Sheppard Mullin Richter & Hampton LLP

The U.S. District Court for the Northern District of Illinois recently used Section 19 of the FTC Act to impose a $5 million restitution award after the original restitution award under Section 13(b) was vacated by the Seventh Circuit based on its ruling that monetary relief was not available under Section 13(b).

Originally, the district court ordered the restitution based on the FTC’s allegations – under the FTC’s UDAP prohibition and ROSCA – that the credit monitoring company and its owner deceived consumers with fake rental property advertisements and deceptive promises of “free” credit reports, and then enrolled them into a costly monthly credit monitoring service.  However, the Seventh Circuit held that Section 13(b) does not grant the FTC authority to order restitution.  Subsequently, in AMG Capital Management v. FTC, the Supreme Court ruled that Section 13(b) does not authorize the FTC to seek monetary relief such as restitution or disgorgement (we previously discussed this case in earlier Consumer Finance & FinTech Blogs here and here).

Following this, the FTC filed a motion with the district court in its action against the credit monitoring company to amend the judgment to reimpose the same restitution under Section 19 and ROSCA.  The court agreed to reimpose damages under the Section 19 and ROSCA because ROSCA incorporates all the enforcement tools of the FTC Act.  Further, the court ultimately agreed with the FTC that by indicating that it may seek remedies under Section 19 when it brought the action under Section 5(a) of ROSCA, the company was put on notice about the factual basis for its ROSCA claim, the remedy sought, and alternative routes for seeking that remedy.

Putting It Into Practice:  The FTC will likely continue to aggressively pursue enforcement actions relying more on Section 19 if it wishes to keep seeking monetary remedies.  To illustrate, in 2020 alone, the FTC refunded a total of $483 million to 1.7 million consumers.  To succeed under Section 19, however, the FTC must demonstrate that “a reasonable man would have known under the circumstances [that the conduct] was dishonest or fraudulent.”  This standard, which likely will be more difficult for the FTC to meet, may nonetheless be more advantageous for the FTC than simply alleging an unfair or deceptive act or practice in light of recent case law making seeking restitution more difficult.  The FTC could also seek to partner with states as it has done on occasion in an effort to exert pressure on enforcement targets to extract monetary settlements and restitution, or refer more cases alleging wrongful conduct to the CFPB, which can seek civil penalties for unfair or deceptive practices. Whatever the case, companies will need to remain alert to the FTC’s creative expansion of enforcement tools.

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