In the latest example of its creative use of different enforcement tools to obtain monetary relief in the wake of the Supreme Court’s AMG opinion, the FTC has resurrected a dormant authority to hold companies accountable, via significant financial penalties, for unfair and deceptive business practices.
This week the FTC announced that it has put 70 for-profit higher education institutions—including some of the largest for-profit colleges and vocational schools across the country—on notice that the agency is scrutinizing false promises made about graduates’ job opportunities, earnings prospects, and other career outcomes.
The FTC is resurrecting its Penalty Offense Authority, found in Section 5(m) of the FTC Act, “to deter wrongdoing and hold accountable bad actors who abuse students and taxpayers,” according to FTC Chair Lina M. Khan. Under this section of the statute, the FTC can obtain penalties against other entities not party to the original proceeding if it can show the entity had actual knowledge that the act had been found to be unfair or deceptive.
The notices sent by the FTC to the 70 institutions are meant to provide the recipients with such knowledge. Should the school then engage in those acts or practices, the FTC may sue in federal court and seek civil penalties of up to $43,792 per violation. In such a proceeding, the factual question of whether the defendant actually engaged in the deceptive or unfair act or practice is litigated de novo, and the defendant can also move the court to review the determinations of law made by the FTC in the original proceeding.
The FTC has used this authority once in the last 20 years. Commissioner Chopra, who begins his term as the Director of the CFPB on October 8, had championed the use of this authority and identified for-profit colleges as one possible industry for use of this enforcement tool. Other targets, according to Commissioner Chopra, may include multilevel marketing programs, gig economy networks, and fake review and influencer fraud. The press conference announcing this effort was led by him and appears to be his valedictory at the FTC.
Practices outlined in the FTC notices include claims about:
- whether a particular career field is in demand;
- the percentage of graduates who obtain jobs in their chosen field; and
- the amount of money a graduate can expect to earn, among others.
The notices cite several old administrative cases brought by the FTC against for-profit institutions in which it found similar practices unlawful. The notice and a sample cover letter sent to recipients can be found on a new FTC webpage.
It remains to be seen how far the FTC will reach with its Penalty Offense Authority, including what other industries the FTC will target. While Chairperson Khan warns that the FTC will “be monitoring [the education market] carefully,” that focus may very well extend beyond schools to, for instance, operators of education lead generators who engage in online marketing and send leads to such institutions. The FTC advises “companies involved in the education marketplace” to “conduct a careful assessment to make sure their practices are lawful” and cautions more generally that “the FTC will use every tool at its disposal to protect consumers from deceptive and unfair practices.”
Whether this is the beginning of a wave of such efforts by the FTC or an anomaly remains to be seen and may depend on what happens to the FTC’s 13(b) authority in Congress. For now, companies in the for-profit education space would be wise to get smart on these issues.