Updated to reflect introduction of H.R. 2668, the Consumer Protection and Recovery Act by Rep. Cárdenas (D-CA)

As we inch closer to a Supreme Court decision in AMG Capital Management, LLC v. Federal Trade Commission, proponents of a 13(b) legislative fix are moving with a greater sense of urgency. In a Senate Commerce Committee hearing today entitled, “Strengthening the Federal Trade Commission’s Authority to Protect Consumers,” Chairwoman Maria Cantwell (D-WA) highlighted the agency’s endangered Section 13(b) authority – what she called the “bread and butter of the FTC’s consumer protection mission” – and asserted, “We have to do everything we can to protect this authority and, if necessary, pass new legislation to do so.”

Following statements from all four current FTC Commissioners in support of a legislative fix, Cantwell was adamant she did not want a post-AMG “free rein” atmosphere and noted her intent to move quickly in the event of an adverse ruling. Acting FTC Chairwoman Rebecca Slaughter pressed for an expeditious and comprehensive response, noting the effects of the ongoing legal uncertainty on the agency’s current cases and its ability to get redress to consumers.

Despite bipartisan concern about the future of the agency’s 13(b) authority, however, Congress has yet to settle upon a legislative framework to clarify that authority. Senate Commerce Committee Ranking Member Wicker (R-MS) – who last year put forward a 13(b) fix as part of a comprehensive data privacy bill – questioned how Congress could “ensure the proper assessment of monetary remedies.” Republican FTC Commissioner Noah Phillips, while affirming the importance of compensating harmed consumers, noted that appropriate remedies are not the same in every case and stressed the need to focus on restitution rather than disgorgement.

Phillips’ fellow Republican Commissioner Christine Wilson noted in her testimony that “the legitimate concerns of stakeholders can be addressed while also restoring our ability to use 13(b) to pursue wrongdoers.” Specifically, Wilson suggested: (1) the inclusion of a statute of limitations; (2) the establishment of boundaries on when the FTC could seek disgorgement; and (3) in cases involving legitimate companies making deceptive claims, Congressional direction to the courts to “account for the value consumers retain from the product despite the deception.”

Ahead of today’s hearing, the Chamber of Commerce weighed in with a letter to the Committee expressing concern with the FTC’s practice of seeking injunction and monetary relief under 13(b) despite the fact that its statutory authority to seek monetary relief falls under Section 19 of the FTC Act. In particular, the Chamber noted that providing explicit monetary authority under Section 13(b) “expands monetary relief to many more consumer protection cases beyond the scope of Section 19 … without corresponding safeguards against misuse.” During the hearing, Ranking Member Wicker asked the Commissioners to opine further in writing on the Chamber’s letter and its view that the use of 13(b) forecloses the agency’s ability to seek monetary damages.

Hours later, across the Capitol, Representative Tony Cárdenas (D-CA) – who in February signaled his interest in a 13(b) fix during a House Energy and Commerce Committee hearing – introduced H.R. 2668, the Consumer Protection and Recovery Act. The legislation explicitly authorizes the FTC to seek permanent injunctions and other equitable relief, including restitution and disgorgement, to redress perceived consumer injury. H.R. 2668 also authorizes the FTC to go after prior conduct – an authority that is far from settled under current law – with a 10-year statute of limitations. And, likely in response to advocates for 13(b) reform who regularly note the detrimental effects of the ongoing legal uncertainty on the FTC’s current enforcement activity, the enhanced authorities in the Cárdenas legislation will apply retroactively to pending cases as well as to future proceedings. While the bill is cosponsored by every Democrat on the Energy and Commerce Committee’s Subcommittee on Consumer Protection and Commerce, it remains to be seen if Representative Cárdenas can recruit any bipartisan support – the Chamber letter may portend areas of focus for Republicans interested in a more limited fix. The Consumer Protection and Commerce Subcommittee has scheduled an April 27 hearing on the Cárdenas proposal.

We are likely to hear more on Section 13(b) on Wednesday, when the Senate Commerce Committee holds a hearing on nomination of Lina Khan, President Biden’s pick to fill the FTC’s current vacancy. In answers provided to the committee as part of the confirmation process, Khan highlighted legal threats to the FTC’s penalty authority as one of the top three challenges currently facing the agency, signaling alignment with FTC Commissioners across the political spectrum.

The facts of AMG are straightforward. Scott Tucker was the owner of a single-proprietor business, AMG Capital Management. The business’s sole function was to provide payday loans. The FTC sued Scott Tucker, the owner of AMG, under Section 13(b) of the Act, asserting that the terms disclosed in the loan notes AMG provided to consumers did not reflect the harsher terms that Tucker actually enforced. The district court found Tucker liable, and pursuant to Section 13(b), levied a staggering $1.27 billion in equitable monetary relief to be paid by Tucker to the Commission. Tucker appealed this ruling to the Ninth Circuit. Tucker’s primary argument on appeal was that Section 13(b) forecloses monetary relief. The Ninth Circuit affirmed, and AMG’s petition to the Supreme Court on this issue was granted.

While some of the Justices at oral argument—particularly Justice Barrett and Alito—seemed concerned that reversing the Ninth Circuit’s judgment would provide an undeserved windfall to Tucker, a clear majority of the Court was more focused on the FTC’s broad interpretation of the statutory text. Justice Kavanaugh expressed the problem clearly and succinctly, when he stated to FTC counsel that, although he felt sympathy for the FTC’s concern with stemming bad actors, a regulatory agency is bound by its statutory mission. In Justice Kavanaugh’s words, “It seems the problem you have is the text.”

Although FTC counsel argued that prior case law from the nineteenth century allowed monetary equitable relief along with injunctive relief, Justice Roberts pointed out that those cases largely involved courts using their inherent equitable powers. An executive agency, by contrast, only retains equitable powers to the extent it is given them by statute. And while FTC counsel argued that the legislative intent when Section 13(b) was codified was to imbue it with broad equitable powers, AMG’s counsel effectively rebutted that argument, explaining that the best “way we determine Congress’s intent is by looking at the words on the page.”

While nothing is certain until a final decision is rendered, following oral arguments it seems even more likely that Section 13(b) of the FTC Act will be limited to its plain terms, allowing the FTC to use the statutory provision to obtain injunctive relief in court, and only that. As multiple Justices noted, Section 19 and Section 5(l) of the Act provide alternative avenues for relief. While Section 13(b) may be a more efficient method for the FTC to obtain monetary remedies, the majority of the Justices at oral argument signaled that efficiency alone is not a sufficient basis for imbuing an agency with such a powerful remedy.

All is not lost for the FTC. Again, here, Justice Kavanaugh led the way with a proposed solution for the Agency, when he asked, “Why isn’t the answer here for the Agency to seek this new authority from Congress for us to maintain a principle of separation of powers?” With a new Congress about to be seated and proposed language that would amend Section 13(b) floating around the Hill, congressional clarification very well might be the FTC’s best path forward.

https://vimeo.com/457902818/8f68ba08c1