What You Need to Know About Consumer Protection Laws Follow these tips to stay on the right side of the law when dealing with customers.
There are several legal issues that small-business owners shouldconsider addressing when it comes to customer interaction. Theseinclude advertising, retail pricing and return policies,warranties, and consumer protection laws. Here's a briefrundown:
The Federal Trade Commission (FTC) is the national agency thatgoverns compliance with the laws of advertising. Generally the FTCmay take action in cases of false or deceptive advertising. Stateand local governments, individual consumers and competitors mayalso take action against a business that violates advertisinglaws.
Action by government agencies against violators usually beginswith an attempt to persuade the business determined to be inviolation to take voluntary action. If that attempt isunsuccessful, the government can issue a cease-and-desist order,bring a civil lawsuit, seek a court injunction to stop aquestionable ad, and even require the violator to run correctiveads that admit an earlier ad was deceptive. Some states even havelaws that provide for criminal penalties such as fines and jailterms for violators, but the latter is a rare occurrence.
Stay out of trouble by following some basic rules:
- Don't promise more than a product will deliver. If aproduct will remove some but not all types of stains, list onlythose that your product will affect.
- Be sure the visual image you show in your ad truly reflectswhat you're offering for sale.
- If you're using someone's picture or writtenendorsement or quoting from someone's copyrighted work, be sureyou get his or her permission in writing.
- Don't knock your competitors.
- Have sufficient quantities of advertised items in stock orstate that "Quantities are limited."
- Be careful about advertising something as"free."
- If you advertise credit terms, you should provide all detailssuch as down payment amount, terms of repayment, annual interestrate and so on.
Product Pricing and Return Policies
- Using vocabulary such as "regular" or"reduced" prices is fine if you can prove that youoffered the merchandise at a particular price for a specifiedperiod of time before "reducing" it.
- If you offer merchandise for sale at a price that's higherthan $25 at a location other than your normal place of business,such as at a flea market or a business expo, you should givecustomers a written receipt or copy of the sales contract and anotice of their right to cancel the sale within three days.
- Other than the "three day rule," you aren'trequired by law to give any refunds on sales, but you may want todo so anyway to promote good customer relations. If you have arefund policy, you should post the written policy conspicuously inyour location.
- If you do business by mail order, you need to become familiarwith the FTC's mail order rule.
There are two basic types: express and implied. Both federallaws and state laws may enforce warranties. Services as well asproducts can be warranted.
Express Warranties These warranties, which are statementsor promises about a product or about a promise to correct defectsor malfunctions in a product, can be either oral or in writing. Ofcourse, merely giving an opinion or praising a product isnot a warranty, For example, "You look good inthat," or "I think you're really going to besatisfied with this shampoo" aren't warranties.
Written warranties don't need to be called a warranty or bepart of a formal written contract to be legally treated as one. Anystatements in product literature or in advertisements may beconsidered a warranty.
Implied Warranties These don't stem from anythingsaid either orally or in writing or anything done by the seller.They're automatically assumed whenever a product is sold. Forexample, it's assumed a lawnmower will cut grass that's 4inches tall or less.
These implied warranties automatically guarantee that theproduct is fit for ordinary use and any special uses the seller isaware of.
There's also a special implied warranty that occurs if theseller knows the product is required for a particular purposeand the buyer is relying on the seller to assist in theselection of a suitable product. For example, you need paint tocover a particular kind of surface and the seller selects a productthat he says will meet your needs.
Breach of Warranty
Who's liable if a customer buys a product from you and theproduct fails to live up to the warranty? Sometimes themanufacturer, sometimes the retailer and sometimes both. Who'sliable is in part determined by who made the warranty to begin withand how much the retailer was involved in assisting the customerselect the product. This is a complicated legal area and requirescompetent legal advice.
Consumer Protection Statutes
Remember that consumers have a great deal of clout these daysand that consumers can sue not only to recover the cost of actualloss but also, in some cases, can recover additional punitivedamages even if the violation isn't proved to be intentional onthe seller's part.
A wise retailer will have an audit of potential and actualpractices conducted and pay for competent legal advice now toprevent having to pay for legal advice after someone filessuit.
Carlotta Roberts has a J.D. degree from Atlanta Law School.Having worked in the areas of business organization, contracts andemployer/employee relations, she's been a consultant tosmall-business owners since 1981. She worked as a staff attorneyconcentrating in employment law issues before joining the SmallBusiness Development Center national network in 1986. Currentlyarea director for the Kennesaw State University Small BusinessDevelopment Center near Atlanta, she has developed two nationallyrecognized programs: The Cobb Micro Enterprise Council, which wonthe Vision 2000 award for small-business development in 1999, andthe Franchise Institute, developed to provide assistance tofranchisees.
The opinions expressed in this column are thoseof the author, not of Entrepreneur.com. All answers are intended tobe general in nature, without regard to specific geographical areasor circumstances, and should only be relied upon after consultingan appropriate expert, such as an attorney oraccountant.