Supreme Court Curtails FTC's Authority to Seek Monetary Relief for False Advertisements
For over four decades, the FTC has brought court actions against companies for disseminating false advertisements or engaging in other “unfair or deceptive acts or practices.” 15 U.S.C. § 45(a), 52. However, on April 22, 2021, the U.S. Supreme Court unanimously ruled that the FTC does not have statutory authority to seek monetary relief in a court action under Section 13(b) of the FTC Act, 15 U.S.C. § 53(b). AMG Capital Management, LLC v. FTC, No. 19-508, 2021 WL 1566607 (Apr. 22, 2021).
In the action before the Court, the FTC sued a payday lender that advertised loan products online. The written explanations of the loans mislead many customers regarding the amount they had to repay, because, “in fine print the explanations said that the loan would be automatically renewed unless the customer took affirmative steps to opt out.” As a result of the automatic renewals, customers typically ended up paying more than three times the amount of the loan. The FTC filed suit against the lender for engaging in unfair or deceptive acts or practices in its online advertising of the essential terms of the loan and sought monetary relief under Section 13(b).
The Supreme Court, reviewing the legislative development of the FTC’s administrative and civil remedies, noted that the terms of Section 13(b) only granted authority to seek “in proper cases … and after proper proof … a permanent injunction” in a court action. 15 U.S.C. § 53(b). The typical enforcement authority to the FTC was to initiate an administrative hearing for a cease-and-desist order. 15 U.S.C. § 45(a). The Supreme Court reviewed the prospective, not retrospective language of Section 13(b), which permits the FTC to seek an injunction where a person “is violating, or is about to violate” any law enforced by the FTC (not has violated).
The FTC has relied heavily on the ability to seek immediate monetary relief under Section 13(b) over several decades. During the past few months alone, the FTC obtained monetary relief under Section 13(b) for such allegedly false and deceptive advertising methods as negative option "opt-out" subscriptions, refunding consumers with gift cards when merchandise was not available, implying relationships with leading companies, advertising that an antenna allows users to view cable programs for free, selling fraudulent work-from-home business opportunities, and many others. Without the ability to seek monetary relief in Court under Section 13(b), the FTC will be limited to pursuing administrative remedies for a cease-and-desist order in such cases.
Immediately following the decision, the FTC issued a statement criticizing the decision and calling on Congress to amend Section 13(b) to allow the FTC to seek monetary relief through a court action. In fact, before this decision was rendered, a source at the FTC confirmed bipartisan congressional support for amending the FTC Act to provide explicitly for authority to seek monetary relief. The FTC is believed to be optimistic that Congress will reequip the FTC with the authority to seek redress in court. As a former commissioner once said, “There is a surprisingly small constituency in favor of hard-core fraud.”
This decision should not be viewed as granting carte blanche for persons to engage in deceptive practices or disseminate false advertising, without facing any risk of a monetary order. The Supreme Court did not disturb the FTC’s statutory authority to initiate a civil action under Section 19 for violating any rule issued by the FTC, or, to initiate a civil action after issuing a final cease and desist order, upon proof that a “reasonable man would have known under the circumstances” that the act or practice “was dishonest or fraudulent.” Thus, under Section 19, for example, the FTC can still bring court actions and seek monetary redress for violations of the CAN-SPAM Rule, the Telemarketing Sales Rule, or other issued rules. The FTC can also follow its administrative procedures to obtain a final cease-and-desist order (which may include restitution to consumers) and enforce those actions in court as needed. See 15 U.S.C. § 45(a), 57b(b). The Supreme Court expressly agreed “that restitution is available, for example, when the Commission uses its administrative process.” 2021 WL 1566607 at *8, citing 15 U.S.C. §57b(b).
However, until Congress acts, the FTC will be limited to seeking orders through administrative proceedings and enforcing in court only compliance with final orders and with its rules, not the general statutory prohibition on disseminating false advertisements.
---
Appreciation to Edward F. Glynn Jr. for insight and comments.