As we discussed last month, each of your clients (whether businesses or individuals) are also consumers. They are subjected to marketing representations by retailers, they purchase products and contract with service providers. Unfortunately, they face an increasing risk of being the victim of unlawful activity at the hands of others in the marketplace. The Consumer Finance Protection Bureau and the Federal Trade Commission have confirmed that consumer and business-tobusiness fraud is dramatically increasing, and there are over $3 billion of overcharges, unlawful fees and pricing scams suffered every year by business and consumers.
In a system where government increasingly lacks the resources to police transactional honesty, the U.S. Supreme Court noted class actions serve the private attorney general function of identifying and remedying misconduct. Here are some of those improper practices to watch for.
A recently prevalent class action is called a “snake oil” case – a reference to health products and “medicines” sold to unsuspecting consumers by hucksters in the 19th century. These snake oil salesmen would traverse the country claiming their elixir could cure any disease known to man, when in fact it was an empty liquid that cured nothing. Today, these class suits challenge the millions of dollars collected for products that provide nothing to the consumer – constituting common law and statutory consumer fraud, and breach of contract.
A notable example of a “snake oil” case is Rikos v. Procter & Gamble Co., — F.3d —-, 2015 WL 4978712 (6th Cir. June 16, 2015). Defendant’s probiotic supplement, Align, was marketed to consumers nationwide, promising it could “naturally help build and support a healthy digestive system, maintain digestive balance, and fortify your digestive system with healthy bacteria.” In fact, it appeared to do none of those things, at all. The Sixth Circuit affirmed certification of classes in five separate states.
The Rikos opinion demonstrates that a true “snake oil” case presents only a single, specific question: does the product work at all? These cases deal with products which are purchased to do only a single thing. If the product cannot do that thing at all, then the seller is open to substantial class-wide liability as consumers would have uniformly relied on that singular representation.
While consumers are at risk on the front end when they face fraudulent marketing representations, once they choose to purchase a product or service they are at further risk of being charged duplicative or undisclosed additional fees. These cases require a close inspection of all documents and terms involved in the transaction. For instance, a consumer may have contracted with a service provider for one level of service, but finds that the service provider unilaterally charged for a higher level of service without warning (and at an extra charge, of course). Another common, unlawful practice is tacking on charges claiming to be official government or industry fees. Charges for a warehouse fee, universal service fee, licensing recoupment fee, tax service fee, fuel surcharge, all sound official, but actually are nothing more than bogus items added solely to pad the customer’s bill. These illegal fees are so common, they sadly have a name in the industry – junk fees. Check your phone bill, hotel bill, credit card bill, bank statement, rental car bill, HUD-1 house sale fee chart: in the last 90 days you likely have been assessed (and unwittingly paid) a phony charge.
We have all seen signs while walking through the mall: “40% Off Everything in the Store!” But it would not be a discount if it happens every day. In Ohio, for example, this practice is unlawful under our CSPA. Courts in multiple states are addressing this practice, focusing heavily on statewide consumer protection statutes. Because of this, retailers across the country haves settled these actions for millions of dollars, paying the class members the discounts that should have been given, and ending the illegal practice.
A very similar fraud is bogus comparative pricing. The retailer lists a “compare at” price and their much lower price on the tag, to give the impression of a steep discount. The practice is illegal, however, when neither the retailer nor its competitors have even sold the item for the so-called “regular” or “compare at” price. These false comparison pricing cases are popping up in consumer-friendly states and are likely to gain steam across the country as class actions continue to hold retailers responsible for unlawful pricing schemes.
At the end of the day, it is nothing more than talking wit your clients about any charges or other thing which they question or feel could be improper. These casual conversations lead to large and significant misconduct against your clients, and the opportunity to use the class action device to repair millions of dollars of harm suffered every day by individual and business consumers. Feel free to call us with any questions, or to work with you on potential class suits. Frank Bartela