Deceptive Practices and Fraud

Consumers may encounter misrepresentations or fraud during their interactions with various
types of businesses. Professionals in specialized industries have a knowledge advantage over
the ordinary person, which they may exploit. If you have been defrauded or deceived by an
unscrupulous professional or business, you should know your rights under federal and state
law. You may be able to bring a civil claim for damages in addition to reporting the matter to the
appropriate government agency for investigation.

Deceptive Practices
An act or practice is deceptive when it meets the following criteria:

 A representation, omission, or practice misleads or is likely to mislead the consumer.

 A consumer’s interpretation of the representation, omission, or practice is considered
reasonable under the circumstances.
 The misleading representation, omission, or practice is material.

Marketing Fraud
 Marketing fraud is the illegal practice of making false or misleading promotional claims
for financial gain
Deceptive Advertising
Under both federal and state law, an ad is unlawful if it tends to mislead or deceive, even if it
doesn't actually fool anyone. If your ad is deceptive, you'll face legal problems whether you
intended to mislead the customer or not. What counts is the overall impression created by the
ad -- not the technical truthfulness of the individual parts.

Consumers' Right to Sue for False and Deceptive Advertising

Consumers often have the right to sue advertisers under state consumer protection laws. For example, someone who
buys a product relying on a deceptive ad might sue in small claims court for a refund or join others (sometimes tens
of thousands of others) to sue for a huge sum in another court.

Law Against Deceptive Practices:

Every state has a consumer protection law that prohibits deceptive practices, and
many prohibit unfair or unconscionable practices as well. These statutes, commonly
known as Unfair and Deceptive Acts and Practices or UDAP statutes, provide
bedrock protections for consumers. In billions of transactions annually, UDAP
statutes provide the main protection to consumers against predators and
unscrupulous businesses. Yet, despite their importance, UDAP statutes vary greatly
in their strength from state to state.
The term “unfair trade practice” describes the use of deceptive, fraudulent, or unethical
methods to gain business advantage or to cause injury to a consumer. Unfair trade practices
are considered unlawful under the Consumer Protection Act. The purpose of the law is to
ensure that consumers have the opportunity to make informed, rational decisions about the
goods and services they purchase.

Unfair trade practices include false representation of a good or service, targeting vulnerable
populations, false advertising, tied selling, false free prize or gift offers, false or deceptive
pricing, and non-compliance with manufacturing standards. Alternative names for unfair
trade practices are “deceptive trade practices” or “unfair business practices.”

Section 5(a) of the Federal Trade Commission Act prohibits “unfair or deceptive acts or
practices in or affecting commerce.” Per the rule, unfair practices are those that cause, or are
likely to cause, injury to consumers, those that consumers cannot avoid, and those in which
the benefits of the product or service do not outweigh the deception. Deceptive practices are
defined as those in which the seller misrepresents or misleads the consumer, and the
misleading practice is substantial.

Unfair Trade Practices and Examples:

Product Guarantees and False Endorsements

Companies must be prepared to honor product guarantees. For example, if a

product is advertised with a 50 percent money-back guarantee, then that must
be provided to customers who meet the requirement(s) attached to the
guarantee. Similarly, companies may not create false endorsements and
testimonials about their products.

Unfair Advertising

False advertising includes the misrepresentation of a product, service, or

price. It may be more expansively defined to include unfair sales strategies,
such as advertising one item and then selling another item in its place, e.g.,
one that is higher priced, lower quality and/or less in demand. This method is
most commonly referred to as “bait and switch.” Additional examples of
unfair advertising include incorrect pricing, fake endorsements, deceptive
guarantees, making false statements, and providing descriptions that
exaggerate the performance of the product or service.
Taking Advantage of Customers

The FTC also pays particular attention to business ventures that target vulnerable
populations. For example, some telemarketing efforts employ intense pressuring tactics to
target seniors and people who don’t speak English.

Misrepresenting a Product

At times, the FTC may be quite technical in its definition of certain terms. For this reason,
companies should be very clear about their usage of various phrases and words. For example,
the word “new” may only be used to refer to a product that is less than six months old. Other
terms may be the subject of debate or litigation, such as whether a lotion will actually
“rejuvenate” skin or whether a tablet will actually “cure” baldness. Indeed, a sweater should
not be called “wool” unless that is its complete composition. There are many examples, so it
is important for businesses to have an understanding of the FTC’s rules on this topic.

Giving Misleading Price Information

The FTC sanctions misleading price information as an unfair trade practice. Examples of
misleading price information include false sales in which a “limited time offer” might
actually be available forever, or running a “Going Out of Business” sale without any plans to
go out of business while advertising that items are discounted, although the prices have not
changed.

Failing to Disclose Pertinent Information

Merchants must disclose facts that would reasonably influence the consumer’s decision to
make a purchase. Withholding pertinent information from customers may be viewed by the
FTC as equal in severity to the process of using overtly incorrect or deceptive information.
For example, sellers should always disclose the full price of their products or services before
accepting payment for them.

*** Unfair business practices encompass fraud, misrepresentation, and oppressive

or unconscionable acts or practices by business, often against consumers, and are
prohibited by law in many countries. For instance, in the European Union, each
member state must regulate unfair business practices in accordance with the Unfair
Commercial Practices Directive, subject to transitional periods. Unfair business
practices may arise in many areas, including:

 Tenancy matters
 Matters involving the advertising and sale of products and services to consumers
 Matters involving insurance claims and the settlement thereof
 Debt collection in cases of default
 In addition to providing for the award of compensatory damages, laws may
also provide for the award of punitive damages as well as the payment of the
plaintiff's legal fees.
 At common law, individuals were not entitled to attorney's fees or punitive
damages for wrongful acts committed by businesses in most states. Most
often, laws prohibiting unfair business practices require consumers to send a
demand letter to the business prior to commencing a lawsuit. If the business
fails to make a reasonable offer of settlement within a specified period of time,
and is subsequently found liable in court, it may be liable for punitive
damages and the injured party's reasonable attorney's fees under many
statutes. In some instances, the statutes provide for prevailing plaintiffs to
recover double or triple the actual damages against non-settling defendants.
 When statutes prohibiting unfair and deceptive business practices provide for
the award of punitive damages and attorney's fees to injured parties, they
provide a powerful incentive for businesses to resolve the claim through the
settlement process rather than risk a more costly judgment in court.