Last month, the Supreme Court unanimously decided an underexamined case that is going to do significant damage to the Federal Trade Commission, rolling back the commission’s power to compensate victims of fraudsters through court-imposed penalties and siding with a payday loan kingpin in a tussle over the repatriation of about $1.3 billion to borrowers.
The court’s decision effectively put an end to a practice that the FTC—tasked with enforcing a wide array of consumer protection matters—has engaged in for decades and imperils the agency’s ability to act swiftly and nimbly to protect vulnerable Americans’ finances.
The FTC successfully sued Scott Tucker—a Kansas City tycoon who controlled several payday loan companies—alongside his businesses in 2012. The $1.3 billion court-issued penalty against Tucker and his companies was the largest of its kind in the FTC’s enforcement history. Tucker lost his appeal in the 9th Circuit. He then petitioned the Supreme Court, claiming that the commission lacked the authority to redress businesses’ deceptive practices by going directly to court to seek monetary relief. The Supreme Court agreed.
Though it flew under the radar, the Supreme Court’s ruling should have bred a blizzard of denunciations. The payday loan industry, which funnels short-term, high-cost loans to cash-strapped Americans, is a $30 billion quicksand machine that exists to siphon money from the poor and bury consumers in debt. Ordinarily, such lenders issue loans with terms that ensure the initial sum of money borrowed ends up dwarfed by the amount of cash owed. Here, Tucker’s companies did something worse: They suckered Americans into signing millions of contracts where the most punishing of loan terms were contained in fine print. Without knowing it, colossal numbers of customers had their loans automatically renew time and time again, racking up hefty debts.
The court’s decision guarantees that those customers won’t get their money back, and that legions of other Americans will be shortchanged as well. The justices found Congress authorized the FTC to seek monetary penalties in court only when the agency has first issued a final cease-and-desist order against a company or deceptive operator. Going directly to court, the justices insisted, was foreclosed by the Federal Trade Commission Act. The court also planted more roadblocks on the path to proving that deceptive conduct merits such a penalty, hinting that a company would have to persist in its bad behavior after being slapped with a cease-and-desist order to be forced to pay back money to the FTC.
In doing so, the court left a gaping hole in the FTC’s enforcement toolbox, ensuring that many fewer Americans will be compensated by companies who swindle them. The commission brings dozens of cases each year seeking the return of ill-gotten funds; many of those cases are now at risk of collapsing. In testimony before the House Energy and Commerce Subcommittee, acting FTC Chair Rebecca Kelly Slaughter emphasized that the FTC was badly bruised by the decision and called on Congress to restore the agency’s powers. Slaughter also noted that the court’s decision could ensnare 24 active FTC court cases amounting to $2 billion in requested penalties. That slate of FTC cases includes a lawsuit against the infamous former pharmaceutical executive Martin Shkreli and his associates, who stand accused of improperly inflating medicinal drug prices.
Facebook, too, is likely to seek to capitalize on the Supreme Court’s ruling. The FTC sued Facebook in December, accusing the tech giant of illegally safeguarding the company’s market dominance by vacuuming up would-be rivals in a buying spree. Facebook has argued that the same statutory provision at issue in the payday loan case cannot be used by the FTC to remedy past conduct.
Though the justices put forward a united front in the case, the outcome was far from preordained. The court’s ruling, authored by Justice Stephen Breyer, upended decades of precedent preserving the FTC’s powers. In executing a U-turn, the court’s reasoning reflects its members’ textualist turn. Yet it’s easy to see how the justices could have read the text of the statute as compelling the opposite conclusion, as the 9th Circuit did, and as other courts have. Instead, the court chose, deliberately, to constrict the FTC’s powers.
The court’s decision may signal a worrying trend. It’s no secret that some conservatives saw the appointment of Justice Amy Coney Barrett to the Supreme Court—and the cementing of a right-wing court supermajority—as an opening salvo in a renewed battle to dramatically scale back federal agencies’ powers to issue legally binding rules. This ruling, while dealing with the FTC’s enforcement powers, shows how federal agencies might be slowly suffocated by a series of Supreme Court decisions, rather than decimated in one fell swoop.
That political backdrop makes Congress’ task—to now step in to unambiguously restore the FTC’s powers—even more difficult. Corporations are sure to vigorously protest. But the commission has never enjoyed full-throated powers to protect consumers. It has limited oversight powers over crucial sectors like telecommunications and no power to investigate or enforce cases against banks and nonprofit organizations. The FTC’s authority to defend Americans’ privacy interests was also dicey. So far, legislative proposals to enhance the agency’s jurisdiction have sputtered. The only possible good news is that the Supreme Court’s recent decision might breathe new life into a transformational congressional solution.
Even without Congress, the Biden administration should respond. The scope of the Supreme Court’s ruling goes far beyond payday loans. But the Consumer Financial Protection Bureau can act now to crack down on the payday loan industry. The Trump administration’s CFPB rolled back restrictions set to take effect—the first federal rules of their kind—that would have imposed critical limits on payday lending and curbed some of the nation’s most predatory lending practices, including by forcing lenders to verify that would-be borrowers had the means to repay debt. Biden’s CFPB should reinstate the scrapped rules with unpunctuated haste.
With the Supreme Court choosing to retreat to the sidelines, it’s clearer than ever that it’s time for Congress and the executive to write ironclad consumer protections into the law.