The Federal Trade Commission (FTC) recently announced it sent out a second round of redress checks in a long-lasting legal battle against an alleged payday lending scheme. While this round of redress checks brings the total financial amount returned to consumers to more than $535 million, the litigation previously resulted in a unanimous Supreme Court decision, which ruled the FTC does not have the authority — under Section 13(b) of the FTC Act — to seek or receive monetary relief, such as restitution or disgorgement.
The current round of refunds come from: (1) a 2017 criminal conviction against two of the alleged participants in the lending operation; and (2) from settlements in January 2015, November 2015, February 2016, and June 2018 with other alleged participants in the lending operations — settlements that were entered into before the Supreme Court ruled the FTC did not have authority to obtain such monetary relief under Section 13(b) of the FTC Act.
This case highlights the current (and past) tools available in the FTC’s enforcement toolkit, the path forward sought by the FTC, and the takeaways for how companies in the antitrust and consumer finance fields will interact with the FTC in the future.
The FTC alleged an individual controlled several payday loan companies, which provided misleading loan terms. The companies’ written explanations appeared to state that a customer could repay a loan by making a single loan payment, but the fine print explained that the loan would be automatically renewed unless the customer took affirmative steps to opt out.
The FTC filed suit against that individual and his companies in 2012, with the court granting an injunction and ordering $1.27 billion in restitution and disgorgement, following the FTC’s motion for summary judgment.
Supreme Court Ruling
The defendants appealed this ruling, arguing that Section 13(b) of the FTC act does not permit the agency to seek the monetary relief received. Noting that Section 13(b) refers only to “injunctions” and that an injunction is not the same as a monetary award (which is provided for elsewhere in the FTC Act), the Court agreed with the defendant, finding the FTC lacked authority seek monetary relief under Section 13(b) of the act and reversing the judgment.
FTC’s Request for Monetary Relief Authority
In April 2021, Acting FTC Chairwoman Rebecca Kelly Slaughter testified before Congress, requesting that it revive the FTC’s ability to seek financial restitution. In the days before her testimony, Representative Cardenas from California had introduced H.R. 2668, which would have provided the FTC with the ability to seek financial redress “in federal court from businesses that engage in unlawful commercial practices such as false advertising, consumer fraud, and anticompetitive conduct.” While H.R. 2668 passed the House on July 20, 2021, there does not appear to be any imminent legislative activity indicating this bill (or a similar one) will soon become law.
While the FTC still has the power to seek financial relief under Sections 5 and 19 of the FTC Act, it must — under those sections — prove repeated violations and mens rea to do so. The fallout from the case shows the FTC now has a much steeper hill to climb in this regard, particularly with no federal legislation providing the FTC with ability to seek monetary relief under Section 13(b) on the horizon.