An article co-authored by Howard Beales, professor emeritus of strategic management and public policy at the George Washington University School of Business, was cited by the U.S. Supreme Court in a ruling issued earlier this month limiting the Federal Trade Commission’s ability to recover monetary relief for consumers defrauded by companies that use deceptive practices.
In a unanimous opinion delivered by Justice Stephen Breyer, the court found that the FTC’s authority under a provision known as Section 13(b) was limited to seeking injunctions to stop illegal activity but did not allow the agencies to seek monetary remedies like restitution.
Dr. Beales’ 2013 research article analyzing the issue of whether the FTC was overstepping its authority by using Section 13(b) to seek monetary redress was cited in the court’s opinion.
Earlier this week, he testified before the House Subcommittee on Consumer Protection and Commerce, urging Congress to explicitly authorize the FTC to pursue monetary damages in cases involving dishonest or fraudulent conduct under Section 13(b).
He spoke with GW Today about the impact of the decision:
Q: Can you explain the main points you make in the article that the Supreme Court cited in this ruling?
A: We argued that the FTC's move to use Section 13(b) outside the context of fraud was beyond the commission's authority, and that the effort to do so would put the FTC's entire fraud program at risk. Unfortunately, that is exactly what happened in the Supreme Court.
Q: The ruling does not seem favorable to consumers; do you think the court made the right decision?
A: I agree with the court that the use of Section 13(b) against practices that are not fraudulent or dishonest is beyond the commission's authority. Rather than defend the narrow use of the law to attack fraud, which I think could have prevailed, the commission argued that it could get money whenever it wanted. The court was right to reject that position, but Congress needs to act to allow the fraud program to continue.
Q: How will the ruling impact the FTC's ability to obtain financial restitution in general?
A: Against legitimate companies, the FTC has a perfectly workable alternative. It will first have to determine that there was a violation, and then go to court to establish that the conduct was dishonest or fraudulent. Against fraud, however, an asset freeze is essential to keep the fraudsters from either spending or hiding the money. Judges are unlikely to issue asset freezes, however, if they lose control of the case, as they would under current law. Congress needs to revise the law.
Q: What can be done to restore the FTC's ability to obtain money awards directly on behalf of defrauded consumers?
A: Congress should authorize the commission to use the federal district court procedures it has been using, but subject to the substantive limitation already in the law that the conduct must be something that a reasonable person would know was dishonest or fraudulent.
