Supreme Court kills FTC’s “strongest tool” for getting refunds to scam victims

 2 years ago
source link: https://arstechnica.com/tech-policy/2021/04/supreme-court-ruling-helps-scam-artists-avoid-punishment-ftc-chair-says/
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Consumer-protection power limits —

Supreme Court kills FTC’s “strongest tool” for getting refunds to scam victims

Unanimous ruling limits FTC power to obtain refunds; it's up to Congress to fix it.

Jon Brodkin - 4/23/2021, 4:48 PM

Supreme Court Justices John Roberts, Stephen Breyer, and Elena Kagan sitting and listening to a State of the Union address in Congress.
Enlarge / Supreme Court Justices, from left, Chief Justice John Roberts, Stephen Breyer, and Elena Kagan listen during then-President Trump's State of the Union address to a joint session of Congress at the US Capitol in Washington, DC, on Tuesday, Jan. 30, 2018.
Getty Images | Bloomberg

A Supreme Court ruling yesterday killed the Federal Trade Commission's "strongest tool" for fighting scam artists and securing refunds for wronged consumers, the FTC's acting chairwoman said.

"The Supreme Court ruled in favor of scam artists and dishonest corporations, leaving average Americans to pay for illegal behavior," FTC Acting Chairwoman Rebecca Kelly Slaughter said in a statement after the ruling. "With this ruling, the Court has deprived the FTC of the strongest tool we had to help consumers when they need it most. We urge Congress to act swiftly to restore and strengthen the powers of the agency so we can make wronged consumers whole."

Though it was criticized by Slaughter and consumer advocates, the Supreme Court's ruling in a case involving deceptive payday lending practices was unanimous. In AMG Capital Management v. Federal Trade Commission, the court ruled that Section 13(b) of the Federal Trade Commission Act "does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement" for consumers.

FTC used 13(b) to obtain billions in refunds

Section 13 relates to false advertisements, and the FTC will still be able to use 13(b) to secure injunctions to halt deceptive practices. The text of 13(b) says the FTC can seek temporary restraining orders and preliminary injunctions when it has reason to believe that "any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the Federal Trade Commission."

Section 13(b) does not specifically authorize the FTC to seek refunds, but the FTC has used it that way for decades, and federal courts allowed the practice. The FTC said yesterday:

Over the past four decades, the Commission has relied on Section 13(b) of the Federal Trade Commission Act to secure billions of dollars in relief for consumers in a wide variety of cases, including telemarketing fraud, anticompetitive pharmaceutical practices, data security and privacy, scams that target seniors and veterans, and deceptive business practices, among many others. More recently, in the wake of the pandemic, the FTC has used Section 13(b) to take action against entities operating COVID-related scams. Section 13(b) enforcement cases have resulted in the return of billions of dollars to consumers targeted by a wide variety of illegal scams and anticompetitive practices, including $11.2 billion in refunds to consumers during just the past five years.

That includes $20 million that Uber agreed to pay in 2017 to settle an FTC-filed lawsuit, which alleged that the ride-hailing company exaggerated what drivers could expect to earn in various cities nationwide.


In yesterday's decision, "the Supreme Court ruled in favor of AMG Services, Inc. and Scott Tucker, who stole more than $1.3 billion from consumers through a deceptive payday lending scheme," the FTC said. "By misrepresenting loan terms, the defendant caused borrowers to pay more than seven times the interest they were told they would pay."

FTC’s other powers more “cumbersome”

The unanimous ruling explained that "Section 13(b) does not explicitly authorize the Commission to obtain court-ordered monetary relief, and such relief is foreclosed by the structure and history of the Act." The Supreme Court said the commission has power to seek financial penalties and consumer relief under Sections 5 and 19 of the FTC Act:

Section 5 (l) of the Act authorizes the Commission, following completion of the administrative process and the issuance of a final cease and desist order, to seek civil penalties, and permits district courts to "grant mandatory injunctions and such other and further equitable relief as they deem appropriate in the enforcement of such final orders of the Commission." Section 19 of the Act further authorizes district courts (subject to various conditions and limitations) to grant "such relief as the court finds necessary to redress injury to consumers," in cases where someone has engaged in unfair or deceptive conduct with respect to which the Commission has issued a final cease and desist order applicable to that person."

Among other reasons for ruling against the FTC, the court said that it "does not believe Congress would have enacted §19's provisions expressly authorizing monetary relief if §13(b) already implicitly allowed the Commission to obtain that same monetary relief without satisfying §19's conditions and limitations."

Consumer advocates say the Section 5 and 19 powers require a more laborious process that makes it harder to help scam victims. "It just got easier to exploit consumers and harder for the FTC to do anything about it," Public Knowledge Policy Counsel Alex Petros wrote. "We need an empowered FTC free from cumbersome administrative processes with the speed and flexibility to stand up for consumers against the companies that would exploit them—not additional red tape."

TechFreedom, a libertarian-leaning think tank that filed a brief in the case, said the Supreme Court ruling "restores due process at the FTC." TechFreedom President Berin Szóka wrote:

The text of the Act is clear: Section 13(b) allows the agency to stop deceitful or fraudulent conduct quickly, so that the conduct is not ongoing while the agency then completes a more rigorous process for clawing back ill-gotten gains. This process ensures a balance: fraudsters' misconduct is promptly shut down, but the agency is forced to prove that its target is indeed engaged in fraud before taking money from it. Although the agency (and several Senators) have recently emphasized how important the agency's Section 13(b) authority is for obtaining consumer redress, it is only important because the agency has made it so, by convincing courts to let the agency misuse it for that purpose.

Congress can restore FTC power

Public Knowledge said the ruling "decimates [the] FTC's ability to protect consumers through restitution" but pointed out that Congress can restore the FTC's powers by amending the law.


"As Justice [Stephen] Breyer noted in his opinion, Congress can easily fix this problem by clarifying that the FTC can seek equitable remedies along with an injunction," Petros wrote. "Given that both sides of the aisle support the agency's ability to seek restitution, it should be a priority for legislators. It's common sense for ill-gotten gains to be returned to the pockets of consumers—not kept by those that would take advantage of them."

Szóka argued that "Congress should amend Section 13(b) to authorize monetary relief when a reasonable person would have known the conduct was dishonest or fraudulent. This is the standard in Section 19. It ensures that the Commission can make consumers whole when they are clearly cheated, but also that companies are not punished for making honest mistakes."

Lawmakers move toward FTC Act fix

Two days before the Supreme Court decision, the House Commerce Committee scheduled a hearing for April 27 on "legislation to preserve [the] FTC's 13(b) consumer protection powers."

"An uncertain impending Supreme Court decision on the FTC's 13(b) authorities has given scammers new opportunities to take advantage of people, including those who are isolated at home due to the pandemic," said a joint statement by Commerce Committee Chairman Frank Pallone, Jr. (D-N.J.) and Consumer Protection and Commerce Subcommittee Chair Jan Schakowsky (D-Ill.). "Next week, we will hold a hearing to consider legislation that would restore the FTC's longstanding authorities to provide redress to consumers who've been scammed."

The hearing will likely focus on a bill introduced Tuesday by Rep. Tony Cardenas (D-Calif.), which has 13 Democratic co-sponsors, all of whom are members of the Commerce Committee.

A corresponding effort is underway in the Senate. "We are working to move legislation immediately to make sure this authority is properly protected," Senate Commerce Committee Chair Maria Cantwell (D-Wash.) said. A Politico report noted that "Republicans led by Senate Commerce ranking member Roger Wicker (R-Miss.) last year included a 13(b) fix in their privacy legislation, indicating there could be bipartisan support for a quick fix to the FTC Act."

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