Consumer watchdog loses power to recover money for victims after accused scammer fights back in court — and wins
The Federal Trade Commission has returned $1 billion to consumers over the years. Now the fraud-fighting agency is facing a legal obstacle in Chicago.
The scheme was ingenious.
Marketers posted ads on Craigslist for bargain-priced rentals in hot areas like Logan Square or downtown Evanston.
When apartment hunters responded, they’d get an email offering a tour — but first they needed to click a link to get their free credit score.
The catch? The rental ads were fake. And consumers who applied for the “free credit score” were signed up for $29.94-a-month credit monitoring, a recurring charge disclosed in small print and missed by many applicants, government lawyers said.
Many consumers, disappointed when the apartment tours fell through, were surprised when the credit monitoring fees hit their accounts.
The Federal Trade Commission estimates that Credit Bureau Center LLC, which did business as MyScore, eFreeScore and other names, took in millions of dollars between 2014 and 2017.
The agency got a federal judge in Chicago to halt the scheme and order website owner Michael Brown to pay $5.2 million in restitution. Brown’s co-defendants, who placed the fake ads, separately were ordered to pay $762,000.
And that’s where it would have ended, if the case was like most of the others the FTC undertakes for consumers each year.
Three decades of precedent upended
Except this time, the alleged scammer fought back in court — and won.
Brown’s attorney argued the FTC had no right to collect the $5.2 million on behalf of consumers because a 1973 law governing the agency never explicitly gave it that power.
The 7th Circuit U.S. Court of Appeals, based in Chicago, last summer agreed.
In her decision, Judge Diane Sykes, a George W. Bush appointee, didn’t dispute that Brown had misled consumers. But she said the FTC can’t use a court injunction to recover money, even for victims. Instead, the agency should’ve first gotten a cease-and-desist order — and then if the business violated it, it could be sued.
The ruling went against three decades of precedent and created headaches for one of the nation’s highest-profile consumer agencies. Because of it, the FTC hasn’t filed any new fraud cases in Illinois, Wisconsin or Indiana.
Though it can still file Chicago-related cases in other jurisdictions — if there’s a victim or defendant there — the agency is now asking the U.S. Supreme Court to weigh in, hoping to get the ruling overturned.
Illinois Attorney General Kwame Raoul submitted a friend-of-the-court brief in January signed by 23 other attorneys general, arguing that states benefit when the FTC collects restitution for wronged consumers.
For years, as the FTC has pursued injunctions against scams plaguing consumers — like illegal robocallers, phony tech support and fake debt collectors — it has typically sought to return ill-gotten money to victims.
The agency has returned about $1 billion in assets in recent years. In Illinois, the FTC has returned more than $45 million to about 231,000 consumers, the agency’s records show.
“The stakes for U.S. consumers are very large,” says Joel Marcus, FTC deputy general counsel, calling the 7th Circuit ruling “a direct threat to our mission, if it were to be adopted by other courts of appeals.”
He added: “What we are concerned about is the domino [effect].”
Victims sought North Side apartment
Vanessa Solorzano, 26, and her boyfriend fell victim to the scheme in 2016, after responding to a Craigslist ad for a North Side apartment.
They followed the instructions for the free credit score, providing a credit card for a $1 processing fee. Solorzano says she got suspicious when the apartment ad disappeared. Then the card was hit with the credit monitoring charge.
The couple quickly stopped the transaction and canceled the card, and Solorzano filed a complaint.
As for the lawsuit against the FTC, Solorzano, now engaged and living in Cicero, says it’s “crazy.”
“That money was never his, or theirs, to begin with,” she says. “You stole from people.”
FTC overreached, attorney says
But Texas attorney Stephen R. Cochell, a former assistant U.S. attorney who is representing Brown and Credit Bureau Center, says the FTC has been using a faulty legal basis.
“From the business perspective, there is a great deal of overreaching by the FTC,” he says.
Cochell says his client was misled by the other defendants, who never told him the rental ads were fake. Brown provided a helpful service, the attorney says.
He adds that businesses sued by the federal government are at a disadvantage because once their accounts are frozen, it’s hard to mount the best possible legal defense.
“That leaves the company in a really dire situation,” Cochell says.
Solorzano sees things differently: “When people are unaware that you’re taking their money, obviously unwillingly, it’s just not fair.”