Supreme Court Guts FTC’s Power To Seek Restitution

A view of the front portico of the United States Supreme Court building in Washington, DC.

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The Supreme Court has deprived the Federal Trade Commission of one of its most potent legal weapons—its ability to secure refunds for consumers defrauded, scammed, or otherwise harmed by the companies it regulates.

Key Takeaways

  • The Supreme Court has dealt a major blow to the Federal Trade Commission’s consumer protection program, invalidating its strongest legal tool.
  • The FTC can no longer rely on a section of the FTC Act to collect billions of dollars for consumers who have been harmed by fraud or other alleged wrongdoing, the Supreme Court ruled.
  • The FTC is petitioning Congress to pass a new law to restore its legal powers.

In a 9-0 decision Thursday in a case called AMG Capital Management LLC v. FTC, the court ruled that the agency can no longer use Section 13(b) of the Federal Trade Commission Act to sue companies for monetary relief for consumers.

Section 13(b) is a legal power the agency has relied on for four decades to collect billions of dollars on behalf of consumers—$11.2 billion over the last five years alone. But AMG Capital, a company targeted under the section, successfully argued that this part of the law only gives the FTC the power to make defendants stop what they’re doing, not to force them to pay restitution.

The legal defeat guts a power that the FTC has considered essential to how it carries out its consumer protection mission, one that it routinely used against companies that it accused of mistreating consumers in some way. For example, the FTC relied on its 13(b) authority when it sued the credit bureau Equifax, winning a $575 million settlement, because of a massive data breach in 2017 that exposed the personal information of 147 million people. 

“It’s about as complete a loss as you could get,” Stephen Calkins, a former general counsel for the FTC and a law professor at Wayne State University, said of the court’s decision. “It’s hard to overestimate how much of a blow this is to the FTC’s program.”

Plaintiff Is a Payday Loan Company 

In the AMG Capital case, the high court sided with Scott Walker—the owner of payday loan companies including AMG Capital Management—who used fine print and surprise automatic payment renewals to deceptively charge consumers between 2008 and 2012. 

The FTC sued Walker in 2012 and eventually won an order for him to pay $1.27 billion in restitution, but Justice Stephen Breyer, writing for the unanimous court, said the FTC actually does not have the power to seek redress through Section 13(b).

Language authorizing the FTC to seek a “permanent injunction” does not include monetary relief, as lower courts had previously held, the Supreme Court concluded. 

“That reading would allow a small statutory tail to wag a very large dog,” Breyer wrote.

While the FTC can still rely on other parts of the FTC Act to seek restitution for consumers —the justices said, Breyer anticipated regulators may find them  “too cumbersome or otherwise inadequate.” 

Indeed, the FTC said it had been dealt a serious defeat.

“In AMG Capital, 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. “With this ruling, the Court has deprived the FTC of the strongest tool we had to help consumers when they need it most.”

Help From Congress

Anticipating its defeat, the FTC asked Congress to restore its legal powers during a hearing before a Senate committee on Tuesday. Slaughter said the agency’s Section 13(b) powers were under attack and asked Congress to “affirm our full authority” under the section. 

Committees in the House and Senate will take up the matter in separate hearings scheduled for next week. And a bill introduced Tuesday by California Democratic Rep. Tony Cárdenas would cement the FTC’s consumer redress power.

“The COVID-19 pandemic has given rise to an increase of scams and fraud that prey on consumers’ fears and financial insecurities,” Cárdenas said in a statement. “The FTC’s ability to return money taken from Americans through scams or fraud is under attack in the courts. Inaction is not an option and will only embolden these bad actors.”

Unless the FTC gains new powers from lawmakers, it will likely have to resort to less effective legal strategies, Calkins said. 

“When you ask what the FTC does, especially in terms of consumer law, the answer is it goes to court and uses 13(b) to get relief for consumers from people who have done bad things,” he said. “This is what the FTC does for a living, and now it can no longer do that.”