A Supreme Court ruling protecting payday lenders could also save Facebook and Martin Shkreli.
Last month, the Supreme Court unanimously ruled on an under-reviewed case that will cause significant damage to the Federal Trade Commission, overturning the commission’s power to compensate victims of fraudsters through penalties imposed by the court and siding with a mainstay of the payday loan in a row over the repatriation of roughly $ 1.3 billion to borrowers.
The court ruling effectively ended a practice in which the FTC, charged with enforcing a wide range of consumer protection issues, has been engaged for decades and jeopardizes the agency’s ability to act quickly. and with agility to protect the finances of vulnerable Americans.
The FTC successfully sued Scott Tucker, a Kansas City tycoon who controlled several payday loan companies, alongside his businesses in 2012. The court’s $ 1.3 billion fine on Tucker and his companies was the largest of its kind in the history of FTC enforcement. Tucker lost his call in the 9e Circuit. He then went to the Supreme Court, saying the commission did not have the power to correct deceptive business practices by going directly to the courts to seek monetary compensation. The Supreme Court accepted.
Although it went unnoticed, the Supreme Court’s decision should have sparked a storm of denunciations. The payday loan industry, which funnels short-term, high-cost loans to cash-strapped Americans, is a $ 30 billion quicksand machine that exists to siphon money from the poor and bury the poor. consumer debts. Usually, these lenders provide loans with terms that ensure that the initial amount of money borrowed is eclipsed by the amount of cash owed. Here, Tucker’s companies did something worse: They trick Americans into signing millions of contracts where the most punitive loan terms were in the fine print. Without knowing it, a colossal number of clients have had their loans automatically renewed over and over again, accumulating heavy debts.
The court ruling ensures that these customers will not get their money back and that legions of other Americans will also be cheated. The judges ruled that Congress allowed the FTC to seek monetary penalties in court only when the agency first issued a final cease-and-desist order against a deceptive company or operator. Direct recourse to court, the judges insisted, was prohibited by the Federal Trade Commission Act. The court also planted more obstacles in the way to prove deceptive behavior deserved such punishment, suggesting that a business should persist in its bad behavior after being given a cease and desist order. refrain from being forced to return money to the FTC.
In doing so, the court left a gaping hole in the FTC’s enforcement toolkit, ensuring that far fewer Americans will be compensated by companies that defraud them. Each year, the commission seizes dozens of files asking for the restitution of ill-gotten funds; many of these cases are now in danger of collapsing. In testimony before the House Energy and Commerce Subcommittee, Acting FTC Chairperson Rebecca Kelly Slaughter pointed out that the FTC was gravely hurt by the decision and called on Congress to restore the powers of the agency. Slaughter also noted that the court ruling could trap 24 active FTC court cases amounting to $ 2 billion in requested penalties. This list of FTC cases includes a lawsuit against infamous former pharmaceutical executive Martin Shkreli and his associates, who are accused of inappropriately inflating drug prices.
Facebook, too, will likely look to capitalize on the Supreme Court’s ruling. The FTC sued Facebook in December, accusing the tech giant of illegally protecting the company’s dominance in the market by sucking potential rivals into a buying spree. Facebook argued that the same legal provision at issue in the payday loan case cannot be used by the FTC to remedy past conduct.
Although the judges presented a united front in the case, the outcome was far from predestined. The court ruling, written by Judge Stephen Breyer, upended decades of precedent preserving the powers of the FTC. By performing a U-turn, the tribunal’s reasoning reflects the textualist turn of its members. Yet it is easy to see how the judges could have interpreted the text of the statute as forcing the opposite conclusion, such as the 9e Circuit did, and so have other courts. Instead, the court chose, deliberately, to restrict the powers of the FTC.
The court’s decision may signal a worrying trend. It’s no secret that some Tories saw the appointment of Justice Amy Coney Barrett to the Supreme Court – and the consolidation of a right-wing supermajority – as an opening salute in a renewed battle for Significantly reduce the powers of federal agencies to issue legally binding rules. This decision, while addressing the enforcement powers of the FTC, shows how federal agencies could be slowly choked by a series of Supreme Court rulings, rather than wiped out in one fell swoop.
This political backdrop makes the task of Congress – to intervene now to unambiguously restore the powers of the FTC – even more difficult. Businesses are sure to vigorously protest. But the commission has never had full powers to protect consumers. It has limited supervisory powers over crucial sectors like telecommunications and no power to investigate or enforce cases against banks and nonprofits. The FTC’s authority to defend the interests of American privacy was also risky. So far, legislative proposals to strengthen the agency’s competence have failed. The only possible good news is that the recent Supreme Court ruling could breathe new life into a transformational congressional solution.
Even without Congress, the Biden administration would have to respond. The scope of the Supreme Court decision goes far beyond payday loans. But the Consumer Financial Protection Bureau can act now to crack down on the payday lending industry. The Trump administration’s CFPB rolled back restrictions due to go into effect – the first federal rules of their kind – that would have placed critical limits on payday lending and curbed some of the country’s most predatory lending practices, including by forcing lenders to verify that borrowers had the means to repay their debts. Biden’s CFPB is expected to reinstate the deleted rules with unbroken haste.
With the Supreme Court choosing to step aside, it is clearer than ever that it is time for Congress and the executive to enshrine rock-solid consumer protections into law.
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