Trade Regulation Rule on Impersonation of Government and Businesses

<RULE> FEDERAL TRADE COMMISSION <CFR>16 CFR Part 461</CFR> <RIN>RIN 3084-AB71</RIN> <SUBJECT>Trade Regulation Rule on Impersonation of Government and Businesses</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Federal Trade Commission. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This final rule prohibits the impersonation of government, businesses, and their officials or agents in interstate commerce. This document contains the text of the final rule and the rule's Statement of Basis and Purpose (“SBP”), including a Regulatory Analysis. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This rule is effective April 1, 2024. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Christopher E. Brown (202-326-2825), Attorney, Division of Marketing Practices, Bureau of Consumer Protection, Federal Trade Commission, 600 Pennsylvania Avenue NW, Washington, DC 20580. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> <HD SOURCE="HD2">A. Advance Notice of Proposed Rulemaking</HD> On December 23, 2021, the Federal Trade Commission (“Commission” or “FTC”) published an advance notice of proposed rulemaking (“ANPR”) to address certain deceptive or unfair acts or practices of impersonation. <SU>1</SU> As part of the ANPR, the Commission requested comment on any issues or concerns relevant or appropriate to this rulemaking to combat impersonation of governments, businesses, or their agents, and whether and how to proceed with a notice of proposed rulemaking (“NPRM”). <SU>2</SU> The Commission took comments for 60 days, and received 164 comments from representatives from a broad spectrum of businesses, trade associations, government or law-enforcement organizations, and individual consumers, which are publicly available on this rulemaking's docket at <E T="03">https://www.regulations.gov/docket/FTC-2021-0077/comments.</E> Commenters generally expressed support for the Commission's proceeding with the rulemaking. They also voiced deep concerns about the prevalence and harmfulness of both government and business impersonation. No commenter expressed the view that the Commission should not commence the rulemaking. Commenters also offered suggestions for the Commission's consideration in drafting the proposed rule and other recommendations in furtherance of the proposed rulemaking. <HD SOURCE="HD2">B. Notice of Proposed Rulemaking</HD> Based on an extensive review of the comments received in response to the ANPR, the Commission's own history of enforcement, and other considerations that occurred after the ANPR's publication, <SU>3</SU> the Commission published the NPRM on October 17, 2022. <SU>4</SU> In the NPRM, the Commission stated it has reason to believe impersonation of government, businesses, and their officials or agents is prevalent. <SU>5</SU> The Commission identified no disputed issues of material fact based on the comment record; explained its considerations in developing the proposed rule; solicited additional public comment thereon, including posing specific questions designed to assist the public in submitting comment; and provided interested parties the opportunity to request to present their position orally at an informal hearing. <SU>6</SU> Finally, the NPRM set out the Commission's proposed rule. In response to the NPRM, the Commission received 78 comments from entities and individuals interested in the proposed rule, discussed in Section III. <SU>7</SU> Although some raised concerns and recommended specific modifications or additions to the Commission's proposal, the majority generally supported the rule proposed in the NPRM. Two commenters timely submitted requests for interested parties to make an oral statement at an informal hearing. <SU>8</SU> <HD SOURCE="HD2">C. Notice of Informal Public Hearing</HD> On March 30, 2023, the Commission published an Initial Notice of Informal Hearing (“Notice of Hearing”). <SU>9</SU> The Notice designated the Commission's Chief Administrative Law Judge, D. Michael Chappell, to serve as the presiding officer of the informal hearing and stated that any member of the public wishing to speak at the informal hearing or make a documentary submission to be placed on the public rulemaking record (or both) should submit a comment on or before April 14, 2023. <SU>10</SU> On May 4, 2023, Chief Judge Chappell presided over the informal hearing using video conferencing, which enabled the public to watch live from the Commission's website, <E T="03">https://www.ftc.gov.</E> Because there were no disputed issues of material fact to resolve, the informal hearing included no cross examination or rebuttal submissions, and the presiding officer made no recommended decision. The informal hearing included oral statements from 14 interested parties. <SU>11</SU> The majority of commenters who presented oral statements at the informal hearing or filed documentary submissions generally expressed strong support for the Commission's proposed rule. <SU>12</SU> Several commenters, however, also expressed concern that the proposed rule language does not explain the circumstances under which the Commission would apply proposed § 461.4, which would prohibit providing the means and instrumentalities to commit violations of government and business impersonation. Some suggested alternative language imposing a scienter requirement to narrow the scope of this provision, discussed in Section III.D. In crafting the final rule, the Commission has carefully considered the comments received in response to the NPRM and on the rulemaking record, which includes the oral statements and documentary submissions in response to the Notice of Hearing. The final rule contains some changes from the proposed rule. These modifications, discussed in detail in Section III, are based upon input from commenters and careful consideration of relevant law. Section III also discusses commenters' recommendations that the Commission declined to adopt, along with the Commission's reasons for rejecting them. Accordingly, the Commission adopts the proposed rule with limited modifications as discussed below. The rule will take effect April 1, 2024. <HD SOURCE="HD1">II. The Legal Standard for Promulgating the Rule</HD> The Commission is promulgating 16 CFR part 461 pursuant to section 18 of the FTC Act, 15 U.S.C. 57a, the Administrative Procedure Act (“APA”), and Part 1, subpart B of the Commission's Rules of Practice. <SU>13</SU> This authority permits the Commission to promulgate, modify, and repeal trade regulation rules that define with specificity acts or practices that are unfair or deceptive in or affecting commerce within the meaning of section 5(a)(1) of the FTC Act, 15 U.S.C. 45(a)(1). The Commission's Rules of Practice further provide that if the Commission determines to promulgate a rule, it will adopt a SBP, which must address three factors: (1) The prevalence of the acts or practices addressed by the rule; (2) the manner and context in which the acts or practices are unfair or deceptive; and (3) the economic effect of the rule, taking into account the effect on small businesses and consumers. <SU>14</SU> In this section of the preamble, the Commission summarizes its findings regarding each of these factors. <HD SOURCE="HD2">A. Prevalence of Acts or Practices Addressed by the Rule</HD> In its ANPR, the Commission cited public data from the Consumer Sentinel Network database and described its enforcement record, demonstrating government and business impersonation scams are not only highly prevalent but increasingly harmful. <SU>15</SU> In the NPRM, the Commission also took notice of additional indications of prevalence that came after the ANPR's publication. <SU>16</SU> Specifically, the NPRM cited data from a broad spectrum of commenters (businesses, trade associations, and government or law-enforcement organizations) regarding the prevalence of government and business impersonation scams, which echoed the Commission's findings that these schemes are among the most common deceptive or unfair practices affecting U.S. consumers and businesses and continue to be a significant source of consumer injury. <SU>17</SU> <HD SOURCE="HD2">B. Manner and Context in Which the Acts or Practices Are Deceptive or Unfair</HD> A representation, omission, or practice is deceptive if it is material and likely to mislead a consumer acting reasonably under the circumstances. <SU>18</SU> The most frequent allegations in the Commission's enforcement actions involving government and business impersonation pertain to defendants tricking consumers to pay money or disclose personal information by making, expressly or by implication, statements that misrepresent the defendants' identity. <SU>19</SU> Nearly as frequent are allegations of misrepresentations concerning defendants' affiliation with, endorsement or approval by, or other association with a government or business. The Commission has further found false threats of severe consequences and promises of benefits are additional deceptive tactics deployed by government and business impersonators. In the Commission's experience, such claims regarding identity, affiliation, or endorsement are material to consumers making their decision to trust impersonators. The numerous government and business impersonation complaints consumers submit to the Commission each year, as well as comments submitted in connection with this rulemaking proceeding, consistently reference these same concerns. Accordingly, the specific practices described in the preamble to the proposed rule reflect the type of conduct most commonly associated with deceptive and unfair practices pertaining to government and business impersonation. <SU>20</SU> <HD SOURCE="HD2">C. The Economic Effect of the Rule</HD> ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 116k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━