You are here: Information Center >> Consumer Protection >> Fraud
Fraud is an intentional deception resulting in an unfair or unlawful gain. Crimes utilizing fraud are widespread in today’s world. It is estimated that consumers and businesses lose several hundred billion dollars each year to various fraudulent schemes.
When you are a victim of fraud, not only do you have to deal with the humiliation that comes with knowing that someone has taken advantage of you, but the financial costs can be enormous and long-lasting. What follows is a discussion of various types of fraudulent crimes and steps you can take to protect yourself.
What is "false advertising"?
Any advertising that is misleading in any material respect is considered to be false advertising. Advertising that is misleading about a product’s place of origin, nature, quality or make is prohibited under federal and most states’ laws. To be found guilty of false advertising, it must be shown that the advertisement was deceptive in nature.
SIDEBAR: Whether or not the advertiser intends to mislead you is not important; the overall impression of the advertisement is. Moreover, there is no requirement that the advertisement actually caused harm.
What is "palming off"?
When an advertiser creates the impression that its products or services are those of a competitor, the advertiser is guilty of palming off.
What is "product disparagement"?
Product disparagement is when an advertiser intentionally makes false or misleading negative remarks about competing goods or services, causing its competitor to lose sales.
What is "bait and switch" advertising?
Bait and switch advertising occurs when a particular item is priced so low that you are lured into the store to buy it. This is known as the "bait." However, once you try to buy the item, you are told that it is sold out or you are discouraged from buying it by the salesperson. The store employee may tell you that the product is actually inferior and try to convince you to buy a more expensive product. This is the "switch." This type of advertising is illegal in most states if the advertised product is not available in reasonable quantities.
Do not confuse bait and switch tactics with a salesperson who is merely aggressive. Depending on your needs, a reputable salesperson may try to persuade you to buy a better quality item or a different brand at a higher price. There is nothing unethical or illegal about this practice, as long as you are given a choice without undue pressure.
How can I protect myself against bait and switch advertising?
- Be cautious of ads that offer low, low prices and salespeople who try to steer you away from advertised specials.
- Deal only with reputable firms. Check with the Better Business Bureau for a reliability report.
- Ask for a "rain check" when advertised products are not available for sale.
- Remember that you do not have to fall for high-pressure sales tactics. Take your time and think about what it is you are getting for your money. Comparison shop at other stores.
- When in doubt, walk away.
What federal laws protect a consumer against false and deceptive advertising?
Congress has enacted two statutes that have the greatest effect on advertising: the Federal Trade Commission Act and the Lanham Act.
Under the FTC Act, the FTC is given broad authority to regulate advertising. Within this power, the FTC has issued regulations barring advertisements that could be misleading, even if they are true.
EXAMPLE: At one time, advertisements for Anacin® (a brand of aspirin) claimed that clinical tests proved that it provided the same headache relief as the leading pain relief medicine. Unfortunately, the ad did not mention that the leading pain relief medicine was, in fact, aspirin. According to the FTC, this advertisement was misleading.
The FTC also has the power to order corrective ads. These are ads a business will be required to run that alert future consumers to certain unfavorable facts about a product that were not revealed in past advertising campaigns.
EXAMPLE: For many years, advertisements for Listerine® promoted its use as a cold and sore throat remedy. Under its power to order corrective ads, Listerine was forced to run ads stating that Listerine would not cure colds or relieve sore throats.
In addition to these measures, the FTC can:
- try to bring the violator into voluntary compliance through informal means;
- issue a cease and desist order;
- bring a civil lawsuit on behalf of people who have been harmed; and/or
- seek a court injunction to stop a false ad.
Only the FTC has the authority to enforce the FTC Act; it does not provide a cause of action for consumers. However, consumers and competitors can bring a legal action for false advertising under the Lanham Act.
To establish a violation under the Lanham Act, a plaintiff must prove:
- the advertiser made false statements of fact about its product;
- the false advertisements actually deceived or had the capacity to deceive a substantial segment of the target population;
- the deception was material;
- the falsely advertised product was sold in interstate commerce; and
- the plaintiff was injured as a result of the deception.
TIP: Actual loss is not required to show an injury; only a reasonable basis for the belief that the plaintiff is likely to be damaged as a result of the advertising.
The penalties for a Lanham Act violation include the plaintiff’s lost profits, the additional profits to the advertiser resulting from the deceptive ad, treble damages and attorneys’ fees.
Are door-to-door sales safe or not?
That depends. While some door-to-door salespeople are honest, many are not. Unfortunately, there is no guaranteed way to tell the difference. Door-to-door con artists are charming and friendly; they are successful because they seem so honest.
How can I protect myself from an unscrupulous door-to-door salesperson?
- If you do not know the salesperson, do not let them into your house.
- Do not buy on impulse or feel pressured to make a purchase.
- Ask to see the salesperson’s credentials. Look up the phone number for your local business permit office yourself and call to check the door-to-door salesperson’s permit. Do not use a phone number provided by the salesperson—it could connect you with someone involved in the scam.
- Never buy right away. Take the salesperson’s telephone number and tell him or her that you will be in touch after you have had a chance to read all the material given to you. This gives you time to comparison shop and to check with the Better Business Bureau about the company.
I have done all that and decided to sign a contract. What should I know?
- Understand all the contract terms; ask for clarification if necessary.
- Make sure the contract is complete, signed and dated.
- Get every promise the salesperson makes in writing. If they are not, you cannot enforce them later.
- Never sign a contract with blank spaces. Cross out any blanks.
- Get all terms of the sale in writing, including the total price, warranties, return policy, financing and all conditions of sale.
- Be sure you have an address and phone number (not a post office box number) so that you can get in touch with the company.
Is there any way I can get out of a contract I made with a door-to-door salesperson?
Yes, the FTC Cooling-Off Rule gives a consumer 3 days to cancel purchases of $25 or more that are made at the buyer’s home.