By Lawrence Hurley and Andrew Chung
WASHINGTON, April 22 (Reuters) - The U.S. Supreme Court on Thursday made it more difficult for the Federal Trade Commission to force scam artists and companies that engage in deceptive business practices to return ill-gotten gains obtained from consumers, ruling in favor of a criminally convicted payday lender who challenged the agency.
The 9-0 ruling, authored by liberal Justice Stephen Breyer, handed a victory to businessman and racecar driver Scott Tucker, who is serving a prison sentence after being convicted in 2017 on racketeering, wire fraud and money laundering charges - the same conduct at issue in the Supreme Court case.
The ruling represented a major triumph for business groups, which had complained that the FTC had been aggressively extracting billions of dollars in monetary awards from businesses over the last few years.
The justices found that the consumer protection agency overstepped its authority in its practice of seeking court orders to make fraudsters return money improperly obtained from consumers in the form of restitution or disgorgement.
The ruling limits the agency's authority to seek restitution under one section of a U.S. law called the Federal Trade Commission Act that lets it sue lawbreakers and authorizes judges to issue permanent injunctions. The justices ruled that the provision does not give judges the authority to order defendants to return money to consumers.
The decision represented a blow to the FTC, which frequently uses the provision to win monetary awards for consumers directly in court by bringing dozens of cases every year. For example, it obtained court orders for more than $723 million in the 2019 fiscal year.
Now the FTC will have to use other lengthier and more complicated legal avenues to obtain restitution for consumers or ask Congress to amend the law. The FTC's commissioners last year asked Congress to pass a law specifically allowing the agency to demand disgorgement.
Two Democratic U.S. House of Representatives lawmakers, Frank Pallone and Jan Schakowsky, said they would hold a hearing next week to consider legislation "that would restore the FTC's longstanding authorities to provide redress to consumers who’ve been scammed."
Breyer wrote in the ruling that if the agency believes these other processes are "too cumbersome or otherwise inadequate, it is, of course, free to ask Congress to grant it further remedial authority."
The business practices of Tucker and his company, AMG Capital Management, targeting low-income borrowers led to the largest court-ordered settlement in the FTC's history, totaling $1.27 billion. Tucker and his company appealed a ruling by the San Francisco-based 9th U.S. Circuit Court of Appeals that endorsed the agency's authority to recoup the money.
Payday loans involve the lending of a relatively small amounts of money at high interest rates, sometimes to be repaid when the borrower gets their next paycheck. Payday loans have been linked to increases in defaults and personal bankruptcies.
According to the Justice Department, Tucker operated a nationwide internet payday lending enterprise that systematically evaded state laws for more than 15 years to charge illegal interest rates as high as 1,000 percent on loans.
Tucker in 2018 was sentenced to 16 years and eight months in prison after being found guilty of violating federal lending and racketeering laws.
After several states brought lawsuits over the lending, prosecutors said, Tucker entered into sham relationships with Native American tribes. By claiming his companies were owned by tribes, prosecutors said, Tucker was able to shield the businesses from lawsuits using tribal sovereign immunity.
The Supreme Court's ruling will affect a separate case the justices have agreed to hear in which the FTC is seeking $5.2 million in ill-gotten gains from another company, the Credit Bureau Center.
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(Reporting by Lawrence Hurley in Washington and Andrew Chung in New Orleans; Additional reporting by Diane Bartz; Editing by Will Dunham)
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