FTC’s authority to help consumer fraud victims is in question before the U.S. Supreme Court

For more than three decades, the Federal Trade Commission has been able to use the courts to force companies that defraud consumers to refund their money, a tactic that gives some teeth to the FTC’s watchdog role.

But in a case before the U.S. Supreme Court, the federal agency’s authority to get that restitution for consumers is being called into question.

It’s one of two related cases that consumer advocates fear could weaken federal efforts to fight consumer fraud.

The case the nation’s high court heard Wednesday involves AMG Capital Management, LLC, a high-interest, short-term loan company the FTC successfully sued for deceptive practices.

After it won, the Ninth U.S. Circuit Court of Appeals in California upheld that ruling, agreeing that the loan company’s owner must repay consumers $1.27 billion. The owner took the case on to the Supreme Court, arguing that the law doesn’t give the FTC the authority to mandate such refunds.

In a similar case, involving Credit Bureau Center, LLC, apartment hunters said they were hit with surprise credit-monitoring fees. The Seventh U.S. Circuit Court of Appeals in Chicago sided with the credit-monitoring company, agreeing that the FTC doesn’t have the authority to use a court injunction to recover money — not even for victims who deserve it. Instead, the court said the agency has to get a cease-and-desist order first and then could sue the company if it keeps doing the bad thing.

In both cases, the businesses argued that the 1973 law that created the FTC doesn’t say the agency has the authority to seek court orders to get money back.

The FTC says that’s absurd and goes against decades of legal precedents. For years, the agency has pursued injunctions to fight scams such as illegal robocallers, phony tech support and fake debt collectors. Over recent years, that’s resulted in about $1 billion being refunded to consumers.

Illinois Attorney General Kwame Raoul is part of a bipartisan group of 30 attorneys general that filed a friend-of the-court brief arguing that the FTC’s ability to get refunds for wronged consumers is critical to combating anticompetitive, unfair and deceptive trade practices.

FTC Commissioner Rohit Chopra told a webinar hosted by the nonprofit watchdog Truth in Advertising on Monday that he hopes to win before the Supreme Court, saying, “Losing this authority would be a big blow.”

But Chopra said that, no matter how the court ends up ruling, the agency also has other ways to go after fraudsters. Among them: working with state attorneys general, going after civil penalties and using administrative litigation.