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ADVERTISING

Legal Concerns of Selling Products and Services Directly to the Public

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Many federal and state " consumer protection" laws regulate the relationship between a business and its customers. These laws cover such things as advertising, pricing, door-to-door sales, written and implied warranties and, in a few states, layaway plans and refund policies. You can find out more about consumer protection laws by contacting the Federal Trade Commission, 6th and Pennsylvania Avenue, NW, Washington, DC 20850, 202-326-2222, and by contacting your state's consumer protection agency.

The two legal areas business owners get into most trouble over are deceptive advertising and deceptive pricing. Let's look at each.

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. Your intentions don't matter either. If your ad is deceptive, you'll face legal problems even if you have the best intentions in the world. 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 (FTC) 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 through informal means. 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, seek a court order (injunction) to stop a questionable ad while an investigation is in progress and 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.

Deceptive Pricing

The two pricing practices most likely to get your business into trouble are: making incorrect price comparisons with other merchants or with your own " regular" prices, or offering something that is supposedly " free" but in fact has a cost.

Offering a reduction from your usual selling price is a common sales technique. But unless the former price is the actual, bona fide price at which you offered the article, the pricing is misleading. For example, if you announce a new product for $129, but sell it to wholesalers as if it were a $79 product and similarly discount it to direct customers, the $129 price never really existed - and you have broken the law. It misleads customers into thinking they are receiving a discount.

It's even more blatant to buy a special batch of merchandise especially for a sale and create a fictional " regular" price or one you adhered to for only a day or two. Some merchants are tempted to do this when they buy seconds or discontinued product lines at a deep discount and want to pretend customers are getting a bargain.

If your ad compares your price with what other merchants are charging for the same product, be sure of two things:

  • the other merchants are selling the identical product, and
  • the other merchants sold enough sales at the higher price in your area so that you're offering a legitimate bargain.

In other words, make sure that the higher comparison price isn't an isolated or unrepresentative price.

Regarding offers of " free" products or services, you can offer gifts only if there are no strings attached. For example, if you offer a free paintbrush to anyone who buys a can of paint for $14.95, the brush really isn't free if you:

  • Usually charge less than $14.95 for this kind of paint.
  • Usually provide a service (such as free delivery) with a paint purchase, but don't when the customer gets a " free" brush.

Although it's essential to understand and follow the rules that protect consumers, most successful businesses stay out of trouble by regarding them as only a foundation on which to build customer-friendly policies designed to produce a high level of customer satisfaction. For example, instead of worrying about whether their state has a law requiring a merchant to post a sign if merchandise can only be exchanged for credit within a certain number of days after purchase, many enlightened businesses tell their customers they can return any purchase for a full cash refund at any time for any reason. Not only does this encourage existing customers to continue to patronize the business, but it can be a highly effective way to get them to speak well about it to their friends. Finally, a customer whose problem you resolve is unlikely to complain to any agency or board with power to license or oversee your business. Anyone who has had to cope with an investigation knows that even if the original complaint has no merit, the process can be worrisome and, if lawyers are involved, expensive.

Copyright 1999 Nolo.com Inc.

Last updated: Oct 25, 1999




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