The Federal Trade Commission under Chairman Andrew Ferguson will move away from regulatory rulemaking and guidance while also backing off penalty offense authority commonly utilized by former Chair Lina Khan, says Mary Engle, BBB National Programs Inc.‘s executive vice president, policy.
“You’re not going to see new rules coming out of the commission, not only because Chairman Ferguson has indicated he’s disinclined to go that route, but also because of the executive order,” Engle said, referring to Trump’s Executive Order published 31 January that requires agencies that want to promulgate a new rule, regulation or guidance, to identify 10 existing rules, regulations or guidance to be repealed.
Engle said the critical element of the EO is its inclusion of guidance.
“The FTC tends to put out more guidance than rules,” she said in a 19 February interview. She pointed to the 2022 far-reaching Health Products Compliance Guidance. That guidance expanded the scope from a 1998 version to include health-related claims on food, OTC drugs, homeopathic products, health equipment, diagnostic tests and health-related apps.
Industry saw that guidance as a “sweeping overhaul” of its predecessor guidance that sought to put broad swaths of health and personal care industries on notice the FTC staff was attempting to raise the bar for substantiation, moving toward the agency’s decade-long march toward a drug-like substantiation standard for non-drug product claims.
“Ferguson has indicated that he wants to kind of follow in the mold of the pre-Lina Khan FTC, which was more focused on enforcing the laws on the books, as opposed to creating new regulations,” she said.
Former chair Khan, a Democrat appointee who led the agency from 2021-2025, was known for her aggressive approach to consumer protection and anti-trust enforcement, with critics often saying she assumed broad interpretations of FTC authority. With her departure, Trump will appoint a Republican commissioner, setting the balance of the five-commissioner agency toward Republicans.
Ferguson, a Republican sworn in as a commissioner in 2024 and was designated chairman by President Trump effective 20 January, has dissented in several instances in which he felt the FTC was assuming authority it did not have.
Ferguson and Melissa Holyoak, the two Republican appointees on the five-seat commission, issued a dissenting statement in November when the FTC published its final Negative Option Rule, expanding the scope of the former rule addressing misleading marketing practices to require clear disclosures and consent and simple cancellation. Ferguson and Holyoak said the FTC exceeded its Constitutional boundaries and “greatly” expanded the prior rule.
Addressing the FTC’s focus on the health and wellness space, Engle said, “I would expect that Ferguson would want to be doing that” however, “we might see more case-by-case enforcement under his watch then we’ve seen in the last four year.”
Engle said it’s unclear whether his focus would remain on serious disease claims that have been targeted under Khan, which are claims related to cancer, arthritis, dementia and claims targeting older consumers. “We’ll have to wait and see.”
John Villafranco, a partner with Kelly Drye & Warren, LLP – along with colleague attorney Alysa Hutnik – stated in a 12 February post on their law firm website that the FTC under Ferguson should pursue “careful and thoughtful rulemaking.”
The attorneys, who addressed the new FTC in the post titled, “A Respondent’s Wishlist: 10 Changes Businesses Would Like to See From the New FTC Bureau of Consumer Protection,” noted Congress granted the commission its rulemaking authority so it can target “specific prevalent practices that violate Section 5 of the FTC Act,” which prohibits unfair and deceptive business practices and methods of competition.
However, “those rules are not meant to mirror the FTC’s very broad Section 5 authority.”
The attorneys add that rules “provide much-needed clarity to industry and give the FTC the ability to obtain monetary redress for consumers. And while the Khan Commission’s ‘rule-a-palooza’ did not always carefully consider all costs and unintended consequences, this doesn’t mean that the FTC should reject rulemaking. Careful, thoughtful rules that reflect the input of all stakeholders can benefit consumers and honest businesses, and we hope to see such rules under Chair Ferguson,” said the attorneys.
Moving Away From Penalty Offense Authority
The commission under Ferguson is likely to move away from the use of penalty offense authority under Section 5 (m)(1)(b) of the FTC Act, which is the section that allows the commission to impose civil penalties on companies that engage in unfair or deceptive practices where the agency has obtained a final cease-and-desist order in an administrative proceeding and the party has engaged in that same conduct and has knowledge the practice is prohibited.
The commission began using penalty offense authority more frequently after the US Supreme Court’s AMG Capital Management LLC v. FTC decision in 2021, which struck down the agency’s decades-long enforcement practice to obtain penalties through Sec. 13(b) of the FTC Act, its most effective penalty collection mechanism.
“Under Chair Khan, the Commission issued [thousands] of notices of penalty offense, which were basically summaries of FTC litigated decisions with respect to different deceptive practices. And by serving those notices on advertisers, the commission would be able to get civil penalties against the advertiser for a first-time violation when normally there are no penalties for first time violation of the FTC Act,” Engle said.
“Chairman Ferguson has certainly said that he did not think that those notices were well grounded legally, and so I would expect that the FTC would not rely on those notices going forward, whether they rescind them or not, I don’t know, but I wouldn’t expect him to seek to rely on those and get civil penalties from advertisers because they were in violation,” said Engle.
The FTC issued Notices of Penalty Offense in April 2023 regarding claims substantiation, pointing to relevant cases dated between 1974 and 2017, along with letters to nearly 700 companies that it said could be violating the FTC Act along similar lines, including failure to have adequate support for objective product claims; claims relating to the health benefits or safety features of a product; or claims that a product is effective in the cure, mitigation, or treatment of any serious disease.
Targeted companies included BASF Corporation, AstraZeneca plc, Janssen Pharmaceuticals, Johnson & Johnson Consumer Inc., Procter & Gamble Co., Unilever PLC, Pure Herbs Ltd., Radiant Supplements Inc., The Honest Company, Inc., Walmart Inc., and Amazon.com Inc.
Ferguson’s position on notices of penalty offense were made clear in a statement he published 25 October, 2024, in response to a case filed the same day, United States v. Lyft, Inc. In the case, the government accused Lyft of making deceptive claims about the money drivers could earn. FTC alleged the earnings claims had been declared unlawful previously through its issuance to the company of notices of penalty offense in 2021. Lyft had agreed to settle the case.
Ferguson said the FTC had relied on “dubious legal theories” to rely on the notices of penalty offense, stating it dug up “the old Section 5(m)(1)(B) mass-mailer strategy” in which it “compiled synopses of old cases, called them ‘Notices of Penalty Offenses’ and mailed them en masse to any companies it thought it may want to sue in the future.’”
He added that, “although a predicate determination is an element of the Commission’s civil-penalty claims,” the Commission in the case failed to identify “any predicate cease-and-desist order in the complaint.”
Villafranco and Hutnik encourage the FTC under new leadership to rescind the 2,545 notices of penalty offense in total that were sent to US businesses related to endorsements and testimonials, money-making claims, projected earnings claims, substantiation, and the misuse of information collected in a confidential context.
“This theory was off-base from the start, relying on orders that dated back as far as the 1940s and conduct dissimilar to the conduct of notice recipients, even though Congress intended the Penalty Offense Authority to be limited to those cases where defendants have actual knowledge that the specific conduct in which they are engaged is illegal,” the attorneys said.
They add, “Relying on broad cease-and-desist orders that do not establish the specifically targeted practice as unlawful exceeds the authority granted by Congress and violates due process rights embodied in the Constitution.”
Engel also addressed the FTC’s loss of the 13(b) mechanism to obtain monetary redress after the Supreme Court in 2021 determined FTC statutory language did not authorize the FTC under 13(b) to seek and for the court to award equitable monetary relief; prior to that decision, 13(b) was the Commission’s most common mechanism for obtaining and returning money to consumers. Ferguson is likely to encourage Congress to pass legislation explicitly granting the authority, she said.
