2018 GNYADA Membership Directory

UNFAIR AND DECEPTIVE ACTS AND PRACTICES (UDAP) LAWS Unfair and Deceptive Acts and Practices laws are designed to protect consumers from unfair and deceptive trade practices in the marketplace, including false or misleading advertising. They cover merchants of goods and services generally, not just auto dealers. These laws were originally passed to ease the legal burden for proving common law fraud. The original UDAP law is Section 5 of the Federal Trade Commission (FTC) Act, which prohibits unfair and deceptive acts and practices. However, the FTC Act does not afford consumers any private right of action and many practices require the FTC to first obtain an enforcement consent order prior to seeking the up to $40,654 per violation penalty that the Act permits if the consent order is violated. Under Section 5 of the FTC Act, an act or practice is unfair when:

• It causes or is likely to cause substantial injury to consumers; • The injury is not reasonably avoidable by consumers; and • The injury is not outweighed by countervailing benefits to consumers or to competition.

A“substantial injury”typically takes the formof monetary harm, such as fees or costs paid by consumers because of the unfair act or practice. However, the injury does not have to be monetary; emotional or other impact and other more subjective types of harm may constitute a substantial injury. Injury can be substantial if it causes a small harm to a large number of people or a severe harm to a small number of people. An injury also does not need to have already taken place. It is sufficient that a practice be likely to cause substantial consumer injury in order to be actionable. An injury is not reasonably avoidable by consumers when an act or practice interferes with or hinders a consumer’s ability to make informed decisions or take action to avoid that injury. Injuries caused by transactions that occur without a consumer’s knowledge or consent are also not reasonably avoidable. Injuries that can only be avoided by spending large amounts of money or other significant resources also may not be reasonably avoidable. Finally, to be unfair, the injury must not be outweighed by offsetting consumer or competitive benefits that the practice also produces. Offsetting benefits may include lower prices for consumers or the wider availability of products or services. The cost to the company of removing the injury is also a consideration. An act or practice is deceptive when: • The act or practice misleads or is likely to mislead the consumer; • The consumer’s interpretation is reasonable under the circumstances; and • The misleading act or practice is material. Most deception cases involve some form of communication to consumers —whether it be an advertisement, a sales technique, or a contractual provision.The initial inquiry for deception concerns whether the communication is misleading to consumers. To determine whether a communication is misleading, the totality of the circumstances is considered. This includes both express and implied claims or representations about a product or service; deception also considers omissions from communications as well as express representations. The meaning of a communication is determined from the perspective of a “reasonable” consumer. It does not mean someone who is highly sophisticated or educated, but where a communication is directed at a particular audience, the inquiry focuses on a reasonable member of that group. Whether an act or practice is material concerns the importance of information to consumers. A material misrepresentation or omission is one which is likely to affect a consumer’s choice or conduct regarding a product or service.

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