Fed. Trade Comm'n v. Amg Capital Mgmt., LLC

• Decision Date: 03 December 2018
• Docket Number: No. 16-17197,16-17197
• Citation: 910 F.3d 417
• Parties: FEDERAL TRADE COMMISSION, Plaintiff-Appellee, v. AMG CAPITAL MANAGEMENT, LLC ; Black Creek Capital Corporation; Broadmoor Capital Partners, LLC ; Level 5 Motorsports, LLC; Scott A. Tucker; Park 269 LLC; Kim C. Tucker, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

910 F.3d 417

FEDERAL TRADE COMMISSION, Plaintiff-Appellee,

v.AMG CAPITAL MANAGEMENT, LLC ; Black Creek Capital Corporation; Broadmoor Capital Partners, LLC ; Level 5 Motorsports, LLC; Scott A. Tucker; Park 269 LLC; Kim C. Tucker, Defendants-Appellants.

No. 16-17197

United States Court of Appeals, Ninth Circuit.

Argued and Submitted August 15, 2018 San Francisco, California

Filed December 3, 2018

OPINION

O'SCANNLAIN, Circuit Judge:

I

A

Scott Tucker controlled a series of companies that offered high-interest, short-term loans to cash-strapped customers. He structured his businesses to offer these payday loans exclusively through a number of proprietary websites with names like "500FastCash," "OneClickCash," and "Ameriloan." Although these sites operated under different names, each disclosed the same loan information in an identical set of loan documents. Between 2008 and 2012, Tucker's businesses originated more than 5 million payday loans, each generally disbursing between $150 and $800 at a triple-digit interest rate.

The application process was simple. Potential borrowers would navigate to one of Tucker's websites and enter some personal, employment, and financial information. Such information included the applicant's bank account and routing numbers so that the lender could deposit the funds and—when the bill came due—make automatic withdrawals. Approved borrowers were directed to a web page that disclosed the loan's terms and conditions by hyperlinking to seven documents. The most important of these documents was the Loan Note and Disclosure ("Loan Note"),¹ which provided the essential terms of the loan as mandated by the Truth in Lending Act ("TILA"). See 15 U.S.C. § 1601 et seq . Borrowers could open the Loan Note and read through its terms if they chose, but they could also simply ignore the document, electronically sign their names, and click a big green button that said: "I AGREE Send Me My Cash!"

B

In April 2012, the Federal Trade Commission ("Commission") filed suit against Tucker and his businesses in the District of Nevada.² The Commission's amended complaint alleged that Tucker's business practices violated § 5 of the Federal Trade Commission Act's ("FTC Act") prohibition against "unfair or deceptive acts or practices in or affecting commerce." 15 U.S.C. § 45(a)(1).³ In particular, the Commission alleged that Tucker violated § 5 because the terms disclosed in the Loan Note did not reflect the terms that Tucker actually enforced. Thus, the Commission asked the court permanently to enjoin Tucker from engaging in consumer lending and to order him to disgorge "ill-gotten-monies."

In December 2012, the parties agreed to bifurcate the proceedings in the district court into a "liability phase" and a "relief phase." During the liability phase, the Commission moved for summary judgment on the FTC Act claim, which the district court granted. In the relief phase, the court enjoined Tucker from assisting "any consumer in receiving or applying for any loan or other extension of Consumer Credit," and ordered Tucker to pay approximately $1.27 billion in equitable monetary relief to the Commission. The district court instructed the Commission to direct as much money as practicable to "direct redress to consumers," then to "other equitable relief ... reasonably related to the Defendants' practices alleged in the complaint," and then to "the U.S. Treasury as disgorgement." Tucker timely appeals and challenges both the entry of summary judgment and the relief order.

II

Tucker first argues that the district court wrongly granted the Commission's motion for summary judgment finding Tucker liable for violating § 5 of the FTC Act.

A

Section 5 of the FTC Act prohibits "deceptive acts or practices in or affecting commerce." 15 U.S.C. § 45(a)(1). To prevail, the Commission must show that a representation, omission, or practice is "likely to mislead consumers acting reasonably under the circumstances." FTC v. Stefanchik , 559 F.3d 924, 928 (9th Cir. 2009) (internal quotation marks omitted). This consumer-friendly standard does not require the Commission to provide "[p]roof of actual deception." Trans World Accounts, Inc. v. FTC , 594 F.2d 212, 214 (9th Cir. 1979). Instead, it must show only that the "net impression" of the representation would be likely to mislead—even if such impression "also contains truthful disclosures." FTC v. Cyberspace.com LLC , 453 F.3d 1196, 1200 (9th Cir. 2006).

In this case, the Commission argues that Tucker violated § 5 because the Loan Note was likely to mislead borrowers about the terms of the loan. The top third of such Loan Note contained the so-called TILA box, which disclosed the "amount financed," the "finance charge," the "total of payments," and the "annual percentage rate." The "amount financed" portion of the box was the amount borrowed, and the "finance charge" was equal to 30 percent of the borrowed amount. The final two figures were calculated by summing the principal and the finance charge ("total of payments") and then determining the "annual percentage rate." By way of illustration, suppose that a customer wanted to borrow $300. The Loan Note's TILA box would state that the "amount financed" was $300, that the "finance charge" was $90, and that the "total of payments" was $390. The "annual percentage rate" would vary based on the date the first payment was due.

But the fine print below the TILA box was essential to understanding the loan's terms. This densely packed text set out two alternative payment scenarios: (1) the "decline-to-renew" option and (2) the "renewal" option. Beneath the TILA box, the Loan Note stated: "Your Payment Schedule will be: 1 payment of [the ‘total of payments’ number] ... if you decline* the option of renewing your loan." The asterisk directed the reader to text five lines further down the page, which read: "To decline this option of renewal, you must select your payment options using the Account Summary link sent to your email at least three business days before your loan is due." Tucker would send this "Account Summary link" three days after the funds were disbursed. With this email, borrowers hoping to exercise the decline-to-renew option had to navigate through an online customer-service portal, affirmatively choose to "change the Scheduled" payment, and agree to "Pay Total Balance." All of this had to be done "at least three business days" before the next scheduled payment. Thus, the borrower had to take affirmative action within a specified time frame if he hoped to pay only the amount listed in the TILA box as the "total of payments."

By contrast, the "renewal" option would end up costing a borrower significantly more. Importantly, renewing the loan did not require the borrower to take any affirmative action at all; it was the default payment schedule. On the third line below the TILA box, the Loan Note read: "If renewal is accepted you will pay the finance charge ... only." And with each "renewal," the borrower would "accrue new finance charges"—that is, an additional 30-percent premium. After the fourth renewal, Tucker would begin to withdraw the "finance charge plus $50," and he would withdraw another such payment each subsequent period until the loan was paid in full.

To illustrate, consider again the example of the customer who wanted to borrow $300. The Loan Note's TILA box would indicate that his "total of payments" would be $390, equaling $300 in principal plus a $90 finance charge. But he would be required to pay much more than that, unless he took the affirmative steps to "decline" to renew the loan. Once again, these steps required him to wait three days after getting the cash, follow a link in a separate email, and agree at least three days before the due date to pay the full balance. If he failed to perform this routine, then he would owe yet another finance change (equaling another 30 percent of the borrower's remaining balance) at the next due date. And if he simply let Tucker automatically withdraw the payments for the course of the loan, he would owe the $300 principal, plus ten separate finance charges, each equaling 30 percent of the borrower's remaining balance. Altogether, a borrower following the default plan would pay $975 instead of $390.

We agree with the Commission that the Loan Note was deceptive because it did not accurately disclose the loan's terms. Most prominently, the TILA box suggested that the value reported as the "total of payments"—described further as the "amount you will have paid after you have made the scheduled payment"—would equal the full cost of the loan. In reliance on this information, a reasonable consumer might expect to pay only that amount. But as we have described, under the default terms of the loan, a consumer would be required to pay much more. Indeed, under the terms that Tucker actually enforced, borrowers had to perform a series of affirmative actions in order to decline to renew the loan and thus pay only the amount reported in the TILA box.

The Loan Note's fine print does not reasonably clarify these terms because it is riddled with still more misleading statements. First, the explanation of the process of declining to renew the loan is buried several lines below where the option to decline is first introduced. Second, nothing in the fine print explicitly states that the loan's "renewal" would be the automatic consequence of inaction. Instead, it misleadingly says that such renewal must be "accepted," which seems to require the borrower to perform some affirmative action. Third, between the sentence that introduces the decline-to-renew option and the sentences that explain the costly consequences of renewal, there is a long and irrelevant sentence about what happens if a pay date falls on a weekend or holiday. Thus, the fine print's oblique description of the loan's terms fails to cure the misleading "net impression" created by the TILA box.

Tucker suggests, however, that the Loan Note is not...