Administrative convenience is a poor reason for an agency to regulate whole sectors of the economy.
Although the means differ, the goals of antitrust and economic regulation are supposed to be the same: low and economically efficient prices, innovation, and efficient production methods. But given common frustrations with antitrust—retroactive enforcement, individualized cases rather than rules of general applicability, difficult burdens of proof, perceived inadequate remedies—some commentators argue that a better path forward may involve aggressive oversight by a dedicated regulator with broad plenary powers. Disappointingly, the Federal Trade Commission (FTC) increasingly thinks that it should be that regulator for vast swaths of the U.S. economy.
When the U.S. Congress established the FTC in 1914, it placed the Commission’s mission on the enforcement—rather than on the regulatory—side of the ledger. Not until 1975 did Congress grant the agency limited rulemaking power, and even then only over “unfair or deceptive acts or practices,” through the Magnuson-Moss Warranty–Federal Trade Commission Improvement Act. Unlike the relatively straightforward notice-and-comment process of the Administrative Procedure Act that governs the host of alphabet-soup regulatory agencies in Washington, Magnuson-Moss requires the FTC to clear a series of procedural hurdles—an advance notice of proposed rulemaking, informal hearings with cross-examination, and detailed findings—before any final rule can take effect. These stringent requirements reflect a deliberate congressional judgment: If the FTC is going to get into the regulation game, then these administrative hoops will ensure that any intervention is both targeted and rare.
But in passing Magnuson-Moss, Congress forgot one of the immutable truisms of Washington: If Congress gives an agency a new power, then do not be surprised when the agency uses it. Within a few years, the FTC had proposed a regulatory agenda so sweeping that a March 1978 Washington Post editorial christened the agency the “national nanny.” In fact, this agenda was so aggressive that it forced Congress to restrain the Commission, first with threats to the agency’s funding—including a brief 1980 shutdown when its appropriation lapsed—and then by passing the FTC Improvements Act of 1980, which layered still more procedural requirements onto Magnuson-Moss rulemaking. The constraints achieved their intended effect; aggressive rulemaking at the FTC went quiet for the next several decades.
That restraint ended with President Joseph R. Biden’s controversial appointment of Lina Khan as Chair of the FTC. Before taking office, Khan made no secret of her desire to convert the FTC from an enforcement agency into an über-regulator. And in a twist of fate, the U.S. Supreme Court’s 2021 decision in AMG Capital Management v. FTC handed her the justification.
For decades the FTC had relied on section 13(b) of the FTC Act, which authorizes the agency to seek an injunction in federal district court, as an implied license to obtain monetary relief as well. The FTC treated the power to enjoin as carrying with it the equitable remedy of restitution or disgorgement. This statutory interpretation let the Commission bypass the cumbersome administrative route, proceeding straight to a federal district court to win both an immediate halt to the challenged conduct and a substantial monetary recovery. In AMG, however, a unanimous Supreme Court rejected that reading, holding that section 13(b) authorizes only injunctive relief, not monetary relief. To recover for consumers, the FTC would have to return to the two-step process that Congress wrote into section 19 of the FTC Act.
AMG narrowed the FTC’s reach, as a unanimous Court told the agency it had been using a nonexistent shortcut for 40 years. Yet by closing the section 13(b) door, the Court pushed the Commission toward a far more consequential provision due to a quiet asymmetry in section 19.
Under section 19(a)(2), the FTC may seek redress for unfair or deceptive conduct not covered by a rule—but only after litigating a full administrative cease-and-desist proceeding to a final order and then proving that a reasonable person would have known that the conduct was dishonest. Under section 19(a)(1), by contrast, the violation of an existing Magnuson-Moss rule supports consumer redress directly, and a knowing violation triggers civil penalties—no prior adjudication, no reasonable-person showing. Issue a rule, and yesterday’s contestable conduct becomes today’s per se violation, enforceable with penalties attached. In other words, the cheapest way to restore the monetary firepower AMG took away is not to litigate better cases but to write more rules.
The Commission took the hint. Under Khan, the FTC proposed, issued, or substantially amended roughly half a dozen substantive rules on non-competes, “junk fees,” negative-option marketing, business opportunities, and more. Courts then rejected several of these rules precisely because of the FTC’s failure to observe the strict procedures that Magnuson-Moss demands. One might say that this proves the system works: The guardrails caught the overreach. But that offers little relief. The procedural gauntlet is itself the cost—years of agency and private resources consumed, conduct chilled while a rule is pending. And the asymmetry is unforgiving: A challenged rule must be struck down every time to be stopped; it need survive only once to impose per se liability across entire sectors of the U.S. economy. Judicial reduction differs from agency self-limitation.
Nor has the change in administration altered the Commission’s regulatory trajectory. FTC Chair Andrew Ferguson has argued that after AMG, formal rules are effectively the only way that the Commission can put money back in consumers’ pockets. As such, rather than reverse course, the Trump-Vance FTC has embraced the same active rulemaking posture as its predecessor. Indeed, not only has the FTC initiated new rulemaking proceedings on topics ranging from unfair or deceptive rental housing fee practices to unfair or deceptive fees in online food and grocery deliveries, but Ferguson has also re-opened the Khan-era Negative Option Rule, colloquially referred to as the “click-to-cancel” rule, that the U.S. Court of Appeals for the Eighth Circuit struck down on procedural grounds. Other rules opened under Khan, such as those aimed at multi-level-marketing operators, sit in administrative limbo awaiting the same treatment. Finally, the FTC recently sought public comment on whether to update its rule on impersonation of government and businesses to address platforms’ role in promoting impersonation scams.
But administrative convenience is a poor justification for sweeping economic regulation. It is axiomatic that government should intervene only when it can show that the benefits exceed the costs, and it is equally axiomatic that firms are not passive recipients of regulation—they reprice, reorganize, and relocate their conduct in response, often in ways that swamp the intended gain. And history is not kind to overconfident regulators. Thus, the lesson for today’s FTC is the one Congress tried to teach when it enacted Magnuson-Moss: Just because the government can impose a rule is no argument that it should.
Which brings us back to the puzzle. Given the Biden Administration’s interventionist, “Neo-Brandeisian” view of markets, Khan’s regulatory zeal was no surprise. But the first Trump Administration emphasized deregulation, and deregulation remains rhetorically central to the second Trump Administration. Why is the Trump-Vance FTC picking up Khan’s rulemaking pen?
If one understands the nature of regulation, then the answer is no mystery at all. Despite making perfunctory statements proclaiming fealty to whomever appoints them, people who run regulatory agencies are more interested in maximizing their own reach, budget, and relevance, so a tool as potent as rulemaking will inevitably be used by whoever holds it.
Properly understood, therefore, the “national nanny” was never a partisan creature. She is what the FTC becomes whenever the procedural fence sinks low enough to climb—and AMG, by accident, gave her a justificatory ladder.
