by Jon Sanders
Director of the Center for Food, Power, and Life, Research Editor, John Locke Foundation
The U.S. Federal Trade Commission’s action against the Louisiana Real Estate Appraisers Board for using its powers to fix prices should be a wake-up call to North Carolina policymakers. Business-as-usual in occupational licensing is a perilous option for the state.
Here is the FTC’s case summary:
The Federal Trade Commission filed an administrative complaint against the Louisiana Real Estate Appraisers Board, alleging that the group is unreasonably restraining price competition for appraisal services in Louisiana, contrary to federal antitrust law. The complaint alleges that the appraisal board’s regulations exceeded the scope of the mandate outlined in the Dodd-Frank Act that required appraisal management companies to pay “a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.” Specifically, the board required appraisal fees to equal or exceed the median fees identified in survey reports commissioned and published by the board. The board then investigated and sanctioned companies that paid fees below the specified levels.
The FTC granted partial summary judgment against the Louisiana board on April 10 —developing how it applies and establishes whether the state maintains active supervision over the board, as required in the Supreme Court’s decision in North Carolina Board of Dental Examiners v. FTC (2015):
After surveying case law from the circuit courts and prior Commission decisions, we identified three elements that should be considered as part of the active supervision analysis: (1) the development of an adequate factual record, including notice and an opportunity to be heard; (2) a written decision on the merits; and (3) a specific assessment – both quantitative and qualitative – of how the private action comports with the substantive standard established by the legislature. We addressed the same three elements in North Carolina. Bd. of Dental Exam’rs. Although we cautioned in both cases that “no single one of these elements is necessarily a prerequisite for active supervision,” we noted that the absence of all of the factors would support a conclusion that the state had not adequately supervised the private actors’ activity.
These factors accord with the Supreme Court’s recent teachings in N.C. Dental. We emphasize again that these factors are merely guidelines; there is no one-size-fits-all set of immutable characteristics that a state supervising entity must satisfy in every context. The ultimate question is always simply “whether the State’s review mechanisms provide ‘realistic assurance’ that a nonsovereign actor’s anticompetitive conduct ‘promotes state policy, rather than merely the party’s individual interests.'” In general, when these three elements are all satisfied, a finding of active supervision is normally appropriate. However, when one or more of these factors are missing, it becomes increasingly likely that the scope of state supervision is inadequate. (Citations excised.)
Last June the FTC sent a letter in response to a request from North Carolina Assistant Attorney General Roberta A. Ouellette concerning proposed legislation regarding appraisal fees in this state. The legislation, House Bill 829, would direct the North Carolina Appraisal Board to adopt rules whereby “an appraisal management company [AMC] shall provide customary and reasonable compensation and offers of compensation to appraisers,” which would be rates “based on objective third-party information, such as academic studies, government fee surveys, and independent private sector surveys.”
What would be new in H.B. 829 with respect to appraisal rates would be the addition of “government fee surveys” to the third-party information used for setting the rates. But already the similarity to Louisiana’s law is there.
The FTC warned that the bill’s rate-setting method “is not mandated by — and, in fact, may be inconsistent with — federal law.” It also “expands the definition of customary and reasonable appraisal fees beyond the definition in federal law to include ‘offers of compensation,’ which could unnecessarily constrain negotiations for market-based appraisal fees.” It expands it even further by including “recent rates paid by the consumer,” which usually include “additional services beyond the appraisal” and therefore “might have the effect of inflating the prices paid by AMCs for appraisal services.” The survey approach “also removes the free market from any role in determining the price of appraisal services, and might inflate appraisal fees above competitive levels.”
H.B. 829 languished in committee, but that doesn’t mean the appraisal board is OK. The FTC took note that “the Board appears to be controlled by active market participants.” That means it would not be immune from antitrust action.
In light of N.C. Dental, the FTC “urge[d] the North Carolina General Assembly to consider whether the Board’s actions should be supervised by independent state officials who are not participants in the North Carolina appraisal industry.”
That would be, to my view, a rather strong suggestion at this point.