A Supreme Court ruling protecting payday lenders could also save Facebook and Martin Shkreli.
Last month, the Supreme Court unanimously ruled on an under-reviewed case that will cause significant damage to the Federal Trade Commission, overturning the commission’s power to compensate victims of fraudsters through court-imposed penalties and siding with a payday lender leader in a scuffle over repatriating roughly $ 1.3 billion to borrowers.
The court ruling effectively ended a practice in which the FTC – charged with enforcing a wide range of consumer protection issues – has been engaged for decades and jeopardizes the agency’s ability to act quickly. and with agility to protect the finances of vulnerable Americans.
The FTC successfully sued Scott Tucker – a Kansas City mogul who controlled multiple payday loan companies – alongside his companies in 2012. The $ 1.3 billion legal sanction against Tucker and his companies was the largest of its kind in the history of FTC law enforcement. Tucker lost his call in the 9e Circuit. He then petitioned the Supreme Court, saying the commission did not have the power to redress deceptive business practices by going directly to the court to seek monetary compensation. The Supreme Court accepted.
Although it went under the radar, the Supreme Court’s decision should have sparked a storm of denunciations. The payday loan industry, which funnels short-term and expensive loans to cash-strapped Americans, is a $ 30 billion quicksand machine that exists to siphon money from the poor and bury consumers in the debt. Usually, these lenders issue loans with terms that ensure that the initial amount borrowed ends up eclipsing the amount of cash. Here, Tucker’s companies did something worse: They pushed Americans to sign millions of contracts where the most punitive loan terms were in the fine print. Without realizing it, a colossal number of clients have seen their loans automatically renew over and over again, accumulating heavy debts.
The court ruling ensures these customers will not get their money back and legions of other Americans will be harmed as well. The judges ruled that Congress allowed the FTC to seek monetary penalties in court only when the agency first issued a final cease and desist order against a deceptive company or operator. Going straight to court, the judges insisted, was prohibited by the Federal Trade Commission Act. The court also planted more obstacles in the way to prove deceptive conduct deserves such punishment, suggesting that a company should persist in its bad behavior after being slapped with a cease and desist order. to be forced to return money to the FTC.
In doing so, the court left a gaping hole in the FTC’s enforcement toolkit, ensuring that far fewer Americans will be compensated by companies that defraud them. The commission brings dozens of cases each year asking for the return of ill-gotten funds; many of these cases are now in danger of collapsing. In testimony before the House Energy and Commerce Subcommittee, Acting FTC Chairperson Rebecca Kelly Slaughter pointed out that the FTC had been badly bruised by the decision and called on Congress to restore the powers of the agency. Slaughter also noted that the court ruling could trap 24 active FTC court cases totaling $ 2 billion in requested penalties. This list of FTC cases includes a lawsuit against infamous former pharmaceutical executive Martin Shkreli and his associates, who are accused of unduly inflating drug prices.
Facebook will also likely seek to capitalize on the Supreme Court ruling. The FTC sued Facebook in December, accusing the tech giant of illegally safeguarding the company’s market dominance by sucking potential rivals into a buying spree. Facebook argued that the same legal provision at issue in the payday loan case could not be used by the FTC to remedy past behavior.
Although the judges presented a united front in the case, the outcome was far from predetermined. The court ruling, written by Judge Stephen Breyer, upended decades of precedent preserving the powers of the FTC. By performing a U-turn, the tribunal’s reasoning reflects the textualist turn of its members. Yet it is easy to see how the judges could have interpreted the text of the statute as an opposite conclusion, such as the 9e Circuit did, and so have other courts. Instead, the court chose, deliberately, to restrict the powers of the FTC.
The court’s decision may signal a worrying trend. It’s no secret that some Tories saw the appointment of Justice Amy Coney Barrett to the Supreme Court – and the consolidation of a right-wing supermajority – as an opening salvo in a new battle aimed at drastically reduce the powers of federal agencies to issue legally binding obligations. rules. This decision, while addressing the enforcement powers of the FTC, shows how federal agencies could be slowly choked by a series of Supreme Court rulings, rather than wiped out in one fell swoop.
This political backdrop makes the task of Congress – to intervene now to unambiguously restore the powers of the FTC – even more difficult. Businesses are sure to vigorously protest. But the commission has never had full powers to protect consumers. It has limited supervisory powers over crucial sectors like telecommunications and no power to investigate or enforce cases against banks and nonprofits. The FTC’s power to defend the privacy interests of Americans was also risky. So far, legislative proposals to strengthen the agency’s competence have failed. The only possible good news is that the recent Supreme Court ruling could breathe new life into a transformational congressional solution.
Even without Congress, the Biden administration would have to respond. The scope of the Supreme Court decision goes far beyond payday loans. But the Consumer Financial Protection Bureau can act now to crack down on the payday lending industry. The Trump administration’s CFPB rolled back slated restrictions – the first such federal rules – that would have placed critical limits on payday lending and curbed some of the country’s most predatory lending practices, including forcing lenders to verify that this would be possible. borrowers had the means to repay the debt. Biden’s CFPB is expected to reinstate the abandoned rules with unpopulated haste.
With the Supreme Court choosing to step aside, it is clearer than ever that it is time for Congress and the executive to enshrine rock-solid consumer protections into law.
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