The FTC’s Power to “Wipe Out” is Under Siege

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ftc office washington dcAs the FTC contemplates how to “wipe out” entire industries, federal courts around the country have recently ruled that the regulator can’t accomplish such a goal under Section 13(b) of the FTC act. That’s the statute the FTC relied on to bring its most recent actions against merchant cash advance companies. It might not have bite.

Under 13(b), the FTC is empowered to bring a lawsuit to obtain an injunction against unlawful activity that is currently occurring or is about to occur. It’s powerful, but very limited. However, for the last several decades, the FTC, with the help of federal courts, has interpreted the statute to mean that it can also force the defendants to “disgorge” with illegally obtained funds.

That’s how the FTC wiped out Scott Tucker and his payday lending empire. In a lawsuit the FTC brought against his companies under 13(b) in 2012, the Court entered a judgment of $1.3 billion against him.

Not so fast, modern legal analysis says. Tucker’s case is being brought before the Supreme Court of the United States to settle once and for all what 13(b) allows for and what it doesn’t.

The momentum does not weigh in the FTC’s favor.

On September 30, the Third Circuit ruled in FTC v AbbVie that the FTC is not entitled to seek disgorgement under 13(b). The Seventh Circuit arrived at a similar conclusion last year in FTC v Credit Bureau Center.

In an interview with NBC, FTC Commissioner Rohit Chopra said in August “We’ve started suing some [merchant cash advance companies] and I’m looking for a systemic solution that makes sure they can all be wiped out before they do more damage.”

As the FTC attempts to be more proactive in the area of small business finance, it will be important to monitor what the Supreme Court ultimately decides it can actually accomplish.

Last modified: October 9, 2020
Sean Murray

Category: Legal Briefs, merchant cash advance, Regulation

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