Note: The March 25 version of this article has been updated.
The other day, the FTC announced settlements with two different companies that allegedly made false promises to small businesses that their companies could help these small businesses get Paycheck Protection Program loans. As we will discuss in more detail, these cases highlight the fact that the FTC – in some situations – has the authority to seek damages under Section 19 of the FTC Act, as opposed to the more typical refunds that we see in many FTC cases.
Under The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), certain small businesses could obtain forgivable loans under an emergency Small Business Administration (SBA) program called the Payment Protection Program (PPP). These PPP loans were offered during the height of the COVID-19 pandemic to aid small businesses that were struggling to pay their bills and employees. Lenders authorized by the SBA could submit loan applications on behalf of small businesses, and these lenders would receive fees for every PPP loan that was processed. A key part of this program was that it was offered on a first-come, first-served basis.
Biz2Credit advertised that it could process PPP loan applications in 12-14 business days. The FTC complaint alleged that, in reality, the application process was “riddled with delays” and the average processing time was “double” what the defendant had advertised. The Complaint highlighted that “tens of thousands of consumers” were forced to wait over two months for a final determination and that many consumers never received funding at all. The complaint also alleged that defendant was aware of the fact that it was accepting more applications than it could process, even memorializing in internal emails “[w]e are drinking from the SBA firehose and our backlog is increasing everyday” while it decided to reopen its application intake anyway. Biz2Credit also allegedly prohibited consumers from withdrawing applications, even after repeated consumer pleas to do so. The FTC alleged that, by prohibiting application withdrawals, Biz2Credit blocked these consumers from applying to other lenders. Biz2Credit issued a press release stating that it believes the FTC’s claims are not accurate. The press release also noted that the settlement contained no admission of wrongdoing.
The FTC also alleged that a second company, Womply, engaged in similar conduct.
The FTC filed complaints against both companies and alleged violations of Section 5 of the FTC Act. The FTC also alleged a violation of the COVID-19 Consumer Protection Act (CCPA), which made it unlawful for a person to violate Section 5 of the FTC Act in a context related to a COVID-19 government benefit. Importantly, the CCPA states that a violation should be treated as a violation of a rule as defined by Section 18 of the FTC Act. When a rule is violated (or in this case, when a violation of the CCPA is treated as a rule violation), the FTC may seek a variety of remedies, including damages under Section 19 of the FTC Act.
And that brings us back to the damages issue. As my colleague Daniel pointed out in an earlier blog post, Section 19 of the FTC Act allows the courts to grant such relief as “necessary to redress injury to consumers,” including refunds and payment of damages. The settlements require Biz2Credit to pay $33 million and Womply to pay $26 million in damages to the Commission. These are big numbers, and it’s not entirely clear from the complaint or settlement order how the FTC got to these numbers. The FTC press release expressly referred to the money as damages, stating that the dollar amounts “include money consumers lost because of the companies’ conduct, even if consumers made no payments directly to the companies.”
Damages is a very different form of monetary recovery, and thus far, the FTC has not been particularly clear about how it is approaching calculating damages in appropriate cases – or what cases would be appropriate cases. We will keep a close eye on the FTC as it continues to look for new ways to get money back to consumers following the AMG case.
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