Class Actions May Be Consumers’ Last Hope After Supreme Court Erases FTC’s Power to Refund Money

The United States Supreme Court last week defanged the Federal Trade Commission (FTC) of its ability to refund money to consumers when it unanimously ruled that the agency does not have the authority to force companies to return “ill-gotten gains” derived from wrongdoing or deceptive practices. 

Justice Stephen Breyer wrote for the Supreme Court that the FTC, more specifically, does not have explicit authority under a section of the FTC Act to seek monetary remedies for consumers as it has regularly done for decades to the tune of billions of dollars.

Rather, the FTC can only seek injunctive relief—a court order requiring a party to stop doing something—in its efforts to thwart illegal corporate conduct. Experts have said the ruling may significantly hamstring the FTC, a bipartisan federal agency tasked with the dual responsibilities of protecting consumers and promoting business competition and a fair market, with regard to antitrust and privacy cases. Those who run the agency have also said they’ve been deprived of “the strongest tool [they] had to help consumers when they need it most.”

Acting FTC Chair Rebecca Kelly Slaughter categorically denounced the Supreme Court’s ruling, calling it one made “in favor of scam artists and dishonest corporations” and a move that leaves average consumers to “pay for illegal behavior.” For the FTC to regain the power it once used to force companies to return ill-gotten profits to regular citizens, it will have to turn to Congress, who Politico reports is considering legislation in response to the high court’s ruling. (Per Politico, a House Energy and Commerce Committee hearing on whether the FTC needs new authority to pursue consumer redress is on the books for this week.)

The Supreme Court’s decision came only days after a bipartisan panel of two Democrat and two Republican commissioners urged Congress to reinforce the FTC’s ability to provide consumers with monetary relief and give the agency more resources for enforcement and hiring efforts in light of an uptick in business merger filings. The commissioners, who await the potential appointment of a fifth commissioner, also agreed at the same Senate Commerce Committee hearing that the FTC should act to protect consumers’ digital privacy should Congress fail to advance national legal protections for such.

Prior to the Supreme Court ruling, the acting FTC head did not sugarcoat the difficulties the agency faced in helping consumers—or doing its job in general.

“Even while the Supreme Court case is pending, the uncertainty around 13(b) [of the FTC Act] is affecting our work and affecting our cases,” Slaughter told Congress. “It’s making it harder for us to get that redress to consumers. It’s outright barred in some circuits. And other defendants are just saying let’s wait and see, we don’t want to negotiate, we don’t want to get into these conversations, making it harder for us to stop illegal conduct and making it harder for us to make your constituents whole when they have been harmed.”

A larger question looms in the wake of the Supreme Court’s ruling, however, one that directly affects regular Americans who, as usual, stand to lose the most in situations where they have little ground to stand on to begin with.

With the FTC for now unable to refund money back to regular people, are class action lawsuits the only tool left to protect consumers from corporate misconduct?

$483.1 Million

That’s how much the FTC, through enforcement actions, was able to recover in refunds from January to December 2020 alone. Out of the more than $483 million, 1.7 million people cashed FTC payment checks, and $106.8 million in refunds was sent directly to consumers.

Comparatively speaking, however, $483 million is significantly less than the agency has recovered for and returned to consumers in prior years. [Access the FTC’s Refunds to Consumers dashboard here.]

From July 1, 2018 to December 31, 2019, for instance, the FTC was able to secure $1.2 billion in refunds, with $542.9 million being sent directly to consumers. According to the FTC’s report from the previous year, FTC cases tallied more than $2.3 billion in refunds for consumers, with $122 million mailed directly and 2.2 million checks cashed overall. Further still, FTC cases from July 2016 through June 2017, resulted in more than $6.4 billion in refunds, breaking down to $391.38 million sent by the agency directly to consumers amid 6.28 million checks cashed.

According to the agency, 11.6 million consumers have cashed FTC payment checks between 2016 and 2020, and $1.1 billion has been sent directly to citizens during that time period. Although consumer refund information for 2021 has yet to be made available by the FTC, it stands to reason that the monetary recovery amounts will remain in the hundreds of millions, or even billions, as the country slowly (hopefully) emerges from the COVID-19 pandemic.

As it stands today, though, the FTC no longer has the authority to do any of this.

Whereas in the past the FTC’s Office of Claims and Refunds was tasked with developing a plan for returning companies’ ill-gotten money to the right people (learn more about how all that works here), the agency now has no other option but to rely on court orders as the sole means of stopping and discouraging corporate wrongdoing. Compounding matters are seemingly persistent restrictions the FTC has encountered as far as being able to hire more help to chip away at its ever-expanding workload, which includes corporate merger filings that, according to Slaughter, are at more than double the level they were a year ago.

Insufficient resources and a new lack of monetary recovery powers have effectively placed the FTC, and by way of extension regular consumers, between a rock and a hard place.

“The absence of resources means that our enforcement decisions are harder,” Slaughter said. “If we think we have a real case, a real law violation in front of us, but a settlement on the table that is maybe OK but doesn’t get the job done, we have to make difficult decisions about whether it’s worth spending a lot of taxpayer dollars to go sue the companies who are going to come in with many, many law firms worth of attorneys and expensive economic experts, versus taking that settlement.”

The picture painted by Slaughter unintentionally touches upon why class action lawsuits are necessary. If the Federal Trade Commission, an extension of the federal government that’s funded by taxpayers yet subject to the whims of whatever administration happens to be in the big chair, must constantly contend with corporations with bottomless resources, what chance do regular citizens have at getting at least some money back?

Class actions, like it or not, are that chance.

Strength in numbers

The Supreme Court’s ruling came in a case in which the FTC sued payday lender AMG Capital Management over allegations that the company misled consumers about the terms of short-term, high-interest loans. AMG and company head Scott Tucker were ordered by a trial court to pay back $1.3 billion in restitution to consumers, an order that was later upheld on appeal before AMG then asked the Supreme Court to consider the FTC’s monetary recovery authority.

What took place was a gamble by AMG that it had enough time and money at its disposal to weather the FTC litigation being run up to the highest point on the flagpole. And it paid off—to the detriment of consumers.

As the question has been posed time and again, if a company’s bottom line isn’t affected, does an enforcement action or punishment really mean anything? In light of the Supreme Court’s handcuffing of the FTC’s ability to recover money for regular people, class action lawsuits and the relief they provide are decidedly more important than ever, especially in light of the fact that it may take a while for another embattled consumer-first agency, the Consumer Financial Protection Bureau (CFPB), to get back on its feet.

What it takes to push back against a company accused of wrongdoing are resources that go beyond what the average person might possess. Whereas a lone consumer faces near-impossible odds in tackling even a small company’s apparent wrongdoing on their own, a large group of people, with the help of plaintiffs’ attorneys, stand a much better chance at moving the needle, with the overall goal of recovering money or some other form of compensation for everyone who was similarly affected.

Class actions are crucial because “strength in numbers” still has meaning and weight, and because regular people deserve their money back when it’s been taken from them by way of deception or wrongdoing. Whereas the investigative and enforcement costs incurred by the FTC come from taxpayers, consumers (i.e., plaintiffs) almost always never pay anything to pursue a class action lawsuit.

Think about this scenario: You bought from a company a product or service that turned out to be defective or simply not what it was advertised to be. You want your money back. What’s more, you’re almost certain thousands of other people have had a near-identical or at least similar experience to yours. What’s the recourse? What can you do? Where do you start?

It might not be anywhere close to feasible for one person to devote the time and money needed to retain legal counsel to recover, say, the one-time cost of a product or a service’s relatively inexpensive monthly fee. But the landscape changes substantially when the situation comes to involve possibly thousands of people who each paid the same costs or monthly fees for a product or service. This is where class actions make sense as a way for people to get at least some of their money back.  

There is no silver bullet for dealing with corporate wrongdoing and deception; the FTC is no knight in shining armor, and neither are class action lawsuits. But the more tools regular people have at their disposal, the better off we all are.

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