The U.S. Supreme Court on Thursday ruled the Federal Trade Commission (FTC) cannot seek to recoup funds unlawfully obtained by individuals and companies resulting from violations of consumer protection laws.

In a 9-0 decision in AMG Capital Management v. FTC, the Court ruled Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement,” Justice Stephen Breyer wrote in the unanimous opinion for the Court.

“Section 13(b) as currently written does not grant the Commission authority to obtain equitable monetary relief,” Breyer wrote, noting the FTC can seek restitution under other provisions of the law. “If the Commission believes that authority too cumbersome or otherwise inadequate, it is, of course, free to ask Congress to grant it further remedial authority.”

A blow to the FTC

The Court’s decision ends a complaint the FTC had filed in 2012 against business owner Scott Tucker and his companies alleging “deceptive payday lending practices” in violation of Section 5(a) of the FTC Act. In the case, the district court granted the FTC’s request under Section 13(b) of the Act for a permanent injunction to prevent Tucker from committing future violations of the Act and relied on the same authority to direct Tucker to pay a record $1.3 billion in restitution and disgorgement.

Tucker appealed, but the Ninth Circuit rejected his argument that Section 13(b) of the Act does not authorize the award of equitable monetary relief. The Supreme Court disagreed with that ruling, effectively prohibiting the FTC from seeking relief in federal court for consumers harmed by illegal conduct and greatly weakening the agency’s enforcement powers.

Over the last four decades, the FTC has relied on Section 13(b) of the Act to directly bring actions to federal court, consequently resulting in the return of billions of dollars to consumers targeted by a wide variety of illegal scams and anticompetitive practices, “including $11.2 billion in refunds to consumers during just the past five years,” the FTC said in a statement on Thursday’s ruling.

Such cases brought by the agency have included telemarketing fraud, anticompetitive pharmaceutical practices, data privacy threats, deceptive business practices, and COVID-related scams. “With this ruling, the Court has deprived the FTC of the strongest tool we had to help consumers when they need it most,” said Acting Chairwoman Rebecca Kelly Slaughter in the statement.

The Supreme Court’s decision followed a hearing Tuesday convened by the Senate Commerce Committee to discuss the FTC’s consumer redress authority—or lack thereof—and how the agency can address these matters.

During their testimony, FTC commissioners pointed to how a negative decision in the case would have a lasting impact on the agency’s law enforcement resources. “Defendants now routinely attempt to delay ongoing litigation for as long as possible in the hope that the Supreme Court will allow them to escape liability for any monetary relief, and several matters have been stayed pending the forthcoming Supreme Court decision,” the commissioners testified.

“Defendants are also refusing to engage in settlement discussions unless the Commission agrees to abandon all claims for monetary relief. These developments have slowed the resolution of our pending enforcement cases, requiring the Commission to expend more resources and preventing staff from taking on new work.”

In summary, as Slaughter noted at the hearing, “Enforcement actions will slow and redress for consumers will dry up if Congress does not act quickly to affirm our full authority under 13(b).”