U.S. Supreme Court curbs FTC’s power to recoup ill-gotten gains

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FILE PHOTO: Signage is seen at the Federal Trade Commission headquarters in Washington, D.C.

By Lawrence Hurley and Diane Bartz

WASHINGTON (Reuters) – The U.S. Supreme Court on Thursday made it more difficult for the Federal Trade Commission to force scam artists and companies that engage in deceptive business practices to return ill-gotten gains obtained from consumers, ruling in favor of a criminally convicted payday lender who challenged the agency.

The 9-0 ruling, authored by liberal Justice Stephen Breyer, prompted Democrats in both chambers of the U.S. Congress to promise to pursue legislation to restore the FTC’s powers to seek monetary remedies in court on behalf of consumers.

The Supreme Court “ruled in favor of scam artists and dishonest corporations, leaving average Americans to pay for illegal behavior,” acting FTC Chairwoman Rebecca Kelly Slaughter said. “With this ruling, the court has deprived the FTC of the strongest tool we had to help consumers when they need it most.”

The ruling was a victory for businessman and racecar driver Scott Tucker, who was convicted in 2017 on racketeering, wire fraud and money laundering charges. The business practices of Tucker and his company, AMG Capital Management, targeting low-income borrowers led to the largest court-ordered settlement in the FTC’s history, totaling $1.27 billion.

The justices found that the agency overstepped its authority in its practice of seeking court orders to make fraudsters return money improperly obtained from consumers in the form of restitution or disgorgement. Business groups have complained that the FTC aggressively extracted billions of dollars in monetary awards from companies in recent years.

The ruling limits the agency’s authority to seek restitution under one section of a U.S. law called the Federal Trade Commission Act that lets it sue lawbreakers and authorizes judges to issue permanent injunctions. The justices ruled that the provision does not give judges the authority to order defendants to return money to consumers.

The FTC said that it had used the so-called 13(b) authority to return $11.2 billion to consumers in the past five years.

Now the FTC will have to use other lengthier and more complicated legal avenues to obtain restitution for consumers unless Congress takes action. The FTC’s commissioners last year asked Congress to pass a law specifically allowing the agency to demand disgorgement.

“Protecting consumers and compensating them for harm is a paramount duty of the FTC,” said Democratic Senator Maria Cantwell, who chairs the Senate Commerce Committee. “We are working to move legislation immediately to make sure this authority is properly protected.”

“This ruling is a gut punch to the FTC,” Democratic Senator Ed Markey added.

Breyer wrote in the ruling that if the agency believes other processes are “too cumbersome or otherwise inadequate, it is, of course, free to ask Congress to grant it further remedial authority.”

Tucker and his company appealed a ruling by the San Francisco-based 9th U.S. Circuit Court of Appeals that endorsed the agency’s authority to recoup ill-gotten gains.

Payday loans involve the lending of a relatively small amounts of money at high interest rates, sometimes to be repaid when the borrower gets their next paycheck. Payday loans have been linked to increases in defaults and personal bankruptcies.

The Justice Department has said Tucker operated a nationwide internet payday lending enterprise that systematically evaded state laws for more than 15 years to charge illegal interest rates as high as 1,000 percent on loans. Tucker in 2018 was sentenced to 16 years and eight months in prison.

After several states brought lawsuits over the lending, prosecutors said, Tucker entered into sham relationships with Native American tribes. By claiming his companies were owned by tribes, prosecutors said, Tucker was able to shield the businesses from lawsuits using tribal sovereign immunity.

(Reporting by Lawrence Hurley and Diane Bartz in Washington and Andrew Chung in New Orleans; Editing by Will Dunham)

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