ACCREDITING COMMISSION ON CAREER SCHOOLS Advisory Opinion Re: The proposal to adopt and enforce certain…

ACCREDITING COMMISSION ON CAREER SCHOOLS 977

977 Advisory Opinion

Re: The proposal to adopt and enforce certain accrediting standards on tuition and fees would not violate antitrust laws. (Accrediting Cammissian an Career Schaals and Calleges af Technalagy, P944015J

January 19, 1995

Dear Mr. Pelesh:

This letter responds to your request on behalf of the Accrediting Commission on Career Schools and Colleges of Technology for an advisory opinion on the permissible means, under the antitrust Jaws, of adopting and enforcing an accrediting standard on tuition and fees as the Higher Education Amendments of 1992 require. You have proposed three possible standards by which your organization might assess tuition and fees, and asked us to provide guidance on the permissibility of each.

On the basis of information you provided, the Commssion has no present objection to an accreditation program along the Jines of your third proposal, but believes your first and second proposals raise substantial antitrust concerns.

I. BACKGROUND OF THE REQUEST

According to the request for advisory opinion, the Accrediting Commission on Career Schools and Colleges of Technology ("ACCSCT" ) is a private, nonprofit organization that adopts and enforces standards for accrediting and evaluating educational institutions with trade and technical objectives. The United States Department of Education ("DOE" or "Department ) recognizes ACCSCT under the Higher Education Act of 1965 as a reliable authority on the quality of its accredited institutions, education and training. To participate in federal student financial assistance programs, a post-secondary institution of higher education must maintain accreditation from a recognized organization such as ACCSCT. ACCSCT is a membership organization, composed of the accredited schools. Five of its eleven Commissioners have no affliation with any of the schools accredited by ACCSCT, while six are owners or executives of accredited schools.

Advisory Opinion 1!9 FTC.

In 1992, Congress re-authorized the student financial assistance programs of the Higher Education Act with the Higher Education Amendments of 1992. Through this re-authorization , Congress specified in great detail the requirements that accrediting agencies like ACCSCT must meet in order to receive DOE recognition. One requirement is that their accrediting standards assess the institutional program length and tuition and fees in relation to the subject matters taught and the objectives of the degrees or credentials offered. " 20 c. 1099b(a)(5). ACCSCT will be eligible for re-recognition in Fall of 1995, at which time DOE expects it to have adopted new accreditation standards on tuition and fees. The Deparment of Education s Notice of Proposed Rulemaking NPRM") included a commentar in which the Deparment proposed that accrediting organizations use one of three ratios comparng tuition to expected earings to detennne whether tuition and fees are excessive. DOE stated that it could recognize an accrediting agency even if its standards departed from these proposals, but that the agency would bear the burden of justifying different standards. 59 Fed. Reg. at 22 273. The DOE rules implementing the statutory requirements for accrediting standards repeat the statutory provisions, without including the ratios in the NPRM commentary. 34 CFR 602.26(b)(7); 59 Fed. Reg. 22 250, 22 260 (April 29, 1994).

II. EFFECT OF THE 1992 HIGHER EDUCATION AMENDMENTS

ACCSCT has raised the possibility that Congress impliedly exempted educational accrediting bodies from the antitrust laws when it required them to adopt a standard assessing tuition and fees in order to be recognized by DOE. It is well-established, however, that where antitrust immunity is not express, it is disfavored and to be implied only where "necessary to make the. . . (aJct work, and even then only to the minimum extent necessary. Silver v. New Yark Stack Exchange, 373 U. S. 341 , 357 (1963); see alsa United States Philadelphia Natianal Bank 374 U. S. 321 , 348 (1963); Geargiu v. Pennsylvania Railroad Ca. 324 U.S. 439, 456-57 (1945). Indeed except for industries in which Congress has committed pricing to agency regulation rather than to normal market forces see e. Keagh v. Chicaga Narthwestern Railroad 260 U. S. 156 (1922) (Interstate Commerce Commission rates), the courts have found ACCREDITING COMMISSION ON CAREER SCHOOLS 979

977 Advisory Opinion

implied repeal very rarely and then only under extremely limited circumstances.

The courts have found an implied repeal where Congress has established a substantial regulatory scheme and there is a clear repugnancy between that scheme and the application of the antitrust laws to the conduct in question. Gardan v. New Yark Stack Exchange, 422 U.S. 659 (1975) (statute provided for Securities and Exchange Commission review of exchange s self. regulation of commission rates so that application of antitrust laws conflicted with SEC's vigorous supervision of such rates); United Stales v. Natianal Assaciatian afSecurity Dealers 422 U.S. 694 (1975) (finding pricefixing on inter-dealer sales of mutual fund shares immune because of conflict between antitrust laws and regulatory scheme:, Congress had given agency power over such sales and agency had accepted practice over long period); Behagen v. Amateur Basketball Assaciatian afthe U.S., 884 F.2d 524, 529 (10th Cir. 1989) (court found an implied repeal in rejecting the claim that the antitrust laws prohibited an amateur athlete s exclusion from defendant Association; Amateur Sports Act required the establishment of gatekeeping, governance organizations to determine amateur eligibility); see alsa Thill v. New Yurk Slack Exchange 433 F.2d 264 (7th Cir. 1970) (remanding for determination whether restriction on sharing commissions was necessary to meet the goals of the Securities Exchange Act). Absent a clear repugnancy between the antitrust laws and the regulatory scheme, however, the courts have rejected the implied repeal claim. Strobl v. New Yark Mercantile Exchange, 768 F.2d 22 (2d Cir. 1985), cert. denied sub num. Simplat v. Strabl 474 U. 1006 (1985) (no implied repeal because no conflict between antitrust laws and Commodities Futures Trading Commission s oversight); Typhaan Car Wash, Inc. v. Mabil Oil Carp. 770 F.2d 1085 (Temp. Emer. Ct. App. 1985), cert. denied 474 U.S. 981 (1985) (RobinsonPatman Act not preempted by regulations promulgated under the Emergency Petroleum Allocation Act because no conflict between statutes); Huran Valley Haspital v. City af Pantiac, 666 F.2d 1029 (6th Cir. 1981) (no implied repeal where no direct conflict between antitrust laws and National Health Planning Act); Essential Cammunicatians Systems v. AT&T 610 F.2d 1114 (3d Cir. 1979) (no implied repeal because no conflict between antitrust laws and Federal Communication Commission s regulatory activities). . . . . . . .... . .

Advisory Opinion 119 FTC.

The courts have refused to imply a repeal when the regulatory scheme did not protect consumer interests by supervising the chal1enged conduct. In rejecting a claim that the securities regulatory scheme conflicted with the antitrust laws and thus implied antitrust immunity, the Supreme Court noted that:

By providing no agency check on exchange behavior in particular cases Congress left the regulatory scheme subject to " the influences of (improper collective action) over which the Commission has no authority. Since the antitrust Jaws serve , among other things , to protect competitive freedom. foJJows that the antitrust laws are peculiarly appropriate as a check on the anti competitive acts of exchanges. Should review of exchange self-regulation be provided through a vehicle other than the antitrust taws, a different case as to antitrust exemption would be presented.

Silver 373 U.S. at 357 (no implied exemption because exchange rule that excluded non-members from access to exchange without a hearng not necessary to make securities act work), quoting Geargia v. Pennsylvania Railroad Ca. 324 U. S. at 460. The Commission believes the 1992 Highcr Education Act amendments do not impliedly repeal the antitrust laws as they apply to the technical school industry. Congress has not authorized the Department of Education to supervise or review accrediting agency self-policing of tuition and fees. The most persuasive argument for an implied repeal is that Congress , in requiring that accrediting agencies have a standard for assessing tuition, intended for them to exclude any school with a tuition that is unreasonable in light of expected earnings. Indeed, the tuition assessment standard seems superfcially similar to the eligibility standard at issue in the Behagen case. There, the Amateur Sports Act authorized the U.S. Olympic Committee to recognize and monitor a governance organization in each sport to determine amateur eligibility and provide a mechanism to assure compliance with the Act. 884 F.2d at 528. In dismissing a group boycott claim against a governance organization for its refusal to reinstate an athlete s amateur status, the Tenth Circuit held that the defendant Association s "actions in this case were clearly within the scope of activity directed by Congress, and were necessary to implement Congress' intent with regard to the governance of amateur athletics. Id. at 527. The court noted that the Association monolithic control exerted. . . over its amateur sport is a direct result of the congressional intent expressed in the Amateur Sports );

ACCREDITING COMMISSION ON CAREER SCHOOLS 981

977 Advisory Opinion

Act. !d. at 528. The court added that the Association "could not be authorized under the Act unless it maintained exactly that degree of control over its sport that Behagen here alleges as an antitrust violation. Id. at 529.

Unlike Behagen, the 1992 Higher Education Act Amendments do not require accrediting agencies to fix tuition levels; they merely require that accrediting agencies have a standard for assessing tuition as one of many standards for determining accreditation. (ACCSCT's submission of a less restrictive accreditation standard, requiring only disclosure, indicates that setting tuition levels is not necessary to achieve the statute s mandate to curb school loan abuse. Indeed, as noted above, the Department stated that it would recognize an accrediting agency even if its standards departed from DOE' suggested tuition-to-expected-earnings ratios.) Thus, there is no broad or inherent conflict between the antitrust laws and the regulatory regime. Cf Behagen 884 F. 2d at 529 ("Behagen complains of exactly that action which the Act directs see a/sa Gardan 422 U.S. at 692 (Stewart , J. , concurring) ("The Court has never held, and does not hold today, that the antitrust laws are inapplicable to anticompetitive conduct simply because a federal agency has jurisdiction over the activities of one or more of the defendants

II ANALYSIS OF ACCSCT'S PROPOSED STANDARDS

A. First Propased Standard

Under ACCSCT's first proposed standard , ACCSCT would determine whether the tuition and fees charged by its accredited schools are too high and enforce this standard by withdrawing accreditation. The standard might use one of the following three measures to cap tuition at a certain level: (1) a percentage of annualized minimum wage, (2) a percentage of graduates ' earnings for their first year of employment, or (3) a percentage of average annualized wages. ACCSCT believes that adopting this standard would require it to collect tuition data from its members, define acceptable tuition limits, and enforce its standard by potentially withdrawing accreditation. Thus, ACCSCT members would in effect be agreeing to charge no more than the ACCSCT standard would allow.

Advisol) Opinion 119 FTC.

As ACCSCT recognizes, such a standard, like any system for collective competitor regulation of prices, raises grave antitrust concerns. Arizona v. Maricopa County Medical Saciety, 457 U. 332 (1982) (maximum price fixing is per se illegal); Kiefer-Stewart Ca. v. Jaseph E. Seagram Sans 340 U.S. 211 (1951) (maximum price fixing is per se illegal); McLean County Chiropractic Association , 59 Fed. Reg. 22163 (April 29, 1994) (consent order settling FTC charges that chiropractor association members fixed maximum prices); see alsa American Medical Association (FTC Advisory Opinion, February 14, 1994) (adopting fee peer review program with disciplinary sanctions would present serious antitrust concerns, because it would allow competitors to set the maximum fees of their rivals) ("AMA Opinion Even under a rule of reason approach similar to the Third Circuit s approach in United States v. Brown University, 5 F.3d 658 (3d Cir. 1993), ACCSCT's first proposal would pose significant antitrust risks. An accrediting criterion based an tuition and fee level would be inherently suspect because it sets prices and impedes the ordinar functioning of the free market. Brown University, 5 F.3d at 674; see generally Massachusetts Baard af Registratian in Optometry, 110 FTC 549 (1988).

Further, the only efficiency justification that ACCSCT could coffer would be that the standard "protects" consumers, because unfettered competition over tuition levels is unwise or dangerous. The Courts have consistently rejected this argument as "nothing less than a frontal assault on the basic policy of the Sherman Act. Nalianal Saciety af Professianal Engineers v. United States, 435 U. 679, 695 (1978); see alsa FTC v. Indiana Federatian af Dentists, 476 S. 447, 463 (1986); Brown University, 5 F.3d at 676-77. Moreover, even if consumer protection justified regulation of tuition levels, the first proposed standard is not reasonably necessary to achieve this objective. Courts often rule that such overbroad restraints are unreasonable and in violation of the antitrust laws. See Brown University, 5 F.3d at 678- 79; Bhan v. NME Haspitals, 929 F.2d 1404 , 1413 (9th Cir. 1991); Fleer Carp. v. Tapps Chewing Gum 658 F. 2d 139, 151-52 n. 18 (3d Cir. 1981). The fact that ACCSCT has proffered less restrictive alternatives that it believes can achieve the statutory goal of assessing tuition and fees for trade school consumers indicates that the proposed standard is not reasonably necessary.

ACCREDITING COMMISSION ON CAREER SCHOOLS 983

977 Advisory Opinion

B. Secand Prapased Standard

Under the second proposed standard, ACCSCT would collect and analyze tuition infonTation from accredited schools to compare the tuition charged for a given program at a particular school with that charged for similar programs and schools. Any tuition in the ninetieth percentile or above of similar programs would trigger requirements that the school explain why its tuition was so high and provide this information to students and prospective students. This approach appears to be less restrictive than the first primarly because, rather than denying accreditation, it would require that a school disclose and justify its relative tuition. Nonetheless because it targets for attention institutions charging prices of a certain top percentage or level, the standard may have the same effect as the first proposed standard. Hence there is a substantial danger that implementation of this standard may violate the antitrust laws. See Maricopa 457 U.S. at 332.

In evaluating the reasonableness of the standard, the Commssion would find the following factors particularly relevant. First, targeting would identify high tuition schools, opening them up to pressure to confonT. Indeed, that appears to be the very purpose of the standard. Second, the Commission in reviewing association fee peer review programs has emphasized the increased potential for antitrust problems where paricipation is mandatory. See AMA Opinian at 6; Iawa Dental Assaciatian 99 FTC 648 (1982) (advising association not to discipline members who refuse to use peer review process or accept its guidance). Here, the mandatory nature of ACCSCT's proposed standard compounds the antitrust concerns. Third, the potential for antitrust concern is reduced when peer review programs involve mediation of specific fee disputes. A peer review program based on tuition or fees runs a more serious antitrust risk when it involves review of all schools' tuition levels, paricularly in the form of a systematic exchange of data and identification of schools with high tuition. See Iawa Dental Assaciatian 99 FTC at 649 ("Competition will be best protected if all concerned paries view fee peer review as a means of mediating specific fee disputes, rather than a process for the collective sanctioning of fee levels or particular practices Finally, as discussed above, the antitrust laws do not condone a restraint that is not reasonably necessary to achieve its stated ); g.,

Advisory Opinion 119 FTC.

procompetitive objective. See Brawn University, 5 F.3d at 678-79; Fleer Carp., 658 F. 2d at 151-52 n. 18. Thus, the availability of a less restrictive plan (ACCSCT's third proposed standard) suggests that its second proposed standard would fail to meet this test.

C. Third Prapased Standard

As a third alternative for assessing tuition and fees, ACCSCT proposes a standard requiring schools to inform students in the catalog, enrollment agreement, and other publications that they may obtain information about tuition charges for comparable programs from ACCSCT. ACCSCT would collect tuition information from accredited schools and make it available to students who could use the information to compare the cost of similar programs at other institutions.

Based upon the information ACCSCT has provided, there appears to be little cause for concern that the information exchange contemplated by ACCSCT will have any anticompetitive effects. The school tuition information ACCSCT proposes to collect already is widely available and easily accessible to the industry, alleviating

the concern that members would use the exchange to set prices. United States v. Cantainer Corp af America 393 U. S. 333 , 335 (1969) (striking down exchange among competitors of information that "was not available from another source Cement Manufacturers Pratective Assaciatian v. United States, 268 U.S. 588 , 605 (1925) (when information is publicly available, court will not infer purpose to fix prices).

The procompetitive effects of increasing consumers' access to information about relative trade school tuition levels could outweigh any potential anticompetitive concerns raised by the collection of

tuition data. See Maple Flaaring Manufacturers Assaciatian United States, 268 U.S. 563 (1925) (association survey of members prices held not unlawful under rule of reason). To the extent ACCSCT's proposal will provide information useful to trade school consumers , it is likely to promote competition. See AMA Opinian, 3. Indeed, ACCSCT could require other disclosures how the tuition level compares to graduates' earnings for their first year of employment, as a condition of accreditation without injuring consumers or violating the antitrust laws. ACCREDITING COMMISSION ON CAREER SCHOOLS 985

977 Advisory Opinion

Thus, insofar as ACCSCT merely collects tuition information and disseminates that information to students, it would not be likely to run into any antitrust risks. ACCSCT, however, could violate the antitrust laws if it combined its data collection activities with any sort of coercion or admonishment of its members to adhere to certain tuition levels. See Maple Flaaring Manufacturers Assaciatian, 268 S. at 563; cf. American Calumn Lumber Ca. v. United States 257 U.S. 377 (1921).

IV. CONCLUSION

Accordingly, the Commission does not presently object to ACCSCT's third proposed standard to assess tuition , insofar as it calls for ACCSCT merely to collect and disseminate tuition information. The Commssion believes that the first and second proposals, because they involve ACCSCT acting against members due to their tuition levels, may involve a significant risk of violating the antitrust laws. This advisory opinion, like all those that the Commission issues is limited to the proposed conduct that your request describes. It does not constitute approval for specific aspects of the proposal that may become the subject of litigation before the Commssion or any court since application of the proposal in particular situations may injure competition and consumers and violate the Federal Trade Commission Act. The Commission reserves the right to reconsider the questions involved, and with notice to the requesting parties in accordance with Section 1.3(b) of the Commission s Rules of Practice, to rescind or revoke its opinion in the event that implementation of the third proposal results in significant anti competitive effects, should the purposes of the proposal be found not to be legitimate, or should the public interest so require.

Advisory Opinion 119 F.T.

Leiter af Request