STATE CONSUMER PROTECTION
LAWS and UNFAIR COMPETITION
by
Albert Norman Shelden
Deputy Attorney General
California Attorney General’s Office
"The fact that a false statement may be obviously false to those who are trained and
experienced does not change its character, nor take away its power to deceive others less
experienced. There is no duty resting upon a citizen to suspect the honesty of those with
whom he transacts business. Laws are made to protect the trusting as well as the
suspicious. The best element of business has long since decided that honesty should
govern competitive enterprises and that the rule of caveat emptor should not be relied
upon to reward fraud and deception." Federal Trade Commission v. Standard Education
Society (1937) 302 U.S. 112, 116.
"The Federal Trade Commission Act is not made for experts, but to protect the ‘
public’ which constitutes the vast multitude including the ignorant, the unthinking and the
credulous who, in making purchases, are governed by appearances and general
impressions. [T]he buying public does not ordinarily carefully study or weigh each word
in an advertisement. The ultimate impression upon the mind of the reader arises from the
sum total of not only what is said but also of all that is reasonably implied." Aronberg v.
Federal Trade Commission (7th Cir. 1942) 132 F.2d 165, 167.
I.
THE DEVELOPMENT OF CONSUMER PROTECTION LAWS
A.
The Early Years
The earliest large-scale attempt by states to regulate deceptive advertising was the
result of a 1911 model statute proposed by Printer's Ink, an advertising industry trade
journal. Approximately 44 states adopted one version or another of that proposed
statute.
The model statute did not contain an element of scienter, but 11 states in adopting
their version of the statute added this element. Some modified the traditional “scienter
standard” by adding language such as "which by the exercise of reasonable care should be
known . . ." Although the states brought enforcement actions pursuant to these statutes,
they did not have the deterrent effect anticipated. This was partly due to the fact that as
adopted the statutes were criminal statutes, and courts tended to interpret them strictly.
A number of states started to become more active in the 1950's, but the consumer
movement and state law enforcement involvement with it, as we know it today, really
traces its origins to the 1960's.
On March 15, 1962, President Kennedy delivered his landmark message, On
Protecting the Consumer Interest. 1962 Cong. Q. 890-893 (1962). In it he set forth
four basic rights of consumers:
1.
The right to safety, including the right to be protected against the
marketing of goods which are hazardous to health or life.
2.
The right to be informed, including the right to be protected against
fraudulent, deceitful or misleading information, advertising, labeling and other
such practices and the right to be given the facts necessary to make informed
choices.
3.
The right to choose among a variety of products and services at
competitive prices.
4.
The right to be heard, including the right of consumer interests to
receive full and sympathetic consideration in the formulation of government
policy.
In concluding his message, President Kennedy stated that for there to be a
fuller realization of these consumer rights, there was a need, in certain areas, for new
legislation and a need for existing government programs to be strengthened and improved.
He also established a Consumer Advisory Committee, which issued a report dealing with
each of the consumer rights he had set forth. The First Report of the Consumer Advisory
Committee (Washington, GPO, 1963). During the 38 years since President Kennedy's
message, consumer advocates, state legislatures, law enforcement officials and the courts
have added a fifth consumer "right"--the right of a consumer to monetary recovery from a
seller whose "violation" of one of a consumer's rights induced a consumer to enter into
the transaction.
B.
The Modern Era
Starting in the 1960's, state legislators realized that an increasingly sophisticated
marketplace was causing more and more problems for the "average" consumer. No longer
did most purchasers go down to the "mom and pop" store to purchase what they needed, if
in fact they ever did. Sales transactions became more and more impersonal, products
were perceived as being less reliable than in "the good old days" and service was no longer
what was being sold.
A number of generic "model" laws were proposed as ways of equalizing the
consumer's "reduced" position in the sales transaction. Most states have adopted one, or a
combination of several, of the model laws.
II.
STATE CONSUMER PROTECTION STATUTES
The following outline provides only a brief overview of the types of laws which
can be found in each state. A distributor/seller interested in conducting business in a
particular state must be careful to examine the "Consumer Protection Acts" of each state.
This is not always an easy task. The consumer protection laws are often found in different
parts of the various states’ annotated laws. Moreover, in addition to the broadly stated
general prohibitory statutes common to most states, various states have also adopted
special statutes that cover a particular type of business, practice or industry. These latter
statutes often vary from state to state. Some consumer protection laws provide for
individual remedies, while others provide for only state law enforcement remedies. Still
others provide for both, sometimes in the same statute and sometimes in different
statutes. It is important that you not assume that you’ve covered the bases simply because
you review either the law that can be enforced by law enforcement agencies or the law
that gives consumers direct rights to bring actions. Note also, that when both types of
laws exist, very different remedies are often provided for the private consumer litigant
and for the law enforcement official. Of particular importance, and increasing concern to
distributors/sellers, are those statutes which provide for the award of attorneys' fees to a
plaintiff who brings a successful action.
A. The Uniform Deceptive Trade Practice Act (UDTPA)
Uniform state laws are developed in a national effort to systematically approach
problems which are best left to state legislatures to modify to meet the specific needs of
their states. Thus, although a "uniform" or model law might be presented, states are free
to adopt them in whole, in part, or not at all.
1.
Originally drafted by the Legislative Research Center of the University of
Michigan in 1964 and revised in 1966, the UDTPA was approved by the National
Conference of Commissioners on Uniform State Laws and the American Bar
Association. In its uniform version it is found at 7A U.L.A. 265 (West, Master Edition,
1985).
2. Section 2 of the Uniform version lists 11 specifically defined deceptive trade
practices, including: trademark and trade name infringement, passing off goods as those
of another, bait and switch, disparagement, misrepresentations of standards, origins or
quality of goods, misleading price comparisons and a catch-all provision which covers
"conduct which similarly creates a likelihood of confusion or of misunderstanding."
3. Although the UDTPA relieves a consumer from having to prove actual
confusion, reliance, damage or the intent to deceive, it does not provide for monetary
recovery, but only allows the plaintiff to obtain injunctive relief against future violations
by the defendant. Thus, as originally proposed, the UDTPA provided far fewer remedies
than provided by most statutes found today.
4. Some states which based their "consumer protection" statutes on the UDTPA
expanded the scope of their state statutes by adding portions which give consumers the
right to recover damages (sometimes setting forth a minimum damage amount;
sometimes providing for treble damages), adding to the list of defined deceptive practices
reference to "unfair practices" as used in § 5 of the Federal Trade Commission Act and
providing for governmental enforcement.
B. The Uniform Consumer Sales Practices Act (UCSPA)
1. The UCSPA was approved, as amended, by the National Conference of
Commissioners on Uniform State Laws and the American Bar Association in 1971. In its
uniform version it is found at 7A U.L.A. 231 (West, Master Edition, 1985).
2. The stated purposes of the UCSPA were to provide sellers with more
predictable standards for their conduct and to protect consumers against deceptive and
unconscionable sales practices. The UCSPA was an attempt to modernize consumer sales
practices, to require fairness in sales practices, to make state laws on consumer sales
practice uniform and to conform state requirements to FTC policies.
3. The UCSPA prohibits unconscionable and deceptive sales practices. In § 3
(b) of the Act, examples of 11 types of deceptive conduct are set forth, but these are
meant to be illustrative rather than an exclusive listing of deceptive practices. There is
some overlap with the 11 listed deceptive practices of the UDTPA.
In § 4 (c), examples of 6 factors to be considered by a court in finding
"unconscionability" are set forth. Again, these are examples and not the only factors to be
considered by the court. They include whether the consumer could reasonably protect his
interest, whether the price grossly exceeded the price at which similar goods or services
are being sold, whether the consumer was unable to obtain substantial benefit from the
transaction, whether there was no reasonable probability of payment in full by the
consumer, whether the transaction was excessively one-sided in favor of the seller and
whether the seller made any misleading statements of opinion on which the consumer was
likely to rely to his detriment.
4. The UCSPA sets up an enforcement agency with typical administrative
powers--i.e., the power to hold hearings, adopt rules and sue for injunctive relief and
damages for consumers in the form of restitution, as well as similar private remedies for
violations of the UCSPA.
C.
The Unfair Trade Practices and Consumer Protection Act (UTP-CPA)
1. Starting in the mid-1960's the FTC began cooperating with state and local law
enforcement officials in antitrust and consumer protection matters to a far larger degree
than ever before. In 1971, the FTC issued a tentative draft Model Law for State
Government, which came in the wake of its proposal that states adopt "Mini-FTC Acts."