Category Archives: Consumer Protection

How Liable are You for Fraudulent Credit Card Charges?

The theft of millions of customers’ credit and debit card data from Target, Neiman Marcus and other retailers last holiday season was a wake-up call for consumers who underestimated their vulnerability to credit and debit card fraud. While you can — and should — take steps to limit your exposure to potential fraudsters, experts believe massive data breaches are likely to continue happening.

Fortunately, federal laws can help limit your potential liability stemming from unauthorized charges.

Different Liability Limits for Different Card Types
In the case of credit cards, federal law says you are not responsible for fraudulent charges exceeding $50. If you report your card lost or stolen before any unauthorized purchases are made, or if your account number but not your actual card is stolen, you are not liable for any amount. In addition, check to see if your credit card provider has a “zero liability” policy protecting you from all fraudulent purchases.

The law is different for debit cards. You are not accountable if you report your card lost or stolen before any fraudulent activity occurs. If you report the card missing within two days of its disappearance, you limit your responsibility to $50. Your loss caps at $500 if you inform your bank after two days but within 60 calendar days after your statement mailing date.

Otherwise, beyond those 60 days, your liability is unlimited, which would include the full amount taken from your debit account and any money linked to it. It is strongly in your interest to pay close attention to your statements to avoid this worst-case scenario.

Vigilance is your Best Defense
Maintaining the security of your personal information is mostly a matter of taking common sense precautions. You can also request a free credit report from each of the three major credit bureaus (Equifax, Experian and TransUnion) once per year.

Additionally, for a fee, financial institutions, credit reporting agencies and third-party companies offer various levels of credit monitoring and protection services. For information on consumer protection laws and tips for safeguarding your account data, visit the Federal Trade Commission’s website.

Be Proactive
Consumer-friendly laws and credit card issuer policies can help you mitigate your losses, so long as you remain mindful of your accounts. In the end, there is no substitute for monitoring your account statements on a regular basis, including on any inactive accounts. Immediately notify your bank or credit card company of any discrepancies, because the sooner you act, the better your chance to limit the financial liabilities. For any questions, contact Adam Pechin at [email protected] or call him at .

Faster than a speeding bullet! Puffery and performance characteristics in the 21st century

Key Points:

Hyperbole will always be part of advertising, but advertisers should remember that an objective representation linked specifically to a characteristic of a product’s performance is unlikely to constitute acceptable puffery and any substantiating data needs to be able to withstand scrutiny.

In 1891, the manufacturer of the “Carbolic Smoke Ball” published an advertisement to the effect that if anyone who used the smoke ball according to the instructions for two weeks “contracts the increasing epidemic influenza, colds, or any disease caused by taking cold”, it would pay 100 pounds to that person. When a customer claimed this reward and the company attempted to renege, three Judges in the UK Court of Appeal, apparently oblivious to puns, considered whether the offer by the smoke ball company was a “mere puff”. They held that it was not. [1] But the concept of a “puff” had arrived, and has remained in advertising and marketing law ever since.

Fast forward to 2014. International soft drink company Red Bull GmbH has agreed to pay US$13 million towards consumer compensation to settle a class action in the United States, after extensive advertising the “performance enhancing” qualities of its product over many years.

Red Bull’s wings get clipped

The well-known advertising slogan Red Bull Gives You Wings might well be considered the epitome of a puff. It is difficult to envisage any consumer believing the statement literally. The advertisements often combined it with imagery of outrageous stunts or cartoons of impossible scenarios, all apparently being achieved through the use of Red Bull.

However, the class action complainant alleged that “by promising that, among other things, “Red Bull gives you wings” the company was preying upon consumers. He argued that the advertising campaign as a whole represented, incorrectly, that the “unique combination of ingredients” in Red Bull made it “a superior source of energy worthy of a premium price over a cup of coffee”, when, in fact, scientific evidence did not support a benefit superior to that from caffeine. Criticism of the data relied upon by Red Bull to substantiate the representations included that one study involved comparison of Red Bull with placebo, rather than comparison of Red Bull with coffee or caffeine tablets.

As Red Bull has decided to settle the matter, those allegations, including the extent to which the alleged misrepresentation was conveyed by the advertising and the parties’ competing positions concerning the scientific evidence, are unlikely ever to be tested by any Court. And, unfortunately, the simplistic and incorrect notion that Red Bull consumers sued successfully based on their failure to grow wings may turn out to be a popular myth.

The Australian position on performance characteristics vs puffery

Whether the Red Bull consumer class action would have been successful under Australian law can never be known. However, Australian advertisers need to be mindful when using advertising that focuses on the performance characteristics of a product, and developments in overseas jurisdictions in relation to the same or similar products cannot be ignored.

In addition to the well-known general prohibition on misleading or deceptive conduct in trade or commerce, in section 18, two other sections of the Australian Consumer Law specifically address statements made in relation to product performance. Section 29(g) provides that a person must not make a false or misleading representation in connection with the supply of goods or services that the that goods or services have certain “performance characteristics…uses or benefits”. Section 33 provides that a person must not engage in conduct that is liable to mislead the public about goods’ “nature”, “characteristics” or “suitability for their purpose”.

In order to contravene these provisions there must first be an objective representation susceptible to proof; this is where the question as to “puffery” inevitably arises. Then, assuming the statement is objective, the quality of any substantiating data and its adequacy as a basis for the representation will be taken into account when determining whether a statement is misleading.

Reebok’s EasyTone shoes: objective representations vs puffery

The Australian Competition and Consumer Commission has recently obtained declarations from the Federal Court of Australia that Reebok Australia contravened all three of these provisions in its advertising of “EasyTone” shoes between 2011 and 2013. The ACCC alleged that promotional material provided on labelling and in-store contained representations that walking in EasyTone shoes would provide greater benefit than ordinary walking shoes in toning the wearer’s calves, thighs and buttocks. In contrast to the tone and style of much of Red Bull’s advertising, the statements in those materials were specific and presented in a factual and scientific manner. For example, they referred to “balance ball inspired” moving particles of air inside the sole of the shoe creating “micro-instability” which was stated to assist in muscle toning. They also included percentage figures, said to represent the increased muscle activation when wearing EasyTone shoes based on a comparative test with a “typical walking shoe”.

Such objective representations are qualitatively different from the type of representation associated with “puffing” in advertising, and are unlikely to be regarded as “puffery” by a court. However, the Court declarations were obtained as a resolution of the proceedings, without the Court having issued judgment. As a result, the declarations establish that the representations were misleading and made with no adequate basis, but there is no judicial analysis available, either of the extent of the representations or the quality of the substantiating information Reebok relied upon.

Reebok had agreed in 2011 to settle a Federal Trade Commission Complaint in the United States (District Court for the Northern District of Ohio) regarding the same representations and products. That settlement involved Reebok making $25 million in funds available for consumer compensation. The continued sale of the shoes in Australia with the same packaging, inserts and in-store material for 18 months after the US settlement was of particular concern to the ACCC.

However, as with the Red Bull class action, the FTC complaint in the United States was settled by consent, without a court having considered and adjudicated on either the content of the representations or the adequacy of any substantiating evidence relied upon. The ACCC’s desire for companies not to make representations in Australia where they have agreed with overseas regulator not to do so is understandable. However, as the Red Bull example suggests, a settlement in one jurisdiction need not lead to an automatic inference that the representation would involve contravention of the law in another.

Lessons to advertiser: Puff carefully

In 1981, Justice Lockhart in the Federal Court held that a robust approach is needed when determining whether (television) advertisements are misleading or deceptive, because “the public is accustomed to the puffing of products in advertising”. [2] Despite the apparent message of the Red Bull settlement, that statement is likely to remain true; it is unlikely that the concept of the “mere puff” will disappear from Australian jurisprudence.

However, advertisers should remain conscious that an objective representation linked specifically to a characteristic of a product’s performance is unlikely to constitute puffery. The quality of any substantiating data is also likely to be the subject of increasing scrutiny, as the ACCC’s focus on advertising, particularly by prominent brands, continues.

Footnotes:

[1]Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256. [back]

[2] Stuart Alexander & Co (Interstate) Pty Ltd v Blenders Pty Ltd (1981) 37 ALR 161. [back]

State Attorney General Enforces Federal Statute: Something New or Déjà Vu?

Washington AG Bob Ferguson recently announced that he had filed a “first of its kind” lawsuit against a private company and its chief executive for violations of the 2010 Restore Online Shoppers’ Confidence Act (ROSCA). AG Ferguson alleges that Internet Order, LLC, violated ROSCA’s limitations on “negative option” product purchase plans. While this action is a significant “first” under ROSCA, the more general idea that a State AG can sue a private entity to enforce a federal statute is something we have seen before.

During our country’s bicentennial year, the Hart-Scott-Rodino Act created authority for State AGs to bring civil suits to enforce certain provisions of the federal antitrust laws. [Note: As counsel to the Senate Subcommittee on Antitrust and Monopoly from 1971 to 1977, our own StateAGMonitor editor, Bernard Nash, was responsible for drafting the Hart-Scott-Rodino Act and executing the legislative strategy that overcame two filibusters prior to enactment.] Under Hart-Scott-Rodino, State AGs are authorized to seek treble damages as well as costs and attorney’s fees. State AGs are still exercising their authority under Hart-Scott-Rodino. In 2011 and 2012, 33 State AGs filed suits against Apple, Inc. and e-book publishers for alleged price-fixing. The Southern District of New York rejected Apple’s challenge to state standing. See In re Elec. Books Antitrust Litig., 88 Fed. R. Serv. 3d 618 (S.D.N.Y. 2014).

From Congress’ perspective, state enforcement is palatable across political camps as it mixes increased industry oversight with increased federalism. There are other examples of the joint federal-state enforcement model:

  • The Dodd-Frank Act created a new federal regulator, the Consumer Financial Protection Bureau (CFPB), to oversee a wide range of financial activity including auto lending, student loans, mortgage servicing, and other financial services. Dodd-Frank also provided authority for State AGs to investigate and sue consumer finance companies for unfair or deceptive activity, or for violations of rules promulgated by the CFPB. Connecticut, Florida, Illinois, Mississippi, and New York recently initiated lawsuits against a diverse range of defendants.
  • The 2008 Consumer Product Safety Improvement Act permits State AGs to sue companies that sell, manufacture, or distribute unsafe or defective consumer products that “may affect such State or its residents.”
  • The 2009 Health Information Technology for Economic and Clinical Health Act gives State AGs the power to bring civil actions in federal court where they have “reason to believe that an interest of one or more of the residents of that State has been or is threatened or adversely affected” by a violation of federal health privacy requirements contained in the Health Insurance Portability and Accountability Act.
  • The Children’s Online Privacy Protection Act (COPPA) provides for state enforcement where the AG “has reason to believe that an interest of the residents of that State has been or is threatened” by a website operator or online service provider who has violated substantive COPPA provisions. State AGs may seek injunctive relief along with damages and restitution on behalf of state residents.

In addition, there are enforcement agreements between federal agencies and various State AGs. For example, the U.S. Department of Labor and the New York AG’s Labor Bureau formed a partnership agreement to allow cooperation in enforcing federal wage and hour laws. Likewise, the National Association of Attorneys General and the U.S. Equal Employment Opportunity Commission signed a memorandum of understanding outlining their intent to maintain joint enforcement operations under federal and state employment discrimination laws.

The Washington AG’s ROSCA lawsuit serves as an important reminder: Businesses conducting federal compliance planning must recognize and take into account State AG authority under an array of important federal statutes with potent remedies