The FTC’s ability to regulate consumer markets is largely created and limited by Section 5 of the FTC Act. The FTC’s power comes from US, you and I legislatively, by way of our chosen representatives. There’s a specific provision in the Act that pertains to the sorts of remedies the FTC can obtain in its quest to thwart deceptive advertising. There are all sorts of ways for the government to punish companies and collect ill-gotten gains. The question being posed here is not about what they SHOULD be able to do, it’s what CAN they do based on the law.
The Supreme Court has recently granted certiorari on the issue regarding the FTC’s ability to collect money as a remedy. If this surprises you, you’re not alone: The FTC’s ability to collect MONEY from the people and entities they sue is being considered by SCOTUS.
Why? Great question!
The law spells out the sorts of remedies the FTC can pursue. The law at issue is known as section 13(b). It states:
Whenever the [FTC] has reason to believe that any person . . . is violating, or is about to violate [the FTC Act] . . . [u]pon a proper showing . . ., and after notice to the defendant, a temporary restraining order or a preliminary injunction may be granted without bond . . . [A]fter proper proof, the court may issue, a permanent injunction.”
Read the language. Where does it say the FTC has the ability to pursue MONEY? Where does it say the FTC can force a defendant to sell his golf cart? Answer: IT DOESN’T. The FTC looks at the “net impression” of an ad. What’s the “net impression” when you read that language?
Well…this is where smart minds disagree. In my opinion, the language does not give the FTC power to recover monetary damages (one of their most valuable bullets). And this opinion is shared by many in the legal community, and even in various Circuits throughout the country. In FTC v. Credit Bureau (2019), the Court of Appeals REVERSED a $5.3 million monetary award against a credit monitoring service, holding that Section 13(b) only authorizes injunctions, and does not authorize monetary awards.
But in the 9th Circuit, which happens to be the Circuit with the most overturned decisions in all of America, and the government’s FAVORITE place to go when they want to stretch the reach of the law, they recently AFFIRMED a $1.3 billion “equitable monetary relief” against a payday lender for deceptive marketing. Their rationale: Section 13 empowers courts to grant any sort of relief necessary to accomplish complete justice, including restitution. While it’s not clearly stated in the law, it’s “implied.”
There’s also 37 years of precedence on this issue where the courts just sort of “went along with it.” I guess it’s possible to interpret “temporary restraining order may be granted” with “force the man to sell his house.” It’s a stretch, but possible.
So here we are, with the issue beautifully presented for SCOTUS to decide. The FTC is panicking for good reason. They testified before Congress on August 5th, begging them to modify the law. The FTC testified, “Our ability to get full redress for consumers is in peril. We request that Congress act now to preserve the FTC’s ability to restore to consumers money they lose to scammers and fraudsters.” If Congress modifies the law in the FTC’s favor, the issue becomes moot. Based on how dysfunctional Congress has been lately, I do not expect this to occur.
It’s a beautiful thing. The FTC, the champions for full and fair disclosure, properly substantiated claims, clear and conspicuous terms, easily discernable language, those people…..they’re being judged on their ability to recover funds from defendants. This is something they’ve been doing for 35+ years without clear authority, without ever being challenged. What if this weapon of theirs is found to have been…..fraudulently wielded? Oh the irony.
Personally, I think the FTC has become a joke. Just because they have power does not mean they’re due respect. While we want to believe the institution is competent, it’s full of rot. In a desire to stay relevant in a marketplace that has largely outgrown their ability to regulate, the FTC chases headlines. Herbalife’s continued success AFTER the FTC settlement is an obvious black eye for the drowning agency. It’s an agency without honor. When they agreed to refrain from calling Herbalife a pyramid, their Chairwoman publicly said she’s “not saying Herbalife is not a pyramid.” It was cheap. Their lawyers will threaten to sue children of a defendant, while the defendant is dying of cancer. They refuse to account for the simplest of data sets in their economic harm calculations. It’s a win-at-all cost environment, explaining their litigation-by-surprise-attack strategy. By contrast, the SEC, FDA, CFTC…all of them are much more professional and predictable than the stooges at the Federal Trade Commission. This explains the stakes with this case, it explains the FTC’s repeated attempts at begging Congress to change the law. If they lose, their honor will be forever stained.
Obviously, I hope they lose. I understand smart minds can disagree on this issue. But I’ve been in the weeds on these issues for years, and it’s gratifying to see the FTC sweat. I am not an advocate for scammers to keep their funds. But I also do not believe that every one the FTC pursues is a scammer. And under the threat of losing every penny in their possession, it places incredible stress on defendants to settle cases they otherwise should never settle. I believe the federal agencies work for you and I and any sort of power they exercise needs to be clearly allocated by Congress.
What are the odds of them losing? Not good. Self-preservation is baked into the cake with government agencies. The institutions protect themselves well. The Supreme Court, full of intelligent people, will find some way to argue that the FTC has the inherent authority to recover cash in its cases. It’ll boil down to Chief Justice John Roberts. And lately, John Roberts has been siding with the left-leaning Justices. The Supreme Court will understand the implications of the FTC losing this case and will, in my opinion, throw them a bone. Time will tell.