Federal Law on False Reference Pricing
A lot of major retailers have an online presence these days with company websites and advertisements on social media platforms like Facebook, Twitter, and Instagram. The explosion in online sales has also led to competition between traditional retailers and e-commerce businesses that are all fighting for the same internet-savvy customers. Sometimes, those companies become too aggressive and employ fraudulent marketing practices, such as using deceptive pricing information in ads. This type of advertising violates the federal law on false reference pricing. If you purchased a product because of a comparison price in an advertisement, the experienced consumer protection lawyers at Tauler Smith LLP can help you file a lawsuit against the retailer and get financial compensation.
For more information about federal laws on deceptive pricing by retailers, keep reading.
Why Do Retail Companies Use Comparison Pricing in Advertisements?
It’s a simple fact that retail businesses often rely on sales to get customers to make purchases. That’s because sales and discounts on an item’s full price can be attention-grabbers in promotional materials and advertisements, particularly when the customer believes that they are getting a once-in-a-lifetime bargain or deal. One of the strategies that retailers utilize in their sales ads is to include strikethrough pricing or comparison pricing. This is when the business provides two prices that the customer can compare to each other: a former list price or MSRP and a reduced current price. The original price usually has a line through the text to differentiate it from the new lower price, and the price with the line through it is known as the strikethrough price.
Sometimes, consumers feel pressured to buy an item because they are worried that the sale won’t last. But when the discount wasn’t real to begin with because the “full price” was inflated, the consumer ends up being tricked into making a purchase. A retail company that violates comparison pricing laws by using deceptive advertising is subject to government investigations, retail discount pricing litigation, and significant monetary penalties. They may also be named as the defendant in a consumer class action lawsuit, where consumers could be eligible for both statutory damages and actual monetary damages. In fact, a number of consumer class action lawsuits alleging deceptive sale pricing have been filed against major retail companies in California and other states. Some of these cases concluded with judgments in favor of the plaintiffs, while others concluded with pre-trial settlements totaling tens of millions of dollars.
FTC Guides Against Deceptive Pricing
The federal government has laws against unfair competition, false advertising, and false reference pricing. The Federal Trade Commission (FTC) specifically regulates sales advertisements for retail companies involved in interstate commerce, which applies to most businesses that sell products online. The reason behind the law is that companies have been caught using misleading prices to deceive customers. For example, a retailer might frame their current price as a “sale price” even though it is the same as a regular price. This can be done by including a “compare at” or reference price in the advertisement.
The FTC gets its authority to investigate allegations of consumer fraud from the Federal Trade Commission Act, which includes the FTC Guides Against Deceptive Pricing. These promotional pricing guidelines set limits on when companies can use former price comparisons in advertisements. Generally speaking, any former price mentioned in an advertisement or promotion must have been offered honestly and in good faith. Other, more specific requirements of the FTC guidelines include the following:
- The original higher price referenced in the ad needs to have been openly and actively offered for sale.
- The item should have been available at the former price during the regular course of business.
- The item needs to have been available at the former price recently, not in the distant past.
- The former price must have been offered for a reasonably substantial period of time before being reduced.
Federal Law vs. California Law on False Reference Pricing
California’s law on false reference pricing is broader in scope than the federal law, which is why Los Angeles consumer protection lawyers often file these lawsuits in state court rather than U.S. district court. For instance, the federal guidelines are less clear than the California false advertising law when it comes to specifying timeframes for establishing the prevailing market price. The FTC guidelines state that companies must maintain a price for a reasonable length of time before reducing it; otherwise, the initial price may be considered a false reference price. Similarly, how long ago can the company go back to reference a former price? What is considered “reasonable” under these circumstances? Federal law is unclear on this, but the California comparison pricing law is explicit: any prices used during the previous 90 days may be allowed.
Although the federal law on comparison pricing isn’t as robust as the California law, it still imposes significant requirements on businesses that make former pricing representations in their advertising.
Winning Your Federal Comparison Pricing Lawsuit
When deciding whether you should take legal action against a company that engaged in sales price misrepresentation, you need to speak with an experienced consumer fraud attorney who understands the nuances of federal consumer protection laws. Depending on the facts of your case, it may be possible for the retailer to argue in court that you did not suffer any economic harm when you made the purchase because you ended up with a product that you wanted at the price that you expected to pay. The retailer’s argument would be that regardless of their false comparison pricing claims in the ad, you should not be entitled to financial compensation or damages.
A knowledgeable consumer protection attorney can help you prove the required elements of your claim, which includes showing that you relied on the false reference pricing and made the purchase because of the retailer’s misleading statements.
Contact the California False Advertising Attorneys at Tauler Smith LLP
The California false advertising attorneys at Tauler Smith LLP represent plaintiffs in consumer litigation throughout the United States. If you purchased a product online or in a retail store because of a comparison price mentioned in an advertisement, you may be able to file a lawsuit and get financial compensation.