Consumer Protection Laws
Business owners should familiarize themselves with consumer protection laws, including rules against deceptive advertising and pricing.
Remember "caveat emptor" -- let the buyer beware? This was the idea that buyers take responsibility for what they purchase. That used to be the law of the marketplace. Not anymore -- today, consumers have clout.
State consumer protection statutes are meant to protect consumers from unfair or deceptive practices and often go beyond the traditional legal remedies available for breach of warranty. Laws like these are on the books in nearly every state, although the details vary. And they can really help the consumers:
Example: In Florida, a Chevrolet dealer promised a "free four-day, three-night vacation to Acapulco" to anyone who bought a car or van. Relying on this special promotion, Peter bought a van from the dealer. When the vacation voucher arrived, Peter found that the so-called free vacation was really a time-share sales promotion. The vacation trip was loaded down with conditions, restrictions and obligations. Believing he'd been cheated, Peter sued the dealer. The jury awarded Peter $1,768 in compensatory damages (the value of the trip) plus $667,000 in punitive damages.
Example: In New Jersey, Kenneth ordered some furniture from a store. When it arrived, Kenneth noticed numerous defects. He rejected the order and demanded a return of his $600 deposit. The furniture store refused, and Kenneth sued. The jury awarded him three times the amount of his deposit and ordered the furniture store to pay his attorney fees.
Both cases were brought under state consumer protection statutes.
Punitive Damages
Consumer protection laws place a potent weapon in the hands of buyers. In an ordinary lawsuit, a plaintiff can recover only his or her actual losses. For example, without the benefit of a consumer protection law, the man who sued to get back his furniture deposit would be entitled to no more than his $600 deposit. But under the statute in his state, he received triple damages plus attorney fees. Similarly, the man who sued the car dealer about the free vacation won punitive damages amounting to many times the value of his trip. The potential for large verdicts gives buyers and their lawyers an incentive to sue if it looks like a law has been violated.
"Big deal," you may say. "I'm an honest and ethical business person. None of this affects me." Well, that may not be so. For one thing, you need to know the details of your state's consumer protection laws so that you can tell your employees about practices that could get you in trouble. Furthermore, these state laws often allow a customer to sue even if the violation was not intentional. If you sell a product manufactured by a U.S.-based company (say, a Schwinn bike) and mistakenly advertise that the product was made in the U.S. when in fact it was made in Taiwan, you may be liable under consumer protection laws.
Hundreds of cases have been brought under consumer protection laws, including these:
- A man sued a department store that ran out of an advertised waffle iron and didn't give him a rain check -- a violation of the consumer protection law in his state.
- A homeowner sued a roofing contractor that falsely advertised that it could arrange financing for roof repair jobs.
- A woman sued a health spa that reneged on its promise to return her deposit and cancel her contract if she changed her mind within three days.
Health spas, incidentally, have been singled out for special regulation; if you're going to start one, get the Federal Trade Commission (FTC) pamphlet on this subject.
Most consumer protection laws contain a broad prohibition on "unfair or deceptive practices." In addition, many statutes list specific practices that are forbidden, such as deceptive advertising and pricing, discussed below.
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Copyright 2006 Nolo
