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Locke Lord QuickStudy: Supreme Court Curtails FTC's Authority to Seek Monetary Relief for False ‎Advertisements

April 23, 2021

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.‎

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Appreciation to Edward F. Glynn Jr. for insight and comments.‎

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