FTC Testifies About Threats to Enforcement Authority at Hearing Before Senate Commerce Committee

The Federal Trade Commission recently testified at an oversight hearing before the Senate Committee on Commerce, Science, and Transportation about the agency’s work to protect consumers and promote competition, including its efforts to combat frauds designed to take advantage of consumers during the COVID-19 pandemic.

Testifying on behalf of the Commission, FTC Chairman Joseph Simons and Commissioners Noah Joshua Phillips, Rohit Chopra, Rebecca Kelly Slaughter, and Christine S. Wilson also described an overview of Commission resources and the steps the FTC has taken to continue operating effectively during the pandemic.

Over the past four fiscal years, pursuant to Section 13(b) of the FTC Act, the FTC has returned more than $975 million directly to consumers and won judgments under which consumers received nearly $10 billion more through defendant-administered redress programs.

The testimony states,

“[O]ur ability to keep getting such results for consumers has been threatened or curtailed by recent judicial decisions.  We therefore respectfully request that Congress clarify the agency’s statutory authority to obtain complete equitable monetary relief under Section 13(b) of the FTC Act, our principal means of securing judicial orders that require this relief.  Section 13(b) provides that the FTC can seek “permanent injunctions,” and for decades, courts interpreted that language to mean that the FTC could secure not just behavioral restrictions but also equitable monetary remedies, including restitution to consumers and disgorgement of ill-gotten gains.  Until recently, eight courts of appeals had adopted that approach, and none had disagreed.  Two years ago, however, two Ninth Circuit judges questioned that court’s favorable holdings on the issue, and in short order the Seventh Circuit held that Section 13(b) did not allow monetary remedies.  The Supreme Court has now agreed to hear both the Seventh and Ninth Circuit cases.  We expect the Court to resolve this issue by next summer.  A ruling adverse to the FTC would have dire consequences for consumer redress and other forms of monetary relief.  Our redress authority is threatened in two additional ways.  First, a decision last year from the Third Circuit held that the FTC could bring cases under Section 13(b) only if the illegal acts were ongoing or impending at the time the FTC sues, limiting our ability to pursue past illegality.  Although we have been successful so far in fending off arguments relying on that case, the Third Circuit’s approach could allow wrongdoers to stop their unlawful conduct and potentially keep their ill-gotten gains on the ground that they are not currently violating the law.  Second, the Supreme Court’s recent Liu decision may place limitations on the amount of money we can obtain from wrongdoers and ultimately return to consumers.  In short, our ability to get full redress for consumers is in peril.  We request that Congress act now to preserve the FTC’s ability to restore to consumers money they lose to scammers and fraudsters.”

The testimony also asks Congress to reauthorize the U.S. SAFEWEB Act, which allows the FTC to work with foreign authorities on cross-border law enforcement.

The testimony next describes the Commission’s major accomplishments and challenges on the consumer protection front, and reiterates its support for federal privacy and data security legislation.  The testimony outlines the many actions the FTC has taken to fight COVID-related fraud, in addition to the agency’s day-to-day work protecting consumers and promoting competition through law enforcement, policy and research, and consumer and business education.

Since the pandemic began in March, the FTC has issued joint warning letters with the Food and Drug Administration to more than 70 marketers regarding claims that their products will treat, cure, or prevent COVID-19, and there are additional warning letters in the pipeline, the testimony states.  The FTC also has issued its own warning letters to more than 200 additional marketers of COVID-19 products.

In addition, the FTC has taken action to address businesses posing as the Small Business Administration.   In conjunction with the SBA, the FTC issued eight warning letters to such companies and also took action to stop a company the FTC charged with deceptively claiming to be an approved lender for the federal coronavirus relief lending program for small businesses.  The FTC also has issued warning letters to VoIP service providers and others assisting and facilitating robocalls using coronavirus-related messages, as well as multi-level marketing companies making allegedly unsubstantiated health and earnings claims.

Overwhelmingly, companies that have received FTC warning letters have taken quick steps to correct their problematic claims, the testimony notes.  However, when a company fails to take action in response to a warning letter, or a warning letter is not appropriate given the conduct at issue, the FTC has pursued law enforcement.

Richard B. Newman is an FTC advertising practices attorney at Hinch Newman LLP.  

Informational purposes only. Not legal advice. May be considered attorney advertising.