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.

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.

Over the years, the Federal Trade Commission has taken action against many businesses accused of engaging in false and deceptive advertising. If FTC investigators are convinced that an ad violates the law, they usually try to bring the violator into voluntary compliance. If that doesn't work, the FTC can issue a cease-and-desist order and bring a civil lawsuit on behalf of people who have been harmed. They can seek a court order (injunction) to stop a questionable ad while an investigation is in progress, and they can require an advertiser to run corrective ads, admitting that an earlier ad was deceptive.

Consumers often have the right to sue advertisers under state consumer protection laws. For example, someone who buys a product in reliance 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.