BILL NUMBER: S8416

SPONSOR: COMRIE
 
TITLE OF BILL:

An act to amend the general business law, in relation to enacting the
"fostering affordability and integrity through reasonable (FAIR) busi-
ness practices act"

 
PURPOSE:

To permit the Attorney General to bring actions or proceedings to
enjoin, penalize, and seek restitution for abusive and unfair business
practices and abolish "consumer-oriented" limits on the Attorney Gener-
al's enforcement authority; as well as make technical improvements to
Attorney General enforcement.

 
SUMMARY OF PROVISIONS:

Section 1 provides for the title of the enactment.

Section 2 adopts a new § 348 of the General Business Law (GBL) setting
              

out the purpose and intent of Article 22-a.

Section 3 amends the article heading of Article 22-a to read "Protection
from Unfair, Deceptive, and Abusive Acts and Practices."

Section 4 amends § 349 of the GBL to outlaw unfair and abusive acts and
practices and provide a definition of "unfair" and "abusive" acts and
practices derived from the Federal Trade Commission Act, 15 U.S.C. § 41
et seq. ("unfair") and the Consumer Financial Protection Act, 12 U.S.C.
§ 5531(d) ("abusive") with certain modifications. It continues the
existing law's prohibition on deceptive acts and practices without
modification.

It eliminates, in enforcement actions or proceedings brought by the
Attorney General, the "consumer-oriented" doctrine developed by the
courts to limit the applicability of the statute.

Section 5 provides that each part of the act is severable from each
other part in the event one or more parts are adjudicated invalid.

Section 6 provides an effective date of 60 days following enactment.

 
JUSTIFICATION:

The "Fostering Affordability and Integrity through Reasonable (FAIR)
business practices act" ("the FAIR Business Practices Act") updates the
Attorney General's powers to enforce New York's consumer protection laws
by adding federal authorities that are presently at risk of falling into
desuetude.

The bill brings the Attorney General's consumer protection authority
into line with now-47 states that outlaw unfair business practices,
updates enforcement mechanisms not touched since 1980, and closes a
court-created loophole inadvertently and inappropriately applied to
Attorney General enforcement actions and proceedings.


It also augments the Attorney General's powers to protect consumers and
businesses in the wake of the federal government's attempted dismantle-
ment the Consumer Financial Protection Bureau (CFPN, protected New York-
ers from abusive acts perpetrated by businesses.

Although this memo uses the word "businesses" to describe defendants or
potential defendants in FAIR Business Practices Act enforcements and
litigations and "business practices" to describe the acts and practices
of those persons, the acts and practices of non-profit entities are
covered by the Act, and nonprofits are protected to the same extent as
businesses are by any of the Act's protections or defenses.

 
OUTLAWING ABUSIVE AND UNFAIR ACTS AND PRACTICES.ct.

According to the National Consumer Law Center, 47 states other than New
York already outlaw "unfair" business practices; many have done so since
1967. The FAIR Business Practices Act defines "unfair" practices using
the Federal Trade Commission's definition, updated to cover businesses
and non-profits as well as consumers (15 USC § 45(n)). This definition
is narrower than most states' definitions of "unfair" acts and practices
and is designed to be easy to comply with because it already applies to
everyone under federal law.

The Act applies to harms against businesses or non-profits as well as
consumers, although it keeps the requirement that the benefits proposed
to outweigh such harms must be to consumers or competition.  By defining
unfair acts and practices as extending to injury to more than just
"consumers," the FAIR Business Practices Act does not observe the
distinction found in the FTCA between "unfair competition" and "unfair
acts and practices" (cf. Cel-Tech Commc'ns, Inc. v Los Angeles Cellular
Tel. Co., 20 Cal 4th 163, 179-81 (1999)).  The omission of "unfair
competition" in the FAIR Business Practices Act should not be interpret-
ed to exclude by negative implication acts and practices that constitute
unfair competition. Nor does the fact that an act was found to be an
unfair method of competition (or, indeed, an unfair act) under some
different statute per se determine whether the act is an unfair act or
practice under the FAIR Business Practices Act. The question is always
whether the act or practice satisfies the Act's particular defmition of
"unfair."

The FAIR Business Practices Act defines "abusive" practices in line with
the federal Consumer Financial Protection Act (12 USC § 5531(d)):
Abusive practices are those that materially interfere with someone
else's understanding of a term or condition of a good or service, or
that unreasonably take advantage of someone else's lack of understanding
of relevant risks, inability to protect their own interests, or reason-
able reliance on another person to act in their interests.

The FAIR Business Practices Act expands this defmition in two ways.
First its protections apply beyond consumer financial products as this
is a general-purpose statute. Second, it applies to both sides of the
commercial equation, such that those who sell goods or services (includ-
ing employees and contractors) are just as protected as those who buy
them.

The Act provides that the prohibition on unfair or abusive acts and
practices is enforceable only by the Attorney General. No change is

intended to be made to the private right of action, which remains limit-
ed to consumer-oriented deceptive acts and practices.

 
PRESERVING FEDERAL AND STATE INJURY REQUIREMENTS.ct.

The FAIR Business Practices Act does not disturb existing caselaw
requiring a private plaintiff alleging a deceptive act or practice show
that the "act or practice that caused actual, although not necessarily
pecuniary, harm" (Oswego Laborers, 85 NY2d at 26). The FAIR Business
Practices Act also does not alter existing law providing that an act is
deceptive even in the absence of reliance (see Stutman v Chem.  Bank, 95
NY2d 24, 30 (2000)).

The Act continues the current statute's provision that the Attorney
General need not prove either likely or actual injury as a condition for
bringing an enforcement for deception (see, e.g., Goshen v Mut.  Life
Ins. Co. of New York, 98 NY2d 314, 324 (2002)), consistent with the
Attorney General's vital role in policing the marketplace as a whole and
preventing unfair, abusive, and deceptive practices, ideally before they
claim their first victim. In the same way, the Attorney General need not
show injury, or likely injury, to prove that a particular practice is
abusive.

If the Attorney General seeks to bring an enforcement against an unfair
act or practice, however, the Attorney General must show the act or
practice "causes or is likely to cause substantial injury."  The likely
or actual "substantial injury" that the Attorney General must show is
different from the "actual" injury that must be shown to maintain a
private right of action. Each definition-substantial injury for Attorney
General unfairness proceedings, "actual, although not necessarily pecu-
niary, harm" for deceptiveness private rights of action-must be analyzed
separately and in the context of their independently developed caselaw.

In the overwhelming majority of cases, the same injury will suffice for
both, as in the federal context "substantial injury" means injury
"having a real existence" rather than "of ample or considerable size"
(see generally FTC Policy Statement on Unfairness,
https://www.fic.govilegal-library/browse/ftc-policystatement-unfairness
(Dec 17, 1980) (describing "substantial injury" as not "trivial or mere-
ly speculative harms"), cf. Oxford English Dictionary, Substantial,
definitions 1.3, 11.11 ("substantial" here takes definition II.11, not
I.3)).

There are two primary ways in which the Attorney General's "substantial
injury" standard may diverge from the "actual, though not necessarily
pecuniary, harm" standard for the private right of action. First, and
most obviously, the Act allows the Attorney General to show only that
the act or practice is "likely to cause" substantial injury. Second,
"substantial injury" may involve harms of a nature that would not rise
to the standards of injury demanded under state law in a private right
of action but would nonetheless be deemed substantial under federal law
(see generally American Fin.  Servs. Ass 'n v FTC, 767 F2d 957, 972 (DC
Cir 1985) (an act or practice causes substantial injury when it causes
"small harm to a large number of people, or if it raises a significant
risk of concrete harm")).

In relying on federal law in this way, it is important to observe the
one change expressly made by the text to the federal "substantial inju-
ry" requirement: The substantial injury may, but need not, be caused to
a person or persons who are consumers, consistent with the overall
purpose of the FAIR Business Practices Act of permitting the Attorney
General to enforce it as to the whole economy.

 
ABOLISHING THE "CONSUMER-ORIENTED" DOCTRINE IN ATTORNEY GENERAL
ENFORCEMENTS.ct.

New York's current law banning deceptive business practices has been
interpreted to apply only to "consumer-oriented" practices that "affect
the public at large" rather than "private contract disputes, unique to
the parties" (Oswego Laborers, 85 NY2d at 25). The underlying statute,
however, does not require-or even reference-"consumer-oriented" conduct.
This rule was established in the early 1980s by courts concerned that
complex high-value commercial negotiations might be distorted if consum-
er protection laws could be applied by the parties to those negotiations
when the deal goes bad (see Genesco Entertainment v Koch, 593 F Supp
743, 752-53 (SDNY 1984) (originating the requirement), approved by Oswe-
go Laborers, 85 NY2d at 25-26).

The "consumer-oriented" doctrine has been applied erroneously to reject
enforcements brought by the Attorney General, whose enforcements are, by
definition, brought in the name of the People of New York to protect the
public interest. Moreover, the salient reasons for the consumer-oriented
doctrine have no relevance to Attorney General enforcement actions;
indeed, as the residential mortgage-backed securities crisis demon-
strated, sophisticated private commerical deals can sometimes have enor-
mous public consequences not apparent at the time they are made. Worse,
the doctrine has prevented the Attorney General from engaging in
enforcements designed to protect businesses and non-profits, particular-
ly small businesses and non-profits, from deceptive acts and practices.

The FAIR Business Practices Act accordingly exempts Attorney General
enforcements (whether for unfair, deceptive, or abusive conduct) from
the "consumer-oriented" doctrine, in all its varieties and formulations,
including "public impact" "unique to the parties" "one-off" and so on.
In Attorney General enforcements, liability is established when the
Attorney General establishes that the challenged act or practice satis-
fies one or more of the definitions in subdivision (a). That is all that
is required.

The abolition of the "consumer-oriented" doctrine as applied to Attorney
General enforcements may lead to courts needing to alter slightly the
application of the existing judicial definition of "deceptive acts and
practices." Presently, the existing "objective" definition of "deceptive
acts and practices" set out in Oswego Laborers' Loc. 214 Pension Fund v.
Marine Midland Bank, N.A. (85 NY2d 20, 26 (1995)), is "whether represen-
tations or omissions" are "likely to mislead a reasonable consumer
acting reasonably under the circumstances." This definition continues to
apply, without modification, to the private right of action.

But with the abolition of "consumer-oriented," it is now possible for
the Attorney General to bring enforcements deceptive acts and practices
that are not oriented to consumers. In many such cases, the reasonable
consumer standard will still be appropriate, but if the act or practice
is exclusively directed to members of a particular non-consumer popu-
lation, to give effect to the abolition of consumer-oriented it may be
necessary for the court to apply the objective standard of the reason-
able member of that population instead of the average reasonable consum-
er.

The Act does not disturb existing caselaw concerning the application of
the consumer-oriented doctrine to the private right of action (see,
e.g., Himmelstein, McConnell, Gribben, Donoghue & Joseph, LLP v Matthew
Bender & Co., Inc., 37 NY3d 169, 178 (2021)). It simply provides that
this doctrine no longer applies to Attorney General enforcements.

 
STREAMLINING ATTORNEY GENERAL PROCEEDINGS.ct.

The FAIR Business Practices Act reaffirms the Attorney General's author-
ity to enforce the law against New York businesses that victimize non-
New York residents, and non-New York businesses that victimize New York-
ers, consistent with the Attorney General's broad responsibility to
ensure an honest marketplace in New York and New York's reciprocal
responsibilities to other states to, where appropriate, seek restitution
for out-of-state victims of in-state unfair, deceptive, and abusive acts
and practices.

The FAIR Business Practices Act also clarifies that the Attorney General
may enforce the statute by plenary action or by using the more efficient
Article 4 special court proceedings the Attorney General is already
authorized to use under Executive Law § 63(12), among other statutes
(see, e.g., Matter of People v Applied Card Sys., Inc., 27 AD3d 104, 109
(1st Dep't 2005)).

 
PRIOR LEGISLATIVE HISTORY:

New bill.

 
FISCAL IMPLICATIONS:

It is anticipated that the increased civil penalty and widened
protections proposed in the bill would result in an increase in monies
remitted to the state by violators and perpetrators.

 
EFFECTIVE DATE:
This act shall take effect on the 60th day after it shall have become
law.