Senators probe FTC’s willful ignorance of rulemaking costs affecting small businesses

WASHINGTON, D.C. – U.S. Senate Commerce Committee Ranking Member Ted Cruz (R-Texas) and his Republican Committee colleagues want Federal Trade Commission (FTC) Chairwoman Lina Khan to answer for its flawed cost-benefit analysis and the erosion of economic standards at the agency. The letter argues that the FTC ignored key economic factors, underestimated costs, and overestimated benefits in advancing proposed and finalized rules. The altered analysis will lead to higher prices for American consumers.

The Senators write:

We are concerned by the Federal Trade Commission’s (FTC) newfound use of flawed and self-serving cost-benefit analyses in recent notices of proposed rulemaking (NPRMs) and finalized rules. While the FTC had previously described its mission as protecting consumers “without unduly burdening legitimate business activity,” its latest strategic plan omits this crucial caveat. It seems the FTC is no longer concerned with whether newly issued regulations are so cost-prohibitive they cripple free enterprise. The consequences of this change are evident in recent rulemakings for the Unfair or Deceptive Fees (Junk Fees) Rule, the Combating Auto Retail Scams (CARS) Rule, and the Non-Compete Clause Rule. In advancing these initiatives, the FTC inflated benefits, underestimated costs, and relied more on its own biased assumptions than empirical evidence.

Cost-benefit analysis is built into the FTC’s rulemaking process. To deem an act or practice as unfair or deceptive, and therefore unlawful, the Commission must put forth what it calls a “preliminary regulatory analysis,” which includes a “preliminary analysis of the projected benefits and adverse economic effects,” as well as “any other effects,” of a proposed rule, such as “the effectiveness of the proposed rule and each alternative in meeting [its] stated objectives.” Simply put, the FTC must conduct a thorough cost-benefit analysis that considers all relevant factors when it issues an NPRM. For rulemakings relating to “unfair” acts or practices, the FTC must further determine that the act or practice “causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers.” Yet in three recent NPRMs, two of which have led to final rules, the Commission’s preliminary regulatory analyses overlooked key factors and failed to justify the respective rulemakings.[…]

None of this criticism is intended to denigrate the hard work of the staff economists at the FTC. Our concern, rather, is that FTC’s leadership has put the cart before the horse, rushing ahead with economy-transforming rules without understanding their real-world effects. Rigorous cost-benefit analysis takes time, but the FTC is impatient. In the case of the CARS rule, to cite just one instance, the FTC denied industry requests to grant a routine extension to the notice and comment period, which would have allowed more time for stakeholders to submit supplemental analyses.

As part of their oversight, the Senators requested information regarding the attrition rate of economists at the Bureau of Economics under Chairwoman Khan, copies of all economic reports published by the FTC, information regarding the removal of the words “without unduly burdening legitimate business activity” from the FTC’s mission statement, details regarding the Commission’s decision to forgo regulatory flexibility analysis on a proposed rule regarding motor vehicles, and the studies relied on by the FTC in concluding that its proposed non-compete rule could “increase wages by nearly $300 billion per year.”

Joining Sen. Cruz in sending this letter were Sens. Marsha Blackburn (R-Tenn.), Ted Budd (R-N.C.), Deb Fischer (R-Neb.), John Thune (R-S.D.), and Roger Wicker (R-Miss.).

The full text of this letter is available HERE.

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