This week, the Federal Trade Commission filed an administrative complaint against the Louisiana Real Estate Appraisers Board (LREAB). This complaint is the FTC’s first against a state licensing board since it prevailed in the Supreme Court in the decision in NC State Board of Dental Examiners v. FTC in 2015. There, the Court held that immunity from the antitrust laws under the state action doctrine does not apply to a state board that regulates an industry if: 1) a majority of the board members are active participants in the market they are regulating, and 2) the board has not been actively supervised by the state. McDermott reported in detail about the NC Board of Dental Examiners at the time of the decision. The complaint comes on the tail of a settlement agreement between the FTC and a trade organization, the American Guild of Organists, as reported this week.
FTC alleges that the LREAB violated Section 5 of the Federal Trade Commission Act by unreasonably restraining price competition for real estate appraisal services provided to appraisal management companies (AMCs) in Louisiana.
WHAT HAPPENED
- The LREAB describes itself as “the state government agency that administers and regulates the real estate appraiser licensing and certification program for the State of Louisiana.” It provides appraisal services to AMCs, which are independent companies that act as agents for lenders to obtain real estate appraisals. The LREAB has the power to grant, suspend and revoke licenses of AMCs.
- The LREAB consists of eight licensed appraisers and two representatives of the lending industry. In the complaint, FTC argues that the appraiser members both control the operation of the LREAB and are active market participants due to their licensure by the Board and their private interests in its acts.
- In addition to a majority of board members qualifying as active market participants, FTC alleges that LREAB is not actively supervised by the state. Though the Governor of Louisiana appoints each Board member, FTC alleges that independent state officials, those not involved in the appraisal industry, have not supervised the Board’s actions and thus LREAB acts on its own discretion.
- In November 2013, the LREAB adopted a regulation that required AMCs to pay appraisers a “customary and reasonable fee” for appraisals. FTC reports that the fee must be determined in one of three ways: (1) an AMC may use a survey of fees recently paid by lenders in the relevant geographic area; (2) an AMC may use a fee schedule established by the Board; or (3) an AMC may identify recently paid fees and adjust this base rate using six specified factors.
- FTC alleges that to enforce the regulation, LREAB commissioned a study on median fees paid by lenders in various regions of the state by the Southeastern Louisiana University Business Research Center. LREAB then initiated enforcement actions against AMCs that violated the regulations, which effectively required AMCs to pay fees that equal or exceeded the medians from LREAB’s commissioned studies.
- FTC alleges that by its regulation and enforcement, LREAB has unreasonably restrained price competition by preventing the free market and bona fide negotiation from being the determiners of appraisal fees.
- The administrative trial is set for January 30, 2018.
WHAT THIS MEANS
- The FTC has signaled that it will continue to challenge state regulations it alleges to be anticompetitive when adopted by state boards that, in the Commission’s view, do not meet the requirements articulated by the Supreme Court in NC State Board of Dental Examiners v. FTC for antitrust immunity under the state-action doctrine. Earlier this week, we reported on an FTC complaint challenging an industry rule established by that industry’s private professional guild. Today we report on an FTC challenge to a regulation issued by a state regulatory board that allegedly is controlled by members of the industry that the board regulates, and that is not actively supervised by the state.
- Acting Chairman Ohlhausen has indicated that these kinds of restrictions will continue to be a focus for the FTC during the new administration, because they inhibit economic liberty. The fact that a restriction is the result of action taken by a state board will not deter FTC opposition, if, in the FTC’s view, the board cannot show a valid immunity defense under the state action doctrine.
- State boards in which a majority of their members are active market participants in the industry they regulate should carefully evaluate whether their decisions pose a potential anticompetitive effect, and, if so, whether they are sufficiently supervised by their state to meet the Supreme Court’s requirements for immunity from antitrust liability.
