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Supreme Court overturns $1.3 billion penalty against Scott Tucker in payday loan case

Steve Vockrodt
·5 min read

The U.S. Supreme Court on Thursday unanimously sided with convicted Kansas City payday loan tycoon Scott Tucker in an appeal of a $1.3 billion penalty in a civil case brought by the Federal Trade Commission.

AMG Capital, one of Tucker’s payday loan enterprises, sought to overturn the 2016 decision of a federal judge in Nevada who agreed that Tucker and his businesses should pay $1.3 billion in restitution to borrowers who were defrauded.

The fine against Tucker and his businesses was the largest ever obtained at the time by the FTC in a litigated case. But Thursday’s decision by the high court invalidates the FTC’s fine, and its ability to seek restitution through courts in the future unless Congress gives the agency that power.

Tucker was convicted in a separate criminal case for running a payday loan business that federal prosecutors said exploited 4.5 million borrowers to the tune of $3.5 billion. He is currently serving a sentence of more than 16 years in prison. His conviction also included a forfeiture order requiring him to give up any proceeds or assets gained as a result of his crimes.

Justice Stephen Breyer wrote in an opinion for the court that the FTC does not have the power to seek restitution through federal courts in cases where consumers have been ripped off. The ruling severely curtails the power of the FTC, a federal consumer watchdog agency.

Acting FTC chairwoman Rebecca Kelly Slaughter, in a statement, said “the Supreme Court ruled in favor of scam artists and dishonest corporations, leaving average Americans to pay for illegal behavior.

“With this ruling, the Court has deprived the FTC of the strongest tool we had to help consumers when they need it most. We urge Congress to act swiftly to restore and strengthen the powers of the agency so we can make wronged consumers whole.”

A call to Tucker’s attorney was not immediately returned.

Breyer’s opinion said that the FTC could still seek restitution in cases it pursues through its own administrative process.

But the FTC in recent years had sought restitution through the courts, a speedier path for the agency.

The FTC said Thursday it had secured $11.2 billion in refunds to consumers over the last five years using the route that the Supreme Court had just invalidated.

The FTC has already been trying to convince Congress to affirm its ability to seek restitution. On Tuesday, the agency submitted testimony to the U.S. Senate Committee on Commerce, Science and Transportation urging Congress to consider passing legislation to let the FTC sue directly in federal court for violations of the FTC Act and recover ill-gotten gains.

U.S. Sen. Jerry Moran, a Kansas Republican, who serves on the Commerce Committee, said in a statement to The Star that the FTC has an obligation to prevent damaging commercial practices that harm Kansans.

“I will work with my colleagues on the Commerce Committee to provide the FTC with the authorities necessary to fulfill this dusty and seek financial restitution when necessary,” Moran said.

U.S. Sen. Roy Blunt, a Missouri Republican, who also serves on Commerce Committee, could not be immediately reached for comment.

Tucker was sued by the FTC in 2012 after a lengthy investigation into his payday lending enterprises. Tucker, who lived in Leawood, started in the payday lending industry in the late 1990s after serving one year in prison for an unrelated financial scam from the early 1990s.

Tucker made millions from his work in payday lending, enough that he was able to fund a professional auto racing team for himself and others.

The FTC accused Tucker of running a deceptive payday loan business that tended to trick customers with confusing loan terms. Payday loans are marketed as short-term, small dollar loans that borrowers expect to repay by the time they get their next paycheck. Critics say the industry is ripe for abuse with interest rates that trap often-desperate borrowers into cycles of debt that are difficult to break.

The FTC argued, and a federal judge later agreed, that Tucker’s businesses tricked borrowers through confusing loan terms that resulted in steep interest rates and borrowing costs.

The judge ordered that Tucker and his corporate affiliates pay $1.3 billion to the FTC, which the agency would then return to borrowers affected by the deceptive loans.

In 2018, the FTC announced it had recovered $505 million that it refunded to Tucker’s customers.

It was not immediately clear on Thursday how much the FTC had recovered from Tucker and his businesses, and whether the agency would have to pay them back.

Shortly after the 2016 decision in Nevada, Tucker and his lawyer, Tim Muir, were charged in federal court in New York for running an illegal payday loan racket. The grand jury indictment said that, among other things, Tucker set up an elaborate corporate structure for his payday loan businesses when he established them on American Indian tribal lands, which are exempt from any state laws that limit interest rates.

While Tucker’s businesses were nominally established on tribal lands, they operated largely out of an Overland Park office tower.

Tucker and Muir were convicted in 2017 and sent to prison in 2018.

Tucker is currently held in the federal prison in Leavenworth while a separate criminal tax fraud case against him remains pending.

Tucker also appealed his criminal conviction. So far, those appeals have not been successful.

But there had been signs that his appeal of the restitution order in the FTC case could hit the mark.

While the 9th Circuit Court of Appeals sided with the district court on the validity of the restitution order against Tucker, a separate case in another appellate court had been successful making a similar argument against the FTC’s authority.

The Supreme Court agreed to take up the matter, given that appellate courts had issued differing opinions. Oral arguments were held in the Tucker case last year.

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