Canadian lawyers are often caught rubbernecking as blockbuster legal battles are duked out in the Supreme Court. Sometimes we watch on with admiration. Other times, we scratch our head. But this time, we stared in awe, as the wreckage of the FTC was hauled away by a resounding 9-0 defeat.
Just recently, the Supreme Court of the United States (SCOTUS) unanimously decided AMG Capital Management, LLC v. Federal Trade Commission, 593 U.S. _ (2021), 2021 U.S. LEXIS 2108. In this case, the FTC was using a power given to it by § 13(b) of the Federal Trade Commission Act (the “Act”), which allowed it to recover money from individuals who violated the Act. The FTC would then return the recovered money to those harmed by the violators. 15 U. S. C. §53(b). Notably, this use of § 13(b) was not novel; the FTC has been doing this for decades.
Last Thursday’s decision involved a man named Scott Tucker who had several companies that provided borrowers with short-term payday loans. These companies told its borrowers that loan repayment would be simple: it would be one payment composed of the full amount of the loan plus a single interest payment. However, the companies did not disclose the fine print to the borrowers. The fine print indicated that the loans would automatically renew unless the borrower affirmatively opted out. This resulted in borrowers borrowing more than they wanted, which resulted in higher borrowing costs. In sum, Mr. Tucker’s companies received more than $1.3 billion in deceptive charges.
The FTC, through a federal court action, used its power pursuant to § 13(b) to take away the $1.3 billion and return it to the borrowers. The FTC alleged that Scott had engaged in “unfair or deceptive acts or practices in or affecting commerce” in violation of § 5(a) of the Act.
Scott objected and argued simply that § 13(b) does not authorize the FTC to take “his” money.
Given the conduct of Mr. Tucker, surprisingly, SCOTUS agreed with the defendant. First, the Court set out § 13(b) as providing that “the Commission may seek, and after proper proof, the court may issue, a permanent injunction.” 15 U. S. C. § 53(b). Then, the Court explained that a “permanent injunction” is not the same as monetary relief. The Court, however, cautioned that the FTC can still take the money and return it to the victims as per its authority under §§ 5 and 19. But the Court affirmed that § 13(b) was not that avenue.
What’s the lesson here?
This was an important decision where SCOTUS constricted the power of a large and powerful administrative agency. Section 13(b) previously was used to return large amounts of money to those impacted by violations of the Act. Now, the FTC must use another avenue to provide monetary redress to those who have been impacted by violations of the Act. However, the FTC claimed that the other avenue (§§ 5 and 19) is “too cumbersome or otherwise inadequate”. SCOTUS consequently invited the FTC to “ask Congress to grant it further remedial authority.” Accordingly, legislators may have to review and clarify this provision and others within the Act.
Businesses should still be careful and not mislead its customers. This is clearly on the FTC’s radar, and further clarification from Congress is to be expected. These waters are muddied, however. So if you’re a business owner and are rightly unsure about a particular course of action, you should consider hiring attorneys who can guide you through these murky waters.
What does this mean for Canada?
The Canadian MLM market relies heavily on a healthy direct selling industry in the United States. Without a doubt, we think that this game changer in the United States will allow the Canadian direct selling industry to reap many of the rewards as well.
Should you have any questions or comments, you can reach out to the authors Michael Weinberger, Ontario attorney specializing in business and privacy law, at [email protected] or Savvas Daginis, Ontario student-at-law and licensed Illinois attorney, at [email protected].
This article was written in collaboration with lead co-author Savvas Daginis, student-at-law.
1 The section sign (§) is commonly used in American Law when citing numbered sections of law.