Quick view: Understanding enforcement of deceptive trade practice laws (USA)

This Quick View provides an outline of the enforcement of deceptive trade practice laws, as well as a discussion of mounting a defense to such actions. The laws against deceptive trade practices prohibit a wide range of conduct, and there is a wide range of possible remedies that may be ordered in such actions. It is crucial to understand the available remedies to ensure legal compliance and prevent potential penalties.

Enforcement of deceptive trade practices is a critical aspect of protecting consumers from unfair and misleading business practices. In the United States, enforcement is primarily carried out by the Federal Trade Commission (FTC) and state attorneys general, who have the authority to investigate and take legal action against companies that engage in deceptive trade practices. Additionally, private enforcement actions often allow individual consumers to seek compensation for losses caused by deceptive behavior, either through class actions or single plaintiff litigation.

This Quick view covers:

1. Public enforcement actions
2. Private enforcement actions
3. Defending deceptive trade practices actions

This Quick view can be used in conjunction with Checklist: Mitigating risks relating to deceptive trade practices and Quick view: Deceptive trade practices and the laws prohibiting them.

Section 1 – Public enforcement actions

1.1 Federal enforcement

The Federal Trade Commission (FTC) is the primary agency responsible for enforcing federal consumer protection laws that prohibit deceptive trade practices. The FTC’s mission is to protect consumers by preventing and punishing business practices that can lead to higher prices, fewer choices, or less innovation. To achieve this mission, the FTC enforces a wide range of federal laws and regulations, including the Federal Trade Commission Act, Telemarketing Sales Rule, Identity Theft and Assumption Deterrence Act, Fair Credit Reporting Act, and Clayton Antitrust Act, among others. In total, the FTC has enforcement or administrative responsibilities under more than 70 laws, making it one of the most powerful and effective consumer protection agencies in the country.

The main law that the FTC enforces is the Federal Trade Commission Act (FTCA), which is the foundation of the agency’s authority. Section 5(a) of the FTCA (15 USC, section 45(a)(1)) prohibits ‘unfair or deceptive acts’ in commerce.

In the most extreme cases, the FTC may file an action in federal district court for immediate and permanent orders to cease the deception, prevent fraudsters from perpetrating scams in the future, freeze their assets, and obtain compensation for victims. Companies should prepare for all consequences.

It is essential for businesses to monitor the FTC’s guidance on protecting consumers from fraud and deception, which provides links to press releases and a list of cases where the FTC has taken enforcement action. By understanding the various defense strategies employed in previous cases and the potential consequences of enforcement, companies can better navigate the complex legal landscape and protect themselves against deceptive trade practice enforcement actions.

Although the focus of this resource is on the FTC, deceptive trade practice laws are also enforced by the Federal Food and Drug Administration (FDA). The FDA’s enforcement authority related to advertising of prescription medications attempts to ensure that the advertising for such medications is accurate and not misleading. The FDA follows procedures similar to those used by the FTC in its enforcement actions.

1.1.1 Enforcement mechanisms

Any enforcement action begins with a thorough investigation: the FTC examines the business’s practices and collects and analyses the evidence to determine if there is a violation.

When the FTC identifies a violation of consumer protection laws, it can take a range of enforcement actions, both administrative and judicial, to address the issue and prevent future violations, including the use of cease and desist orders, injunctions, corrective advertising, and monetary relief. Before it takes formal action, the FTC may also settle a claim with a company.

If the FTC suspects that a company is engaged in unfair or deceptive trade practices, the agency has three options:

• settle the charges;
• issue an administrative complaint; or
• bring a civil action.

The choice between filing an administrative complaint or filing a civil lawsuit is left to the FTC’s discretion. There has been some suggestion that the FTC pursues administrative cases when it is more certain of a favorable outcome for the Commission, and that its high success rate in administrative actions reflects an improved selection of the cases decided by Administrative Law Judges (ALJs).

Set out below is further information on the various options that the FTC might choose to pursue.

Settle the charges

A company may elect to settle with the FTC when the company acknowledges that it may have violated the law and wishes to avoid the expense and negative publicity that would flow from a lengthy dispute . Although there is no universal framework outlining the requirement of settlement, there is usually a promise to correct the deceptive trade practice, often by taking measures such as including disclosures in advertising certain products or transactions. The settlement will generally include a disclaimer that the company does not admit liability.

Administrative adjudication

If the respondent company does not wish to settle the charges, the FTC can issue an administrative complaint, which can be contested by the respondent. Administrative proceedings are commenced within the FTC. An administrative law judge (ALJ) adjudicates the complaint by overseeing discovery, making evidentiary rulings and conducting a trial, following which the ALJ will issue a recommended decision.

A recommended decision shall be based on a consideration of the whole record relevant to the issues decided, and shall be supported by reliable and probative evidence. The recommended decision shall include a statement of recommended findings of fact (with specific page references to principal supporting items of evidence in the record) and recommended conclusions of law, as well as the reasons or basis therefor, upon all the material issues of fact, law, or discretion presented on the record and an appropriate proposed rule or order (16 CFR 3.51(c)(1)).

Recommended decisions are automatically reviewed by the FTC. Parties are provided with an opportunity to submit a brief that states any exceptions to the decision. Oral arguments may be heard. The FTC will either adopt, modify, or set aside the recommended findings, recommended conclusions, and proposed rule or order contained in the recommended decision, and will include in its decision a statement of the reasons or basis for its action and any concurring and dissenting opinions. (16 CFR 3.54).

The FTC’s final decision is appealable by any respondent against which an order is issued.

Upon finding of a violation of section 5 of the FTCA, the appropriate remedy is to issue an order to cease and desist from such practice (15 USC section 45(b), which states that, upon finding a violation of section 5, the FTC ‘shall issue’ an order to ‘cease and desist from . . . such act or practice’), see FTC v National Lead Co, 352 US 419, 428 (1957). The Commission has wide discretion in fashioning an appropriate remedial order, subject to the constraint that the order must bear a reasonable relationship to the unlawful acts or practices found to exist. The terms of the order must also be sufficiently ‘clear and precise’ that they may be understood by those against whom they are directed.

Where any person, partnership, or corporation knowingly violates a final cease and desist order, the FTC may commence a civil action to obtain a civil penalty in a district court of the United States against them. In such an action, the person, partnership, or corporation in violation shall be liable for a civil penalty of not more than $53,088 for each violation (See FTCA Section 5(m)(1)(B), 15 USC Sec 45(m)(1)(B) and 90 FR 5580).

Civil action

The FTC may, at its discretion, bring a civil action against ‘any person, partnership, or corporation [that] violates any rule . . . respecting unfair or deceptive acts or practices . . . in a United States district court or in any court of competent jurisdiction of a State’ (15 USC section 57b).

In a civil action, the court has the jurisdiction to grant such relief as it deems necessary to redress injury to consumers or other ‘persons, partnerships, and corporations’ resulting from the rule violation or the unfair or deceptive act or practice. The relief ordered by the court may include rescission or reformation of contracts, the refund of money or return of property, the payment of damages, or public notification regarding the rule violation or the unfair or deceptive act or practice. Note that the law explicitly disallows exemplary or punitive damages.

A civil action brought by the FTC starts in the same manner as any other federal civil lawsuit; that is, by the filing and service of a civil complaint in the manner prescribed by the Federal Rules of Civil Procedure. If the case involves sensitive information, such as trade secrets, the case may be filed under seal.

Temporary relief – such as a temporary restraining order, or a preliminary injunction – may be sought. Temporary relief is meant to preserve the status quo while an action is pending. The relief may include freezing some assets of the company, to prevent their dissipation.

The FTC may bring a civil action as the final step in settling a case with a company. The parties have already agreed to the terms of the settlement, and filing a civil action will put judicial imprimatur on that settlement. This will allow for expeditious enforcement if the settlement order is violated, as the FTC would be able to make a motion before the court for enforcement, rather than needing to start a new proceeding.

1.1.2 Types of relief

Judicial enforcement of a settlement or final adjudication may take several forms. These different forms are not mutually exclusive. The court may order equitable relief, such as an injunction to prevent further unlawful conduct. The court may also order monetary relief or order impoundment of assets. A receiver may be appointed to take temporary control of the business.

The FTC monitors compliance with orders entered in consumer protection cases, investigating possible violations, filing civil contempt actions, and initiating court actions to obtain civil penalties. Additionally, the agency uses compulsory process, including subpoenas, civil investigative demands, and orders for special reports, to obtain information for investigations and studies, and can initiate process enforcement proceedings if a recipient fails to comply.

The subsections below examine the various relief options available. Any of these remedies (except for monetary penalties) may be obtained in either an administrative or civil proceeding.

Injunctions

When the FTC begins an administrative action, it may seek a preliminary injunction from the federal district court at the same time. This stops the deceptive practice pending completion of the administrative action.

The FTC files a complaint with the court, and if the court finds in favor of the FTC, it can issue a permanent injunction, which is an order that prohibits the company from continuing the deceptive practices.

To obtain an injunction, the FTC applies to the court and presents evidence that the business engaged in deceptive practices. If the court finds in favor of the FTC, it will issue a permanent injunction to prohibit the company from continuing those practices.

The difference between an injunction and a cease and desist order is that injunctions are issued by the district court, whereas cease and desist orders are from the FTC. The decision as to which remedy to pursue rests largely with the FTC. A cease and desist order may be modified by the FTC, whereas modifying an injunction requires the approval of the court.

Corrective advertising

The FTC can obtain an order for corrective advertising from a court, after the court issues a finding that a company has engaged in deceptive practices. These orders require the company to issue new advertisements to correct misinformation from previous ads. This is designed to stop the deceptive practice and rectify the false impressions left in consumers’ minds. Generally, the new advertisements must refer to the prior advertisements and correct the misinformation.

In practice, corrective advertising is rarely ordered by the courts due to its complexity and the burden it places on businesses, as well as the burden placed on the FTC to monitor compliance. When it is ordered, it has typically been agreed to by the parties, and is part of an order approving the settlement.

Although the FTC has the authority to obtain an order for corrective advertising, corrective advertising is ordered most often in the context of enforcement of deceptive trade practices by the Food and Drug Administration (FDA), the federal agency in charge of regulating advertising for prescription medications and medical devices. Corrective advertising is appropriate when merely changing advertisements in the future will not address the issue adequately.

Monetary relief

Monetary relief includes civil penalties. From the 1980s the FTC had primarily relied upon section 13(b) of the FTCA to obtain monetary relief. However, in the case of AMG Capital Management v FTC (2021), the US Supreme Court significantly restricted the FTC’s ability to seek monetary relief. In that case, the Supreme Court ruled that the FTC could not use section 13(b) of the FTCA to obtain monetary relief such as restitution or disgorgement.

Post-AMG, to enhance its enforcement capabilities, the FTC has turned to the ‘penalty offense authority’ in section 5(m)(1)(B) FTCA. Historically, the FTC has not exercised this provision often and when it has done so, it has done so in a targeted manner. The reason for this is that it had relied heavily on section 13(b) of the FTCA to obtain restitution and disgorgement from its targets. Section 5(m)(1)(B) FTCA grants the FTC the authority to impose civil penalties of up to $50,120 per violation (as of 2025; the maximum penalty is adjusted annually for inflation) on parties that engage in conduct with actual knowledge that the conduct has previously been deemed unfair or deceptive through a prior administrative order issued by the Commission.

The FTC has provided detailed guidance on its penalty offense authority on its official website, outlining the necessary steps and legal framework for it to obtain monetary relief.

To use its penalty offense authority, the FTC must meet a two-part requirement:

• there must be a prior FTC opinion on the matter, stating that the practice is unlawful; and
• the company from which relief is being sought must have knowledge of its violation.

The prior opinion refers to a prior administrative order issued by the FTC that has found a company’s conduct to be unfair or deceptive. This prior opinion serves as a basis for the FTC to invoke its penalty offense authority under section 5(m)(1)(B) of the FTCA.

To fulfill the requirement that a company must have notice of a violation, the FTC has increased its issuance of ‘notice of penalty offenses.’ Notices of penalty offenses are issued by the FTC to businesses. The notice informs recipients that specific practices have been previously determined by the FTC or courts to be unfair or deceptive in violation of the FTCA. Once a business receives such a notice, it is considered to have actual knowledge of the illegality of those practices. Notices of penalty offenses do not reflect any assessment as to whether a business who receives a notice has engaged in deceptive or unfair conduct.

1.2 State enforcement

All 50 states and the District of Columbia have consumer protection laws, often called Unfair and Deceptive Acts and Practices Acts (UDAPAs) or Consumer Protection Acts (CPAs). These laws generally prohibit deceptive practices in consumer transactions and, although they vary, many also address unfair or unconscionable practices.

In many states, the principal responsibility for addressing deceptive trade practices lies with the state attorney general’s office. Enforcement of the laws regarding deceptive trade practices at the state level is primarily through state UDAPAs and CPAs. For instance, Pennsylvania’s law includes a provision against fraudulent conduct likely to confuse consumers. California’s False Advertising Law, section 17500 of the state’s Business and Professions Code, independently bans misleading statements about products, separate from its Unfair Competition Law (Business and Professions Code sections 17200 et seq). State attorneys general can investigate and sue on behalf of citizens. Liability for deceptive trade practices under these laws does not require proof of actual harm, just that deception was likely, making them effective tools for holding companies accountable.

1.2.1 Remedies

At state level, attorneys general are usually authorized to launch inquiries or investigations and take legal actions to protect consumers’ interests, and to pursue solutions like court orders, refunds, and financial penalties against companies that use deceptive or unjust methods.

Section 2 – Private enforcement

2.1 Federal

Although the FTC is the primary federal agency responsible for enforcing consumer protection laws, individual consumers can file lawsuits against companies directly in court, alleging violations of federal consumer protection laws, essentially acting as their own ‘private attorneys general’ to seek redress for harm suffered, rather than relying solely on government agencies like the FTC to enforce these laws. Individual lawsuits may take the form of either class actions or single plaintiff actions.

For private enforcement to be possible, the relevant federal consumer protection law must explicitly grant a ‘private right of action’ that allows individuals to sue companies directly for violations. Examples of laws with private rights of action are the Fair Credit Reporting Act, the Truth in Lending Act, the Electronic Fund Transfer Act, and certain provisions of the FTCA, including those relating to deceptive trade practices.

There are several benefits to private enforcement:

• the increased enforcement reach enhances consumer protection by allowing individuals to sue companies even when government agencies may not have the resources to pursue every case;
• it has a deterrent effect, as companies may be more likely to comply with consumer protection laws if they know consumers can sue them directly; and
• private enforcement empowers consumers, providing a mechanism for consumers to seek compensation for damages suffered due to unfair or deceptive practices.

2.1.1 Class actions

Class action lawsuits are crucial for consumers looking to act against business practices collectively, rather than individually, by sharing costs and resources in a way that may otherwise be too costly, for individual claims.

Rule 23 of the Federal Rules of Civil Procedure establishes the procedural framework for class actions, outlining the requirements for class certification, including numerosity, commonality, typicality, and adequacy of representation. If a class is certified, the case can proceed as a single action, allowing all affected consumers to benefit from any judgment or settlement. By combining claims, class actions can result in large settlements that represent the overall harm experienced by consumers. An example is the Volkswagen emissions scandal, where car owners collectively sued the company for installing software that allowed their vehicles to cheat emissions tests, leading to a settlement of $14.7 billion to compensate affected consumers.

2.1.2 Single plaintiff litigation

Single actions, or individual lawsuits, offer consumers an avenue to seek redress for deceptive trade practices instead of lumping together claims from various parties like in class actions. This method allows consumers to address their concerns individually. A single plaintiff action brought in federal court must meet the jurisdictional requirements – either diversity of citizenship or a question of federal law – for a federal lawsuit.

Single actions can be a powerful tool for consumers, but they are costly, as they incur legal and court fees. Additionally, the results of actions may be uncertain as they heavily hinge on the unique circumstances of each case and the consumer’s capacity to substantiate their claims.

2.2 State

Some jurisdictions allow private enforcement actions as a way for individual consumers to pursue businesses for compensation for losses caused by deceptive behavior. This compensation can include both compensatory and, if appropriate, punitive damages. Some states even allow class action lawsuits, although it is more common for class actions to be brought in federal, rather than in state, court.

The Uniform Deceptive Trade Practices Act (UDTPA) acts as a guide for states when developing their consumer protection regulations by outlining unfair or deceptive practices that should be addressed in laws and regulations across states. While the UDTPA does not directly grant individuals the right to act on their own behalf against violators of the act, several states have implemented comparable laws that empower consumers to file private lawsuits based on this statute.

For example, in Texas, the Texas Deceptive Trade Practices-Consumer Protection Act (DTPA) gives consumers the right to act against companies through private lawsuits. This law offers solutions such as triple damages for intentional breaches to encourage consumers to seek justice against deceptive trade practices.

2.3 Remedies

The remedies available in private actions can vary widely based on the exact state law or federal law in question. The remedies available will often include compensatory damages, punitive damages, and statutory fines. Injunctive relief may also be available. Private enforcement may prove expensive for a plaintiff, and a private plaintiff is not always able to monitor compliance with an injunction or similar order, so enforcement is often left to state agencies or to private plaintiffs willing to bring a class action suit.

Section 3 – Mounting a defense against deceptive trade practice actions

Defenses can be raised against both public and private enforcement actions. The party bringing an action bears the burden of showing a deceptive trade practice, but a defendant in a deceptive trade practices action has several defenses available to it. A successful defense must meet the normal standard of proof by a preponderance of the evidence.

In defending against deceptive trade practice enforcement actions, companies may in their defense deploy arguments including that they acted in compliance with federal and state laws and regulations, lacked intent to deceive, made substantially true claims, appropriately used disclaimers and disclosures, obtained consumer permission or waiver, and that there was a lack of harm to the customer. Some of the possible defense routes available when facing enforcement of deceptive trade practice laws are explored below.

3.1 The representation, omission, or practice is not likely to mislead a reasonable consumer

In order for a practice to be considered deceptive, there must be a material representation, omission or practice that is likely to mislead the consumer and that is deceptive from the perspective of a consumer acting reasonably in the circumstances (for further information, see Quick View: Deceptive trade practices and the laws prohibiting them). One defense route is to show that there is a lack of deception. In deploying such a defense, possible routes may involve:

• Regulatory compliance: demonstrating compliance with federal and state laws and regulations. This argument argues that the company’s actions were in line with regulatory expectations, thereby negating claims of deception.
• Substantial truth: even if certain statements or claims might be slightly inaccurate, in certain ways, they are still largely accurate and truthful when considered in their full context . The focus is on the gist of the statement, considered in its overall context. While consumers expect statements to be accurate, minor deviations from strict, literal accuracy are not considered deceptive.

• Puffery: the FTC defines ‘puffery’ as ‘the exaggerations reasonably to be expected of a seller as to the degree of quality of his product, the truth or falsity of which cannot be precisely determined.’ ‘Puffery’ is a subjective term. It usually refers to statements of opinion, or to statements that cannot be verified or quantified. For example, the word ‘old’ used in the name of a brand of whiskey is not itself deceptive, as ‘old’ is a subjective term, and one to which most consumers probably would pay little attention. That would be regarded as puffery. If that term is paired with statements that are capable of being verified (‘aged for years in barrels in limestone caverns’), then the statement stops being puffery. As consumers are unlikely to take puffery seriously then they are unlikely to be deceived by such statements.

If the company has clearly stated disclaimers or disclosures that explain the nature of its products or services, it could rebut a claim of deception. This defense emphasizes that consumers should take the responsibility to read and comprehend the information provided. A disclaimer may also be a tacit acknowledgement that, while the advertiser has a basis for believing that a claim is accurate, it is possible that there may be circumstances that make the statement inaccurate.

An argument might also be made that the consumer knew and accepted the terms so they cannot accuse the company of deception. To use this defense, there must be proof that the consumer understood and agreed to the supposedly deceptive terms.

3.2 Lack of materiality

A company may argue in its defense that a claim was not material. A material claim is one that involves information that is important to consumers and, hence, is likely to affect their choice of, or conduct regarding, a product. Certain types of information will be presumed to be material. See Quick view: Deceptive trade practices and the laws prohibiting them.

Mounting a lack of materiality defense may involve arguing that the alleged misstatement or omission was trivial, technical, or peripheral, and would not influence the purchasing decision of a reasonable consumer. This might be achieved by showing that:

• the representation concerned a minor attribute (such as a minor technical specification or incidental feature) rather than core aspects like price, safety, or performance;
• consumer surveys or market research indicate that the claim had no effect on consumer decision-making;
• complaint data or sales records show that consumers did not rely on the challenged statement;
• the misstatement was corrected or clarified elsewhere in a way that a reasonable consumer would have noticed, reducing its impact on decision-making;
• expert testimony supports that the omitted or misstated information was commercially irrelevant to buyers in the relevant market; or
• the issue is one of industry custom or minor variation, and reasonable consumers would not consider it significant.

3.3 Mitigation

A company may argue that any misleading information was unintentional and resulted from a genuine mistake or oversight. Intent to deceive is not a required element to prove an unfair or deceptive practice, but showing a lack of intent may bolster an argument that the deception was not material. In addition, a lack of intent may play a crucial role in reducing legal responsibility or mitigating penalties imposed.

The strongest argument in favor of mitigation of penalties is adoption of a compliance program to prevent future harm. The program should include procedures for verifying the accuracy of claims, and for flagging potential unfair or deceptive practices for further review.

A claim that the purported misleading behavior did not result in any harm or detriment to the customer or to commerce generally may help to mitigate the penalties imposed. By showing a lack of harm the company can challenge the basis for any claim of damages or the necessity for legal remedy. A lack of harm may also obviate any purported need for injunctive relief.

Additional resources

Related Lexology Pro content

Checklist:

Mitigating risks related to deceptive trade practices

Quick view:

Deceptive trade practices and the laws prohibiting them

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