The end of last month, members of Congress and the Federal Trade Commission (“FTC”) pushed for emergency legislation, the Consumer Protection and Recovery Act (H.R. 2668).  HR 2668 would amend Section 13(b) of the FTC Act “to explicitly reaffirm the FTC’s longstanding authority to obtain injunctive and equitable relief, including monetary redress for consumers in court for all violations of the laws it enforces.”  As readers of CPW will recall, this was in response to the Supreme Court’s unanimous opinion slashing the FTC’s ability to seek monetary awards in court, finding that Congress had not intended to give the agency that power in a section of the Federal Trade Commission Act granting the FTC the ability to seek injunctions.

Several witnesses have offered testimony before Congress in support of HR 2668, which is summarized below.

Testimony by Rebecca Kelly Slaughter, Acting Chairwoman of the Federal Trade Commission.

The written testimony presented by Chairwoman Slaughter urged the subcommittee “to address legal challenges to critical authority that enabled the FTC to do its job of protecting consumers and competition” by enacting the Consumer Protection and Recovery Act.  Namely, Chairwoman Slaughter discussed the two significant judicial limitations to Section 13(b) of the FTC Act and requested that Congress act to clarify Section 13(b) with respect to those two limitations.

The first limitation was based on AMG Capital Management, LLC v. FTC, the aforementioned Supreme Court decision.  Chairwoman Slaughter discussed that for forty years, the FTC had used Section 13(b) to provide refunds to consumers in various data security and privacy, scams, deceptive business practices, telemarketing fraud, anti-competitive pharmaceutical practices, and other cases.  Chairwoman Slaughter cited that such Section 13(b) cases had resulted in $11.2 billion in refunds to consumers in the last five years and AMG Capital Management significantly limited the FTC’s authority in enforcement actions.  As such, Congress should intervene and clarify Section 13(b) to “revive the FTC’s ability to . . . return to consumers money they have lost, which will greatly assist [FTC’s] efforts to protect consumers.”

The second limitation stemmed from recent court cases, which ruled that the FTC could not seek injunctive relief under Section 13(b) in cases where unlawful conduct had not occurred, but there was a reasonable likelihood that it could re-occur in the future.  Chairwoman Slaughter cited the 2019 FTC v. Shire ViroPharma, Inc. case in which the court held that the FTC could only bring Section 13(b) enforcement actions only when the violation was ongoing or impending.  Chairwoman Slaughter argued that that case (and others) significantly limited FTC’s ability to protect consumers from violator’s unlawful activities when the violation was no longer occurring, but such unlawful activities were reasonably likely to re-occur.  Chairwoman Slaughter concluded that “those recent decisions had significantly limited the Commission’s primary and most effective tool for providing refunds to harmed consumers, and, if Congress had not act promptly, the FTC would be far less effective in its ability to protect consumers and execute its law enforcement mission.”

Testimony of Anna Laitin, Director, Financial Fairness and Legislative Strategy Consumer Reports

Ms. Laitin addressed Congress urging the passage of the Consumer Protection and Recovery Act to restore FTC’s ability to bring enforcement actions under Section 13(b).  Ms. Laitin argued that although the FTC is underfunded and must work through limited enforcement authority, the FTC continues to provide consumers with protection from unfair and deceptive acts and practices—although after the AMG Capital Management, LLC v. FTC decision last week, FTC cannot obtain the civil penalties necessary to meaningfully deter illegal activity.

Ms. Laitin discussed the facts surrounding the AMG Capital Management, LLC v. FTC case, and how although the Court held that AMG Services, a fraudulent payday lending company, must stop its fraudulent activities, the defrauded consumers had no avenue to get the money that they lost to AMG Services.  Ms. Laitin argued that although nothing prohibited the FTC from relying on Section 5 and 19 of the FTC Act for restitution for consumers, those Sections were not nearly as effective as Section 13(b).  Without the authority provided by Section 13(b), Ms. Laitin argued, the FTC was severely limited in its abilities to protect consumers.  As such, she urged Congress to quickly enact the Consumer Protection and Recovery Act to restore the FTC’s authority to stop companies to profit from consumer fraud and deception.

Testimony of Ted Mermin, Executive Director, Center for Consumer Law & Economic Justice, UC Berkeley School of Law

Mr. Mermin urged Congress to restore the FTC’s authority to recover money that consumers lost due to fraudulent and deceptive activities by enacting the Consumer Protection and Recovery Act.  Mr. Mermin emphasized that even the Supreme Court in the AMG Capital Management, LLC v. FTC case discussed that if the FTC wanted more remedial authority, it should have addressed Congress.

Mr. Mermin recounted that he worked with the FTC during his time working as a deputy attorney general in a state Attorney General office.  Prior to the AMG Capital Management, LLC v. FTC decision, the FTC provided consumers relief through restitution – consumers were able to get back the money they lost.  The FTC is not only severely limited in its enforcement abilities (for example, the FTC cannot impose civil money penalties in many cases), but now the FTC cannot even protect consumers by making them whole again.  Mr. Mermin argued that the FTC needs more authority and power, especially coming out of the COVID-19 pandemic.  The powers given to the FTC under the December 2020 Consolidated Appropriations Act and COVID 19 Consumer Protection Act are set to expire once the pandemic is no longer a public health crisis.  Mr. Mermin argued that enactment of the Consumer Protection and Recovery Act, at minimum, is required to give the FTC adequate authority to do its job – protect consumers and deter companies from fraudulent and illegal activities.

Mr. Mermin argued that the Consumer Protection and Recovery Act only addressed two limitations to FTC’s authority, and Congress should have enacted more legislation to “restore the FTC to its rightful and logical position as the nation’s leader in consumer protection.”

Howard Beales III, Emeritus Professor of Strategic Management and Public Policy, George Washington School of Business.

Mr. Beales recounted the history of the FTC using Section 13(b) to “attack fraud” in the FTC’s consumer protection enforcement program; the FTC has been able to return billions of dollars to defrauded consumers – however, the AMG Capital Management, LLC v. FTC decision has stripped the FTC of this ability.

Mr. Beales urged Congress to authorize the FTC to pursue equitable relief under Section 13(b), subject to the standards outlined in Section 19.  Namely, Mr. Beales argued that although the FTC should have more authority to allow monetary relief, the FTC should not have unlimited discretion to seek financial sanctions.  Mr. Beales proposed that if a court holds that a violation occurred, but does not meet the standards of Section 19, the court should grant injunctive relief and not grant FTC the authority to seek monetary relief in all situations.

Mr. Beales expressed concerns that unlimited FTC authority, for example, in FTC’s advertising enforcement, could chill truthful claims.  Mr. Beales discussed how the FTC has strict standards for health-related claims and how recent evidence that supports the benefits of wearing masks may not necessarily meet these standards.  If, for example, the FTC were to pursue an action limiting such claims, suppressing such claims would harm consumers rather than protect them.  Mr. Beales argued that FTC’s prosecutorial discretion may not be enough to avoid chilling truthful speech and that FTC’s default rule should not be monetary penalties.  He argued that businesses cannot only rely on FTC’s prosecutorial discretion to protect their truthful speech and avoid monetary penalties.  Overall, Mr. Beales urged Congress to consider legislation that authorizes the FTC to pursue equitable relief under Section 13(b), subject to the substantive standards set forth in Section 19.  Moreover, Mr. Beales provided that Congress should set the standards for when money is appropriate, rather than granting an agency unlimited discretion to seek financial sanctions whenever it thinks they are appropriate.

For more on this, stay tuned.  CPW will be there.