The article (i) identifies the types of equitable monetary relief that typically are awarded in such actions, and distinguishes between equitable restitution (which may be awarded) and legal restitution (which may not); (ii) discusses the concept of “tracing,” which is a necessary prerequisite to an award of restitution; and (iii) explains why disgorgement of a defendant’s net profits generally will be the only proper form and measure of consumer redress in Section 13(b) litigation.

Whether a court awards restitution or disgorgement in a Section 13(b) action can have a substantial impact on the amount of money that a defendant who violates the FTC Act might be ordered to pay in consumer redress. For example, a company that spends a significant amount of money on product advertising, marketing, and promotion might have low net profits (the measure of a disgorgement award) despite, at the same time, having high gross revenues from product sales (typically awarded in restitution). In that case, the difference between an award of disgorgement or restitution could be the difference in a redress award totaling thousands rather than millions of dollars. Thus, companies and individuals who are named defendants in Section 13(b) actions should be aware of what form of consumer redress is awardable in such litigation and how that redress is measured, as it could impact settlement negotiations with the FTC and litigation strategy generally.

In connection with today’s announcement, Elizabeth Warren indicated that “Peggy and Steve will play critical roles in building a CFPB that will level the playing field between bank and non-bank lenders. For the first time consumer credit is going to be regulated by product instead of by the kind of company selling it, and these two will be instrumental in developing this new approach.” In recent weeks, Deputy Secretary of the Treasury Neal S. Wolin described the CFPB implementation team as consisting of various “working groups focused on setting up key functions of the bureau such as research and supervision of financial institutions” with “[other] working groups … focused on building the CFPB's supporting infrastructure, from procurement and budgeting to human resources and legal services.”

As discussed in a previous post on this blog, the Secretary of the Treasury designated July 21, 2011 as the date on which the CFPB will assume existing authorities of seven federal agencies. Today’s announcement signals that the government is moving swiftly to maintain the CFPB implementation schedule contemplated by the Dodd-Frank legislation. Additionally, the appointment of leaders to undertake supervision of depository and non-depository institutions is an indication that we are one step closer to the CFPB prescribing rules under Dodd-Frank that will affect not only banks, but also nonbank financial institutions who will now be subject to a new layer of regulation and oversight previously unknown to such entities. It remains to be seen how institutions, of any nature, will handle the potential compliance costs of abiding by CFPB regulations and whether new regulations will change the landscape of products available to consumers.