The FTC’s Use of Deception Charges in Consumer Cases

The FTC’s Use of Deception Charges in Consumer Cases

The Federal Trade Commission (FTC) is the main federal agency tasked with protecting consumers from unfair or deceptive business practices. One of the FTC’s key enforcement tools is bringing charges against companies for “deceptive” acts or practices under Section 5 of the FTC Act.

What exactly constitutes a “deceptive” practice? Well, the FTC’s own policy statement defines it as involving a “material representation, omission or practice that is likely to mislead the consumer acting reasonably in the circumstances.”^[1] Essentially, the company made some kind of claim or omitted some important fact in a way that could deceive reasonable consumers.

Some examples of deception charges from real FTC cases include:

• A company claimed its supplement could cure cancer when no evidence supported that.
• A company said its product was “Made in USA” when it actually contained foreign parts.
• A company advertised a “free trial” but didn’t adequately disclose that consumers would be charged if they didn’t cancel in time.

As you can see, deception can take many forms – outright false claims, misleading half-truths, omitted details, and more. The key is that the practice is likely to mislead consumers acting reasonably under the circumstances.

When Does the FTC Pursue Deception Charges?

The FTC considers many factors when deciding whether to bring a deception case. Some key questions they ask:

• Is the claim or omission likely to mislead reasonable consumers?
• Is the claim or omission material – that is, important to consumers’ decisions?
• Did the company have adequate substantiation for the claim before making it?
• Was the deception intentional or just an honest mistake?

The FTC is more likely to pursue blatantly false claims, claims about health/safety risks, or cases where substantial consumer harm occurred. They also prioritize large national advertising campaigns where a deceptive claim reached many consumers.

However, even small local businesses have faced FTC deception charges. So no company is immune if they make misleading claims in their marketing.

What Penalties Do Companies Face?

When the FTC believes a company has engaged in deceptive marketing, here are some of the actions they may take:

• Send a warning letter asking the company to substantiate a claim or change their marketing.
• Seek voluntary compliance, getting the company to sign a consent order agreeing to cease the deceptive practice without litigation.
• File a federal court complaint against the company for violating the FTC Act.

Most cases get resolved through settlements, with the company agreeing to stop the deceptive marketing under FTC monitoring. But if they fight the charges in court and lose, possible penalties include:

• Injunctive relief, getting a court order to stop the deceptive practice.
• Fines of up to $43,280 per violation.
• Consumer redress, paying back money to compensate consumers.
• Disgorgement of ill-gotten profits from the practice.

The FTC seeks to tailor the remedies to the specific case. The goal is to halt the violation, deter future wrongdoing, and provide consumer redress if appropriate. Fines and disgorgement also incentivize compliance.

What Defenses Can Companies Raise?

When defending against FTC deception charges, companies often argue:

• The claim was not misleading to reasonable consumers in context.
• The claim was just puffery that no one would take literally.
• The omission was not material to consumers.
• Substantiation for the claim was adequate when it was made.
• The violation was minor or unintentional.

Companies may cite consumer surveys, expert witnesses, or FTC precedent to bolster these defenses. But each case is evaluated on its own facts. So past outcomes don’t guarantee future results.

Key Takeaways

The FTC’s deception authority is broad and flexible by design. This allows them to address both straightforward frauds and nuanced misleading claims. Companies should be careful to:

• Have adequate substantiation for objective product claims.
• Qualify claims and disclose limitations or exceptions.
• Avoid exaggerations that reasonable consumers might take literally.
• Watch not just words but overall net impression.
• Correct any discovered deceptions immediately.

No marketing is 100% immune from potential FTC scrutiny. But responsible companies can minimize risk by ensuring transparency, candor, and honesty with consumers.

References

[1] FTC Policy Statement on Deception (1983)
https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf