The U.S. Supreme Court on Thursday ruled unanimously with Kansas City payday loan mogul Scott Tucker in an appeal against a $ 1.3 billion fine in a civil case by the Federal Trade Commission.
AMG Capital, one of Tucker’s payday loan companies, sought to overturn a 2016 ruling by a Nevada federal judge who agreed that Tucker and his companies should pay borrowers $ 1.3 billion in restitution. defrauded.
The fine against Tucker and his companies was the largest ever obtained by the FTC at the time in a contentious case. But Thursday’s High Court ruling invalidates the FTC’s fine and its ability to seek redress in court in the future, unless Congress gives the agency that power.
Tucker was convicted in a separate criminal case for running a payday loan business that federal prosecutors say exploited 4.5 million borrowers to the tune of $ 3.5 billion. He is currently serving a sentence of over 16 years in prison. His conviction also included a confiscation order requiring him to forgo any proceeds or to have acquired as a result of his crimes.
Judge Stephen Breyer wrote in an opinion for the court that the FTC does not have the power to seek compensation through federal courts in cases where consumers have been scammed. The ruling severely restricts the power of the FTC, a federal consumer watchdog agency.
Acting FTC President Rebecca Kelly Slaughter said in a statement that “the Supreme Court has ruled in favor of crooks and dishonest companies, leaving average Americans to pay for illegal behavior.
“With this ruling, the court robbed the FTC of the most powerful tool we have to help consumers when they need it most. We urge Congress to act quickly to restore and strengthen the agency’s powers so that we can reconcile aggrieved consumers. “
Breyer’s notice said the FTC could still seek restitution in cases it pursues through its own administrative process.
But in recent years, the FTC has sought redress in court, a faster path for the agency.
The FTC said Thursday it had secured $ 11.2 billion in refunds to consumers over the past five years using the route the Supreme Court had just struck down.
The FTC has previously tried to convince Congress to assert its ability to seek redress. On Tuesday, the agency submitted testimony to the U.S. Senate Committee on Commerce, Science, and Transportation, urging Congress to consider passing legislation allowing the FTC to sue directly in federal court for violating the law. FTC and recoup ill-gotten gains.
US Senator Jerry Moran, a Republican from Kansas, and US Senator Roy Blunt, a Republican from Missouri, both sit on the Commerce Committee. Neither could be immediately reached for comment.
Tucker was sued by the FTC in 2012 after a lengthy investigation into his payday loan companies. Tucker, who lived in Leawood, started in the payday loan industry in the late 1990s after serving a year in prison for an unrelated financial scam in the early 1990s.
Tucker made millions from his work in payday loans, enough to be able to fund a professional auto racing team for himself and others.
The FTC accused Tucker of running a deceptive payday loan business that tended to trick clients with confusing loan terms. Payday loans are marketed as small, short-term loans that borrowers expect to repay when they receive their next paycheck. Critics say the industry is ripe for abuse with interest rates trapping often desperate borrowers in hard-to-break debt cycles.
The FTC argued, and a federal judge later accepted, that Tucker’s companies tricked borrowers into confusing loan terms that resulted in high interest rates and borrowing costs.
The judge ordered Tucker and his affiliates to pay the FTC $ 1.3 billion, which the agency would then return to borrowers affected by the deceptive loans.
In 2018, the FTC announced that it had recovered $ 505 million that it reimbursed to Tucker’s customers.
As of Thursday, it was not immediately clear how much the FTC had recovered from Tucker and his businesses, and whether the agency should reimburse them.
Shortly after the 2016 Nevada ruling, Tucker and his attorney, Tim Muir, were indicted in New York federal court for organizing an illegal payday loan racket. The grand jury indictment said that, among other things, Tucker set up an elaborate corporate structure for his payday loan businesses when he established them on Native American tribal lands, which are exempt from any state law limiting interest rates.
While Tucker’s businesses were nominally established on tribal land, they operated largely from an office tower in Overland Park.
Tucker and Muir were convicted in 2017 and sent to jail in 2018.
Tucker is currently being held in Leavenworth Federal Prison while a separate criminal tax fraud case against him is still pending.
Tucker also appealed his criminal conviction. So far, these calls have not been successful.
But there had been signs that his appeal of the restitution order in the FTC case could hit the target.
While the 9th Circuit appeals court sided with the district court on the validity of the restitution order against Tucker, a separate case in another appeals court had succeeded in making a similar argument. against the authority of the FTC.
The Supreme Court agreed to take up the case, given that the courts of appeal had issued differing opinions. Oral argument took place in the Tucker case last year.