Sleazy payday lenders win big at the Supreme Court

WASHINGTON (PAI)—One of the sleaziest sectors of the corporate world, payday lenders, has racked up a big win at the U.S. Supreme Court. So has the rest of the corporate class, as the justices stripped away a federal agency’s power to impose punitive fines.

And with consumers the losers to predators in the justices’ 9-0 ruling, Congress may have to step in to right the wrong, the U.S. Public Interest Research Group (USPIRG) says.

That’s because corporations, in general, could benefit from the jurists’ April 22 decision in AMG Capital Management v FTC. It takes away the agency’s power to arbitrarily levy big punitive fines against firms that mislead or lie to consumers.

In the 18-page decision, Justice Stephen Breyer wrote the Federal Trade Commission could still seek and get court orders banning such lying.

But FTC could not fine firms at all for past practices, he said, unless it went through its whole, long administrative proceedings drill. The 107-year-old law establishing the agency says yes to injunctions, Breyer added. But that’s it.

As USPIRG pithily put it: “This means the FTC can’t help consumers get their money back.”

Payday lenders are notorious for lending money to poor and working-class people, often people of color who live from paycheck to paycheck, advancing them money charged against those checks. Interest rates run into the triple digits. AMG’s rate was 30% per month.

“The language and structure of” section 13(b) of the law governing the FTC, “taken as a whole, indicate the words ‘permanent injunction’ have a limited purpose—a purpose that does not extend to the grant of monetary relief. Those words are buried in a lengthy provision that focuses upon purely injunctive, not monetary, relief,” Breyer wrote.

Consumers, and the commission, aren’t entirely out in the cold, though. If the FTC followed its administrative proceedings methods, it could still seek and get “conditioned and limited monetary relief” from errant firms, said Breyer. He didn’t define the phrase.

The Ninth U.S. Circuit Court of Appeals had upheld a $1.27 billion FTC fine against payday lender AMG and its owner, Scott Tucker, who’s now in prison for racketeering. The fine equaled excess payments AMG forced consumers to fork over from 2008-2012.

Using an example from lower court rulings, Breyer wrote AMG would typically charge $90 monthly on a $300 loan. AMG would keep rolling it over by invoking unintelligible and barely readable fine print in the loan contract. The amount owed escalated to $975.

The only way the borrower could avoid the escalation was not only to pay off all $390 at the end of a month but also to explicitly declare out of the contract and its fine print, Breyer noted. Unsaid: Honest firms let consumers off the hook when they’ve paid off loans.

The court’s “decision was widely expected, but that doesn’t make it any less disappointing–or dangerous–for U.S. consumers,” said Ed Mierzwinski, USPIRG’s senior director for federal consumer programs.

“In response, Congress must act with urgency to protect Americans by restoring the FTC’s power to get money back from unscrupulous companies and people such as convicted payday lender Scott Tucker, who challenged the FTC’s authority in this case.”

The court “both harms the victims of his illegal schemes and leaves the door open for other bad actors to follow his lead without fear of serious financial repercussions.”

Victims won’t be able to get money, Breyer wrote for the court. Neither will the FTC, acting on their behalf. But he added Congress could restore FTC’s power by legislation.

“Section 13(b) does not explicitly authorize the commission to obtain court-ordered monetary relief, and such relief is foreclosed by the structure and history of the act,” a decision summary says. “Section 13(b) provides that the ‘commission may seek…a permanent injunction.’ By its terms, this provision concerns prospective injunctive relief, not retrospective monetary relief.”