If you had asked us last week, we would have predicted that the Supreme Court’s momentous AMG Capital Management, LLC v. FTC decision last year, in which the Court struck down the Federal Trade Commission’s nearly 50-year practice of seeking equitable monetary relief under Section 13b of the FTC Act, would be the most significant decision about FTC jurisprudence we would see from the Supreme Court for a while.

However, in a surprising move, the Supreme Court recently granted certiorari in Axon Enterprises Inc. v. FTC to address whether Congress intended to strip federal district courts of jurisdiction to hear challenges to the constitutionality of the FTC’s structure, procedures, and very existence. Importantly, however, the Court declined to directly address the petitioner’s challenge to the constitutionality of the FTC. Still, the Court’s decision could significantly impact how future targets of FTC enforcement investigations and actions will challenge the FTC’s constitutional limits.

Continue Reading Federal Trade Commission Goes to the Supreme Court Again, This Time in a Constitutional Challenge

Earlier today, the United States Supreme Court issued a unanimous opinion in AMG Capital Management v. Federal Trade Commission, holding that Congress, by enacting Section 13(b) of the Federal Trade Commission Act, did not grant the Commission authority to obtain equitable monetary relief when it proceeds in federal district courts under that section.

Specifically, Section 13(b) of the Federal Trade Commission Act gives the Commission authority to bring suit in federal district court against those it believes are “violating” or “about to violate” the FTC Act, in order to “enjoin any such act or practice.” In such cases, Section 13(b) further provides courts with the authority to issue a “permanent injunction.” Since the late 1970s, the FTC has taken the position, accepted by courts, that this grant of authority included the ability to obtain equitable monetary relief. The Supreme Court today said not so.

In reaching its conclusion, the Court first looked to the plain language of 13(b). It recognized that the statute only allows for injunctions. The Court stated, plainly, that “an injunction is not the same as an award of equitable monetary relief.”

Continue Reading Disgorgement [Supremely] Denied: Supreme Court Unanimously Curtails the FTC’s Authority in AMG Capital Management v. FTC

On March 29, 2021, the FTC announced a settlement with Beam Financial Inc. (Beam) and its founder and CEO, Yinan Du, over allegations that the mobile banking app company deceived consumers about their access to funds and interest rates. The settlement included a far-reaching conduct ban. As the non-bank financial services continue to grow, the action and settlement underscore the role the FTC seeks to play in policing that sector.

By way of background, on November 18, 2020, the FTC filed a complaint against Beam, alleging that Beam and Mr. Du falsely promised users of their banking app that they would earn high interest rates on the funds maintained in their Beam accounts and have “24/7 access” to their funds. Beam was not a bank; rather, it promised to place funds at banks and provide consumers access to those funds through the app. The FTC alleged that Beam promised users would receive “the industry’s best possible rate”—at least 0.2% or 1%—when users actually received a much lower rate of 0.04% and stopped earning interest entirely after requesting that Beam return their funds. The FTC’s complaint also alleged that Beam misrepresented that consumers could easily move funds into and out of their accounts and that they would receive their requested funds within three to five business days. According to the FTC, users reported that their emails, texts, and phone calls to the company went unanswered; some users even allegedly waited weeks or months to receive their money, while others never received it. The FTC alleged that this was particularly difficult for consumers experiencing serious financial hardship during the COVID-19 pandemic.

Continue Reading FTC Settlement Leads to a 24/7 Shutdown of a Mobile Banking App

Last week, the Supreme Court heard oral argument in AMG Capital Management v. FTC. As we’ve previously discussed, the Supreme Court is set to decide whether Section 13(b) of the FTC Act, which expressly grants the FTC the right to obtain “a permanent injunction,” also grants the FTC the authority to obtain “equitable monetary relief.” During oral argument, certain Justices expressed doubt that the plain language of Section 13(b), when viewed in the context of the entirety of the FTC Act, authorized the FTC to obtain “equitable monetary relief” when proceeding under Section 13(b). While none of us can predict the future, after last Wednesday’s oral argument, we can’t help but wonder: What will happen if the FTC loses? Below, we have outlined the potential avenues for the FTC if the decision doesn’t go its way.

First, Congress could revise the language of Section 13(b) to allow the FTC to seek equitable monetary relief, a request the FTC made in October 2020. There’s precedent for such a move. After the Supreme Court significantly curtailed the SEC’s calculation of equitable monetary relief in Liu, Congress codified the SEC’s authority to seek disgorgement in federal district court as part of the 60th annual National Defense Authorization Act in January 2021, by amending the Securities Exchange Act of 1934. Congress could pass a similar amendment to the FTC Act to unambiguously allow the FTC to obtain equitable monetary relief under Section 13(b) or otherwise. Whether that potential authority would come with a statute of limitations, allow for joint and several liability, or be subject to other restrictions will be important in assessing any potential legislation.

Continue Reading So…What If the FTC Loses AMG Capital Management v. FTC?

On November 30, 2020, the Federal Trade Commission (FTC) announced that it had taken action against a debt collection company, Midwest Recovery Systems (“Midwest”), alleging that an alleged “debt parking” scheme caused more than $24 million in harm to consumers. While the complaint and settlement themselves are not that remarkable, the dissent filed by Commissioner Chopra is. Commissioner Chopra challenges the FTC’s approach to debt collection, suggesting the FTC refer such cases to the Consumer Financial Protection Bureau (CFPB) and that the FTC focus on other things. We have written previously about Commissioner Chopra’s other ideas for reshaping FTC approaches and priorities, and if Commissioner Chopra were to become the next Chair under President-elect Biden, things could get interesting at the agency.

First, a few words about the case. Also known as “passive debt collection,” debt parking is the practice of placing fake or questionable debts onto consumers’ credit reports to coerce them to pay. The “parked” bogus debt is often not discovered by a consumer until his or her credit report is accessed in connection with buying a car or home, opening a credit card, or seeking employment. Thus, although the debts may not be valid, consumers often feel pressured to pay them off—hence the millions of dollars allegedly hauled in by Midwest.

Continue Reading FTC Commissioner Encourages Partnership with CFPB and “Systemic” Change Following FTC Action against Debt Collection Scheme

At the end of last month, FTC Commissioner Rohit Chopra and his attorney advisor, Samuel Levine, penned an article, “The Case for Resurrecting the FTC Act’s Penalty Offense Authority.” In the article, the authors posit that, because the FTC’s “ability to seek monetary relief through Section 13(b) is now in jeopardy,” the FTC should “resurrect one of the key authorities it abandoned in the 1980s”—the Penalty Offense Authority under Section 5(m)(1)(b) of the FTC Act. The authors argue that dusting off the FTC’s Penalty Offense Authority would “mitigate the ongoing gamesmanship around Section 13(b), showing the marketplace that the FTC has more than one trick up its sleeve.” Indeed, Commissioner Chopra’s laser focus on mitigating the potential impact of the Supreme Court’s forthcoming decision in FTC v. AMG Capital Management was on display twice last month, as we previously discussed. In related news, all five FTC commissioners recently asked Congress to “clarify” the FTC’s authority under Section 13(b) in light of the Shire, Credit Bureau Center, and AbbVie decisions.

So, what is the FTC’s Penalty Offense Authority? The FTC’s rarely used Penalty Offense Authority authorizes the FTC to seek civil penalties against a defendant in federal court where (1) the FTC has obtained a litigated cease and desist order against another party through an administrative proceeding pursuant to Section 5(b) of the FTC Act; (2) the cease and desist order identifies a specific practice as unfair or deceptive; and (3) a party on notice of the order (i.e., someone with actual knowledge that the practice is unfair or deceptive) then engages in that same violating conduct after the order is final.

Continue Reading FTC Commissioner Seeks to Resurrect Penalty Offense Authority

On October 19, 2020, the Federal Trade Commission issued its annual report to Congress regarding the FTC’s efforts to protect senior citizens from fraud and abuse. In the report, the FTC noted that adults over 60 are more likely to report losing money to certain types of alleged scams, including romance scams, imposter scams, and online shopping programs. Moreover, the FTC reports that seniors were more than six times more likely than younger consumers to report that they lost money because of tech support phishing activities, and three times more likely to report losing money because of lottery scams.

In a separate statement, Commissioner Rohit Chopra said the agency’s analysis suggests the need for two key actions. These actions, and Commissioner Chopra’s statement generally, indicate that the FTC is considering how to move forward in the face of the Supreme Court’s potential erosion of its favored enforcement tool—Section 13(b).  His comments also have important implications for payment processors and other financial intermediaries that are facing inquiries from the FTC.

First, he recommended that the agency focus its enforcement actions on “larger, established firms,” rather than “smaller-scale scammers.” As an example, he pointed to the FTC’s settlement with payment processor Fiserv (formerly known as First Data) as a “model[] for the entire agency.” Commissioner Chopra believes that such enforcement actions against larger corporations would be a “better use of resources” and “more likely to lead to effective relief and systemic impact.”
Continue Reading FTC Commissioner Warns Larger Companies and Payment Processors, Seeks Greater Financial Penalties

Yesterday, the Third Circuit issued an opinion in Federal Trade Commission v. AbbVie, Inc., joining the Seventh Circuit in holding that the FTC is not entitled to seek disgorgement under Section 13(b) of the FTC Act. The decision reflects a potential turning of the tides on how courts view FTC’s statutory authority to seek monetary relief.

By way of background, the district court ordered the AbbVie defendants to disgorge $448 million in alleged ill-gotten profits from anticompetitive conduct regarding the patented drug AndroGel. Though the Third Circuit held that the district court properly concluded that AbbVie had monopoly power in the relevant market, it struck down the $448 million award.

Continue Reading Disgorgement Denied: Third Circuit Hands FTC a Tough Pill to Swallow Over Section 13(b) Authority

In the wake of the Supreme Court’s opinion in Liu v. SEC, lower courts are starting to address the breadth of its applicability. On August 31, 2020, the District of Arizona welcomed the Supreme Court’s directives in Liu when denying Electronic Payment Solutions of America Inc.’s (EPS) bid for summary judgment against the FTC. To the extent other courts read Liu as similarly applicable, this could have broad implications for the FTC’s authority to obtain monetary relief.

In FTC v. Electronic Payment Solutions, No. 17-cv-2535-PHX-SMM (D. Ariz. Aug. 31, 2020), the FTC filed suit against EPS for playing a role in facilitating Money Now Funding’s alleged telemarketing scheme, and sought to recover approximately $4.67 million from EPS—the total amount EPS collected from credit card transactions for Money Now Funding minus refunds and chargebacks. EPS moved for summary judgment on the grounds that, in light of Liu, the FTC’s monetary claim should be limited to net profits. EPS argued that the FTC, despite alleging entitlement to several forms of monetary relief, was actually seeking disgorgement under several different names. Accordingly, EPS argued that Liu requires courts to limit disgorgement only to the amount of net profits that will be returned to consumers.

Continue Reading Following the Mone(tary Relief): District Court Limits the FTC’s Authority Post-Liu

Two weeks ago, the Supreme Court handed down its opinion in Liu v. SEC where it limited the SEC’s disgorgement authority to net profits returned to investors. Today, the Supreme Court granted certiorari in two FTC cases to decide whether Section 13(b) of the FTC Act providing for “injunctive relief” includes the authority to obtain