules under the APA. The Children’s Online Privacy Protection Act (“COPPA”)—directing the Commission to issue the Children’s Online Privacy Protection Rule (“COPPA Rule”)—and the American Recovery and Reinvestment Act of 2009—directing the Commission to issue the Health Breach Notification Rule (“HBN Rule”)—are two such statutes.
COPPA Rule. In COPPA, Congress tasked the FTC with issuing regulations that, among other things, require websites and online services directed to children to (1) provide notice of their collection practices and obtain verifiable parental consent, (2) provide parents with certain information and allow them to refuse to permit continued use or maintenance of their children’s personal information, (3) ensure that a child’s participation in a game or activity, or eligibility for a prize, is not conditioned on the child disclosing more personal information than is reasonably necessary to participate in such activity, and (4) implement reasonable procedures to protect the confidentiality, integrity, and security of personal information.
The FTC issued the COPPA Rule in 1999 and has made periodic updates over the years. In December 2023, the FTC released a Notice of Proposed Rulemaking (“NPRM”) proposing modifications to the COPPA Rule. The Commission’s proposal includes updating the COPPA Rule to require a separate consent for disclosing personal information, including for sharing persistent identifiers for targeted advertising. The Commission also proposes “codifying in the Rule its long-standing guidance that schools, State educational agencies, and local educational agencies may authorize the collection of personal information from students younger than 13 in very limited circumstances.” The Commission would also add biometric identifiers to the COPPA Rule’s definition of “personal information.”
In a recent statement, Commissioner Ferguson expressed “substantial reservations” about the Commission’s purported authority under COPPA to permit schools to “[act] as intermediaries between operators and parents in the notice and consent process, or [serve] as the parents’ agent in the process.” Commissioner Ferguson “see[s] nothing in COPPA’s text that limits parents’ statutory right to notice and consent when their children are online at school, nor anything suggesting the creation of a federal-law agency relationship between parents and anyone else.” Should a challenger make a similar argument about the language of the statute, after Loper Bright, a court is no longer likely to defer if the FTC’s interpretation is one reasonable interpretation. Instead, Loper Bright instructs courts to conduct their own statutory interpretation and determine the best reading of COPPA.
Loper Bright acknowledged that Congress may delegate some authority to agencies and that agencies have expertise that may be useful to courts. Where Congress has delegated agencies some authority, the court will discharge its duties by “fix[ing] the boundaries of [the] delegated authority and ensuring that the agency has engaged in ‘reasoned decisionmaking’ within those boundaries.” In COPPA, Congress defined “personal information” to include six specific identifiers, and also allowed for “any other identifier that the Commission determines permits the physical or online contacting of a specific individual.” This is a specific grant of authority, but it does impose limits on the FTC’s ability to augment COPPA’s definition of “personal information.” If a party decides to challenge the FTC’s addition of “biometric identifiers,” a reviewing court is likely to decide for itself whether biometric identifiers can be used to contact a specific individual either physically or online.
HBN Rule. The HBN Rule generally requires certain vendors of personal health records and their service providers to notify consumers of any breach of unsecured, identifiable personal health record information. In May, the Commission finalized changes that, among other things, added expansive definitions of “covered health care provider” and “personal health record.” The Commission majority described the updates as necessary to ensure the agency can “keep pace with the rapid proliferation of digital health records.” The minority argued that the updated HBN Rule “exceeds the bounds Congress clearly established.” If challenged, a court will determine the limits of the authority Congress granted to the FTC.
Throughout Loper Bright, even as it re-established the primacy of the judiciary in matters of statutory interpretation, the Court noted that the Executive Branch’s interpretations of federal statutes were often due respect. The Court reiterated that so-called Skidmore deference can still be given to agencies, but the degree to which an agency’s judgement should be taken into account will “depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.” Respect for an agency is “especially warranted when an Executive Branch interpretation was issued roughly contemporaneously with the statute and remained consistent over time.”
The FTC’s expansion of the HBN Rule followed its September 2021 issuance of policy guidance, which reflected significant changes from the agencies’ prior interpretation of the scope of the HBN Rule. This new interpretation was inconsistent with the agency’s previous guidance and occurred more than ten years after the passage of the statute directing the FTC to issue the HBN Rule. It seems unlikely that, in any potential challenge to the HBN Rule, the Commission’s interpretation would merit even Skidmore deference.
Corner Post. Another recent Supreme Court decision, Corner Post, will also impact the FTC’s APA rules. In Corner Post, the Supreme Court held that APA’s default statute of limitations begins to run six years from when the plaintiff is first injured by an agency’s final action, not from the date on which the agency’s action is final. Rules that have been on the books for decades could suddenly face challenges from newly created companies. All agencies, including the FTC, could face a raft of litigation relating to long-standing rules.
As part of the Magnuson-Moss Warranty—Federal Trade Commission Improvement Act of 1975, Congress added Section 18 to the FTC Act and granted the FTC the ability to issue trade regulation rules. Rulemaking under Section 18—often referred to as “Mag-Moss” rulemaking—requires additional steps beyond the typical APA process. For example, the FTC must hold informal hearings and permit cross-examination or rebuttal submissions related to any identified disputed issues of material fact. In 1980, Congress added more requirements to the Mag-Moss rulemaking process. Among other things, the updates obligated the FTC to issue an Advance Notice of Proposed Rulemaking (“ANPR”) as the first step in any Mag-Moss rulemaking.
Using its Mag-Moss authority, the Commission may prescribe “rules which define with specificity acts or practices which are unfair or deceptive acts or practices in or affecting commerce.” The Commission may issue an NPRM for a Mag-Moss rule only if it has reason to believe that the unfair acts or practices that are subject to the rule are prevalent. A prevalence determination requires either that the Commission have issued cease and desist orders regarding such practices or that the Commission has any other information available to it that indicates a widespread pattern of unfair or deceptive acts or practices.
Historically, the FTC has issued Mag-Moss rules narrowly tailored to combat unfair practices occurring in particular industries. Over the past few years, in response to the AMG decision, the agency has proposed multiple economy-wide rules. For example, in October 2024, the FTC issued a final “Negative Option Rule.” The rule applies to all businesses within the FTC’s jurisdiction that offers a negative option feature (i.e. “a term or condition that allows a seller to interpret a customer’s silence, or failure to take an affirmative action, as acceptance of an offer”) and covers any misrepresentation a company makes, whether or not it relates to the negative option feature. In August 2022, the Commission issued an ANPR for a Trade Regulation Rule on Commercial Surveillance and Data Security. The ANPR contemplated a rule or rules that would cover everything from data security to children’s and teen’s privacy to artificial intelligence.
If challengers allege that the FTC exceeded its authority in issuing these rules, Loper Bright would come into play. Courts will need to independently evaluate the meaning of the language of Section 18. In the case of rules with a broad sweep and substantial economic or policy impacts, such as rules governing privacy or artificial intelligence, courts will more likely consider whether the major questions doctrine applies. As the Court has said, repeatedly, “[c]ourts expect Congress to speak clearly if it wishes to assign to an agency decisions of vast economic and political significance.” In a challenge to broad Mag-Moss rules, rather than trying to resolve any statutory ambiguity, courts will likely look for an express grant of rulemaking authority from Congress.
In addition to its impact on the FTC’s rulemaking efforts, Loper Bright could also affect the agency’s enforcement actions, especially with respect to the Commission’s recent cases alleging unfair discrimination. A brief history of the FTC Act is useful to any consideration of Loper Bright’s implications for the FTC’s Section 5 unfairness authority.
Congress passed the FTC Act in 1914 and initially prohibited only “unfair methods of competition.” Unfairness was not precisely defined, as it “was designed by Congress as a flexible concept with evolving content.” The marketplace is constantly changing, and Congress knew that new scams and problematic practices would continuously crop up. Section 5 was Congress’s way of ensuring that the Commission has the flexibility to combat each new business practice that harms consumers as they arise. During the 1970s, the Commission made use of its unfairness authority as the underpinning of multiple proposed rules. Famously, among these proposals, was a rule that would have restricted television advertising of sugary foods to children. The rule engendered significant backlash, culminating in Congress allowing the FTC’s funding to elapse and shutting down the agency for several days.
This experience inspired the Commission to issue its Unfairness Policy Statement and articulate the unfairness test that is still used today. To be unfair, a practice must cause or be likely to cause substantial consumer injury, which is not outweighed by countervailing benefits to consumers or competition, and the injury must be one that consumers themselves could not have reasonably avoided. In 1994, Congress codified the unfairness policy statement in Section 5(n), which also includes the language, “[i]n determining whether an act or practice is unfair, the Commission may consider established public policies as evidence to be considered with all other evidence. Such public policy considerations may not serve as a primary basis for such determination.”
Today the Commission relies upon its unfairness authority to stop traditional frauds, but also to tackle conduct such as selling precise geolocation data, sharing browsing data without adequate notice and consent, and using facial recognition technology without taking reasonable steps to address the risk of harm caused by false positive matches. Courts ultimately determine whether the specific acts or practices in a case before them are unfair under the statute. Overall, courts have upheld the FTC’s use of unfairness to combat consumer protection harms in emerging areas such as privacy and data security.
Since 2022, through a series of settlements, the Commission has begun to advance a novel theory that Section 5 prohibits discrimination, including disparate impact discrimination. For the Commission majority, disparate impact discrimination clearly meets each prong of the unfairness test. Supporters of this theory have advocated for unfairness to “fill important gaps in the existing patchwork of antidiscrimination laws.” This Section 5 discrimination theory has been met with vociferous dissents from minority Commissioners, several of which catalogue the ways in which Section 5 “is not a general tool for policing discrimination.” Among other things, these Commissioners argue, Section 5 does not identify any protected classes or the contexts in which it applies.
After Loper Bright, the Commission should not expect any form of deference from a court considering whether discrimination, including disparate impact discrimination, is cognizable under Section 5. Given the fact that at no point in the FTC’s Act history—not in 1934 when Section 5 was expanded, or 1994 when Section 5(n) was added—did the Commission suggest that it believed that the statute encompassed discrimination, even Skidmore deference seems unlikely. A court is not likely to give any weight to the Commission’s interpretation and will evaluate the text and history of the statute itself.
Loper Bright levels the playing field in contests over statutory interpretation, eliminating the agencies’ longstanding advantage, and charging courts with the responsibility for determining what the law means. Its potential impact on the FTC will be most pronounced where the agency’s rulemaking represents an expansion of its authority or where its enforcement actions are based on novel theories of liability. In a post-Chevron environment, courts are likely to start defining the limits of the Commission’s authority and demanding that the agency stay within those lines.
All views expressed in this article are solely the author’s own, not attributable to the firm, its personnel, or any of its clients.
