How To Ensure DTPA Compliance

The FTC's Role

In preventing unfair or deceptive acts, the Federal Trade Commission has interpreted Section 5 of the Federal Trade Commission Act to clarify deceptive trade practices that apply to consumers.

The FTC is empowered under the Act (15 U.S.C ”41-58), as amended, to:

• Prevent unfair methods of competition, and unfair or deceptive acts or practices in or affecting commerce;
• Seek monetary redress and other relief for conduct injurious to consumers;
• Prescribe trade rules defining specific unfair or deceptive acts or practices, and establish requirements designed to prevent such acts or practices;
• Conduct investigations relating to the organization, business, practices and management of entities engaged in commerce; and
• Make reports and legislative recommendations to Congress.

For more information, see 'Statutes Relating to Both Missions' at www.ftc.gov/ogc/stat1.htm.

How FTC Does It

The FTC investigates a deceptive trade practices act violation by examining whether the practice is directed at a particular group or whether a particular company is responsible for one continuous deceptive act. A consumer can file a claim with the FTC, however unless the claim is part of a larger deceptive act that is either perpetuated on the public as a whole or is intentionally aimed at a particular group, the claim will likely be handled by the state attorney general. The FTC is important to DTPA because, if systematic deceptive acts are being committed, then the DTPA regulation of a specific state no longer applies and the FTC takes over.

According to statistics from the U. S. Department of Commerce, 'U.S. retail e-commerce sales or retail e-sales reached $34 billion in 2001, which was an increase of twenty two (22%) percent from $28 billion in 2000.'

Retail e-sales, a recent Department report on retail and e-tail sales says, comprised 1.1% of total 2001 retail sales ' up 0.9% from 2000.

As retail e-sales continue to increase, companies must consider areas that are affected by selling and advertising products online. These include whether an advertisement or product sale is misleading or could be confusing. Based on each state's DTPA, companies must guard against any misinterpretation or confusion that customers could perceive by reading the advertisement or purchasing the product. Some examples of misleading or unclear advertising are:

• Telling the customer a specific product is being sold and delivering another after purchase;
• Promising the consumer that he or she can make significant gains by contributing money to join a deal; and
• Sending bulk e-mail that violates terms of service of Internet service providers.

E-mail Concerns

Besides online purchases, the FTC noted that unsolicited commercial e-mail was increasing significantly and recently published a list of scams that are likely to arrive via e-mail. When companies offer online purchases for consumers or advertise products for services, they must ensure the consumer is allowed to make corrections to an order, can copy everything he or she wants to accept and that the customer's final order is clear. The company must also ensure that the customer can access terms and conditions governing transactions.

'FTC staff found that more often than not, bulk e-mail offers appeared to be fraudulent, and if pursued, could have ripped off unsuspecting consumers to the tune of billions of dollars,' the commission noted.

The FTC also noted that with commercial e-mail scams becoming more elaborate and encompassing more trade areas such as investment opportunities, cable descrambler kits, guaranteed loans or easy-term credit, more consumers likely will be duped out of money. The outcome: Consumers violating federal law, committing cable theft or losing money invested or pledged as a result of the scam, the FTC noted. See 'FTC Names Its Dirty Dozen: 12 Scams Most Likely to Arrive Via Bulk Email,' www.ftc.gov/bcp/conline/pubs/alerts/doznalrt.htm.

To deal with fraud, the FTC, along with eight states and four Canadian agencies, formed the International Netforce. This taskforce targets deceptive spam and Internet fraud. The coalition has brought 63 actions against Web-based scams that run the gamut from auction fraud to bogus cancer cure Web sites, and has issued more than 500 warning letters to people believed to be sending deceptive spam, noting that it is illegal.

See 'International Netforce Launches Law Enforcement Effort Sweep Targets Deceptive Spam and Internet Fraud' at www.ftc.gov/opa/2002/04/spam.htm.

Companies found to have committed deceptive acts can be fined, made to pay court costs and attorney fees and for consumers' economic and mental anguish. In some states ' Texas is one ' consumers can be awarded up to treble damages for mental anguish and economic damages if it is determined that the company knowingly or intentionally committed the acts.

How Companies Can Protect Against DTPA Violations

The FTC has issued a few guidelines on how companies can guard against DTPA violations when advertising or selling products to consumers:

• Employ one or more compliance officer(s) to check all disclosures, statements, advertisements or certifications to consumers online. This officer will also keep up with all federal laws and enactments.
• Advertising agencies or Web site designers must review information used to substantiate ad claims.

They may not simply rely on an advertiser's assurance that claims have been substantiated. To determine liability, the FTC looks at the extent of the agency's participation in preparation of the challenged ad, and whether the agency knew or should have known that the ad included false or deceptive claims.

• Disclaimers and disclosures should be clear and conspicuous. That is, consumers must be able to notice, read or hear, and understand the information. A disclaimer or disclosure alone is not enough to remedy a false or deceptive claim.
• Demonstrations must show how the product will perform under normal use.
• Refunds must be made to unsatisfied consumers if promised to them.
• Companies should take special care not to misrepresent a product or its performance when advertising to children. The Children's Advertising Review Unit of the Council of Better Business Bureaus has published specific guidelines for children's advertising.

Some Final Words

Companies selling or advertising online must ensure that their ads, as well as their practices, are fair and conspicuous. They must be sure that information offered isn't misleading, false, confusing or directed toward a specific group. Also, any unsolicited commercial e-mail must not violate state DTPA or FTC deceptive trade practices requirements.

Joy Thomas is a contract analyst at Southwestern Bank of Texas, N.A. in Houston.

Each state has incorporated a Deceptive Trade Practices Act (DTPA), but the acts aren't the same, with states tailoring their law to meet the needs of constituents and e-commerce activity within their jurisdiction.

For instance, Texas' DTPA covers these aspects of breach of warranty:

• Express warranty ' either written or verbal;
• Warranties of merchantability ' in which the product can do what it is designed for; and
• Fitness for a particular purpose in which the product can do what it was designed to do.

The Act also covers unconscionable acts that take advantage of consumers' lack of knowledge, capacity or ability.

The Lone Star State's act also covers false, misleading or deceptive acts, some of which include:

• False misleading statements;
• False advertising for sale of going out of business;
• Promoting pyramid schemes; and
• Advertising goods or services not intended for sale.

Illinois has a statute for business transactions called the Uniform DTPA. It defines deceptive trade practices that in the course of a company's business:

• Pass off goods or services as those of another company;
• Cause likelihood of confusion or misunderstanding as to source of goods;
• Make false or misleading statements of fact concerning price reduction; or
• Engage in any other conduct that similarly creates likelihood of confusion or misunderstanding.

Other states have similar DTPAs. Each Act sets guidelines on how consumers can file a claim for damages in their state. Consumers file claims with the state attorney general. In most cases, a DTPA claim is governed under that state's jurisdiction ' an issue that the emergence of e-commerce has complicated. Because companies advertise and sell online, the laws governing jurisdiction are applied differently than in the case of offline consumer sales. Most states have agreed that the location where a consumer files a claim is where jurisdiction resides. However, the proliferation of e-commerce has caused many courts to render varied decisions. While courts continue to wrestle with the issue, generally an online company that has directed its activity in a substantial way to a state is subject to jurisdiction in that state.

The FTC's Role

In preventing unfair or deceptive acts, the Federal Trade Commission has interpreted Section 5 of the Federal Trade Commission Act to clarify deceptive trade practices that apply to consumers.

The FTC is empowered under the Act (15 U.S.C ”41-58), as amended, to:

• Prevent unfair methods of competition, and unfair or deceptive acts or practices in or affecting commerce;
• Seek monetary redress and other relief for conduct injurious to consumers;
• Prescribe trade rules defining specific unfair or deceptive acts or practices, and establish requirements designed to prevent such acts or practices;
• Conduct investigations relating to the organization, business, practices and management of entities engaged in commerce; and
• Make reports and legislative recommendations to Congress.

For more information, see 'Statutes Relating to Both Missions' at www.ftc.gov/ogc/stat1.htm.

How FTC Does It

The FTC investigates a deceptive trade practices act violation by examining whether the practice is directed at a particular group or whether a particular company is responsible for one continuous deceptive act. A consumer can file a claim with the FTC, however unless the claim is part of a larger deceptive act that is either perpetuated on the public as a whole or is intentionally aimed at a particular group, the claim will likely be handled by the state attorney general. The FTC is important to DTPA because, if systematic deceptive acts are being committed, then the DTPA regulation of a specific state no longer applies and the FTC takes over.

According to statistics from the U. S. Department of Commerce, 'U.S. retail e-commerce sales or retail e-sales reached $34 billion in 2001, which was an increase of twenty two (22%) percent from $28 billion in 2000.'

Retail e-sales, a recent Department report on retail and e-tail sales says, comprised 1.1% of total 2001 retail sales ' up 0.9% from 2000.

As retail e-sales continue to increase, companies must consider areas that are affected by selling and advertising products online. These include whether an advertisement or product sale is misleading or could be confusing. Based on each state's DTPA, companies must guard against any misinterpretation or confusion that customers could perceive by reading the advertisement or purchasing the product. Some examples of misleading or unclear advertising are:

• Telling the customer a specific product is being sold and delivering another after purchase;
• Promising the consumer that he or she can make significant gains by contributing money to join a deal; and
• Sending bulk e-mail that violates terms of service of Internet service providers.

E-mail Concerns

Besides online purchases, the FTC noted that unsolicited commercial e-mail was increasing significantly and recently published a list of scams that are likely to arrive via e-mail. When companies offer online purchases for consumers or advertise products for services, they must ensure the consumer is allowed to make corrections to an order, can copy everything he or she wants to accept and that the customer's final order is clear. The company must also ensure that the customer can access terms and conditions governing transactions.

'FTC staff found that more often than not, bulk e-mail offers appeared to be fraudulent, and if pursued, could have ripped off unsuspecting consumers to the tune of billions of dollars,' the commission noted.

The FTC also noted that with commercial e-mail scams becoming more elaborate and encompassing more trade areas such as investment opportunities, cable descrambler kits, guaranteed loans or easy-term credit, more consumers likely will be duped out of money. The outcome: Consumers violating federal law, committing cable theft or losing money invested or pledged as a result of the scam, the FTC noted. See 'FTC Names Its Dirty Dozen: 12 Scams Most Likely to Arrive Via Bulk Email,' www.ftc.gov/bcp/conline/pubs/alerts/doznalrt.htm.

To deal with fraud, the FTC, along with eight states and four Canadian agencies, formed the International Netforce. This taskforce targets deceptive spam and Internet fraud. The coalition has brought 63 actions against Web-based scams that run the gamut from auction fraud to bogus cancer cure Web sites, and has issued more than 500 warning letters to people believed to be sending deceptive spam, noting that it is illegal.

See 'International Netforce Launches Law Enforcement Effort Sweep Targets Deceptive Spam and Internet Fraud' at www.ftc.gov/opa/2002/04/spam.htm.

Companies found to have committed deceptive acts can be fined, made to pay court costs and attorney fees and for consumers' economic and mental anguish. In some states ' Texas is one ' consumers can be awarded up to treble damages for mental anguish and economic damages if it is determined that the company knowingly or intentionally committed the acts.

How Companies Can Protect Against DTPA Violations

The FTC has issued a few guidelines on how companies can guard against DTPA violations when advertising or selling products to consumers:

• Employ one or more compliance officer(s) to check all disclosures, statements, advertisements or certifications to consumers online. This officer will also keep up with all federal laws and enactments.
• Advertising agencies or Web site designers must review information used to substantiate ad claims.

They may not simply rely on an advertiser's assurance that claims have been substantiated. To determine liability, the FTC looks at the extent of the agency's participation in preparation of the challenged ad, and whether the agency knew or should have known that the ad included false or deceptive claims.

• Disclaimers and disclosures should be clear and conspicuous. That is, consumers must be able to notice, read or hear, and understand the information. A disclaimer or disclosure alone is not enough to remedy a false or deceptive claim.
• Demonstrations must show how the product will perform under normal use.
• Refunds must be made to unsatisfied consumers if promised to them.
• Companies should take special care not to misrepresent a product or its performance when advertising to children. The Children's Advertising Review Unit of the Council of Better Business Bureaus has published specific guidelines for children's advertising.

Some Final Words

Companies selling or advertising online must ensure that their ads, as well as their practices, are fair and conspicuous. They must be sure that information offered isn't misleading, false, confusing or directed toward a specific group. Also, any unsolicited commercial e-mail must not violate state DTPA or FTC deceptive trade practices requirements.

Joy Thomas is a contract analyst at Southwestern Bank of Texas, N.A. in Houston.