Checklist: Mitigating risks related to deceptive trade practices (USA)

Introduction

This checklist provides in-house counsel and professional advisors with a framework for mitigating the risks associated with deceptive trade practices. It addresses the steps that organizations should take to mitigate the risks of engaging in deceptive trade practices.

Note that this checklist is drafted from a general US (rather than state-specific) perspective.

The checklist focuses on the practical steps your company should take to mitigate the risks associated with deceptive trade practices and covers the following:

1. Establish processes to identify potentially deceptive trade practices
2. Actions to prevent claims of deception
3. Response plan to claims of unfair or deceptive trade practices

This Checklist can be used in conjunction with the following: Quick View: Deceptive trade practices and the laws prohibiting them.

Step 1 – Establish processes to identify potentially deceptive trade practices

Step 2 – Take action to prevent claims of deception

Step 3 – Develop a response plan to claims of deceptive trade practices

Scope and use of checklist

US deceptive trade practices law in its current form is a combination of state and federal laws. Different businesses are subject to different regulations that may impact what they must include in their trade practices compliance practices and policy. For further information, see Quick view: Key data privacy and data security terms; and How-to guides: How to determine and apply relevant US privacy laws to your organization, and How to develop, implement and maintain a US information and data security compliance program.

This checklist provides a generally applicable framework for mitigating the risks associated with what may be considered deceptive trade practices in the United States. It is designed to cover the main types of conduct that may constitute deceptive trade practices. However, businesses must consider what specific trade practices risks and legal obligations their businesses must comply with – deriving from industry-specific, federal and state laws – and tailor their practices and policies accordingly, with assistance from local counsel as necessary.

General notes

Legal framework

Through the Bureau of Consumer Protection, deceptive trade practices are monitored and enforced federally by the Federal Trade Commission (FTC) which protects the rights of consumers through section 5 of the Federal Trade Commission Act (FTCA). The FTC also issues non-legally binding statements, which provide guidance on how the FTC interprets and enforces the law regarding deceptive acts and practices. The principles outlined in these statements influence how the FTC applies section 5 of the FTCA. Violations of this section can lead to legal action by the FTC. The main FTC statements are the FTC Policy Statement on Deception from October, 1983, and the Deceptive and Unfair Acts and Practices Principles: Evolution and Convergence from May, 2007. Other US consumer protection laws, such as the Consumer Financial Protection Act, may also contain provisions designed to monitor and allow enforcement of deceptive trade practices as well.

In addition, many states have enacted more substantive laws related to unfair and deceptive trade practices.

Currently in the US, there is no general requirement to have a deceptive trade practices corporate compliance program. However, due to the danger of potentially running afoul of consumer protection laws, virtually every business in the United States should have measures in place that detect, prevent, and remediate deceptive trade practices.

Key considerations

The term ‘deceptive practices’ generally refers to trade practices that may result in consumers being misled. Because the definition of the term ‘deceptive practices’ may vary from one legal authority to the next, organisations should implement practices and policies sufficiently broad enough to encompass all legal requirements to which they may be subject.

This Checklist focuses on advertising and marketing. One of the biggest areas of risk for liability for deceptive practices is the area of marketing and advertising, since those two areas involve communication with the public undertaken to influence a purchasing decision.

Step 1 – Establish processes to identify potentially deceptive trade practices

1.1 Conduct regular risk assessments to identify areas vulnerable to deceptive trade practices

Conduct regular risk assessments, which involve analyzing the company's operations, products, and services to identify areas vulnerable to deceptive trade practices. The areas of potential vulnerabilities are most commonly those areas involving marketing and advertising.

The risk assessment will involve not just determining which areas are potentially vulnerable to deceptive trade practices, but also what the level of risk is. The level of risk will be determined by the type of claim made. For example, a claim that is largely subjective (‘Flavor that will bring a smile to your face’) is less likely to pose a risk than one that makes a factual claim that cannot be verified (‘Recommended by four out of five dentists’). Claims related to health and safety pose the highest degree of risk (‘Will decrease your car’s braking distance by 15%’).

Once identified, the company can develop strategies to mitigate these risks associated with deceptive trade practices, such as revising marketing strategies to ensure transparency and accuracy, enhancing product labeling and disclosures, and implementing robust compliance programs to prevent deceptive practices.

Additionally, consider conducting regular audits and monitoring to ensure compliance with regulatory requirements and industry standards, and to identify and address any potential issues before they escalate into deceptive practices.

1.2 Develop clear policies and procedures

1.2.1 Procedures

To ensure alignment with legal standards, a structured process for reviewing and approving marketing content should be established. By implementing a formal review process, the business can ensure that its marketing and promotional activities are transparent, honest, and compliant with relevant regulations and industry standards.

As part of the process for reviewing and approving marketing content, the business should establish an anti-deceptive claims review team designed to help ensure that no deceptive trade practices take place, either intentionally or inadvertently. Optimally, the team should include representatives from each of the following business departments:

• Legal counsel – whose role is to provide legal expertise. They can help identify potential legal risks and ensure that claims are compliant with relevant laws and regulations.
• Product development – whose role is to ensure that products and services meet the required standards, are accurately described, and comply with industry regulations. They can provide insight into the development process and help identify potential issues with product claims.
• Marketing – whose role is to review marketing materials, advertisements, and promotional campaigns to ensure they are truthful, accurate, and do not mislead consumers. They can help ensure that claims are consistent with the product's features and benefits.

Depending on the nature of the business and its structure, other departments, such as sales, customer service, and compliance should also be integrated into the review teams. In some circumstances, the business may also choose to engage a third-party review, such as a review conducted by independent auditors or experts in the field, helping to ensure that reviews are not biased by internal pressures.

The anti-deceptive claims review team should develop and implement a formal review process to ensure that the business’s marketing materials, advertisements, and promotional content are accurate, truthful, and compliant with relevant regulations and industry standards.

A review should take place:

• before publishing or disseminating any marketing materials, advertisements, or promotional content to the public;
• during the development or update of product or service descriptions, features, or benefits to ensure that all claims and statements are accurate, truthful, and compliant with relevant regulations and industry standards. This is particularly important when engaging in sales or promotional activities that involve making claims or statements that could be considered deceptive or misleading; or
• in response to customer inquiries or complaints that may involve disputed or potentially deceptive claims. This ensures that the business’s response is accurate, truthful, and compliant with relevant regulations and industry standards. The review process should involve a thorough evaluation of the claims or statements in question, including reviewing the language and tone used, verifying the accuracy and truthfulness of the claims or statements, and ensuring compliance with relevant regulations and industry standards.

Checklists and guidelines can help employees evaluate content for potential deceptive elements, ensuring accuracy, clarity, and completeness.

The review process should identify potential risks or vulnerabilities in the claims or statements and develop a plan to address any issues or concerns identified. The review process should be documented and maintained, and all relevant stakeholders should be trained on the process and its requirements.

Consumer focus groups of randomly selected persons may be used to gauge the average person’s understanding of an advertisement. Members of the groups can be asked what impression they get from an advertisement, and what does it make them think the advertisement is saying? For example, an advertisement for a brand of whole-grain bread or breakfast cereal may say ‘Studies show that people who eat whole grains as a part of a balanced diet have better cardiovascular health’ does not say explicitly that whole grains will lead one to have better health outcomes, and the statement may be accurate, but the potential confusion concerning correlation and causation may lead to the advertising being found deceptive.

Maintaining records of all reviewed and approved content is essential for demonstrating due diligence and facilitating audits or reviews. Through these measures, businesses can cultivate a culture of compliance and ensure that all trade practices adhere to legal and ethical standards.

1.2.2 Policies

In addition to developing procedures related to deceptive trade practices, businesses should create and maintain well-defined policies that include guidance on the provisions of the FTCA as it concerns deceptive trade practices and how to prevent them. These policies should emphasize the need for truthfulness and accuracy. They should also emphasize that the statements should be reviewed from the viewpoint of the average consumer seeing the materials under review. Institutional loyalty may incline employees to find justifications and excuses for false or misleading statements (‘Technically, that’s correct’).

Ensure that these policies are easily accessible to all employees. Use straightforward language to articulate expected compliance and ethical standards, providing examples of both compliant and non-compliant practices.

1.3 Implement compliance training and promote awareness of deceptive trade practices

Throughout the lifecycle of product/services, those involved in their development, marketing and sale, should be able to identify potentially deceptive trade practices in order to be able to try and avoid them. There is no single exhaustive list of what constitutes a deceptive trade practice, but the following types of practices may present risks of being deceptive and would need to be carefully considered:

• representations in advertisements, marketing and promotional materials, agreements and disclosures for which there is no reasonable factual basis;
• materials that rely upon fine print or other separate statements or disclosures to correct potentially misleading headlines;
• advertisements, promotional materials, and marketing scripts that do not take into account the sophistication and experience of the target audience, including the elderly and financially vulnerable;
• any claims, representations, or statements that may mislead members of the target audience about the cost, value, availability, cost savings, benefits, or terms of the product or service;
• any advertisements, promotional materials, and marketing scripts that do not fairly and adequately describe the terms, benefits, and material limitations of the product or service being offered, including any related or optional products or services, or misrepresent such terms either affirmatively or by omission;
• advertising that a particular service or product will be provided if there is no intention or ability to provide the service or product to customers;
• failing to draw the attention of customers to key terms, including limitations and conditions that are important in enabling customers to make informed decisions about whether the product or service meets their needs;
• the use of terms in advertising such as ‘guaranteed’ without clear disclosure of any limitations, conditions, or restrictions on the offer; and
• the use of unrepresentative examples in advertising, marketing, and promotional materials.

In order to help employees identify issues, businesses should provide education to employees involved in marketing, advertising, and consumer communication about federal regulations, particularly the FTCA, and any relevant state laws. Even though there is a review team in place, educating employees provides a ‘first line of defense’ against deceptive practices.

In the training, cover key aspects of these regulations, providing clear definitions and real-world examples of deceptive practices. It is important to customize this training for different departments, such as marketing, sales, and customer service, to address specific risks and responsibilities relevant to their roles. Regular training sessions should be conducted, ideally on a quarterly or bi-annual basis, to keep staff updated on the latest regulations and industry practices. Using interactive methods like workshops, seminars, and online modules will make the training more engaging and effective. Additionally, incorporating assessments and feedback mechanisms can help gauge understanding and improve future sessions.

Step 2 – Take actions to prevent claims of deception

2.1 Take general steps to mitigate against the risk that trade practices will be considered deceptive

To ensure compliance with deceptive trade practices laws and regulations, it is essential to take general proactive steps to mitigate against the risk of engaging in practices that could be considered deceptive. Some general steps to take include:

• ensuring that those who market or promote products or services have received adequate training in deceptive trade practices and how to avoid making representations that might be misleading;
• ensuring that compensation mechanisms do not incentivize the use of deceptive trade practices;
• implementing and maintaining effective risk and supervisory controls to select and manage third-party servicers; and
• keeping apprised of changes in the legal or regulatory environment, including enforcement actions against other companies.

2.2 Take specific steps to mitigate against the risk that trade practices will be considered deceptive

Avoiding liability for deceptive trade practices is a proactive endeavor: it doesn’t just happen; companies must take active steps to ensure continued compliance. By taking specific steps to mitigate risk, businesses can reduce the risk of engaging in deceptive trade practices and ensure compliance with relevant laws and regulations.

2.2.1 Misleading product descriptions

In order to avoid product descriptions being at risk of being misleading, clearly and accurately disclose all material information about a product or service, including any limitations, conditions, or potential risks. Clear disclosure of material information, such as information regarding a product’s performance or safety, is also critical in avoiding deceptive claims.

Ensure that all promotional materials, marketing scripts, and customer agreements and disclosures to customers fairly describe the terms, benefits, and material limitations of the product or service being offered and do not misrepresent such terms, benefits, or material limitations either affirmatively or by omission. Promotional materials should not use potentially misleading headlines and rely upon fine print or separate disclosures to disclaim the headline. Consider the target audience of the product or service and tailor advertisements, promotional materials, disclosures, and scripts to take account of the sophistication and experience of the target audience.

To avoid the risk of deceptive claims, verify any claims about a product or service with evidence and ensure that they are not based on speculation or assumptions. This means that all claims should be supported by concrete data, research, or expert opinions. Furthermore, it is essential to avoid making false or misleading statements, and to ensure that all claims are accurate and truthful.

It is important to monitor and update claims regularly to ensure they remain accurate, truthful, and compliant with relevant regulations and industry standards.

2.2.2 Bait and switch

Avoid advertising that a particular service will be provided if there is no intention or ability to provide the service. When it comes to bait and switch, only advertise products that are available to the consumer and that will be available in sufficient quantities to meet consumer demand. If there are limited quantities of a product available, that limitation should be noted in advertising (‘only five will be available at this price’).

2.2.3 False comparisons

Unfair or deceptive business practices, such as making false or misleading claims about a competitor's product or service, should be avoided. Comparisons of a product’s performance should involve performance under the same conditions. Survey results should be accurate and representative of the persons surveyed.

2.2.4 Misrepresentation of geographic origin

Brand names and labeling often attempt to evoke aspects of a certain place or area. A manufacturer of cheese may name its brand a particular city associated with fine dining. Such evocation is permissible, as long as it does not cross the line and say that the product was made in that city.

A product that is labeled as ‘Made in the USA’ must meet certain requirements. A product may not be labeled as ‘Made in the USA’ unless the final assembly or processing, all significant processing, and all or virtually all ingredients or components must be made in the United States. The FTC has published detailed guidance on these standards.

2.2.5 Disclosure of critical information to inform a buyer’s choice

Determining why a buyer would choose a particular brand or product is an important step in avoiding the risk of deceptive trade practices. The more important a particular factor is to the average consumer, the more likely it is to be a material fact, and a false or misleading statement regarding that fact is more likely to result in liability for the seller.

Information relating to material facts is critical, and should be disclosed to potential buyers. The important factors and critical information will vary according to the product and its intended uses. The price of a product will generally be critical information that must be presented accurately. Similarly, health and safety factors are critical when relevant (eg, it is relevant to a buyer of shampoo that the product is non-allergenic, but the purchaser of printer paper is not likely to be concerned about safety). There are several steps to take regarding disclosure.

• Draw the attention of customers to key terms, including limitations and conditions, that are important in enabling the customer to make an informed decision regarding whether the product or service meets the customer’s needs.
• Do not allow an advertisement to have distracting information. Unimportant information will tend to mute the full presentation of other information.
• Is your industry – or related industries – subject to special restrictions due to a governmental enforcement action? For example, rental car companies have operated under consent orders that require them to present certain information in their industries in a certain manner. A company just entering the car rental business should be aware of these requirements, and should follow them.
• Clearly inform customers of contract provisions that permit a change in the terms and conditions of an agreement.

2.2.6 Transparency of fees and charges

Deceptive pricing practices, such as making false or misleading claims about pricing or fees, should be avoided, and all pricing and fees should be clearly and accurately disclosed. Any pricing information presented should include limitations such as blackout dates, and if extra charges will or are likely to be imposed, those extra charges should at least be referenced (‘Price does not include dealer prep or other charges’).

2.2.7 Transparency concerning endorsements and sponsorships

When it comes to false or misleading endorsements, it is essential to avoid making false or misleading claims about endorsements or testimonials, and to ensure that all endorsements are genuine and accurate. A person who gives an endorsement should be a person who actually has used a product, or who is identified as a paid spokesperson.

The FTC has published Guides Concerning the Use of Endorsements and Testimonials in Advertising, may can be accessed at 16 CFR Part 255.

2.3 Have a process in place to remediate issues

When the review/verification process identifies potential issues with claims, marketing and advertising staff should take immediate action to address the concerns of the review team. Update policies and procedures as necessary.

Finally, conducting regular audits and reviews of claims is crucial in identifying and addressing any potential issues or concerns. This includes reviewing claims for accuracy, truthfulness, and compliance with regulations and industry standards, and taking corrective action as needed. By taking these steps, businesses can ensure that their claims are accurate, truthful, and compliant with relevant regulations and industry standards, and avoid making deceptive claims that could harm their reputation or lead to legal consequences.

Step 3 – Develop a response plan to complaints of deceptive trade practices

3.1 Develop a complaint response plan

A complaint response plan provides a structured approach to addressing claims of deceptive trade practices, with the goal of mitigating risk, preventing enforcement action, and maintaining a positive reputation. This plan should outline the steps to be taken in response to claims of deceptive trade practices, whether identified through internal review or customer complaint.

The response plan should be designed to be flexible and adaptable, taking into account the specific circumstances of each claim. The plan should consider the nature and severity of the claim, the likelihood of enforcement action, the potential impact on the business’s reputation, the effectiveness of the business’s internal controls and procedures, and the availability of evidence and documentation to support or refute the claim.

The response plan should cover the following.

• Steps to take upon receipt of a claim of deceptive trade practices – upon receipt of a plausible claim or complaint of deceptive trade practices, the business should conduct an initial assessment to determine the nature and scope of the claim. This assessment will involve gathering all relevant information and documentation related to the claim, including any evidence or records that may support or refute the claim. The business then determines the appropriate response to the claim, which may include:
  • acknowledging the claim and apologizing for any harm caused;
  • providing a corrective action plan to address the issue;
  • offering compensation or restitution to affected customers;
  • conducting an internal investigation to identify the root cause of the issue; and
  • implementing changes to internal controls and procedures to prevent similar issues in the future, or a combination of these steps.
• Implementation of a response – this may involve communicating with customers, updating internal policies and procedures, and providing training to employees. The business will also need to monitor and review the effectiveness of the response, and make any necessary adjustments to ensure that the issue is fully addressed.

By having a structured response plan in place, the business can ensure that claims of deceptive trade practices are addressed promptly and effectively, and that the business's reputation is protected.

It is essential that the response plan is communicated to all employees, and that they understand their role in preventing and addressing claims of deceptive trade practices. The plan should also be reviewed and updated regularly to ensure that it remains effective and relevant. By having a comprehensive response plan in place, a business minimizes the risk of deceptive trade practices and can maintain a positive reputation in the market.

3.2 Develop a plan for dealing with egregious claims requiring intense response

Some deceptive trade practices may be so egregious that merely removing them from public discourse is not a sufficient response. Some examples are false or misleading advertising claims, product or service failures that result in some kind of harm to customers.

If a business is faced with publicity relating to claims or complaints of egregious deceptive trade practices, and the claims are substantively true, it must take swift and immediate action. Claims that impact a company’s reputation can have severe and lasting repercussions. For example, a study by Trustpilot showed that as many as 90 percent of online shoppers would not purchase from a company because of its bad reputation. Having a plan in place in advance will help your business to respond swiftly and efficiently.

In addressing the negative reports, the business should assemble a team that should include representatives from the following groups:

• Public relations staff – they will be responsible for managing the business’ reputation and ensuring that the response to the claim is consistent with the company's brand and values. This includes developing a communication strategy to address the issue, crafting a message that is clear and concise, and ensuring that all stakeholders are informed and aligned.
• Legal – they will be responsible for reviewing the claim and determining the legal implications. This includes assessing the validity of the claim, identifying any potential legal liabilities, and advising on the best course of action to take.
• Marketing – they will be responsible for developing a plan to address the impact of the claim on the business’s marketing efforts. This includes assessing the effectiveness of the business’s marketing campaigns, identifying areas for improvement, and developing strategies to mitigate the damage.
• Corporate officers – they will be responsible for providing overall guidance and direction to the team, ensuring that the response is aligned with the business’s goals and values. This includes making key decisions about the direction of the response, and providing resources and support to the team.

In addressing these types of claims, be transparent, honest, and proactive. The business should take immediate action to address the issue, provide a clear explanation of what happened, and outline the steps being taken to prevent similar incidents in the future. By doing so, the business can mitigate the damage to its reputation and maintain the trust of its customers and stakeholders.

Additional resources

Related Lexology Pro content

How-to guides:

Avoiding false or misleading advertising 
Understanding business defamation and trade libel

Checklists:

Using product endorsements

Quick views:

Deceptive trade practices and the laws prohibiting them

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