A New Battle in the War Over the FTC’s Enforcement Authority

In a complaint filed in the District of Utah, CMS seeks to obtain a declaration and an injunction to stop the FTC from “continuing to threaten and engage in conduct that is not only unfair and harassing but also far beyond the express limitations of its jurisdiction and enforcement powers.”  CMS refers to “a barrage” of Civil Investigative Demands issued by the FTC seeking “vast amounts of information relating almost entirely to a handful of businesses which CMS and its sponsoring banks ceased working with years ago.”

According to the FTC, upon learning that CMS “may have opened and maintained accounts for a significant number of merchants who had been charged with violating federal or state law, it began investigating whether CMS itself” had violated the law.  Despite 10 months of settlement negotiations, the parties failed to reach an agreement, and to date, the FTC has not filed an enforcement complaint. 

CMS, however, preemptively sued the FTC, asking the Court to prohibit the agency from further investigation and enforcement.  CMS also asks the Court to prohibit the FTC from seeking or recovering any relief under Section 13(b) of the FTC Act because, according to CMS, the FTC’s authority to police “unfair” business practices does not confer upon it the power to make banks’ ISOs vicariously liable for failing to prevent merchants from committing fraud.

On February 3, 2020, the FTC moved to dismiss the case for lack of subject matter jurisdiction.  The FTC argued that the Court lacks jurisdiction because: (1) only the Administrative Procedure Act could provide a cause of action, but the complaint does not satisfy the statutory prerequisites for jurisdiction; and (2) the complaint’s challenges to FTC action are unripe because the FTC has not decided whether to file an enforcement action.

Takeaway: CMS’s preemptive challenge is set against the backdrop of a number of appeals working their way through the federal judicial system that may significantly limit the FTC’s ability to obtain monetary relief, including disgorgement and restitution.  Should the FTC lose these legal battles in 2020, it will have to rely more on administrative proceedings unless Congress passes legislation with enhanced powers.

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