Understanding the FTC’s Monetary Toolkit

Story by Sean Heather, U.S. Chamber of Commerce

Fill me in:

The Federal Trade Commission (FTC) wants Congress to grant it new authority to collect monetary relief from companies that violate consumer protection laws. While the FTC should have the right tools to compensate consumers who are harmed by misconduct, not all violations of the law are the same. Therefore, any new authority granted to the FTC should ensure consumer compensation is based on actual harm to the consumer and does not seek compensation based simply on total revenue.

Tell me more:

Last year, the Supreme Court unanimously held that the FTC lacked the statutory authority to seek monetary penalties for certain violations of consumer protection laws. In response, after being found to have unlawfully attempted to penalize companies, the FTC asked Congress to expand its authority so that it could impose monetary penalties on a larger universe of alleged wrongdoers.

Why it matters:

Fraud, blatantly false advertising, and other clear cut deceptive practices harm consumers and cost them money. The FTC should and already does have the authority to obtain court ordered compensation for such clear-cut violations.

However, there are other instances where the FTC might decide a company’s action resulted in the consumer experiencing some level of harm, but the consumer still retained a significant amount of value from the product or service that they purchased. In a situation like this determining an appropriate amount of compensation requires more nuance. Unfortunately, the FTC has shown a propensity to rely on the total revenue of the product or service as a basis for compensation. This can be abusive. Rather, the FTC should be required to determine what portion of revenue is fair to claim on behalf of consumers.

At the end of last year, this policy debate dramatically expanded beyond what is appropriate to make consumers whole to a failed effort by the FTC and some in Congress to grant the agency sweeping authority to issue more civil fines. Currently, the FTC can issue civil penalties as a form of punishment, but only where the law is clear, and a business is found to be in violation. But because the core consumer protection law the FTC enforces is intentionally broad and vague (to be flexible over time in determining what might be determined an unfair business practice), it is not fair for every enforcement action to both compensate the consumers and include a fine as punishment.

What experts are saying:

In a new paper, Proportionality and Due Process: Sensible Ways to Consider the FTC’s Remedial Authority, Dr. Andrew Stivers, PhD, outlines a framework that balances the need to protect consumers with the principles of fair notice, due process, and proportionality. The paper explains why Congress originally gave the agency broad authority, but a limited monetary toolkit under the FTC Act.  It also details how the FTC has at times unfairly calculated consumer compensation by relying on a company’s total revenue as a basis for calculating consumer compensation, instead of more narrowly awarding compensation commensurate with harm done to the consumer.

Our take:

The Chamber agrees that the FTC should have the authority to efficiently obtain compensation for consumers who are harmed by unfair business practices. This authority, however, must be calibrated to only allow the agency to compensate consumers based on actual harm caused, avoiding excessive awards where the consumer, while experiencing some level of harm, also retained real value from the product or service.

Congress should also reject any expansion of civil fines. The FTC’s existing civil fining authority is already potent. Given that the FTC is empowered over time to determine what is an unfair business practice, it would be grossly unfair for the agency to issue civil penalties for business conduct that had previously never been determined to be a violation under the law. In these cases, consumers should be compensated, but businesses should not be punished. Civil penalties should be reserved as punishment for business practices that have previously been well-established as a violation under the law.

Consumer compensation that is not commensurate with harm or an overzealous fine against the business will discourage innovation and vigorous competition—two things consumers also value.

What’s next:

The ball is in Congress’s court. The Chamber will always support legislation that gives the FTC the power to protect consumers so long as those powers respect the basic principles of fair notice, due process, and proportionality.