Measure clarifying FTC’s statutory power faces long road to final passage

Congressional Democrats are speeding up their efforts to ensure the Federal Trade Commission is given statutory power to recover ill-gotten gains, but business groups and their GOP allies are trying to slow the process down.

On May 27, the House panel that oversees the agency’s consumer protection activities approved a bill by voice vote that would codify what the FTC has long seen as its right to obtain equitable relief.

In April, the Supreme Court ruled unanimously in AMG Capital Management LLC v. FTC that the agency must stop using Section 13(b) of the FTC Act to obtain a permanent injunction against lawbreakers as a means for acquiring restitution for consumers or forcing disgorgement of ill-gotten gains.

The high court agreed with the arguments of business groups and others that the agency had interpreted Section 13(b) erroneously to circumvent the longer administrative court process spelled out in Section 19 of the FTC Act.

The FTC has been urging Congress to pass legislation spelling out its powers under Section 13(b) while also bolstering its joint enforcement efforts with state attorneys general.

The bill is sponsored by Representative Tony Cardenas, a California Democrat. There are 13 co-sponsors, all of whom are Democrats. No companion bill has been introduced in the Senate yet. The measure will now be taken up by the full House Energy and Commerce Committee.

“No existing statutory authority can replace what the FTC lost. Other provisions are too weak, take too long to be able to get meaningful relief, or both. This bill provides the legislative fix the FTC has unanimously sought for over two years, clarifying the authorities Congress and the courts held the FTC to possess for over 40 years,” said House Energy and Commerce Committee Chairman Frank Pallone, a New Jersey Democrat, at the hearing.

Republicans on the panel failed to delay consideration of the measure, though their proposals were voted down along party lines.

The panel also defeated GOP-proposed amendments. One would have required the FTC to perform an economic analysis before requesting disgorgement. Another would have restored a policy statement requiring “clear violations” before the agency goes after equitable relief.

“We’re not restoring FTC authority under Section 13(b), we’re granting it,” Representative Brett Guthrie, a Kentucky Republican, said during the discussion.

The GOP member said the measure might result in regulatory overreach.

Congressmen are raising the same issues that business groups such as the Chamber of Commerce and the National Association of Manufacturers have concerns over.

Cardenas and others said they would take the Republicans’ concerns into account when the full committee considers the measure. The Democrats’ control of the House, which has majoritarian rules, means they could pass the bill without GOP support if they had to. But Senate rules require bipartisan support on most measures.

The legislation has also been criticized by network marketing companies, who have frequently been targeted by the FTC and accused of promising great returns but not delivering.

“I'm telling you, if that bill passes, that’s the end of network marketing. It's over because they hate the industry,” said alleged pyramid scheme operator James “Jay” Dwight Noland Jr. in a live Twitter conversation on June 1 with network marketer Ray Higdon, owner of Rank Makers.

In a 2020 case, the FTC accused Success By Health and its executives including Noland of running an “instant coffee” pyramid scheme that used false promises of wealth and income to entice thousands of consumers to join. Noland’s company submitted an amicus brief in the AMG case.

“Many of you have probably been a part of these companies that got shut down. And what happens is, they go in, and they just have a private hearing with a federal judge, and come up with all these allegations, and the judge signs a piece of paper and … freezes all the owner’s assets, and then gives them no say, no due process, and that's illegal,” Noland said.

*Kathleen Murphy contributed to this story.