If you think that the Supreme Court is not important to your financial and economic security, here’s $1.2+ billion reasons why you are wrong. On April 22, the Supreme Court handed the FTC a major defeat in its fight to deprive con artists of their ill-gotten gains and to return funds to injured investors. It held that the FTC lacks the authority to seek monetary relief such as disgorgement and restitution when it asks a federal court for an injunction against illegal practices.
In its enforcement action, the FTC had won an order requiring the defendants engaged in deceptive payday lending practices to pay $1.27 billion in “direct redress to consumers.” But the Supreme Court tossed out the monetary relief, based on a technical reading of the FTC Act. The Court concluded that the law actually required the FTC to follow lengthy administrative procedures before seeking such orders from a federal court. However, there was ample room for the Court to affirm the now widely accepted proposition—expressed by many courts under many federal statutes, including the FTC Act—that the power of a court to award injunctive relief comes with the inherent authority to award equitable monetary relief such as disgorgement and restitution.
Why this matters? For years, the Federal courts have ruled that an agency’s right to ask for an injunction against illegal activity goes hand in hand with the right to seek disgorgement and restitution. And for years, the FTC has relied on that legal principle to quickly recover huge sums for the victims of fraud. The Court’s decision upends that principle, at least for the FTC, forcing the agency to spend much more time and many more scarce agency resources trying to recover the money that fraudsters have stolen from their victims. The decision also shows, yet again, the extraordinarily important role that the Supreme Court plays in the financial lives of everyday Americans—in this case, thousands of victims in a payday lending scam.
Bottom line. In light of the Court’s decision, the FTC will have to follow more elaborate procedures to recover money on behalf of fraud victims, delaying and likely diminishing their prospects for recovery. Or, the agency will have to undertake the arduous fight to persuade Congress to repair the damage done by the Supreme Court’s decision, always with an uncertain outcome.
Either way, for now, crooks get to keep tens of billions of dollars they rip off from hardworking Americans due to a hyper-technical reading of a law. Once again, the Supreme Court has ignored the reality of Americans living on Main Street and how important regulatory agencies are to protecting them and their financial security. That’s why we keep filing briefs and issuing reports highlighting the court’s importance on financial and economic issues.
