Analysis of Recent and Forthcoming State Legislation on Toxic Chemicals in Cosmetics and Personal Care Products and Preemptive Effects of Existing Federal Legislation

 

By: Matthew G. Lawson

  1. Personal_Care_ProductsIntroduction

According to a report released in February 2021 by the organization Safer States, at least 27 US states will consider proposed legislation to regulate toxic chemicals in 2021. While a large driver of the proposed state laws is growing public concern over drinking water contamination from “emerging contaminants,” including PFAS (per- and polyfluorinated alkyl substances) and 1,4-dioxane, a secondary focus has been to minimize the risk of adverse human health effects from exposure to these toxic chemicals in cosmetics and personal care products. Two states—New York and California—are spearheading these efforts through recently enacted laws to limit or prohibit certain toxic chemicals in cosmetics and personal care products that are set to take effect in 2022 and 2025, respectively. As other states consider their own bills to enact similar regulation of chemicals in cosmetics and personal care products, heightened attention will likely be paid to what extent the existing federal regulation of these products may preempt this new wave of state legislation.

  1. Federal Regulation of Chemicals in Cosmetics and Personal Care Products

At the federal level, chemicals used in cosmetics and other personal care products are primarily regulated by either the Toxic Substrates Control Act (TSCA) or the Federal Food, Drug, and Cosmetic Act (FD&C Act). While TSCA broadly applies to any “chemical substance,” certain chemicals or uses of chemicals are exempt from TSCA if they are regulated by other federal statutes. Such products include “cosmetics” regulated by the FD&C Act, which are defined as “articles intended to be rubbed, poured, sprinkled, or sprayed on, introduced into, or otherwise applied to the human body...for cleansing, beautifying, promoting attractiveness, or altering the appearance.” While the distinction between a cosmetic and personal care product may not always be apparent to the consumer, the difference is crucial with respect to federal oversight of the chemicals contained in the product.

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Federal Reserve Seeks Public Comment on Guidelines for Accepting Fintechs

 

By: Anthony L. Nguyen 

FintechThe Federal Reserve is seeking public comment on proposed guidelines to regulate financial technology companies’ access to The Fed’s payment systems. The Fed has proposed guidelines to evaluate access requests from these “novel types of banking charters” with a “transparent and consistent process.”

According to Federal Reserve Board Governor Lael Brainard, the proposed guidelines intend to promote “a safe, efficient, inclusive, and innovative payment system, consumer protection, and the safety and soundness of the banking system."

Public comments will be accepted for 60 days after publication in the Federal Register.

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FTC Asks Congress: Restore Our Power to Protect Consumers

 

By: Anthony L. Nguyen and Jeremy M. Creelan

New-Development-IconOn April 27, 2021, the Federal Trade Commission (FTC), through its acting Chairwoman, testified before the Subcommittee on Consumer Protection and Commerce to support proposed legislation that would revive FTC’s ability to seek restitution and disgorgement on behalf of consumers harmed by violations of the FTC Act of law.

From the 1980s until recently, the FTC took the position that Section 13(b) of the FTC Act, which permits injunctive relief, also authorized it to seek restitution, disgorgement, and other equitable monetary relief. FTC Testimony at 2. The FTC used Section 13(b) to reclaim and refund billions of dollars on behalf of consumers in various types of cases, including telemarketing, fraud, anticompetitive pharmaceutical practices, data security and privacy, scams that target seniors and veterans, deceptive business practices, and COVID-related scams. Id. at 1.

Rebecca Kelly Slaughter, acting Chairwoman of the FTC, testified that “the Supreme Court ruled that courts can no longer award refunds to consumers in FTC cases brought under 13(b), reversing four decades of case law that the Commission has used to provide billions of dollars of refunds to harmed consumers.” Id. She testified that in AMG Capital Management, LLC v. FTC (as discussed in this blog post), the Supreme Court “held that equitable monetary relief such as restitution or disgorgement is not authorized by the text of Section 13(b).” Id. at 3. She also noted that other appellate courts had reached similar conclusions. For example, she noted that the Seventh Circuit had held that “the word ‘injunction’ in the statute allows only behavioral restrictions and not monetary remedies.” Id. (citing FTC v. Credit Bureau Center, LLC, 937 F.3d 764 (7th Cir. 2019)). And she noted that the Third Circuit had reversed an award of “$448 million meant to repay overcharged consumers” because it found that the order exceeded the authority provided by the FTC Act. Id. (citing FTC v. AbbVie Inc., 976 F.3d 327 (3d Cir. 2020)).

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Supreme Court Limits FTC Authority to Obtain Disgorgement or Restitution, Rejecting Decades of Precedent

   

By: Gabriel K. GillettMegan B. Poetzel, and Ariana Kanavy

Supreme Court Pillars - iStock_000017257808LargeIn a high-profile decision in AMG Capital Management, LLC v. Federal Trade Commission, No. 19-508 (Apr. 22, 2021), the US Supreme Court held that the Federal Trade Commission’s (FTC) statutory authority to obtain a “permanent injunction” does not permit it to obtain “equitable monetary relief” such as restitution or disgorgement. The Court’s unanimous decision interpreted Section 13(b) of the FTC Act to “mean what it says”[1]—contrary to what the FTC and many courts have long read the statute to mean—and strips the FTC of a tool it has often used in antitrust and consumer protection cases. If the FTC wants that tool back, the Court explained, it must look to Congress.

The path to the Court’s decision is relatively straightforward. In 2012, the FTC sued a payday lender, alleging deceptive practices in violation of § 5(a) of the Federal Trade Commission Act. Invoking § 13(b), which authorizes the FTC to obtain a “permanent injunction” in “proper cases” where a party “is violating, or is about to violate, any provision of law” that the FTC enforces, the FTC asked the District Court to grant a permanent injunction and order $1.27 billion in restitution and disgorgement. The District Court granted the request. On appeal, the Ninth Circuit affirmed based on binding circuit precedent holding that § 13(b) permitted the relief the FTC sought. Two of the three judges on the panel “expressed doubt as to the correctness of that precedent” as well as of similar precedent in at least eight other circuits stretching back more than thirty years.

In a unanimous decision, the Court validated the judges’ skepticism, rejected “precedent in many Circuits,” and held that § 13(b) does not permit the FTC to seek disgorgement and restitution. Looking to the text, the Court reasoned that “the language refers only to injunctions,” contemplates prospective (not retrospective) relief, and “the words ‘permanent injunction’ have a limited purpose” which “does not extend to the grant of monetary relief.”[2] In addition, other provisions of the FTC Act (§ 5(l) and § 19) explicitly provide for limited equitable monetary remedies—but only after the FTC undertakes administrative proceedings that are “more onerous” than simply filing a complaint in federal court, obtains a cease and desist order, and satisfies various other conditions and limitations. Reading § 13(b) to permit the FTC to obtain the same relief without that additional process or those additional requirements “would allow a small statutory tail to wag a very large dog.”[3] By contrast, reading § 13(b) “to mean what it says … produces a coherent enforcement scheme.”[4]

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UK Establishes New Big Tech Watchdog

 

By: Michaela M. Croft

Computer conference

On 7 April 2021, the UK Government announced a new tech regulator to “curb the dominance of tech giants” in the digital advertising space to “promote dynamic and competitive digital platform markets” for the benefit of online consumers and small businesses.  The newly formed Digital Markets Unit (the DMU) will sit as its own division within the Competition and Markets Authority (the CMA). The UK Government previously announced in November 2020 that it was creating a watchdog to tackle the perceived harm caused by the dominant market position of a small number of players in the online advertising space that hold strategic market status.

Currently set up in a shadow, non-statutory form pending the granting of full powers, the DMU’s first task is to draw up codes of conduct with a view to governing the relationship between tech firms and their users. According to Andrew Coscelli, the Chief Executive of the CMA, the DMU plans to oversee an overhaul of online advertising to ensure consumers “enjoy the choice, secure data and fair prices that come with a dynamic and competitive industry” with a view to creating a “level playing field in digital markets” in the UK. It is the latest step in a line of actions taken by the CMA to address the findings in its July 2020 market study into online platforms and digital markets, which found that “competition is not working well in these markets, leading to substantial harm for consumers and society as a whole”. The UK Business Secretary, Kwasi Kwarteng MP, has confirmed that the aim of the DMU is intended to be “unashamedly pro-competition”. 

In its initial response to the CMA’s invitation to comment back in 2019, Facebook supported increased regulation but argued that a proper market definition analysis would identify that “competition between user platforms is [already] thriving in the UK”. 

Whilst the DMU will need to wait for legislators to make any code of conduct law before action can be taken, it is envisaged that the DMU will work hand-in-hand with the CMA enforcement team to continue the CMA’s crack down on digital firms. It remains to be seen how the balance will be struck between the potentially competing demands of making the UK a post-Brexit friendly tech centre, and protecting online consumers.

The CMA’s full press release can be read here.

 


Supreme Court Answers the Call: Clarifies Meaning of “Automatic Telephone Dialing System” under the TCPA

 

By: Madeleine V. Findley and Emma J. O’Connor

Mobile in carOn April 1, 2021, the Supreme Court of the United States unanimously reversed the Ninth Circuit Court of Appeals decision[1] in Facebook Inc. v. Duguid et al., No. 19-511, and held that in order for a device to be an “automatic telephone dialing system” (ATDS), a key term in the Telephone Consumer Protection Act of 1991 (TCPA), 47 U.S.C. § 227, it must have the capacity to use a random or sequential number generator to either store or produce phone numbers to be called.[2] This decision represents a significant victory for entities defending against TCPA claims.

The TCPA prohibits making calls or sending text messages to mobile telephones using an ATDS (often simply referred to as an “autodialer”) without the prior express consent of the recipient. What precisely that means has become a heated dispute in TCPA litigation because using an ATDS to place a call is an essential component of many TCPA claims. The statute defines an ATDS as “equipment which has the capacity—(A) to store or produce telephone numbers to be called using a random or sequential number generator; and (B) to dial such numbers.”[3] Lower courts had split on the provision’s meaning. The Third, Seventh, and Eleventh Circuits interpreted the provision narrowly, holding that an ATDS must have the capacity to generate random or sequential phone numbers, not merely to store and dial the numbers automatically.[4] The Second, Sixth, and Ninth Circuits had taken a broad approach, holding that an ATDS need only have the capacity to store numbers to be called and to dial those numbers automatically.[5]

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Does Novel “Greenwashing” Enforcement Action Portend a New Trend?

 

By: Todd C. Toral and PJ M. Novack

GreenLawsuits over alleged misleading environmental marketing claims, or “greenwashing,” are nothing new. It has been nearly 30 years since the Federal Trade Commission (FTC) released its first version of the “Green Guides,” which are intended to help marketers avoid the practice. Since then, there have been many greenwashing actions before the FTC. More broadly, the FTC has pursued a number of suits in federal court, such as false advertising claims over the terms “clean diesel” and “100% organic.” But last month, in a first, several environmental groups petitioned the FTC to use its Green Guides offensively against a fossil fuel company for “misleading consumers on the climate and environmental impact of its operations.”

On March 16, 2021, Earthworks, Global Witness, and Greenpeace USA filed a complaint against Chevron for misleading consumers through advertisements that exaggerate the company’s investment in renewable energy and its commitment to reducing fossil fuel pollution. The action comes on the heels of Chevron’s new “Climate Change Resilience” report, where Chevron outlined its contributions against climate change. The environmental groups argue that Chevron misrepresents its image to appear climate-friendly and racial-justice oriented, while actually doing more harm than good. In support of their claims, the environmental groups point out that Chevron is the second most polluting company in the world and had spent only 0.2% of its capital expenditures on low-carbon energy sources between 2010-2018.

Considering the recent change in administrations, this action may represent a new trend where consumer and environmental groups are willing to take on major oil companies by petitioning a potentially more consumer-friendly FTC. President Biden currently has an opportunity to fill the vacant FTC seat and tip the balance of power toward Democrats. Moreover, President Biden has signaled his personal support for environmental causes by halting oil and gas sales and canceling the Keystone XL crude pipeline. Given the shifting sands, companies should be prepared for new and perhaps more creative enforcement actions.

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Kang v. PF Chang’s, Inc.: Reasonable Consumer Deception, or Just a “Crabby” Plaintiff?

 

By: Alexander M. Smith

SushiOn February 9, 2021, the Ninth Circuit—in a split decision with a spirited dissent—reversed the dismissal of a consumer class action challenging P.F. Chang’s’s use of the phrase “krab mix” to describe sushi rolls that contain no real crab. Although Kang is an unpublished case and breaks little new legal ground, the two opinions offer a useful glimpse into how both defendants and plaintiffs frame their positions in false advertising lawsuits, and they highlight how easily judges can come to radically different conclusions in consumer class actions, even when faced with the same facts and law.

In Kang, the plaintiff alleged that P.F. Chang’s’s sushi rolls were deceptively labeled because they purported to contain “krab mix,” but did not include any crab at all. Judge Anderson of the Central District of California dismissed the plaintiff’s lawsuit, holding that no reasonable consumer would be deceived into believing that “krab mix” contained crab. The Ninth Circuit reversed. Judge Friedland and Judge Watford—writing for the panel majority—emphasized that “determining whether reasonable consumers are likely to be deceived will usually be a question of fact not appropriate on a motion to dismiss.” Applying this standard, the panel majority concluded that the plaintiff had plausibly alleged that the “inclusion of the term ‘krab mix’ in the ingredient list for certain of its sushi rolls is likely to deceive reasonable consumers into thinking that the sushi rolls contain at least some real crab meat when in fact they contain none.” Although P.F. Chang’s offered several reasons that this interpretation was implausible, the panel majority rejected them all:

  • The panel majority rejected P.F. Chang’s’s argument that the “fanciful” term “krab mix” suggested the absence of real crab. Although the panel majority agreed that “reasonable consumers confronted with the fanciful spelling of ‘krab’ on the menu would not assume they were purchasing a sushi roll with 100% real crab meat,” it nonetheless concluded that the plaintiff had plausibly alleged that the term “krab mix” suggests that the product contains “a mixture of imitation and real crab.” In contrast to cases where the challenged term has a specific, widely-understood meaning (such as “diet” soft drinks), the panel majority held that “there is no prevailing understanding that listing ‘krab mix’ as an ingredient in a sushi roll signifies that the item contains no real crab meat.” And in contrast to a case where the “fanciful” term appears in the name of the product (such as “Froot Loops”), the panel majority concluded that the term was at least plausibly misleading because it appeared in the ingredient list.

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What to Expect from Director Rohit Chopra’s CFPB

 

By: Kali Bracey and Erica S. Turret

 

New-Update-IconPresident Biden has nominated Federal Trade Commission (FTC) Commissioner Rohit Chopra to serve as Director of the Consumer Financial Protection Bureau (CFPB). Commissioner Chopra served as the agency’s Assistant Director and first Student Loan Ombudsman prior to his appointment to the FTC in 2018. The CFPB under his leadership will shift to the more aggressive posture of the Obama administration and return the agency to its consumer watchdog mission.[1] His vision is aligned with that of Senator Elizabeth Warren whom he helped to set up the agency after the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010.[2]  

Because of the Supreme Court’s decision in Seila Law holding that the President has the power to fire the CFPB Director, the CFPB more closely carries out the current administration’s agenda than was intended in the Dodd-Frank Act which had sought to structure the bureau as an independent agency.[3] Thus, Commissioner Chopra, once in office, will be able to quickly chart the agency on a new, more muscular course.

Regulated entities can expect enforcement to ramp up as the agency reverses efforts by the Trump administration to reduce the agency’s impact. CFPB enforcement activity decreased by 54 percent under the leadership of Trump appointees.[4] Focus areas for a reinvigorated CFPB are likely to include:

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Consumer Finance Observer – Winter 2021 Edition

CFO WinterJenner & Block has published its sixth issue of The Consumer Finance Observer or CFO, a newsletter providing analysis of key consumer finance issues and updates on important developments to watch. As thought leaders, our lawyers write about the consumer finance sector on topics ranging from biometric data, compliance, data security, FinTech, lending, and securities litigation.

In the Winter 2021 issue of the CFO, our consumer finance lawyers discuss: California's passing of Proposition 24; CCPA's Private Right of Action; California's new Consumer Financial Protection Law; betting on an athlete's biometric data; Colorado's right to enforce its consumer loan interest rates; LendIt 2020, the largest FinTech conference of the year; a recent enforcement action by the SEC and the CFTC in the FinTech space; and European Data Protection Board's guidance on personal data transfers following Schrems II. Contributors are Partners Kelly HagedornCharles D. RielyMichael W. Ross, David P. Saunders, Kate T. Spelman, and Wade A. Thomson; Special Counsel David W. Sussman; Associates Vivian L. BickfordEffiong K. DamphaMichael F. LindenE.K. McWilliamsMadeline Skitzki, and Matthew Worby; and Staff Attorney Alexander N. Ghantous.

To read the full newsletter, please click here