Court weakens a key consumer protector |
The main federal guardian of consumers against deceptive and deceptive businesses, the Federal Trade Commission, already has too little power to enforce the law. On Thursday, a unanimous Supreme Court pulled out another molar.
In the wake of the court’s decision weakening the federal law against harmful robocalls, the ruling might lead you to believe that the current court is virulently anti-consumer. But that’s not the problem; is that Congress leaves too many holes for regulatory agencies to fill. The tribunal identifies problems that lawmakers can easily solve – or, rather, that it could solve if it were functional.
Thursday’s ruling, drafted by Judge Stephen Breyer, came in the case brought against the FTC by AMG Capital Management, an online payday loan company that the commission successfully brought to court in 2012.
Like the typical payday lender, AMG has asked borrowers to sign contracts that allow the company to automatically withdraw money from their bank accounts when the loans mature in a few weeks. But according to the ruling, those contracts had harmful fine print: Unless the borrower crossed a series of hurdles to order AMG not to renew a loan, it wouldn’t be paid back in full when due – even if that was the borrower’s intention – but instead, would continue to rack up finance charges for months on end, ultimately tripling the borrower’s debt.
Keep in mind that these borrowers tended to be people with low income or bad credit, so they couldn’t get credit cards, bank loans, or other low interest solutions. . From 2008 to 2012, as the US economy bottomed out and then slowly recovered, AMG issued more than $ 5 million of these loans. The payday loan can be a debt trap, even if done honestly; AMG’s behavior was even more predatory.
All this to say that the appellant in this case is not at all sympathetic. So it is perhaps understandable why the commission took legal action not only to terminate the loans, but also to try to get some of the borrowers’ money back. A Nevada Federal District Court sided with the FTC, ordering the company to pay $ 1.27 billion in commission to repay AMG borrowers. The 9th Circuit Court of Appeal upheld the decision, placing the case before the Supreme Court.
The problem, the judges noted, is that the law does not give the commission the power to do what it has done. Specifically, the court ruled that if the FTC wants to seek monetary penalties, it cannot go directly to court for them. Instead, he must seek a cease and desist order from an administrative law judge, then go to court and prove that “‘a reasonable man would have known in the circumstances’ that the conduct in question was ‘dishonest or fraudulent’ ”- for example, by showing that the loans were issued after a cease and desist order. The statute also allows the commission to go back only three years to remedy violations.
Prior to Thursday’s ruling, a number of lower courts had upheld the FTC’s practice of going directly to court for monetary penalties alongside injunctions, resulting in billions of dollars in refunds for defrauded Americans.
The commission, consumer advocates and state attorneys general had all urged the court to allow the practice to continue, arguing that it is difficult to deter companies from scamming consumers if the sanction is an injunction that allows l deceitful operator to keep the money.
It’s not the judges’ call, however. Lawmakers gave the FTC broad jurisdiction over U.S. business practices, but were more reluctant to the FTC’s power to do anything to solve problems it discovered. Not only is the process of recovering the proceeds from deceptive practices cumbersome and hampered, the commission also lacks the power to make rules, nor can it impose real financial penalties on violators until on their second offense – that is, until they violate an issued order. in response to the first time they broke the law.
As with the automated appeal decision (which limited the reach of the Federal Communications Commission), the tribunal in the AMG case tells an independent agency that it cannot close the policy loopholes left by Congress. It’s high time Congress gave the FTC real power to deter unfair and deceptive business practices, and Thursday’s ruling proved it.
Jon Healey is the associate editor of the Los Angeles Times editorial page.