For literally thousands of years, “caveat emptor” served as a reminder to buyers that sellers had the advantage in business transactions.
When two farmers haggled over the sale of a dairy cow, the buyer knew not to rely on the seller’s claims that the cow produced milk. Instead, “let the buyer beware” stood as a caution to the buyer to take udder in hand to verify the claim before handing over the money.
State and federal consumer protection laws have changed the way people do business. When a consumer goes to a local home improvement store to purchase a lawn mower, “let the buyer beware” is no longer the applicable rule. Instead, consumer laws allow the buyer to rely upon express and implied warranties from the seller about the grass-cutting capabilities of the mower without testing it before completing the purchase.
Laws protecting consumers place a burden on even the most honest business owners to proceed with care to avoid inadvertently violating the law. Instead of relying on “caveat emptor,” modern businesses must put their reliance on an experienced business attorney to keep them updated on consumer protection laws applicable to their business and help to ensure they remain in compliance with them.
If you own or manage a business, here are a few of the consumer protection laws. These laws are in addition to warranties that you already offer on the products and services that you offer to consumers.
Laws prohibiting deceptive advertising
Advertising that deceives or misleads consumers is unlawful even if your intent is not to be deceptive or misleading. For example, if your store advertises a product for sale, you must have a sufficient supply of the product in stock to meet anticipated demand. In the event that demand exceeds the available supply, you must offer customers a raincheck to avoid violating consumer protection laws against deceptive advertising.
The Federal Trade Commission or FTC is the lead federal agency that investigates and takes regulatory action against businesses that violate federal consumer protection laws, including those laws prohibiting deceptive advertising. When state consumer protection laws are violated, each state has an agency or a division of the state attorney general’s office to investigate and enforce those laws against business.
Deceptive pricing practices
Usually occurring in conjunction with deceptive advertising is the practice of deceptive pricing. Deceptive pricing may occur through published advertisements or through in-store signage. A business violates the law by engaging in either of the following forms of price deception:
- Comparison of current price with a former price: Advertising a product as available at a reduced price is not illegal as long as it represents a true reduction. Whatever the reduced price is compared to must be an actual price at which the product was offered for sale to the public.
- Comparison to competitor’s pricing: This type of pricing deception compares apples to oranges. For example, if your business claims to be selling a product at 30% less than a product sold by a competitor, it must be the identical product to avoid violating state or federal consumer protection laws.
Deceptive practices, whether in pricing, advertising or other forms of interaction that businesses have with customers and potential customers can have serious consequences.
Consequences of violating consumer protection laws
State and federal regulatory agencies have the power to impose harsh fines and other penalties on businesses that violate consumer protection laws. Many of the laws enacted to protect consumers also grant consumers the right to recover compensation from businesses that engage in unlawful practices.
Consumers who successfully sue a business for unlawful practices can recover the damages that were caused, legal fees and court costs. Some state laws permit a consumer to recover punitive damages in addition to the actual damages suffered as a result of the deceptive or fraudulent conduct engaged in by a business.
Punitive damages are typically awarded in cases where a business engages in conduct that shocks the conscience. They not only serve to punish the business that must pay them, but punitive damages also act as a deterrent to make other businesses think twice before engaging in similar conduct.
Another incentive for business owners to avoid engaging in practices that violate consumer laws is the risk of a class action lawsuit. Courts have the authority to grant class action status to a lawsuit filed by a consumer when it appears that the conduct engaged in by a business caused harm to other consumers. The damages awarded in a class action lawsuit can destroy a business.
How can a business ensure that it complies with consumer protection laws?
When you started your business, one of the goals you had was to make it a success. A great looking website is one step toward achieving that goal, but another way is to not tarnish your business name by protecting it against regulatory compliance actions and consumer lawsuits.
Here are a few tips to remain in compliance with consumer protection laws:
- Work with a business attorney who keeps you updated about consumer protection laws that apply to your business and industry. Knowing the requirements of existing laws and any changes made to them through the enactment of amendments or new laws help to avoid unintended violations.
- Create written standards for employees to follow that conforms to legal requirements imposed on your business by consumer laws and regulations. This will help to ensure that advertising and documents created for consumer transactions complies with the law.
- Develop procedures for handling consumer complaints that focus on resolving issues before they turn into regulatory complaints or legal action by consumers.
- Do not ignore notices from state and federal consumer protection agencies. Instead, immediately consult your attorney and take steps to resolve them.
Making employees aware of the importance of protecting the rights of consumers and providing them with clear directions for how to accomplish it can avoid the unintentional violations that occur when people do not understand their role.
You can avoid the headaches that consumer protection violations bring to a business. Once you know the laws that apply to your business and train employees to comply with them, you can avoid the headaches and expense that violations bring to a business.