[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]





BARRIERS TO ENTREPRENEURSHIP: EXAMINING THE ANTI-TRUST IMPLICATIONS OF 
                         OCCUPATIONAL LICENSING

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD

                             JULY 16, 2014

                               __________



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


            Small Business Committee Document Number 113-076
              Available via the GPO Website: www.fdsys.gov





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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                      BLAINE LUETKEMEYER, Missouri
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

                      Lori Salley, Staff Director
                    Paul Sass Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director



















                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Sam Graves..................................................     1
Hon. Nydia Velazquez.............................................     2

                                WITNESS

Mr. Andrew Gavil, Director, Office of Policy Planning, Federal 
  Trade Commission, Washington, DC...............................     3

                                APPENDIX

Prepared Statements:
    Mr. Andrew Gavil, Director, Office of Policy Planning, 
      Federal Trade Commission, Washington, DC...................    14
Questions and Answers for the Record:
    Questions to Mr. Andrew Gavil from Rep. Blaine Luetkemeyer...    26
Additional Material for the Record:
    None.

 
BARRIERS TO ENTREPRENEURSHIP: EXAMINING THE ANTI-TRUST IMPLICATIONS OF 
                         OCCUPATIONAL LICENSING

                              ----------                              


                        WEDNESDAY, JULY 16, 2014

                  House of Representatives,
               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 1:02 a.m., in Room 
2360, Rayburn House Office Building, Hon. Sam Graves [Chairman 
of the Committee] presiding.
    Present: Representatives Graves, Chabot, Luetkemeyer, 
Tipton, Hanna, Huelskamp, Schweikert, Collins, Velazquez, 
Schrader, and Meng.
    Chairman Graves. Good afternoon, everyone, I call this 
hearing to order. I want to thank everyone for being here.
    When folks set out on a career path, they know that some of 
the jobs require certain licenses, educational backgrounds, and 
fees. Most people agree that certain professions should be 
subject to standards to protect the public, such as doctors, 
lawyers or architects. However, in the United States over the 
last 60 years, the number of occupations subject to State and 
local licensure laws have expanded greatly. Today not only do 
doctors need a license, but in some States professionals such 
as fortune tellers or interior designers require one as well.
    In light of this, it is not surprising that a recent study 
found that occupational licensing was the number one regulatory 
burden that faces small firms today.
    Understandably, this growing trend is sparking controversy 
as entrepreneurs question why certain licenses are needed, 
particularly if the license or educational requirements seem to 
have little to do with protecting the public. The balance 
between individual rights to pursue economic opportunities and 
States' rights to regulate economic activity within their 
borders appears to be tipping towards more regulation.
    As entrepreneurs seek out new opportunities, they are 
finding more roadblocks in the way of earning a living or 
creating jobs. Often, these barriers are erected by licensing 
boards made up of men and women who are currently in the 
profession or the potential competitors of those seeking to 
enter the profession. These hurdles are particularly difficult 
to clear for those with limited financial means or lower levels 
of education. As entrepreneurs look for solutions, they are 
starting to file Federal lawsuits alleging that certain 
occupational licenses violate Federal anti-trust laws.
    In my home State of Missouri, we are lucky to be 
consistently ranked as one of the least burdensome States for 
occupational licensing. However, in June hair-braiders filed a 
Federal suit against a Missouri law which requires braiders to 
obtain a cosmetology license. The State cosmetology license 
requires 1500 hours of training and two exams with all the 
various costs that are involved. But according to the suit, 
neither the training nor the test covers hair braiding. While 
we want competent and skilled workers in Missouri, and I 
strongly believe in States' rights to protect the welfare of 
its citizens, this occupational license, which does not seem 
tailored to the actual profession, appears to be a way to keep 
new competition out and infringe on an individual's economic 
liberty.
    Today we are fortunate to have Director Gavil from the 
Federal Trade Commission, who will highlight some of the 
concerns and inform us of the actions that the FTC is taking as 
enforcer of the Federal anti-trust laws to promote competition 
and reduce unnecessary barriers to work.
    Now I yield to Ranking Member Velazquez for her opening 
statement.
    Ms. Velazquez. Thank you, Mr. Chairman. Occupational 
licensing is a process by which states compel those involved in 
a particular profession or industry to meet specific standards, 
such as training, education or certain character requirements. 
The main justification for occupational regulation is to 
protect the public's health and safety. For example, 
individuals want to know health practitioners adhere to basic 
quality standards or that architects have achieved certain 
training requirements to design structurally sound buildings. 
However, the rapid growth of licensing requirements across a 
broad array of job fields has raised questions about the 
effectiveness of these regulations and potential unintended 
consequences.
    In the 1950s, less than one in every 20 workers was in an 
occupation requiring occupational licensing. Today roughly, 30 
percent of Americans work in a field requiring state licensing, 
creating additional hurdles for entrepreneurs looking to join a 
new field.
    New licensing laws are almost always crafted with industry 
input and enjoy broad immunity from federal oversight. The 
states' power, however, is not absolute. It falls on the 
Federal Trade Commission to ensure that occupational licensing 
standards are advancing the goal of protecting the public and 
not serving intentionally or inadvertently to limit competition 
in a manner that runs afoul of antitrust laws.
    For decades, the FTC has initiated enforcement actions 
designed to eliminate restrictions on business practices of 
state license professions, including restrictions on new 
competitors, advertising and solicitation, and even price 
meetings. As a result of FTC's efforts, robust marketplaces 
thrive in many professions, preserving consumer choice and 
keeping prices competitive. As always, the key is striking the 
appropriate balance, preserving occupational licensing systems 
that serve legitimate consumer protection purposes, while 
preventing licensure from restricting competition and stymieing 
entrepreneurship.
    It is my hope that today's discussion will shed light on 
how the commission is advancing that goal and how the committee 
can be helpful on this topic. In that regard, I thank the 
witness for being here, and I am certain your testimony will 
provide and will shed light and valuable insight.
    With that Mr. Chairman, I yield back.
    Chairman Graves. Our witness today, as I mentioned, is 
Andrew Gavil, the Director of the Office of Policy Planning at 
the Federal Trade Commission. Director Gavil has led this 
office since September of 2012, and he oversees the Office's 
advocacy efforts to support competition and protect consumers. 
Prior to this role, Director Gavil taught anti-trust at the 
Howard University School of Law and authored numerous articles 
on competition policy. Thanks for being here. We appreciate it.

STATEMENT OF ANDREW GAVIL, DIRECTOR, OFFICE OF POLICY PLANNING, 
           FEDERAL TRADE COMMISSION, WASHINGTON, D.C.

    Mr. Gavil. Thank you, Mr. Chairman. Good afternoon. 
Chairman Graves, Ranking Member Velazquez, members of the 
Committee, thank you for the opportunity to appear before you 
today. I am Andrew Gavil, the Director of the Office of Policy 
Planning at the Federal Trade Commission, and I am pleased to 
join you to discuss competition perspectives on the licensing 
and regulation of occupations, trades, and professions. The 
Commission's testimony describes the FTC's approach to 
evaluating the potential competitive effects of such regulation 
and how we use a combination of advocacy and enforcement tools 
to promote competition among professionals. The FTC and its 
staff recognize that occupational licensure can offer many 
important benefits. It can protect consumers from actual health 
and safety risks and support other valuable public policy 
goals. However, that does not mean that all licensure is 
warranted, and most importantly in our experience, it does not 
mean that the benefits of all of the specific restrictions 
imposed on occupations are sufficient to justify the harm they 
can do to competition and mobility in the workforce.
    We have seen many examples of licensure restrictions that 
likely impede competition and hamper entry into professional 
and service markets, yet offer few, if any, significant 
consumer benefits. In these situations, regulations may lead to 
higher prices, lower quality services and products, and less 
convenience for consumers. In the long term, they can cause 
lasting damage to competition and the competitive process by 
rendering markets less responsive to consumer demand and by 
dampening incentives for innovation.
    Occupational regulation can be especially problematic when 
regulatory authority is delegated to a nominally independent 
board comprising members of the very occupation to be 
regulated. When the proverbial fox is put in charge of the hen 
house, board members' financial incentives may lead the board 
to make regulatory choices that favor incumbents at the expense 
of competition and the public. This conflict of interest may 
lead to the adoption and application of licensure restrictions 
that discourage new entrants, deter potential competition from 
professionals in related occupations, and suppress innovative 
forms of service delivery that could challenge the status quo. 
Such entry and innovation can have substantial consumer 
benefits.
    From a competition policy perspective, it is also helpful 
to appreciate that we view anticompetitive occupational 
licensing in the broader context of industry regulation that 
instead of protecting consumers, can become protectionist of 
current industry incumbents.
    Our economy is evolving rapidly, in part due to emerging 
technologies that facilitate new products, services, business, 
and even new business models. When these develop and challenge 
incumbents in heavily regulated industries, it is not unusual 
to see regulatory responses, spurred on by those very 
incumbents which erect barriers to new business models and have 
the effect of slowing or even barring their development, even 
when consumer demand for new methods is pronounced.
    The FTC and its staff address these concerns primarily in 
two ways: First, as part of the FTC's competition advocacy 
program, where appropriate and feasible, we respond to calls 
for public comment and invitations from legislators and 
regulators to identify and analyze specific licensure 
restrictions that may harm competition without offering 
significant consumer benefits. In recent years, for example, we 
have focused on diverse issues, including advertising 
restrictions, automobile distribution, nursing scope of 
practice restrictions, accreditation standards, taxicabs and 
related forms of passenger vehicle transportation, casket 
sales, and real estate brokerage. Typically, we urge 
policymakers to integrate competition concerns into their 
decision making process; specifically, that they consider, one, 
whether any particular licensure regulations are likely to have 
a significant and adverse impact on competition; two, whether 
the particular restrictions are targeted to address actual 
risks of harm to consumers; and, three, whether the 
restrictions are narrowly tailored to minimize any burden on 
competition.
    When appropriate, we have also used our enforcement 
authority to challenge anticompetitive behavior by occupational 
regulators. The Commission has authorized civil challenges in 
several instances when faced with delegations of authority to 
regulatory boards comprising self-interested competitors, 
alleging that each board's actions harmed competition and that 
the ``state action'' doctrine was an insufficient defense to 
the conduct.
    As you know, one of these cases, North Carolina State Board 
of Dental Examiners, is currently pending before the U.S. 
Supreme Court.
    The Commission has not studied and has not taken a position 
on whether there is excessive licensing of occupations, trades 
or professions as a general matter. As I have described, 
however, it has demonstrated a long-standing commitment to 
tracking and identifying regulatory restrictions that unduly 
restrict competition in specific trades, occupations, and 
professions, and has taken enforcement action when appropriate 
to stop self-interested regulatory boards from abusing their 
authority to eliminate competition.
    I am, of course, happy now to respond to any questions you 
may have. Please note, however, that as is indicated in the 
written statement of the Commission, although the prepared 
statement presents the views of the Federal Trade Commission, 
my oral testimony and responses to questions reflect my views 
and do not necessarily reflect the views of the Commission or 
any particular commissioner. Thank you.
    Chairman Graves. Mr. Hanna.
    Mr. Hanna. How do you navigate that process intellectually? 
I mean, where do you kind of generally set the bar for what 
needs to be regulated and what shouldn't be, and isn't that 
very subjective so that, you said you are not particularly 
proactive about limiting. Does that mean--well, what does that 
mean?
    Mr. Gavil. It means, in short, that as a practical matter, 
we have not found ourselves to be very successful when not 
invited to the party. When State regulators and legislators are 
considering legislation, we have found over time that we can be 
most effective in encouraging them to consider competition when 
we are invited to do so or when they have indicated a 
willingness to accept comments, as through public comment 
periods.
    Mr. Hanna. Do you find that they are relatively willing to 
listen?
    Mr. Gavil. We do, especially when we have those public 
comment periods and when we are invited. Our recent experience 
shows that around three-quarters of the time we find that we 
are at least partially successful in influencing the awareness 
of the competition concerns that typically are the concerns 
that we would focus on and explain.
    Mr. Hanna. Like what?
    Mr. Gavil. So this goes back to the first part of your 
question, you know, what is it that we are urging and what is 
our analysis. We are competition specialists; we are economists 
and lawyers working together. Many people in our office have 
decades of experience in particular industries, such as the 
healthcare industry, and with intellectual property issues. 
Typically what we would bring to bear on a question of 
regulation is an understanding of how to evaluate the likely 
competitive impacts of a particular restriction.
    Mr. Hanna. So is it your opinion that regulation--I mean, 
there are people out there who never saw a thing they didn't 
want to regulate, and there are other people who believe that 
free enterprise somehow creates perfect outcomes. I think both 
are probably misguided. But in general, can you--there are 
businesses that clearly need licenses, need to be regulated, 
and those that don't. How do you separate the two and how do 
you measure the value that is created through kind of letting 
the market do it on its own? Because, frankly, customers are 
ultimately the best deciders of the value they receive, and 
that is part of the process.
    Mr. Gavil. I would completely agree, Congressman, and I 
think that one of the things we look for is regulations that 
interfere with that process. The market is going to work best 
when you see a free interchange between supply and demand, 
between the suppliers of services or products and consumers.
    A recent example, to make it more concrete, we filed 
comments in Missouri and New Jersey in connection with the 
practices of auto distribution. Two-thirds of the States 
prohibit manufacturers from selling directly to consumers. We 
commented, in both instances, favoring statutes that would 
withdraw that restriction. The company that was particularly 
the spur to this was Tesla, but Tesla is the camel's nose under 
the tent.
    The question is whether or not, as in other industries the 
interchange of manufacturers and customers should be determined 
based on consumer preferences.
    Mr. Hanna. So generally new business models that are 
threatening to existing business models within some geographic 
or business organization, group of organizations are always 
somewhat resisted, but in New Jersey you saw someone actually 
create a law around that, with a business model that isn't 
really the government's business to judge upon. I guess that is 
what you----
    Mr. Gavil. Well, what you see sometimes is that the 
regulations already exist and they are a bar or sometimes new 
regulations are being introduced that would create a bar.
    Mr. Hanna. So it actually inhibits innovation and limits 
competition and kind of reinforces the status quo?
    Mr. Gavil. Absolutely, and that would be our concern, and 
we have seen that pattern repeat in many healthcare fields, in 
auto distribution, and in the taxi industry right now, where 
what we see is heavily regulated incumbents actually using 
those regulations to impair innovation from new business models 
and new products and services.
    Mr. Hanna. Thank you very much.
    Mr. Gavil. Thank you.
    Mr. Hanna. Yield back.
    Chairman Graves. Ms. Velazquez.
    Ms. Velazquez. Thank you. Thank you for being here today. 
Mr. Gavil, several states have already begun to offer better 
reciprocity between their licensing regulations to enable 
workers to start working immediately following a move to a new 
state. This is especially beneficial for military families. 
Besides offering portability to increase workers' mobility 
across state lines, what else can be done to reien in licensing 
laws?
    Mr. Gavil. Congresswoman, I think that we have actually 
noted in a number of our comments that these particular issues 
facing military families are significant, but they are an 
example of a broader problem. I think reciprocity laws and 
portability laws can go a long way toward reducing barriers 
that impede the mobility of the workforce and the ability to 
move to where the jobs are, so I would applaud that as a 
general matter personally and think that that is something 
worth considering in a variety of contexts.
    Ms. Velazquez. Under antitrust law, the courts have 
hesitated to rule on cases involving state licensing boards 
because of the state immunity doctrine, but one recent case 
suggests this hands-off approach may be changing even when a 
state board is involved. Can you give a brief overview of this 
state immunity doctrine and how limiting, not eliminating the 
state's immunity could serve some purpose?
    Mr. Gavil. Sure. With one caveat. As I indicated, we do 
have a case pending before the Supreme Court, and I want to be 
cautious about commenting on that case in particular, but the 
broad framework I think is a very important one that has been 
developed by the Supreme Court over a number of decades to try 
and strike a reasonable balance between the States' sovereignty 
and autonomy, and the national policy that favors competition, 
and the state action doctrine is an attempt to implement that 
balance, and I think that it has sought to do that by 
recognizing that States, when acting as themselves, as 
sovereigns, should have that kind of ability to be exempt from 
Federal antitrust laws.
    The more troubling issues come up when they delegate 
authority to private parties, and that is the issue squarely 
before the Supreme Court in North Carolina Dental; it is the 
degree to which private parties acting with an imprimatur of 
government regulation should be permitted to go forth without 
any deterrent from the Federal antitrust laws.
    Ms. Velazquez. Thank you. Is there a role for the FTC in 
creating guidance or providing tools on best practices for 
state occupational licensing boards to improve their 
transparency, uniformity, and clarity of information they 
provide the public?
    Mr. Gavil. Yes, and I think we try to do that very much so 
in our advocacy program. We are consistent in the framework 
that we try to use, and I have outlined it in our testimony 
today, and that is the framework that we urge State regulators 
and legislators to consider as well; to always take into 
account the competition consequences of any restrictions that 
they place, including the fact of licensing any new occupation.
    Ms. Velazquez. Thank you.
    Mr. Gavil. Thank you.
    Chairman Graves. Mr. Collins.
    Mr. Collins. Thank you, Mr. Chairman. You mentioned the 
taxi issue. Now, in New York State up where I live in Buffalo, 
we just recently had someone like Uber, it is called Lyft, and 
they have opened up, or attempted to open up service in New 
York City, Rochester, Buffalo, and recently there was a lawsuit 
brought, I am not sure exactly who brought it, but obviously 
the taxi company's unions and so forth.
    Interestingly, the court ruled that they could not operate 
in New York City, but in fact, could operate in Rochester and 
Buffalo, and I think the issue gets down to--obviously taxicabs 
and unions would view them unlicensed, unsafe and so forth, and 
I think all of us agree we need regulations to make sure the 
public is safe, they are insured, people know who they are, and 
all that goes with public safety, which I think can be handled 
outside of some of the issues the taxicabs are bringing up, the 
cost of a medallion and so forth and so on.
    I am just kind of curious because it is the forefront right 
now of regulations trying to stifle innovation, you know, what 
you see going on in things like Uber, Lyft, and so forth.
    Mr. Gavil. I think you are right, Congressman, very much 
so, that this is just the tip of the iceberg. This is a part of 
a new and expanding part of the economy. Smartphones have 
triggered an extraordinary amount of innovation and development 
through applications that are platforms that allow people to 
communicate with each other in new ways, and these 
transportation applications are an expression of that. I would 
also agree that finding the right balance in terms of 
regulation and allowing the free market to innovate is a 
critical question in this area. We have submitted four comments 
in the last year and a half: One in Colorado; one in Anchorage, 
Alaska; one in Chicago; and one in the fourth place that I am 
not remembering right now, but we have done four of those to 
try and lay out what we think is an appropriate framework for 
evaluating how regulators should go about adapting to new 
innovation, permitting it, encouraging it, and facilitating it 
while articulating and accounting for any appropriate consumer 
safety concerns.
    One concrete example comes to mind. In Chicago, we 
commented on a ride-sharing regulation that was proposed, and 
the initial proposal required three times the level of 
insurance for an individual person using their car through a 
ride sharing app as compared to a taxi. Obviously that would 
impose greater costs on the ride-sharing, and our question was 
``why?,'' what is the justification? Is there any evidence to 
support an increased concern about safety when individuals are 
using their cars? If there is, there may be a basis for 
regulations, but if there isn't, then you are merely erecting a 
barrier to competition that may not be justified.
    Mr. Collins. Now, do you see any nexus at all for the FTC 
on interstate commerce where you do certainly have the 
potential in two cities in two different States where someone 
might be using a ride share service to cross a State line that 
might give you a nexus to some action different than somebody 
just running around the city of Buffalo?
    Mr. Gavil. Uh-huh. To go back to my last question, I can't 
believe I forgot the fourth one was the District of Columbia, 
so let me just get that out and clear.
    I think that clearly, there is national level competition 
going on in this industry, but historically, the regulation was 
very local, and that alone has created some of the tension. You 
have new national competitors coming in, and they are facing 
regulations. As you mention, in New York it could be okay in 
one city and not okay in another city. That is because the 
legacy regulations are very local. They can be citywide. In 
some jurisdictions, California and Colorado are examples, there 
is some Statewide regulation. So that makes it quite 
complicated for an innovator to come in and try to compete in 
multiple jurisdictions. They have to understand and adapt to 
the regulations in multiple jurisdictions. That alone increases 
the cost of entry.
    Mr. Collins. Thank you very much. I think that is all I 
have. Yield back, Mr. Chairman.
    Chairman Graves. Mr. Schrader.
    Mr. Schrader. Thank you, Mr. Chairman. I guess I am 
wondering why we are having the hearing a little bit. I am sure 
that will come out as we go forward, I guess, but it is my 
understanding as a past life being in the Oregon State 
legislature that occupational licensing was a State area of 
expertise, not Federal Government. Is that still accurate?
    Mr. Gavil. For the most part it is, yes.
    Mr. Schrader. Okay. So I hope there is no inference that we 
want the Federal Government to take an increasing role in 
occupational licensing. Do you feel that is your province, to 
take on the occupational licensing that has been up to the 
States, been a States' rights issue for a while?
    Mr. Gavil. So I would separate my response into two 
buckets. On the advocacy front, typically what we are doing is 
commenting to State regulators and to State legislators, not 
questioning their authority but trying to introduce a 
competition perspective to their thought process.
    On the enforcement side, I think we do recognize that many 
of these professions have a significant impact on interstate 
commerce, and that goes back to the prior question. When they 
do have a significant impact on interstate commerce, and it 
involves conduct that is anticompetitive, it does fall within 
the jurisdiction of the Federal antitrust laws. But honestly, 
we have used that in a very measured way. Those cases are few 
and far between, and we try to target them on some of the worst 
conduct that we find.
    Mr. Schrader. I would hope so. That sort of argument could 
be made for Federal intervention in everything, all State, 
local ordinances, that type of rationale. I appreciate the 
measured approach that you guys are using here. You talk about 
the role of the FTC. I think that is fine. A comment had come 
up and you had agreed that it should be the consumers are the 
most important piece of this, and they are the best judge of 
whether or not the licensure is working. I guess I would argue 
that that would depend. There are a lot of professions that I 
think are pretty complicated, the consumer has an unrealistic 
expectation, the medical field in particular, of what medical 
anesthesiologists, cardiologists can and cannot do. Lawsuits 
abound based on mythology of accurateness and invincibility of 
medical technology or medical approaches.
    So to me, it seems like there is an opportunity for 
professions to self-regulate, and the ultimate arbiter is not 
just the customer but your State legislature, your State 
courts. Really those folks can probably adjudicate these issues 
as well or better, having that local perspective and seeing 
what is actually going on than we at the Federal government, 
wouldn't you agree?
    Mr. Gavil. I would, and I think that the point you make is 
a very important one, which is--and the economists would call 
it situations that involve information asymmetries, which just 
means that we as consumers don't really know much about how to 
judge the quality of certain things that happen, especially in 
health care. In situations like that, that is a classic 
justification for some degree of regulation. In pricing 
contexts, even some of them in the taxi area, you wouldn't want 
to get into a cab not knowing what the rate is going to be that 
you would be charged.
    So we have argued that although jurisdictions should be 
flexible in allowing new payment models, it is appropriate to 
think about disclosures to make sure that consumers understand 
what they are agreeing to, whether it is through an app or 
getting into a taxi. So, I think, yes, across a broad range of 
areas, that sort of problem with information is a traditional 
justification for some degree of regulation. I think what we 
would argue is try to look for the least restrictive kind of 
regulation possible to permit the free market to operate.
    Mr. Schrader. Yeah, I would agree. I remember as a 
budgeteer in the Oregon State Legislature, there were certain 
boards that seemed to be building little protective fiefdoms 
where the requirements only would benefit a select few that 
would get the good contracts and other very well qualified 
accountants, surveyors, engineers would be unable to apply. 
But, again, I think that is where the State legislature, my 
ways and means group, my budget group were able to discern 
that, call the group to the table and have a discussion and 
oftentimes were able to get them to change their rules and 
regulations.
    Mr. Gavil. And we work cooperatively with State antitrust 
enforcers in many instances. When we see problematic 
legislation, regulation or conduct at the State level, we often 
work together with the State enforcers.
    Mr. Schrader. So your role--it sounds like the best role, 
from my perspective, that you would play is advisory to the 
States, legislatures and the local boards to make sure they are 
doing things the right way and help with competition.
    Mr. Gavil. Absolutely, and that is the core of our advocacy 
program. It is about trying to encourage people to take a 
competition perspective, and we act as competition advisers in 
that role.
    Mr. Schrader. Very good. Thank you. I yield back, Mr. 
Chairman.
    Chairman Graves. Mr. Luetkemeyer.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Mr. Gavil, I would like to focus on the enforcement part of 
what you have been talking about here. I think it can be a 
barrier to entrepreneurship if it is not done correctly, and 
that concerns me. While I support the enforcement of the laws 
and your pursuing of bad actors, I have some concerns. You 
know, recently the Committee on Oversight and Government Reform 
did a study and got a hold of a lot of the internal memos at 
the Department of Justice with regards to Operation Chokepoint, 
and you are mentioned prominently in there in a couple 
different spots, and I want to talk about that a little bit 
with regards to, number one, have you or your office had any 
communications with DOJ with regard to payment processors?
    Mr. Gavil. We have not been involved in that matter at all 
in the Office of Policy Planning.
    Mr. Luetkemeyer. Has the Federal Trade Commission been 
working with DOJ?
    Mr. Gavil. I am honestly not familiar with what might have 
been going on or coordination between the agencies. It is not a 
matter that I have had any personal knowledge of.
    Mr. Luetkemeyer. Well, on page 12 of a memo from the Deputy 
Assistant Attorney General, it says here that they are working 
with the FTC through information gleaned through FTC's many 
actions, and as a result, they have even assigned somebody who 
your principal payment processor expert to work with them.
    Mr. Gavil. Congressman, that may be true, but again, I just 
don't have any personal knowledge of it. It wasn't my office 
that was involved in that matter.
    Mr. Luetkemeyer. Well, you just said that you are part of 
the enforcement of making sure this all works.
    Mr. Gavil. No, the FTC has an enforcement arm. Actually, my 
office takes principal responsibility for initiating 
advocacies. We typically do not get directly involved in very 
much enforcement. On occasion, we do advise enforcers in terms 
of the competition theory, but in this particular matter we had 
no role that I know of.
    Mr. Luetkemeyer. You mean your division did not have? FTC 
may have had?
    Mr. Gavil. I cannot speak for the entire FTC, but my office 
didn't have any involvement in that matter.
    Mr. Luetkemeyer. Okay. Because I am very concerned because 
I think it appears that with your cooperation, they are going 
beyond just enforcement. It appears that they are going on a 
witch hunt to try and do away with entire industries versus 
just the bad actors within that industry, and they do that by 
choking off financial services, and apparently your agency has 
a lot of history apparently with payment processors; is that 
correct?
    Mr. Gavil. As far as I know, the agency has done work with 
payment processors, but again, it hasn't been me or my office.
    Mr. Luetkemeyer. Okay. How do you interact, then, with 
other Federal agencies in your position?
    Mr. Gavil. In my position? Yes, in a number of ways. As 
part of our advocacy program sometimes we will engage in, 
frequently we will engage in what we call informal advocacy, 
where we confer with sister Federal agencies about competition 
issues. Other agencies, for example, that are considering 
regulations that may have an impact on competition, they may 
invite public comments or they may invite our advice informally 
to talk about the competition consequences, so that is a kind 
of work that my office would do that is agency to agency.
    Mr. Luetkemeyer. You don't see that the competition issue 
here with regards to other activities within an industry and 
the payment processing connection between those--have you ever 
heard of Operation Chokepoint?
    Mr. Gavil. I actually had not followed it and, like I said, 
I have not worked directly on it in my role as Director of the 
Office of Policy Planning.
    Mr. Luetkemeyer. Well, it certainly is kind of concerning 
to me that your agency, which is--part of it you said is 
enforcement of.
    Mr. Gavil. Yes.
    Mr. Luetkemeyer. In your statement here you talk about it, 
yet you have no recollection or awareness of the Department's 
interaction with an enforcement agency. How does that work?
    Mr. Gavil. It would not be unusual, Congressman, that 
different parts of our agency are working with each other and 
with other agencies, and we just wouldn't be involved in it. 
For example----
    Mr. Luetkemeyer. Right hand never knows what the left hand 
is doing?
    Mr. Gavil. I wouldn't describe it that way. I would say 
they were working on different projects, and not every one of 
us is engaged with----
    Mr. Luetkemeyer. I would describe it that way because you 
are all within the same agency, are you not?
    Mr. Gavil. But none of us are engaged----
    Mr. Luetkemeyer. Part of your agency is enforcement as 
well. But you have no concern, no knowledge of the enforcement 
part of your agency?
    Mr. Gavil. I don't think that fairly characterizes what I 
said. I said I had no knowledge of this particular activity. I 
think I did say I do have knowledge of some enforcement options 
and some enforcement actions when I am consulted and when my 
office is consulted. We had no role to play in this matter, so 
I really don't have any knowledge about it.
    Mr. Luetkemeyer. That is a head scratcher. I yield back. 
Thank you, Mr. Chairman.
    Chairman Graves. Dr. Gavil, in your written testimony you 
provided a framework for analyzing licensing requirements. Can 
you walk us through a couple of examples, one where it would be 
deemed appropriate for that licensing and one where it would 
impede competition, just as examples.
    Mr. Gavil. Sure. So we recently issued a policy paper on 
the regulation of advanced practice registered nurses. APRNs 
are sometimes described as a mid-level professional, more 
advanced training than a registered nurse but not the same 
training as a physician. And in many States, we have seen 
regulations that would mandate by law that such APRNs can only 
function under the direct supervision of a physician, even 
though their training would allow them to do certain things 
independently.
    So in our policy paper we questioned whether these sorts of 
restrictions can really be justified, and one way to think 
about is a mismatch. There clearly is some concern about public 
safety, but when we surveyed the evidence on public safety, 
there was a lot of evidence to support the ability of APRNs to 
do certain things independently and to practice independently.
    In a time where access to health care is especially 
important, APRNs may provide a less expensive and more 
accessible kind of health care. So our policy paper tries to 
collect that evidence and sets out the case for why those sorts 
of regulations may not be justified. And we asked States to 
consider, and we filed a number of comments, and a number of 
States actually consistent with our comments have been 
abandoning those very strict supervision requirements, and we 
have been pleased to see that development.
    Another one that was actually just in the news this week, 
The Washington Post had an editorial yesterday about dental 
therapists, and dental therapists in some sense is an analogue 
to APRNs. It is a mid-level professional, more skilled than a 
dental hygienist, more education and training than a dental 
hygienist, but not quite a dentist. But in areas where there is 
a shortage of dental care, dental therapists may be a new and 
emerging model that would allow for greater access and lower 
cost dental care, and we filed a comment with the Commission on 
Dental Accreditation, which is the accrediting body of the 
American Dental Association, urging them in a similar way to 
avoid using the accreditation process to mandate supervision by 
dentists and not allow these dental therapists to autonomously 
provide certain basic services. So those are two recent 
examples where we felt like the regulation was a mismatch, it 
was excessive and inappropriate.
    In the taxi cases, to give you an example where we do think 
some regulation might be appropriate, the issue has been 
whether the regulation is greater than necessary to meet the 
needs of consumers. Certainly we all care about safety and 
quality, but as I mentioned earlier, an example would be 
insurance. Would we concede that some insurance requirements, 
some inspection requirement might be appropriate? Yes. But when 
we see disparate requirements that would create a competitive 
disadvantage, we would question those and ask whether they 
really have some factual basis and can be justified.
    Chairman Graves. Well, I want to thank you for testifying 
today and shedding some light on the role that obviously the 
FTC plays in protecting competition and ensuring that 
entrepreneurs have an opportunity to enter various occupations. 
We very much appreciate you coming in, and with that, I would 
ask unanimous consent that members have 5 legislative days to 
submit statements and supportive materials for the record. 
Without objection, that is so ordered, and with that, the 
hearing is adjourned. Thank you.
    Mr. Gavil. Thank you, Congressman.
    [Whereupon, at 1:41 p.m., the committee was adjourned.]
                            A P P E N D I X


                         PREPARED STATEMENT OF


                      THE FEDERAL TRADE COMMISSION


                                   on


   Competition and the Potential Costs and Benefits of Professional 
                               Licensure


                               Before The


                      COMMITTEE ON SMALL BUSINESS


                 UNITED STATES HOUSE OF REPRESENTATIVES


                            WASHINGTON, D.C.


                             JULY 16, 2014

    I. Introduction

    Chairman Graves, Ranking Member Velazquez, and Members of 
the Committee, thank you for the opportunity to appear before 
you today. I am Andrew Gavil, the Director of the Office of 
Policy Planning at the Federal Trade Commission (``FTC'' or 
``Commission''), and I am pleased to join you to discuss 
competition perspectives on the licensing and regulation of 
occupations, trades, and professions. In my time here today I 
will describe the FTC's approach to evaluating the potential 
competitive effects of such regulation and how we use a 
combination of advocacy and enforcement tools to promote 
competition among professionals.\1\
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    \1\ This written statement presents the views of the Federal Trade 
Commission. Oral testimony and responses to questions reflect my views 
and do not necessarily reflect the views of the Commission or any 
individual Commissioner.

    The FTC and its staff recognize that occupational licensure 
can offer many important benefits. It can protect consumers 
from actual health and safety risks and support other valuable 
public policy goals. However, that does not mean that all 
licensure is warranted and, most importantly in our experience, 
it does not mean that the benefits of all the specific 
restrictions imposed on occupations are sufficient to justify 
the harm they can do to competition and mobility in the 
workforce. We have seen many examples of licensure restrictions 
that likely impede competition and hamper entry into 
professional and services markets, yet offer few, if any, 
significant consumer benefits. In these situations, regulations 
may lead to higher prices, lower quality services and products, 
and less convenience for consumers. In the long term, they can 
cause lasting damage to competition and the competitive process 
by rendering markets less responsive to consumer demand and by 
dampening incentives for innovation in products, services, and 
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business models.

    Occupational regulation can be especially problematic when 
regulatory authority is delegated to a nominally 
``independent'' board comprising members of the very occupation 
it regulates. When the proverbial fox is put in charge of the 
henhouse, board members' financial incentives may lead the 
board to make regulatory choices that favor incumbents at the 
expense of competition and the public. This conflict of 
interest may lead to the adoption and application of licensure 
restrictions that discourage new entrants, deter potential 
competition from professionals in related occupations, and 
suppress innovative forms of service delivery that could 
challenge the status quo. Such entry and innovation can have 
substantial consumer benefits.

    From a competition policy perspective, it is also helpful 
to appreciate that we view anticompetitive occupational 
licensing in the broader context of industry regulation that, 
instead of protecting consumers, can become protectionist of 
current industry incumbents. Our economy is evolving rapidly, 
in part due to emerging technologies that facilitate new 
products, services, businesses, and even business models. When 
these develop and challenge incumbents in heavily regulated 
industries, it is not unusual to see regulatory responses, 
spurred on by those very incumbents, which erect barriers to 
new business models and have the effect of slowing or barring 
their development, even when consumer demand for new methods is 
pronounced.

    The FTC and its staff address these concerns primarily in 
two ways. First, as part of the FTC's competition advocacy 
program, where appropriate and feasible, we respond to calls 
for public comment and invitations from legislators and 
regulators to identify and analyze specific licensure 
restrictions that may harm competition without offering 
significant consumer benefits. In recent years, for example, we 
have focused on diverse issues including advertising 
restrictions, automobile distribution, nursing scope of 
practice restrictions, accreditation standards, taxicabs and 
related forms of passenger vehicle transportation, casket 
sales, and real estate brokerage. Typically, we urge policy 
makers to integrate competition concerns into their decision-
making process--specifically, that they consider whether: (1) 
any particular licensure regulations are likely to have a 
significant and adverse effect on competition; (2) the 
particular restrictions are targeted to address actual risks of 
harm to consumers; and (3) the restrictions are narrowly 
tailored to minimize any burden on competition, or whether less 
restrictive alternatives may be available.

    When appropriate, we have also used our enforcement 
authority to challenge anticompetitive behavior by occupational 
regulators. The Commission has authorized civil challenges in 
several instances when faced with delegations of authority to 
regulatory boards comprising self-interested competitors, 
alleging that each board's actions harmed competition and that 
``state action'' was an insufficient defense to the conduct.\2\ 
As you know, one of these cases, North Carolina State Board of 
Dental Examiners,\3\ currently is pending on a writ of 
certiorari before the U.S. Supreme Court.
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    \2\ The state action doctrine holds that certain sovereign acts of 
state governments are exempt from antitrust scrutiny. It also holds 
that certain private actors may be exempt from antitrust liability if 
they can demonstrate that their actions were taken pursuant to a 
clearly articulated decision by the state to displace free market 
competition in favor of regulation, and that their conduct is actively 
supervised by the state. Cal. Retail Liquor Dealers Ass'n v. Midcal 
Aluminum, 445 U.S. 97, 105-06 (1980).
    \3\ North Carolina State Bd. of Dental Examiners v. FTC, 717 F. 3d 
359 (4th Cir. 2013).

    The Commission has not studied and has not taken a position 
on whether there is excessive licensing of occupations, trades, 
or professions as a general matter. As I have described, 
however, it has demonstrated a long-standing commitment to 
tracking and identifying regulatory restrictions that unduly 
restrict competition in specific trades, occupations and 
professions, and has taken enforcement action when appropriate 
to stop self-interested regulatory boards from abusing their 
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authority to eliminate competition.

    This testimony will cover three main points.

     First, it provides a brief overview of the FTC's 
interest and experience in competition issues related to 
occupational licensure and related restrictions;

     Second, it outlines general competition concerns 
in this area, touching on some of the issues raised in the 
Committee's invitation to testify; and

    Third, it concludes by providing additional details 
on the FTC's work relating to the potential competitive harm of 
excessive regulation of the professions and other service 
occupations, including FTC research, competition advocacy, and 
law enforcement.

    II. Interest and Experience of the FTC

    Competition is at the core of America's economy, and 
vigorous competition among sellers in an open marketplace can 
provide consumers the benefits of lower prices, higher quality 
products and services, and greater innovation. In furtherance 
of that national policy, the FTC Act grants the Commission 
broad enforcement authority with regard to both competition and 
consumer protection matters in most sectors of the economy.\4\ 
In addition, Section 6 of the FTC Act provides, among other 
things, a general authority to investigate and report on market 
developments in the public interest, as well as authority to 
make recommendations based on those investigations.\5\ This 
distinct charge supports the agency's research, education, and 
competition advocacy efforts.
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    \4\ The FTC's authority reaches ``[u]nfair methods of competition'' 
and ``unfair or deceptive acts or practices'' that are ``in or 
affecting commerce.'' 15 U.S.C. Sec. 45(a)(1) (2013). With some 
exceptions, the FTC's authority ranges broadly over ``commerce'' 
without restriction to particular segments of the economy. Id. at 
Sec. 45(a)(2).
    \5\ 15 U.S.C. Sec. 46 (2006).

    To fulfill these statutory mandates, the Commission seeks 
to identify private, public, and quasi-public restrictions that 
may unreasonably impede competition. In the context of 
occupational licensure, the Commission and its staff have for 
over thirty years conducted various economic and policy 
studies,\6\ as well as focused inquiries into regulations 
applying to particular professions such as nursing,\7\ eye 
doctors and vendors of optical goods,\8\ legal services,\9\ and 
the real estate brokerage industry.\10\ As mentioned above, the 
Commission has relied on both competition advocacy and 
enforcement tools in responding to potentially anticompetitive 
occupational regulations and conduct by occupational regulatory 
boards.
---------------------------------------------------------------------------
    \6\ See, e.g., Carolyn Cox & Susan Foster, Bureau of Econ., Fed. 
Trade Comm'n, The Costs and Benefits of Occupational Regulation, 4-12 
(1990), http://www.ramblemuse.com/articles/cox--foster.pdf.
    \7\ Fed. Trade Comm'n Staff, Policy Perspectives: Competition and 
the Regulation of Advanced Practice Nurses (2014), http://www.ftc.gov/
system/files/documents/reports/policy-perspectives-competition-
regulation-advanced-practice-nurses/140307aprnpolicypaper.pdf.
    \8\ Fed. Trade Comm'n, Competition in the Sale of RX Contact 
Lenses: An FTC Study (2005), http://www.ftc.gov/sites/default/files/
documents/reports/strength-competition-sale-rx-contact-lenses-ftc-
study/050214contactlensrpt.pdf; Ronald S. Bond et al., Fed. Trade 
Comm'n, Staff Report on the Effects of Restrictions on Advertising and 
Commercial Practice in the Professions: the Case of Optometry (1980), 
http://www.ftc.gov/sites/default/files/documents/reports/effects-
restrictions-advertising-and-commercial-practice-professions-case-
optometry/198009optometry.pdf.
    \9\ Jacobs et al., Cleveland Regional Office & Bureau of Economics, 
Fed. Trade Comm'n, Improving Consumer Access to Legal Services: The 
Case for Removing Restrictions on Truthful Advertising (1984).
    \10\ Fed. Trade Comm'n & U.S. Dept's Justice, Competition in the 
Real Estate Brokerage Industry (2007), http://www.ftc.gov/sites/
default/files/documents/reports/competition-real-estate-brokerage-
industry-report-federal-trade-commission-and-u.s.department-justice/
v050015.pdf.

    III. Competition Issues Related to Licensure and Other 
---------------------------------------------------------------------------
Occupational Regulations

    Licensure is a process that establishes the conditions for 
entry into an occupation. Licensing regulations typically 
specify entry conditions and define the various practices that 
constitute a licensed occupation.\11\ Unlicensed practice, or 
the provision of services outside one's scope of practice, 
generally is prohibited by statute and may be subject to civil 
or criminal penalties. One study has found that approximately 
29 percent of the U.S. workforce is required to obtain a 
license to work for pay.\12\
---------------------------------------------------------------------------
    \11\ This testimony focuses on competition issues for licensure, 
which is one particular form of occupational regulation. For a general 
discussion of less restrictive regulatory alternatives to licensure, 
such as certification, output monitoring, and registration, see Cox & 
Foster, supra note 6, at 21-22, 43-51.
    \12\ Morris M. Kleiner & Alan B. Krueger, The Prevalence and 
Effects of Occupational Licensing, 48 Brit. J. Industrial Relations 2 
(2010).

    For some occupations, the process of licensure--and 
particular licensure regulations--may be an appropriate policy 
response to identified consumer protection or safety concerns. 
Licensure can help to prevent consumer fraud and mitigate the 
effects of certain types of market failure, such as information 
asymmetries between professionals and consumers.\13\ Licensure 
regulations may serve an especially important function in 
health care, where consumers might face serious risks if they 
were treated by unqualified individuals, and patients might 
find it difficult (if not impossible) to adequately assess 
quality of care at the time of delivery.
---------------------------------------------------------------------------
    \13\ For example, consumers may not have reliable access to, or 
sufficient ability to understand, relevant information relating to the 
quality of the services they are consuming or the risks they may face 
and conflicts of interest may arise when professionals serve as both 
diagnosticians and treatment providers. See, e.g., Cox & Foster, supra 
note 6, at 4-12.

    We note, at the same time, that licensure inherently 
constrains competition, albeit to varying degrees.\14\ When a 
law or regulation establishes entry conditions for an 
occupation, only individuals who satisfy those conditions are 
legally authorized to provide the services associated with that 
occupation, which tends to reduce the number of market 
participants. This reduction in supply, and the resulting loss 
of competition, can lead to higher prices, reduced non-price 
competition on terms such as convenience or quality, or other 
distortions in services or labor markets.\15\ For example, one 
recent study suggests that licensing an occupation at the state 
level is associated with a 17% increase in earnings by members 
of the occupation.\16\ In addition, although licensure may be 
designed to provide consumers with minimum quality assurances, 
licensure provisions do not always increase service 
quality.\17\ Licensure costs and burdens, such as training or 
education requirements, may also discourage innovation and 
entrepreneurship. In some cases, these regulatory barriers to 
entry may severely impede the flow of labor or services to 
where they are most in demand, potentially reducing consumer 
access to valued services.\18\
---------------------------------------------------------------------------
    \14\ George J. Stigler, The Theory of Economic Regulation, 2 Bell 
J. Econ. & Mgmt. Sci. 3, 13 (1971) (``The licensing of occupations is a 
possible use of the political process to improve the economic 
circumstances of a group. The license is an effective barrier to entry 
because occupational practice without the license is a criminal 
offense.'').
    \15\ Regarding licensure generally, see Morris M. Kleiner, 
Occupational Licensing, 14 J. Econ. Persp. 189, 192 (2000) (``The most 
generally held view on the economics of occupational licensing is that 
it restricts the supply of labor to the occupation and thereby drives 
up the price of labor as well as of services rendered.''); see also Cox 
& Foster, supra note 6, at 21-36.
    \16\ Morris M. Kleiner & Alan B. Krueger, Analyzing the Extent and 
Influence of Occupational Licensing on the Labor Market, 31 J. Labor 
Econ. S-173, S-191 (2013); see also Cox & Foster, supra note 6, at 28-
31 (reviewing studies of effects of licensing on the prices of dental, 
legal, and optometric services).
    \17\ See, e.g., Morris M. Kleiner & Robert T. Kurdle, Does 
Regulation Affect Economic Outcomes: The Case of Dentistry, 43 J. Law & 
Econ. 547, 570 (2000) (``Overall, our results show that licensing does 
not improve dental health outcomes as measured by our sample of dental 
recruits. Moreover, treatment quality does not appear to improve 
significantly on the basis of the reduced cost of malpractice insurance 
or a lower complaint rate against dentists, where regulation is more 
stringent.''); see also Cox & Foster, supra note 6, at 21-29.
    \18\ For example, FTC staff comments on nursing regulations have 
focused on primary care provider shortages and the abilities of 
advanced practice nurses and others to meet the needs of underserved 
populations. See generally Policy Perspectives: Competition and the 
Regulation of Advanced Practice Nurses, supra note 7, at 2, 20-26; see 
also FTC Staff Comment Before the Louisiana House of Representatives on 
the Likely Competitive Impact of http://www.ftc.gov/os/2012/04/
120425louisianastaffcomment.pdf (regarding a bill that would have 
removed certain supervision requirements for APRNs working in medically 
underserved areas or treating underserved populations); FTC Staff 
Letter to the Hon. Jeanne Kirkton, Missouri House of Representatives, 
Concerning Missouri House Bill 1399 and the Regulation of Certified 
Registered Nurse Anesthetists (March 2012), http://www.ftc.gov/os/2012/
03/120327kirktonmissouriletter.pdf.

    The FTC and its staff have not closely studied whether, or 
to what extent, particular occupations should be subject to 
licensure as a form of regulation or whether the U.S. economy 
is characterized by excessive occupational licensing. Nor have 
we attempted to design regulatory institutions or tell various 
jurisdictions and licensing authorities how best to administer 
their licensing laws. Rather, we have recognized that specific 
licensure regulations can have good, bad, or mixed competitive 
effects, depending on the circumstances. Therefore, we 
typically focus on case-by-case competition analysis of 
particular restrictions in review of specific laws and 
regulations that may affect competition and urge legislators 
---------------------------------------------------------------------------
and regulators to do the same.

    IV. Advocacy

    A central goal of the FTC's competition advocacy program is 
to encourage federal, state, and local policymakers, as well as 
private, self-regulatory authorities, to integrate competition 
concerns into their decision-making process. By doing so, we 
hope they can avoid standards likely to interfere unnecessarily 
with the proper functioning of a competitive marketplace.\19\ 
Even well intentioned laws and regulations may impose undue 
burdens on competition, in ways that ultimately harm consumers. 
Moreover, public restraints on competition may sometimes prove 
particularly harmful and durable, but may not always be 
actionable under the federal antitrust laws. Competition 
advocacy--in the form of comments, testimony, workshops, 
reports, and amicus briefs--encourages federal and state policy 
makers to consider likely competitive effects of existing and 
proposed regulations, while also taking into account other 
important policy goals.
---------------------------------------------------------------------------
    \19\ For a general discussion of the FTC's ``policy research and 
development'' mission and the role of the advocacy program, see, e.g., 
William E. Kovacic, The Federal Trade Commission at 100: Into Our 2nd 
Century 92-109; 121-24 (2009), http://www.ftc.gov/ftc/workshops/ftc100/
docs/ftc100rpt.pdf. See also James C. Cooper, Paul A. Pautler, & Todd 
J. Zywicki, Theory and Practice of Competition Advocacy at the FTC, 72 
Antitrust L.J. 1091 (2005); Maureen K. Ohlhausen, Identifying 
Challenging, and Assigning Political Responsibility for State 
Regulation Restricting Competition, 2 Competition Pol'y Int'l 151, 156-
7 (2006) (competition advocacy ``beyond enforcement'' of the antitrust 
laws), https://www.competitionpolicyinternational.com/file/view/6289; 
Tara Isa Koslov, Competition Advocacy at the Federal Trade Commission: 
Recent Developments Build on Past Success, 8 CPI Antitrust Chron. 1 
(2012), https://www.competitionpolicyinternational.com/file/view/6732.

---------------------------------------------------------------------------
          A. Framework for Analysis

    To address these concerns while still preserving the 
potential benefits of occupational licensure, the Commission 
and its staff propose the following framework for evaluating 
licensing regulations:

           Are there significant and non-speculative 
        consumer health and safety issues, or other legitimate 
        public policy purposes, that warrant some form of 
        licensure?

           Are any of the specific conditions or 
        restrictions imposed as part of the licensure scheme 
        likely to have a significant adverse effect on 
        competition and consumers?

           If so, do the specific licensing conditions 
        or restrictions adopted address the issues that gave 
        rise to the decision to require licensure and protect 
        against demonstrable harms or risks? For example, will 
        they in fact reduce a risk of consumer harm from poor-
        quality services? Will the regulation yield other 
        demonstrated or likely consumer benefits, such as 
        reducing information or transaction costs for 
        consumers?

           Are the regulations narrowly tailored to 
        serve the state's policy priorities such that they do 
        not unduly restrict competition?\20\
---------------------------------------------------------------------------
    \20\ For a more complete exposition of this framework, see Policy 
Perspectives: Competition and the Regulation of Advanced Practice 
Nurses, supra note 7, at 16-17.

    When consumer benefits are slight or highly speculative, a 
licensure regime may not be desirable. Similarly, a specific 
regulation that imposes non-trivial impediments to competition 
may not be justified. Even when particular regulatory 
restrictions address well-founded consumer protection or other 
concerns, the inquiry should not end there. If the restrictions 
are also likely to harm competition, policy makers should 
consider whether the regulations could be more narrowly 
tailored to minimize the burden on competition while still 
---------------------------------------------------------------------------
achieving other goals.

          B. Specific Advocacy Efforts

    Since the late 1970s, the Commission and its staff have 
submitted hundreds of comments \21\ and amicus curiae briefs 
\22\ to state and self-regulatory entities on competition 
policy and antitrust law issues relating to such professionals 
as real estate brokers,\23\ electricians,\24\ accountants,\25\ 
lawyers,\26\ dentists \27\ and dental hygienists,\28\ 
nurses,\29\ eye doctors and opticians,\30\ and 
veterinarians.\31\ These advocacy efforts have focused on 
various restrictions on price competition, contracts or 
commercial practices, entry by competitors or potential 
competitors, and truthful and non-misleading advertising.
---------------------------------------------------------------------------
    \21\ Many of these advocacy comments can be found at http://
www.ftc.gov/policy/advocacy/advocacy-filings.
    \22\ See, e.g., Brief of the Federal Trade Commission as Amicus 
Curiae Supporting Arguments to Vacate Opinion 39 of the Committee on 
Attorney Advertising Appointed by the Supreme Court of New Jersey, 190 
N.J. 250 (N.J. 2007), http://www.ftc.gov/policy/advocacy/amicus-briefs/
2007/05/re-petition-review-committee-attorney-advertising-opinion-39; 
Brief Amici Curiae of the United States of America and the Federal 
Trade Commission on Review of UPL Advisory Opinion No. 2003-2, 277 Ga. 
472 (Ga. 2003). For access to the FTC's other recent amicus briefs, see 
http://www.ftc.gov/policy/advocacy/amicus-briefs.
    \23\ FTC and Department of Justice Comment to Governor Jennifer M. 
Granholm Concerning Michigan H.B. 4416 to Impose Certain Minimum 
Service Requirements on Real Estate Brokers (2007), http://www.ftc.gov/
sites/default/files/documents/advocacy--documents/ftc-and-
department-justice-comment-governor-jennifer-m.grahholm-concerning-
michigan-h.b.4416-impose-certain-minimum-service-requirements-real-
estate-brokers/v050021.pdf.
    \24\ FTC Staff Comment to the Hon. Glen Repp Concerning Texas H.B. 
252 to Establish a System to Voluntarily License Electricians and 
Electrical Contractors (1989), http://www.ftc.gov/sites/default/files/
documents/advocacy--documents/ftc-staff-comment-hon-glen-
repp-concerning-texas-h.b.252-establish-system-voluntarily-license-
electricians-and-electrical-contractors/v890034.pdf.
    \25\ FTC Staff Comment to the Honorable Jean Silver Concerning 
Washington Administrative Code 4-25-710 to Require Additional Academic 
Credits for Certified Public Accountants (CPAs) (1996), http://
www.ftc.gov/sites/default/files/documents/
advocacy--documents/ftc-staff-comment-honorable-jean-silver-
concerning-washington-administrative-code-4-25-710-require/v960006.pdf; 
FTC Staff Comment to the Hon. Jim Hill Concerning Oregon H.B. 2785 to 
Propose Certain Restrictions on Competition Among Accountants (1989), 
http://www.ftc.gov/sites/default/files/documents/
advocacy--documents/ftc-staff-comment-hon-jim-hill-
concerning-oregon-h.b.2785-propose-certain-restrictions-competition-
among-accountants/v890073.pdf.
    \26\ FTC Staff Letter to the Supreme Court of Tennessee, Concerning 
Proposed Amendments to the Tennessee Rules of Professional Conduct 
Relating to Attorney Advertising (2013), http://www.ftc.gov/sites/
default/files/documents/advocacy--documents/ftc-staff-
letter-supreme-court-tennessee-concerning-proposed-amendments-
tennessee-rules-professional/130125tennesseadvertisingletter.pdf.
    \27\ FTC Staff Letter to NC Representative Stephen LaRoque 
Concerning NC House Bill 698 and the Regulation of Dental Service 
Organizations and the Business Organization of Dental Practices--
(2012), http://www.ftc.gov/sites/default/files/documents/
advocacy--documents/ftc-staff-letter-nc-representative-
stephen-laroque-concerning-nc-house-bill-698-and-regulation/
1205ncdental.pdf.
    \28\ FTC Staff Comment Before the Maine Board of Dental Examiners 
Concerning Proposed Rules to Allow Independent Practice Dental 
Hygienists to Take X-Rays in Underserved Areas (2011), http://
www.ftc.gov/sites/default/files/documents/
advocacy--documents/ftc-staff-comment-maine-board-dental-
examiners-concerning-proposed-rules-allow-independent-practice/
111125mainedental.pdf.
    \29\ See supra note 7 and accompanying text.
    \30\ FTC Staff Comment Before the North Carolina State Board of 
Opticians Concerning Proposed Regulations for Optical Goods and Optical 
Goods Businesses (Jan. 2011), http://www.ftc.gov/os/2011/01/
1101ncopticiansletter.pdf; Letter from Maureen K. Ohlhausen et al. to 
Arkansas State Representative Doug Matayo (Oct. 4, 2004), http://
www.ftc.gov/os/2004/10/041008matayocomment.pdf. Cf. FTC Staff Comment 
Before the Connecticut Board of Examiners for Opticians (Mar. 27, 
2002), http://www.ftc.gov/be.v020007.htm.
    \31\ FTC Staff Comment Before the Virginia Board of Veterinary 
Medicine Concerning Regulations to Remove Restrictions on Advertising 
and Non-Veterinarian Relationships (1996), http://www.ftc.gov/sites/
default/files/documents/advocacy--documemts/ftc-staff-
comment-virginia-board-veterinary-medicine-concerning-regulations-
remove-restrictions/p864641.pdf.

    For example, a series of FTC staff competition advocacy 
comments have addressed various physician supervision 
requirements that some states impose on advanced practice 
registered nurses (APRNs).\32\ FTC staff have not questioned 
state interests in establishing licensure requirements--
including basic entry qualifications--for APRNs or other health 
professionals in the interest of patient safety. Rather, staff 
have questioned the competitive effects of additional 
restrictions on APRN licenses, such as mandatory supervision 
arrangements with particular physicians, which are sometimes 
cast as ``collaborative practice agreement'' requirements. 
Physician supervision requirements may raise competition 
concerns because they effectively give one group of health care 
professionals the ability to restrict access to the market by 
another, potentially competing group of health care 
professionals. Based on substantial evidence and experience, 
expert bodies have concluded that APRNs are safe and effective 
as independent providers of many health care services within 
the scope of their training, licensure, certification, and 
current practice.\33\ Therefore, we have suggested that 
mandatory physician supervision may not be a justified form of 
occupational regulation.
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    \32\ Many of the individual advocacy comments regarding nursing 
restrictions, along with the research and analyses underlying those 
comments, are described in detail in Policy Perspectives: Competition 
and the Regulation of Advanced Practice Nurses, supra note 7. For a 
broader discussion of the advocacy program and competition perspectives 
on APRN, nurse anesthetist, and retail clinic regulations, see Daniel 
J. Gilman & Julie Fairman, Antitrust and the Future of Nursing: Federal 
Competition Policy and the Scope of Practice, 24 Health Matrix 143 
(2014).
    \33\ See, e.g., Inst. of Med., Nat'l Acad. of Sciences, The Future 
of Nursing: Leading Change, Advancing Health, 98-99 (2011); Nat'l 
Governors Ass'n, The Role of Nurse Practitioners in Meeting Increasing 
Demand for Primary Care, 7-8 (2012), http://www.nga.org/files/live/
sites/NGA/files/pdf/1212NursePractitionersPaper.pdf (study funded by 
U.S. Dep't Health & Human Servs., reviewing literature pertinent to NP 
safety and concluding ``None of the studies in the NGA's literature 
review raise concerns about the quality of care offered by NPs. Most 
studies showed that NP-provided care is comparable to physician-
provided care on several process and outcome measures.'').

    In some situations, we engage in competition advocacy 
because we can find no plausible public benefit justifying 
licensure restrictions. For example, in 2011, the Commission 
filed an amicus brief in St. Joseph Abbey v. Castille,\34\ 
clarifying the meaning and intent of the Commission's ``Funeral 
Rule.'' \35\ The plaintiffs, monks at St. Joseph Abbey who had 
built and sold simple wooden caskets consistent with their 
religious values, had challenged Louisiana statutes that 
required persons engaged solely in the manufacture and sale of 
caskets within the state to fulfill all licensing requirements 
applicable to funeral directors and establishments. Those 
requirements included, for example, a layout parlor for 30 
people, a display room for six caskets, an arrangement room, 
the employment of a full-time, state-licensed funeral director, 
and, even though the Abbey did not handle or intend to handle 
human remains, installation of ``embalming facilities for the 
sanitation, disinfection, and preparation of a human body.'' 
The U.S. Court of Appeals for the Fifth Circuit found that ``no 
rational relationship exists between public health and safety 
and restricting intrastate casket sales to funeral directors. 
Rather, this purported rational for the challenged law elides 
the realities of Louisiana's regulation of caskets and 
burials.'' \36\
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    \34\ Brief for the Federal Trade Commission as Amicus Curiae 
Supporting Neither Party, St. Joseph Abbey v. Castille, 712 F.3d 215 
(5th Cir. 2013), cert. denied, 134 S. Ct. 423 (2013).
    \35\ 47 Fed. Reg. 42260 (1982).
    \36\ St. Joseph Abbey, 712 F.3d at 226 (affirming the district 
court decision that the challenged regulations, and their enforcement 
by the state board, were unconstitutional).

    Private activities of accrediting organizations or trade 
associations also can influence licensing restrictions, either 
directly--as, for example, when state law requires a degree 
from an accredited school in order to obtain a license--or 
indirectly, when association activities establish a de facto 
standard of professional practice. A notable example is 
reflected in recent FTC staff comments to the American Dental 
Association's Commission on Dental Accreditation (CODA), in 
which FTC staff suggested that CODA not take the unusual step 
of including supervision and scope of practice limitations in 
accreditation standards for new dental therapist education 
programs.\37\ Although the standard would not be binding on 
state legislatures, FTC staff were concerned that it could 
effectively constrain the discretion of the states in defining 
scope of practice and supervisory requirements for dental 
therapists and impede the development of this emerging model 
for delivering dental health services.
---------------------------------------------------------------------------
    \37\ FTC Staff Comment Before the Commission on Dental 
Accreditation Concerning Proposed Accreditation Standards for Dental 
Therapy Education Programs (2013), http://www.ftc.gov/sites/default/
files/documents/advocacy--documents/ftc-staff-comment-
commission-dental-accreditation-concerning-proposed-accreditation-
standards-dental/131204codacomment.pdf.

    As noted earlier, another area of concern relates to how 
heavily regulated industries respond to new and disruptive 
forms of competition. In some cases, regulators seek to adopt 
regulations that facilitate that competition, especially when 
it appears to respond to consumer demand and offer new or 
different services or products. In other instances, however, 
some regulators have responded by acting to protect those 
currently subject to regulation. This has been happening in the 
taxi and related transportation business, where innovative 
smartphone applications have provided consumers with new ways 
to arrange for transportation and, in some cases, enabled new 
sources of transportation services. Although some jurisdictions 
have responded by adapting, others have sought to either 
enforce existing regulations or adopt new ones that would 
impede the development of these new services without seemingly 
valid justifications. We have urged these jurisdictions to 
carefully consider the adverse consequences of limiting 
competition and question the basis for any restrictions 
advocated by incumbent industry participants.\38\
---------------------------------------------------------------------------
    \38\ See, e.g., FTC Staff Comment to the Honorable Brendan Reilly 
Concerning Chicago Proposed Ordinance O2014-1367 Regarding 
Transportation Network Providers (2014), http://www.ftc.gov/system/
files/documents/advocacy--documents/ftc-staff-comment-
honorable-brendan-reilly-concerning-chicago-proposed-ordinance-o2014-
1367/140421chicagoridesharing.pdf. Regarding new methods of retail 
sales of automobiles, see, e.g., FTC Staff Comment Before the Missouri 
House of Representatives Regarding House Bill 1124, Which Would Expand 
the Current Prohibition on Direct-to-Consumer Sales by Manufacturers of 
Automobiles (2014), http://www.ftc.gov/policy/policy-actions/advocacy-
filings/2014/05/ftc-staff-comment-missouri-house-representatives-0.

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    V. Enforcement

    Although the FTC often relies on competition advocacy to 
discourage potentially anticompetitive occupational licensure 
laws and regulations, it has also relied upon its enforcement 
authority to challenge anticompetitive conduct by independent 
regulatory boards that falls outside of the scope of protected 
``state action.'' \39\ These enforcement actions have included 
challenges to agreements among competitors that restrained 
advertising and solicitation, price competition, and contract 
or commercial practices, as well as direct efforts to prohibit 
competition from new rivals, without any cognizable 
justification.\40\
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    \39\ The Supreme Court has very recently admonished that reliance 
on the state action doctrine is ``disfavored.'' FTC v. Phoebe Putney 
Health System, Inc., 133 S.Ct. 1003, 1010, 1016 (2013). As the Supreme 
Court has observed, ``[t]he national policy in favor of competition 
cannot be thwarted by casting ... a gauzy cloak of state involvement 
over what is essentially ... [private anticompetitive conduct].'' Cal. 
Retail Liquor Dealers Ass'n v. Midcal Aluminum, 445 U.S. 97, 106 
(1980). As prerequisites to invocation of the state action doctrine, 
Midcal requires that the challenged private conduct be (1) undertaken 
pursuant to a clearly articulated and affirmatively expressed state 
policy to displace competition with regulation, and (2) actively 
supervised by the state. Id. at 105-06.
    \40\ The Commission also has advocated against attempts to exempt 
certain licensed health care professions from antitrust scrutiny for 
the purpose of permitting blatantly anticompetitive conduct. See FTC 
Staff Comment Before the Connecticut General Assembly Labor and 
Employees Committee Regarding Connecticut House Bill 6431 Concerning 
Joint Negotiations by Competing Physicians in Cooperative Health Care 
Arrangements, 3 (2013), http://www.ftc.gov/sites/default/files/
documents/advocacy--documents/ftc-staff-comment-connecticut-
general-assembly-labor-and-employees-committee-regarding-connecticut/
130605conncoopcomment.pdf.

    For example, in 2003, the Commission sued the South 
Carolina Board of Dentistry, charging that the Board had 
illegally restricted the ability of dental hygienists to 
provide basic preventive dental services in schools.\41\ In 
2000, to address concerns that many schoolchildren, 
particularly those in low-income families, were not receiving 
any preventive dental care, the state legislature eliminated a 
statutory requirement that a dentist examine each child before 
a hygienist could perform preventive care in schools. In 2001, 
the FTC's complaint charged, the Board re-imposed the dentist 
examination requirement. The complaint alleged that the Board's 
action unreasonably restrained competition in the provision of 
preventive dental care services, deprived thousands of 
economically disadvantaged schoolchildren of needed dental 
care, and that is harmful effects on competition and consumers 
could not be justified. The Board ultimately entered into a 
consent agreement settling the charges.\42\
---------------------------------------------------------------------------
    \41\ In re South Carolina State Board of Dentistry, Complaint 
(2003) (Dkt. No. 9311), http://www.fic.gov/os/2003/09/
socodentistcomp.pdf. See also In re South Carolina Board of Dentistry, 
Opinion and Order of the Commission (2004) (Dkt. No. 9311), http://
www.fic.gov/os/adjpro/d9311/04072Scommissionopinion.pdf.
    \42\ In re South Carolina State Board of Dentistry, Decision and 
Order (2007) (Dkt. No. 93 I I), available at http://www.ftc.gov/os/
adjpro/d93111070911decision.pdf.

    Similarly, in 2010, the Commission challenged the North 
Carolina Board of Dental Examiners for issuing a series of 
cease-and-desist letters that successfully expelled low-cost 
non-dentist providers of teeth-whitening services.\43\ The U.S. 
Court of Appeals for the Fourth Circuit agreed with the FTC 
that state agencies `` `in which a decisive coalition (usually 
a majority) is made up of participants in the regulated 
market,' who are chosen by and accountable to their fellow 
market participants, are private actors and must meet both 
Midcal prongs [that is, clear articulation and active 
supervision.]'' \44\ The court further held that the Board had 
not been subject to the type of active supervision Midcal 
requires.\45\ Finally, the court affirmed the FTC's conclusion 
that the Board's behavior was likely to cause significant 
competitive harm, finding it ``supported by substantial 
evidence.'' \46\
---------------------------------------------------------------------------
    \43\ North Carolina State Bd. of Dental Examiners v. FTC, 717 F. 3d 
359, 365 (4th Cir. 2013). As noted above, the case is before the U.S. 
Supreme Court.
    \44\ Id. at 368. See also supra note 39.
    \45\ Id. at 370.
    \46\ Id. at 374.

    Some of the Commission's most important enforcement actions 
challenging restrictions on the dissemination of truthful 
advertising of professional services have been in the health 
care area.\47\ For example, some boards of optometry \48\ and 
dentistry \49\ have sought to suppress information that could 
be useful to consumers of their services. The FTC has also 
challenged advertising restraints imposed by private self-
regulatory associations. In the seminal case of American 
Medical Association (``AMA''),\50\ the Commission found, among 
other things, that the AMA, through its ethical guidelines, had 
illegally suppressed virtually all forms of truthful, non-
deceptive advertising and similar means of solicitation by 
doctors and heath care delivery organizations. The Commission 
ordered the AMA to cease and desist from prohibiting such 
advertising. However, it allowed the AMA to continue its use of 
ethical guidelines to prevent false or deceptive advertisements 
or oppressive forms of solicitation.
---------------------------------------------------------------------------
    \47\ For an example outside the health care area, see, e.g., Rhode 
Island Board of Accountancy, 107 F.T.C. 293 (1986) (consent order).
    \48\ See, e.g., In the Matter of Massachusetts Bd. of Registration 
in Optometry, 110 F.T.C. 549 (1988).
    \49\ Louisiana State Bd. of Dentistry, 106 F.T.C. 65 (1985) 
(consent order).
    \50\ 94 F.T.C. 701 (1979). The Commission's decision was affirmed 
and modified by the U.S. Court of Appeals, 638 F.2d 443 (2d Cir. 1980), 
and affirmed in a 4-4 vote by the Supreme Court, 455 U.S. 676 (1982).

---------------------------------------------------------------------------
    VI. Conclusion

    Occupational licensing can serve important goals and, when 
used appropriately, protect consumers from harm. But, as is 
illustrated by the Commission's history of advocacy and 
enforcement, excessive occupational licensing can make 
consumers worse off, impeding competition without offering 
meaningful protection from legitimate health and safety risks. 
Even when some form of licensure is warranted, specific 
regulations can have significant adverse effects on competition 
and consumers. Such regulations should be analyzed for their 
impact on competition and, when they are likely to harm 
consumers, individually justified. States also should be 
cautious when delegating authority to enforce such regulations 
to self-interested boards of the very occupation to be 
regulated.

    Thank you for the opportunity to share the Commission's 
views and to discuss our efforts to promote competition and 
protect consumers.
                 Questions for the Record from

                 Rep. Blaine Luetkemeyer (MO-3)

                  Committee on Small Business

                 U.S. House of Representatives

   ``Barriers to Entrepreneurship: Examining the Anti-Trust 
            Implications of Occupations Licensing''

                         July 16, 2014

    Questions to Andrew Gavil, Director of the Office of Policy 
Planning, Federal Trade Commission

    The Office of Policy Planning has not been involved with 
any policy initiatives or enforcement actions involving payment 
processors. To be responsible, I have asked the appropriate 
staff in the Commission's Bureau of Consumer Protection to 
provide substantive responses to certain questions. Those 
responses follow mine below.

          1. The Office of Policy Planning is responsible for 
        developing and implementing long-range competition and 
        consumer protection policy initiatives. As I understand 
        it, your office also advises Federal Trade Commission 
        staff on cases raising new or complex policy issues. In 
        carrying out these responsibilities, has your office 
        been involved over the past two years with any policy 
        initiatives relating to payment processors? Has your 
        office had to provide advice to the Federal Trade 
        Commission on cases involving payment processors that 
        raise new or complex policy issues?

                  No. In the past two years, the Office of 
                Policy Planning (``OPP'') has not been involved 
                with any policy initiatives relating to payment 
                processors and has not provided advice to the 
                Commission regarding cases involving payment 
                processors.

          2. As a matter of agency policy, would your office 
        have to study any potential changes in Federal Trade 
        Commission enforcement policy with respect to payment 
        processing before they are adopted? Has your office 
        conducted such a study?

                  No. There is no FTC policy requiring OPP 
                involvement in any particular consideration of 
                enforcement policy. I am not aware of any 
                potential changes being considered regarding 
                the FTC's enforcement policy with respect to 
                payment processors and OPP has not conducted 
                any study of potential changes in FTC 
                enforcement policy with regard to payment 
                processors during my time as OPP director. In 
                addition, I am not aware of any such OPP study 
                prior to my tenure here.

          3. Has your office or any office within the Federal 
        Trade Commission conducted any examination or study 
        relating to payment processing? If so, what was the 
        nature of those studies and what was their conclusion?

                  OPP has not conducted any examination or 
                study relating to payment processing during my 
                time as OPP director and I am not aware of any 
                such OPP examination or study prior to my 
                tenure here.

                  Bureau of Consumer Protection Response: As 
                part of its efforts to stop fraud and cut off 
                the supply of money to fraudulent operations, 
                the Commission has had a long-standing 
                enforcement program directed at payment 
                processors that engage in unlawful conduct. For 
                more than a decade, the Commission has charged 
                a variety of nonbank payment processors and 
                other intermediaries with engaging in unfair 
                acts and practices in violation of the FTC Act, 
                16 U.S.C. Sec. 45, and/or with providing 
                substantial assistance to telemarketers in 
                violation of the Telemarketing Sales Rule, 16 
                C.F.R. Part 310.

                  The payment methods involved in the 
                Commission's cases have included credit and 
                debit cards,\1\ Automated Clearing House 
                (``ACH'') debits,\2\ unsigned demand drafts 
                known as Remotely Created Checks (``RCCs''), 
                and electronic versions of RCCs, known as 
                Remotely Created Payment Orders (``RCPOs'').\3\ 
                Regardless of the payment method, the 
                Commission's cases have highlighted red flags 
                that should have put the defendants on notice 
                of a high likelihood of illegal activity. These 
                signs include unusually high rates of returned 
                or reversed transactions (or chargeback rates 
                in connection with credit cards), sales scripts 
                or websites containing statements that are 
                facially false or highly likely to be false, 
                consumer complaints, and inquiries from law 
                enforcement or regulators.
---------------------------------------------------------------------------
    \1\ E.g., FTC v. Innovative Wealth Builders, Civ. No. 13-CV-00123 
(M.D. Fla. June 11, 2014) (Stip. Perm. Inj.) (alleging that credit card 
processor violated the TSR by assisting telemarketers of debt relief 
services); FTC v. Loewen, 2013 WL 5816420 (W.D. Wash. Oct. 29, 2013) 
(Summ. J.) (finding defendants' activities, including credit card 
processing, violated the TSR).
    \2\ E.g., FTC v. Your Money Access, LLC, Civ. No. 07-5147 (E.D. Pa. 
Aug. 11, 2010) (Stip. Perm. Inj.) (alleging ACH and RCC payment 
processor unfairly debited or attempted to debit more than $200 million 
from consumer accounts on behalf of fraudulent telemarketers); FTC v. 
Electronic Financial Group, No. W-03-CA-211 (W.D. Tex. Mar. 23, 2004) 
(Stip. Perm. Inj.) (settlement requiring defendants to pay $1.5 
million).
    \3\ E.g., FTC v. Automated Electronic Checking, Inc., Civ. No. 13-
00056-RCJ-WGC (D. Nev. Feb. 5, 2013) (Stip. Perm. Inj.) (payment 
processor of RCCs and RCPOs); FTC v. Neovi, Inc., 598 F. Supp. 2d 1104 
(S.D. Cal. Sept. 16, 2008), aff'd, 604 F.3d 1150, 1158 (9th Cir. 2010) 
(Perm. Inj.) (Internet-based check creation and delivery service).

                  Any decision about whether to take law 
                enforcement action is largely defined by the 
                facts of a particular case. The Commission will 
                continue to carefully consider the relevant 
                facts of each case--including the processor's 
                relationship to the merchant, its participation 
                in the merchant's illegal activities, and the 
                extent of its knowledge of the illegal 
                activities--to determine whether law 
---------------------------------------------------------------------------
                enforcement is appropriate.

                  In addition, the Commission has worked with 
                NACHA--The Electronic Payments Association, 
                Visa and MasterCard, as well as the Electronic 
                Transactions Association to learn about 
                standard industry practices and to promote 
                self-regulatory initiatives. Self-regulation, 
                if it is sufficiently robust, can serve as an 
                important complement to law enforcement in this 
                area. Industry standards, such as those from 
                Visa and MasterCard, have been in place for 
                many years and have assisted processors and 
                banks in ferreting out entities engaged in 
                illegal conduct.

          4. Has your office or any other office at the Federal 
        Trade Commission cooperated with the Department of 
        Justice and/or any federal banking regulator in any 
        fashion on Operation Choke Point?

                  As I testified, OPP has not been involved in 
                what some may have described as ``Operation 
                Choke Point.''

                  Bureau of Consumer Protection Response: The 
                Commission participated in an inter-agency 
                working group--the Consumer Protection Working 
                Group of the Financial Fraud Enforcement Task 
                Force--that, among other things, focused on 
                payment processors engaged in unlawful conduct. 
                The members of the working group, which 
                included the Department of Justice (``DOJ'') 
                and federal banking regulators, exchanged 
                information about payment processors, and 
                coordinated their work in this area to maximize 
                the efficient use of government resources in 
                order to protect consumers from fraud. As 
                discussed above, the Commission has brought 
                enforcement actions against payment processors 
                engaged in unlawful conduct for more than a 
                decade; and FTC staff has shared information 
                with DOJ even prior to the Working Group's 
                formation in 2012. The term ``Operation Choke 
                Point'' was developed by DOJ staff to refer to 
                its own work in this area. The Commission does 
                not use this term in reference to its work 
                involving payment processors, which again 
                preceded our involvement in the inter-agency 
                working group described above.

          5. In what manner does the Federal Trade Commission 
        cooperate with law enforcement agencies and federal 
        banking agencies?

                  OPP interacts on a regular basis with other 
                federal and state government agencies regarding 
                competition policy matters, including 
                competition advocacy, workshops, and industry 
                studies. We have also participated in the 
                preparation of various antitrust enforcement 
                guidelines. OPP does not cooperate with other 
                agencies directly in any law enforcement 
                matters.

                  Bureau of Consumer Protection Response: With 
                regard to consumer protection matters, the FTC 
                partners with various civil and criminal 
                agencies on matters of overlapping jurisdiction 
                or expertise. The FTC frequently works with the 
                Consumer Protection Branch of DOJ's Civil 
                Division, which has authority to bring civil 
                penalties for violations of FTC administrative 
                orders and FTC rules.\4\ The Commission's 
                Criminal Liaison Unit also partners with DOJ 
                (including the U.S. Attorneys' Offices) and 
                other federal and state criminal law enforcers 
                to promote criminal prosecution of consumer 
                frauds. This is consistent with Section 6(k) of 
                the FTC Act, 16 U.S.C. Sec. 46(k), which grants 
                the FTC authority to refer matters to DOJ for 
                criminal law enforcement and share information 
                with DOJ attorneys. The FTC and the Consumer 
                Financial Protection Bureau share concurrent 
                enforcement authority over most non-bank 
                financial entities. The agencies coordinate 
                their work through a Memorandum of 
                Understanding, which is designed to ensure 
                consistency in approach, facilitate information 
                sharing, and prevent duplication. The FTC also 
                coordinates with other banking agencies 
                informally on enforcement issues to ensure 
                consistency and avoid duplication.
---------------------------------------------------------------------------
    \4\ See, e.g., U.S. v Sonkei Communications, No. SACV11-1777-AG 
(C.D. Cal. Apr. 15, 2014) (Stip. Perm. Inj.) (resolving allegations 
that the defendants violated the FTC's Telemarketing Sales Rule by 
helping clients make illegal robocalls, call phone numbers on the 
National Do Not Call Registry, and mask Caller ID information).

          6. Documentation provided by the Department of 
        Justice to the House Oversight and Government Reform 
        Committee indicates that at least one Federal Trade 
        Commission attorney was assigned to the Department of 
        Justice to work on Operation Choke Point. Please 
        provide all information related to that assignment. How 
        many Federal Trade Commission staff have been assigned 
        to the Department of Justice to work on Operation Choke 
        Point and/or similar initiatives? How many Federal 
        Trade Commission staff are working internally on 
---------------------------------------------------------------------------
        Operation Choke Point and/or similar initiatives.

                  As indicated above in response to Question 4, 
                OPP has not been involved in ``Operation Choke 
                Point.''

                  Bureau of Consumer Protection Response: On or 
                about June 2013, one FTC staff attorney was 
                designated a Special Assistant United States 
                Attorney to assist in the investigation and 
                possible criminal prosecution of suspects who 
                work in the payment processor industry. 
                Approximately 50% of the attorney's time was 
                spent working on the criminal matter, with the 
                remainder spent working on FTC matters. No 
                other attorneys have been assigned to DOJ to 
                work on matters involving payment processors. 
                As discussed above, the FTC has brought 
                enforcement actions against payment processors 
                for more than a decade. During that period, 
                several attorneys and investigators have worked 
                on more than a dozen enforcement actions filed 
                by the Commission.

                                 [all]
