The Federal Trade Commission’s self-created problem
9-0 loss at Supreme Court exposes agency’s quest to overreach
The Supreme Court recently gave the Federal Trade Commission an extraordinary rebuke over the agency’s misuse of a section of the FTC Act that allows the agency to stop harmful behavior in the marketplace.
The court’s April 22 decision made clear that Section 13(b) of the law allows the agency to go to court to seek an injunction but does not allow it to seek — or a court to award — compensation in consumer protection cases.
In a unanimous decision, the justices made clear that the FTC had not been following the law. In response, acting FTC Chair Rebecca Slaughter charged that the court “ruled in favor of scam artists and dishonest corporations.” It is misleading for the FTC to point the finger at this unanimous ruling, when, in fact, the FTC’s problem is entirely self-created.
Congress empowered the agency to use Section 13(b) and Section 19 of the FTC Act in concert with its administrative authority as the path to compensation in consumer protection cases. As an example, let’s say a company is engaging in what the FTC believes to be an unfair or deceptive practice. The FTC goes to court and, under 13(b), it argues that the company is likely in violation of the law. If the court agrees, it issues a preliminary injunction, stopping the company from engaging in the practice, so no further harm can befall consumers. With that injunction in hand, the FTC begins an administrative process to determine whether the conduct is, in fact, a violation.
Because the FTC is prosecutor, judge and jury, it is virtually assured that a violation will be found following the agency’s own internal deliberations. If the FTC finds the company to be in violation, the agency can go back to court and ask for compensation. However, Section 19 of the FTC Act only allows the court to award compensation in those cases where a reasonable person should have known that their conduct would be a violation. Congress intended the “reasonable person standard” to give a court the necessary discretion to decide when monetary compensation is appropriate.
In fact, the Supreme Court’s decision did not take any of the FTC’s authority away. The court simply endorsed the need for the agency to use the path Congress created. Under current law, the FTC can stop scammers by getting an injunction, prosecuting them under the agency’s own administrative process and then returning to court to determine if the conduct rises to a level where monetary relief is appropriate.
For several months leading up to last month’s Supreme Court verdict, the FTC had been pleading with Congress for a “fix”. Yet the agency’s proposed fix is sweeping since it contains no statute of limitations, would subject all consumer protection violations to compensation with no guidance to the courts to determine which cases are deserving of such awards, and would extend these powers to antitrust cases where consumers already have access to compensation.
What the FTC is pushing for in legislative text is much broader in scope. This overreach became clear at an April 20 hearing before the Senate Commerce Committee when FTC Commissioners Noah Phillips and Christine Wilson both acknowledged that, upon closer examination, the fix as drafted was expansive and too open-ended but implied that these issues could be easily addressed.
The Supreme Court’s ruling did not create any urgent problem: The FTC can still quickly halt scams with an injunction and, under Section 19, it can still seek compensation. It is perfectly reasonable for Congress to consider streamlining the process to allow the FTC to avoid its administrative process. But it should not be bullied into believing that the agency is helpless or that this is merely about combating COVID-19 scams.
The legislative “fix” the FTC has been seeking goes well beyond what it has advertised.
Sean Heather is the senior vice president for international regulatory affairs and antitrust at the U.S. Chamber of Commerce.