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U.S. Supreme Court probes FTC's approach to seeking ill-gotten gains

Stock MarketsJan 13, 2021 12:10PM ET
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© Reuters. FILE PHOTO: A police officer is seen in front of the U.S. Supreme Court building in Washington

By Lawrence Hurley

WASHINGTON (Reuters) - U.S. Supreme Court justices expressed concern on Wednesday in a case involving a high-profile payday lender that the Federal Trade Commission has overstepped its authority when seeking ill-gotten gains from firms that engaged in deceptive practices.

The justices heard arguments in a dispute involving businessman and racecar driver Scott Tucker, who is serving a prison sentence for crimes related to the same underlying conduct at issue before the court.

Tucker's lawyers have said the FTC lacked the authority to seek restitution under a section of a law called the Federal Trade Commission Act that lets the agency sue lawbreakers and authorizes judges to issue permanent injunctions. The legal question is whether judges have the authority under that provision to order defendants to return money that consumers handed over.

Conservative and liberal justices alike questioned whether the FTC was using the correct provision of the law to seek ill-gotten gains, noting that there is another section of the law that could allow the agency to seek refunds, although it could be more difficult to succeed.

Conservative justices skeptical of the power of independent federal agencies expressed similar concerns about the FTC's use of its enforcement power.

"With good intentions the agency pushes the envelope and stretches the statutory language to do the good or prevent the bad. The problem is this results in a transfer of power from Congress to the executive branch on whether to exercise this authority," conservative Justice Brett Kavanaugh said.

Liberal Justice Elena Kagan noted that the FTC's use of the provision in question appeared to be based on expediency.

"It's so clearly better from the agency's perspective," Kagan said.

Tucker and his company, AMG Capital Management, are appealing a ruling by the San Francisco-based 9th U.S. Circuit Court of Appeals that endorsed the FTC's authority to recoup $1.27 billion in ill-gotten gains.

AMG gives consumers high-interest, short-term payday loans online that renew automatically. It was sued by the FTC in 2012 for inadequate disclosures about the terms of the loans. AMG agreed to stop the practices to which the FTC had objected but balked at returning the money.

If the court chooses not to curb the agency's authority it would be because until recently courts have consistently sided with the FTC on the issue since the provision was enacted in 1973.

"My question is, still, it's close and the lower courts have been uniform for 50 years. We can't undo everything that was decided," liberal Justice Stephen Breyer said.

The FTC and its supporters have said a ruling in favor of Tucker would severely curtail its ability to repair the financial harm caused by fraudsters.

Tucker in 2018 was sentenced to 16 years and eight months in prison after being found guilty of violating federal lending and racketeering laws.

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 companies from lawsuits using tribal sovereign immunity.

The Supreme Court's ruling will affect another case the justices agreed to hear in which the FTC is seeking $5.2 million in ill-gotten gains from another company, the Credit Bureau Center.

The Supreme Court's consideration of the legal disputes comes at a time when the United States is awash in scams, with some taking advantage of fears about the spread of the coronavirus to bilk unsuspecting consumers. Robocalls inundate landlines touting phony medical devices and other deceptive offers. Since they often originate overseas, U.S. law enforcement has difficulty in combating the scam artists.

U.S. Supreme Court probes FTC's approach to seeking ill-gotten gains
 

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