On Wednesday, the Supreme Court will complete this week’s hearings with review of the legal tools that the Federal Trade Commission can use against those who use deceptive credit schemes to cheat consumers. The hearing will be conducted remotely because of the pandemic. The audio portion of the hearing, but not the video, is expected to be broadcast on C-SPAN.org/supreme court
One-hour hearing starts at 10 a.m.
AMG Capital Management v. Federal Trade Commission
Background: The Federal Trade Commission is one of the federal government’s oldest agencies with the task of policing business misconduct. Created in 1914 during the administration of President Woodrow Wilson, it along with the Clayton Act that became law in the same year were part of the Progressive sentiment to “bust the trusts” – that is, to break up concentrations of economic power, power that had been abused systematically.
The FTC also figures prominently in the history of how the Constitution sometimes trims back the powers of the Presidency. In a famous 1935 decision, the Supreme Court ruled that President Franklin Roosevelt did not have the unchecked power to fire a member of the FTC. FDR had attempted unsuccessfully to do so because a commissioner had not been loyal to New Deal priorities in protecting the public from economic exploitation.
The new case involves one of the most spectacular in the FTC’s long history, involving a Missouri businessman, Scott A. Tucker, who is now challenging in the Supreme Court a federal court order (requested by the FTC) to repay $2.7 billion in restitution for swindling 4.5 million consumers who borrowed money from one of his firms. Separately from the FTC case, Tucker was convicted in federal court of 14 financial crimes and is now serving a prison sentence of more than 16 years.
His online scheme involved what the FTC refers to as one involving “payday loans.” Here is how is defined by FTC lawyers: “A payday loan is a high-interest, short-term loan, typically marketed to low-income consumers in need of quick cash.”
This is an example the legal brief provided: “Tucker’s loan documents contained a disclosure box mandated by the Truth in Lending Act, purporting to display the key financial terms of the loans. For example, if a customer sought to borrow $300, Tucker’s box disclosed a finance charge of $90 (30 percent of the amount borrowed) and total payments of $390, to be withdrawn in one payment two weeks later from the consumer’s bank account. Instead of applying those terms, Tucker regularly made multiple withdrawals, assessing the finance charge and automatically ‘renewing’ the loan for another two weeks….Unless the borrower affirmatively opted out [the document did not disclose that as an option], the loan would be renewed 10 times, with a new finance charge each time. The net result was that a person who borrowed $300 expecting to pay back $390, but who did not opt out of the default plan, paid a total of $975.”
Tucker and the main company through which he operated the scheme, AMG Capital Management, along with several affiliated firms, took the case on to the Supreme Court, with the challenge limited to the FTC’s authority to seek a court order requiring restitution as a remedy for violating the basic consumer protection law that is enforced by the FTC.
The law gives the FTC the power to prevent the use of “unfair or deceptive acts or practices in or affecting commerce.” When FTC finds a violation, it goes to federal courts to seek enforcement. Among the remedies that the FTC’s law provides to the federal courts is the power to issue a permanent order (technically, to issue a “permanent injunction”) directing an individual of business firm to stop the deception.
In lower courts, Tucker and his firms argued that the power given to courts to enforce the FTC law does not include any mandate to pay money to victims. The federal appeals court to which he appealed rejected that argument, upholding court power to impose monetary remedies in FTC cases, just as other appeals courts had. Later, one appeals court ruled against that remedy, creating a split of courts on the question at that level.
NOTE: The Supreme Court had originally agreed last July to resolve the split in lower courts by accepting review of the Tucker case along with a separate case in which the FTC had filed its own appeal. That FTC appeal involved a different firm and a different appeals court. After new Justice Amy Coney Barrett joined the Supreme Court in October, the Court decided to rule only on the Tucker case, apparently because Barrett had previously been on the appeals court that decided the separate FTC case, and had cast a vote it. Her participation in that case, however, was not required by ethical rules to stay out of review of the Tucker case, in which she had no prior part, even though the legal issue is identical.
The question before the Court: When a law gives a federal court the authority, in enforcing actions by a regulatory agency like the FTC, to issue an injunction, does that power include an order to pay restitution to victims of a violation?
Significance: The FTC, defending the award of a money repayment remedy, has told the Supreme Court that “Tucker’s scheme is just one example of the many ways in which fraudsters reap enormous profits at the expense of American consumers. From bogus health insurance scams, to debt-relief schemes, to quack cancer cures, con artists are endlessly creative in fleecing consumers, and the Commission wages a ceaseless battle against them. It brings scores of enforcement cases every year which have returned billions of dollars to cheated victims. Often, legal action by the Commission is the only practical means of stopping the misconduct and securing monetary recovery.”
Lawyers for Scott Tucker and his companies, relying on what they say is the specific language of the FTC’s law, contend that the power to issue an “injunction” does not carry with it a power to impose money penalties. “Congress,” their main legal brief argued, “did not authorize the Commission to demand whatever relief it chooses by whatever means it deems expedient. Congress balanced various considerations, including fairness, notice, and repose. The FTC Act’s text defines that balance.”
While conceding that there is a section in that law that explicitly allows the agency to seek money penalties for specific kinds of consumer deception, it notes that the FTC did not rely on that provision, but rather sought to expand its injunction-seeking power to “extract billions of dollars in monetary payments” when the kind of claim it pursued against Tucker permitted only court injunction orders.
These summaries of the two sides’ main arguments make it clear that the Court, in reviewing this dispute, will be confronting a rather common choice in deciding what federal laws mean: they can rely on the law’s objectives in an attempt to determine what policy Congress meant for an agency to pursue, or they can stick to literal interpretations of the texts. The Justices on the modern Supreme Court have engaged in that intellectual and legal combat for years, and it has grown more intense over the passage of time, especially with the arrival on the Court of conservative members devoted to “strict interpretation” of laws before them.
Sometimes, however, that combat confronts the Court with puzzles more complex than simply parsing the text of laws. And that is just what the Tucker case does. That’s because of the history of what is called the law of equity, or equitable principles. In law, the concept of “equity” is the aspiration simply to make things come out fairly when a legal dispute arises under that kind of jurisdiction. The aim is not to punish the wrongdoer, but simply to reach fair outcomes.
It used to be, before 1938, that equity jurisdiction was entirely separate from enforcing written civil codes. But, in 1938, for federal courts, the two were merged, and now “civil actions” include both concepts. “Injunctions,” like the ones at issue in the Tucker case, are equitable remedies, not intended to punish. But enforcement of specific legal commands can be done, in the civil law world, by penalties, including monetary penalties.
The basic issue in the Tucker case, then, is something of a question of legal philosophy: is an order to pay back someone who has lost money because of deception a form of penalty, or only a way to adjust economic relationships more fairly? It will take the Justices back deep into the history of English common law for guidance.