The Supreme Court on Thursday made it harder for the Federal Trade Commission to obtain restitution for people who have been harmed by deceptive or fraudulent practices.
In a unanimous decision, the court ruled that the FTC can't ask a federal judge to order a company to disgorge wrongly obtained funds, without first jumping through time-consuming, administrative hoops.
“It is a giant defeat for the FTC, and a very significant reduction in the FTC's enforcement authority,” advertising lawyer Jeff Greenbaum, a partner at Frankfurt Kurnit Klein & Selz, says.
“The FTC relies heavily on its ability to threaten to go to court, to quickly and easily get restitution from companies that it alleges have violated Section 5,” he says, referring to prohibitions on unfair and deceptive conduct.
The Supreme Court decision stemmed from a federal lawsuit by the FTC against Scott Tucker, who operated payday loan companies that allegedly bilked consumers out of more than $1.3 billion.
The district court judge who heard the case ordered ordered Tucker to pay $1.27 billion in restitution and disgorgement.
Tucker appealed all the way to the Supreme Court, which ruled that the FTC's request for restitution was improper for procedural reasons.
Specifically, the court said the agency wrongly sought restitution under Section 13b -- a provision of the FTC Act that allows the commission to obtain a permanent injunction against alleged frausters.
The FTC had interpreted the phrase “permanent injunction” to include orders requiring restitution, but the Supreme Court essentially said Thursday that injunctions don't encompass monetary payments.
“The language and structure of §13(b), taken as a whole, indicate that the words 'permanent injunction' have a limited purpose -- a purpose that does not extend to the grant of monetary relief,” Justice Stephen Breyer wrote for the court.
The judges said the FTC could still pursue monetary relief, but through more time-consuming procedures.
Acting FTC Chair Rebecca Kelly Slaughter blasted the court's decision, stating the judges “ruled in favor of scam artists and dishonest corporations, leaving average Americans to pay for illegal behavior.”
She added that in the last five years alone, the agency has drawn on Section 13b to obtain $11.2 billion in refunds to consumers.
Greenbaum says that while the decision will make it more difficult for the FTC to obtain restitution, it doesn't create “a free-for-all for fraudulent advertisers.”
“It doesn't change the laws that advertisers have to comply with. It just creates additional hurdles for the FTC in order to get some money back,” he says.
What's more, he says, advertisers that bilk consumers still face the threat of class-action lawsuits and actions by state attorneys general.
Also, the Democratically controlled Congress could pass legislation that would grant the FTC the ability to quickly seek restitution, effectively nixing Thursday's ruling.
Already, Senate Commerce Committee Chair Maria Cantwell (D-Washington) is pushing for such legislation.
"Protecting consumers and compensating them for harm is a paramount duty of the FTC,” she stated shortly after the Supreme Court announced its ruling. “We are working to move legislation immediately to make sure this authority is properly protected.”