Expanding local enforcement of state and federal consumer protection laws.

Author:Morris, Kathleen S.
Position:40th Anniversary Symposium
 
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ABSTRACT

This Article calls on Congress and the state legislatures to grant large cities and counties standing to enforce the Federal Trade Commission Act (the FTC Act) and its state statutory counterparts (or little Acts). The FTC Act, a federal law, prohibits businesses from engaging in any "unlawful, "unfair," or "deceptive" acts or practices, and the little Acts apply similarly broad prohibitions in all fifty states. This fifty-one-statute consumer protection regime--which has been the law of the land for several decades--carries enormous promise to halt a wide range of unlawful and harmful corporate practices in their earliest stages. Unfortunately, that promise has not been fulfilled because these laws are chronically under-enforced. At present, only one federal agency--the Federal Trade Commission--has broad standing to enforce the FTC Act; while state Attorneys General and consumers typically have standing to enforce the little Acts, they cannot keep up with the rate of corporate malfeasance. This Article argues that the nation's legislatures should invite cities and counties with populations over 50,000 into consumer protection enforcement by granting them standing to seek injunctive relief and penalties under the FTC Act and little Acts. It addresses the practical benefits and barriers to disaggregating consumer protection enforcement in this way and discusses the attendant localism and federalism concerns.

TABLE OF CONTENTS Introduction I. The Current Consumer Protection Enforcement Regime and Its Limitations A. The FTC Act B. The Little Acts C. Barriers to Local Legislation D. Barriers to Private Enforcement Actions E. Why Consider Local (Rather than Additional State or Federal) Consumer Protection Enforcement? II. Expanding Local Enforcement of State and Federal Consumer Protection Laws A. Municipal Right of Action Under FTC Act B. Municipal Right of Action Under the Little Acts C. Practical Barriers to Local Consumer Protection Enforcement 1. Politics 2. Money 3. Culture 4. Sophistication III. Theoretical Concerns Disaggregation Raises A. Localism Concerns: What About Local Autonomy? B. Federalism Concerns: Uniformity, Over-Enforcement, and Parochialism Conclusion Appendix INTRODUCTION

The nation's consumer protection regime is broken. (1) The problem is not a lack of good law: federal and state legislatures have enacted far-reaching consumer protection statutes, most notably the expansive Federal Trade Commission Act (the FTC Act or the Act) (2) and its state statutory counterparts (the little Acts). (3) The problem is that due to insufficient funding and staffing, (4) industry capture, (5) or some combination of both, (6) these potentially powerful bodies of consumer protection law are woefully under-enforced. (7)

At present, the FTC Act is enforced almost exclusively by the FTC itself. (8) The Act does not provide for a private right of action or public rights of action by state or local governments (unlike, for example, the Clean Air Act). (9) Furthermore, among the fifty little Acts, only seven permit city and county enforcement, (10) and only eleven permit district attorney enforcement. (11) This paper calls for Congress and the state legislatures to extend consumer protection enforcement standing to cities and counties with populations over 50,000. (12)

For several decades, scholars and policy experts have pointed out the enormous gaps in consumer protection enforcement, and called for a more effective approach. Nearly half a century ago, Ralph Nader's book Unsafe at Any Speed spurred broad efforts to protect consumers. (13) Ten years after Mr. Nader published his book, Ann Marie Tracey pointed out that "[c]onsumer laws are not self-executing," and called for local criminal prosecution of consumer rights violations. (14) In the nearly four decades since then, politicians (15) and scholars (16) have joined consumer rights advocates to rally for better and stronger consumer protection.

Unfortunately, public and private efforts to rein in corporate abuses have fallen short. As Rachel Barkow wrote, "[Pu]blic interest advocacy groups ... are no match for the resources and political clout of the industries that oppose consumer protection laws." (17) If anything, unlawful, unfair, and fraudulent corporate practices are becoming increasingly more widespread, complex, and damaging to the economy. (18) Cities and counties pay an enormous price for corporate lawbreaking, (19) yet can do very little about it. They cannot enforce existing laws, and powers and preemption doctrines, along with public policy concerns, constrain local legislation. Accordingly, the only real--and arguably ideal--role for cities and counties is as active enforcers of state and federal law.

This Article is not the first to consider the potential benefits and pitfalls of disaggregated civil law enforcement. In recent years legal scholars including Amy Widman, Rachel Barkow, Gillian Metzger, and Margaret Lemos have written either about state enforcement of federal law in general, (20) or more particularly, state enforcement of federal consumer protection statutes. (21) And as early as 2006, Kathleen Engel called on state legislatures to disaggregate the enforcement of state lending laws. (22)

This Article fills a gap in the existing literature by considering whether cities and counties should have standing to enforce the Act and little Acts; and by discussing the theoretical implications for localism and federalism of disaggregating consumer protection enforcement to cities and counties. This Article begins to fill those gaps in the literature. On the policy front, it suggests that Congress and state legislatures should grant cities and counties of over 50,000 people standing to enforce the FTC Act and the little Acts. (23) On the theoretical front, it addresses localism (and briefly, federalism) concerns, disaggregated enforcement raises, and explains why pushing more power to the local level in the consumer area may serve rather than undercut a healthy localism. (24) It argues that a healthy modern localism's ultimate goal is to maximize local power, not necessarily local autonomy, and that in the consumer protection context the most sensible way to increase local power is by allowing local enforcement of state and federal laws rather than enacting and defending local laws against preemption.

As Nestor Davidson wrote, "[a]t the heart of cooperative localism is the potential--which will not be realized in all instances--of an alchemical reaction that can be sparked when national goals are filtered through the instrumentality of local communities." (25) This Article challenges policymakers and scholars to consider that potential in the context of consumer protection enforcement. It proceeds in three parts. Part I summarizes the Act and little Acts and current barriers to public and private enforcement. Part II proposes local government enforcement of the Act and little Acts, and considers the practical barriers to and benefits of this proposal. Part III addresses the theoretical concerns this proposal raises.

  1. THE CURRENT CONSUMER PROTECTION ENFORCEMENT REGIME AND ITS LIMITATIONS

    1. The FTC Act

      Congress established the Federal Trade Commission (FTC or Commission) in 1914 as an independent agency to enforce the Act. The Act has existed more or less in its present form since 1938. (26) The Act's operative language, commonly referred to as "section 5," broadly prohibits "unfair methods of competition" and "unfair or deceptive acts or practices." (27) The Commission has described the factors it considers in determining whether a practice that is neither unlawful nor deceptive is nonetheless unfair:

      (1) whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise--whether, in other words, it is within at least the penumbra of some common-law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers (or competitors or other businessmen). (28) This language is strikingly flexible and far-reaching, and Congress and the federal courts grant the FTC broad sway in fashioning rules to effectuate and enforce section 5. (29) Moreover, the Act is a civil rather than criminal statute, so liability is established under the relatively low preponderance standard. The Act does not limit the types of corporations plaintiffs may sue or the types of practices plaintiffs may challenge.

      But the Act has a glaring enforcement limitation: only the FTC has broad authority to enforce the Act. (30) Unlike other federal statutes, the Act does not allow private rights of action, public rights of action by state attorneys general, or public rights of action by local public entities. (31) The FTC has just seven regional divisions--in Cleveland, Chicago, New York, Seattle, Atlanta, Dallas, and Los Angeles-San Francisco--to cover the entire nation. (32) The FTC's modest regional presence surely contributes to its limited effectiveness. (33)

    2. The Little Acts

      Each of the fifty states has passed some version of the F.T.C Act. (34) These laws have some substantive variation, presumably because each statute is tailored to the politics and policy preferences of its particular state. (35) As for their enforcement provisions, an overwhelming number of little Acts rely on a combination of state government enforcement (36) and private rights of action (37) to effectuate their provisions. (38) Only fifteen of the fifty states allow any kind of local enforcement of consumer protection laws: seven states allow at least some city and county (civil) consumer protection enforcement (California, Mississippi, Missouri, New Jersey, South Carolina, Texas, and Virginia); (39) eleven states allow district attorneys--often a hybrid of...

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