No Right to Restitution Defense


Six months after the Third Circuit’s Shire holding, the Seventh Circuit Court of Appeal in FTC v. Credit Bureau Center et al. held that the FTC Act only authorizes injunctions but not monetary restitution. The opinion goes much further than Shire and Hornbeam, concluding that long-standing precedents were incorrect to allow for monetary remedies.

The defendant in this case, who had been ordered to pay $5.2 million after being found liable for deceptively promoting a credit monitoring service, may now be entitled to return of his money.

The dissenting opinion stated, “[t]he majority’s interpretation upends what the agency and Congress have understood to be the status quo for 30 years, and in so doing grants a needless measure of impunity to brazen scammers.”

Credit Bureau case represents a substantial limitation to the FTC’s enforcement power. The potential significance of this decision to marketers accused of deceptive marketing practices cannot be overstated.

The Seventh Circuit’s controversial opinion in Credit Bureau effectively barring the FTC from obtaining restitution in cases of deceptive marketing overturns well-established precedent and has created a split with a majority of other circuits. It is unclear whether the FTC intends to live with the decision and cross its regulatory fingers that it is not followed by other circuit courts, or whether it will take up the matter with the U.S. Supreme Court.

There is now a circuit split on key aspects of the FTC’s enforcement authority so the issue may indeed be ripe for Supreme Court review. It is also possible for the FTC to ask Congress for explicit authority to obtain disgorgement and restitution under the FTC Act.

Takeaway:  Shire and Hornbeam suggest limits to the FTC’s judicial enforcement authority. Credit Bureau adds another level of uncertainty about the agency’s remedial powers.  The FTC routinely freezes assets, forces receiverships and obtains monetary settlements in federal court enforcement lawsuits against marketers. When the agency demands turnover of assets in settlement negotiations, marketing defendants often have little recourse.  While these decisions discussed in this article may not be binding outside of their respective jurisdictions, the potential impact of these trends for digital marketers is significant and potentially presents interesting opportunities for defendants facing FTC enforcement lawsuits. Now, the FTC will likely have to defend its substantive and procedural legal playbook against aggressive challenges by FTC defense attorneys before it can use its monetary-related statutory weapons against marketers it suspects of breaking the law.

Richard B. Newman represents digital marketers in advertising substantiation proceedings and investigations conducted by the Federal Trade Commission and state attorneys general. Follow him on Facebook @ FTC Defense Lawyer.

Informational purposes only. Not legal advice.