Deceptive Sales and the Federal Trade Commission

While deceptive sales have always been a problem, they are especially insidious in the current economic context. Inflation, low consumer confidence, and strained family and community ties make many consumers especially vulnerable to the lure of special deals and offers that appear to be too good to be true. In addition, the structure and culture of the insurance industry itself encourages risky behaviour among its agents. For example, research shows that life insurance agents often mis-sell products to consumers by emphasizing the investment component of life policies and suggesting that these investments will pay for themselves over time (Ericson & Doyle 2006).

Deceptive advertising is especially common in retail. One of the most common examples involves the “bait and switch.” The retailer entices the prospective customer with an alluring offer in the advertisement, but then, when the prospective customer arrives at the store, the offer disappears or is disparaged. Alternatively, the product may be available, but it is substantially different from what was advertised.

Another common form of deception is the “hidden fee” or drip pricing. These tactics prey on the sunk costs associated with an already completed transaction and can trick consumers into agreeing to additional charges that they would not otherwise consent to. These practices also can undermine the credibility of advertised prices, causing people to overestimate the cost of a product or service.

Other types of deception involve representations that a product or service has special qualities or advantages, such as being “new and improved” or having “extra value.” The Federal Trade Commission regulates the use of these kinds of claims in advertising by employing a three-part test: a representation must be false, it must be material, and it must be likely to mislead a consumer acting reasonably under the circumstances.

In addition to the deceptive use of representations, the Federal Trade Commission has regulations that prohibit a wide variety of other deceptive acts and practices. These include:

Although the issue of deceptive sales has faded from public consciousness since the early 2010s, it was jolted back into attention in late February by a $189 million judgment against Vivint Security in a case brought by Merlin Guilbeau and the Electronic Security Association (ESA). ESA is devoted to cleaning up the alarm industry, which has been characterized in the past by a variety of misleading practices.