FREE CONSULTATION • CALL US 24 / 7 212-994-7777

Consumer Fraud

Consumer Fraud

Consumer fraud is considered to be criminal fraud under specific circumstances. In consumer fraud, the victim is the consumer while the perpetrator can be either a seller or advertiser of merchandise. So long as the fraud is associated with some type of services or goods, it could be considered consumer fraud.

Consumer fraud can also be described as deceptive business practices causing consumers to suffer financial or other similar losses. The victims of consumer fraud are led to believe that they are involved in a legal and valid business transaction, when in reality they are being defrauded in some way. Fraud against consumers is generally associated with false promises and/or inaccurate claims made to consumers, but also includes practices that directly cause consumers to be cheated out of their money.

The Federal Trade Commission, or FTC, is responsible for accepting complaints against businesses that have possibly committed consumer fraud. They work with law enforcement in order to investigate fraud, as well as unfair business practices against consumers. The FTC will be further discussed below.

Federal Trade Commission

As previously mentioned, The Federal Trade Commission (“FTC”) is closely associated with consumer fraud. As such, it is useful to understand what the Commission does.

The Federal Trade Commission was established by the Federal Trade Commission Act in 1914. It is intended to protect consumers, as well as prevent specific business practices which take advantage of consumers and squeeze other businesses out. An example of this would be how the FTC regulates companies from forming monopolies, or dominating the market; this is also known as antitrust regulation.

The FTC protects both consumers and businesses. The following are a few example of activities that the FTC undertakes:

  • Protecting consumers from false advertising, as well as other forms of fraud;
  • Enforcing a variety of laws associated with consumer credit;
  • Regulating business marketing and warranty practices;
  • Enforcing existing laws and trade regulation rules; and
  • Developing new rules intended to protect the marketplace.

Overall, the FTC attempts to ensure that the markets are vigorous, efficient, and free of restrictions. Because of this, the FTC enforces consumer protection laws intended to prevent fraud, deception, and unfair business practices.

The Bureau of the FTC is responsible for further enforcing rules that were created by the FTC, as well as laws enacted by Congress associated with consumer protections. Some examples of its actions include:

  • Collecting complaints;
  • Conducting investigations;
  • Suing companies and individuals who break the law;
  • Creating rules intended to maintain a fair marketplace; and
  • Educating consumers and businesses regarding their market rights and responsibilities.

The Role of the Consumer Protection Agency

As was just mentioned, part of the process of filing a consumer fraud complaint is involving the Consumer Protection Agency (“CPA”). Simply put, the CPA is an agency responsible for the regulation of the consumer industry. Some examples of what the Consumer Protection Agency does include:

  • License and regulate professionals;
  • Conduct investigations into consumer and financial scams; and
  • Criminally prosecute those scammers who are found to be guilty.

Additionally, the CPA can help injured parties bring civil lawsuits against fraudulent businesses or professionals. Generally speaking, the Consumer Protection Agency conducts an investigation into the alleged fraudulent business misconduct. Once the investigation is complete, the Agency will make a determination as to whether the business was fraudulent.

Depending on each specific case, a consumer may file an individual lawsuit against the fraudulent business in order to recover personal losses. Many consumer protection laws, especially state laws as opposed to federal laws, encourage consumers to report any cases of consumer fraud or abuse.

A consumer may be asked to participate in a class action lawsuit on behalf of a class of consumers who have been injured by the same company. In a consumer protection lawsuit, the following issues will generally be addressed and resolved:

  • Whether the law applies to the specific issue at hand;
  • If the defendant actually engaged in misconduct as prohibited by the law; and
  • Whether the plaintiff actually qualifies as a consumer.

Consumers involved in a lawsuit may be able to recover damages for any injuries or lost profits caused by the violation of a consumer protection law. Another resolution would be that a judge may issue an injunction, which orders the defendant to cease any dangerous or illegal activities that have occurred.

Types of Consumer Fraud and Consumer Fraud Scams

Under consumer protection and fraud laws, consumer fraud refers to a specific type of criminal fraud. The victim is a consumer, while the perpetrator is either a seller or advertiser of merchandise. Generally speaking, so long as the fraud involves some type of services or goods, it could be considered consumer fraud.

The definition of consumer fraud encompasses a wide range of activities. Some examples of a few of the more common scams include:

    • Sellers not providing merchandise in an adequate fashion, such as a car dealer selling lemon cars;
    • Sending merchandise to people without their knowledge, and then forcing them to pay for it by threatening legal action or to ruin their credit ratings;
    • Sweepstakes and lotteries in the form of offering you a prize if you pay a “fee,” and then failing to deliver the prize; and
    • Charities that are only pretending to be working for a good cause, and ask you for a donation.

Some specific types of consumer fraud include:

    • False Advertising: False advertising refers to intentionally misleading a consumer about some aspect of a product. This factor was instrumental in the consumer's decision to buy the product;
    • Bait and Switch: Bait and switch is the process of luring the consumer in with an unbeatable deal that is no longer available. Then, only different products are offered; and
    • Pyramid Schemes: Pyramid schemes refer to any sort of promotion or unrealistic return, when the only money made is the return on the funds of people newly recruited to the system. Pyramid schemes may also be referred to as multi level marketing, or MLM.

In terms of specific consumer fraud scams, there are many different ways in which a person may be a victim of fraud. Some examples of the most common consumer fraud scams are:

  • Credit Card Scams;
  • Sweepstakes Scams;
  • Cell Phone Scams;
  • Fraudulent Telemarketing; and
  • Mail Order Fraud.

What Should I Do If I Am A Victim Of Consumer Fraud?

In terms of preventing consumer fraud, there are some common signs that should alert you that you may be experiencing consumer fraud. Some of the most common examples include:

  • High pressure sales tactics, such as not taking “no” for an answer or pressuring you to make an immediate decision regarding the purchase;
  • Requesting that you send money upfront;
  • Requesting unnecessary personal information, such as a credit card number;
  • Requiring you to call a “900” or similar number in order to obtain goods or a prize; and/or
  • Being intentionally vague and/or evasive about their name or company.

There are many different people and organizations that can help if you are a victim of consumer fraud. Consumer fraud hotlines and websites allow you to detail the issues and file complaints.

If you believe that you are a victim of criminal fraud, you should contact your local law enforcement immediately in order to report the fraud. The case will be forwarded to the local prosecutor or District Attorney's office for prosecution if there is sufficient evidence to move forward. You should also keep records of any and all losses associated with the fraud, as this may be especially important where restitution is a potential penalty.

Avoiding Consumer Fraud

Consumer fraud can be prevented in several ways. Among them are:

  • Engaging a professional when needed (such as a home appraiser to determine a home's value)
  • Validating credentials and licenses
  • Make sure everything is in writing, especially sales and return policies

A consumer fraud case may require filing a lawsuit in some instances. The victim is typically compensated for their losses through a damages award. Usually, the equipment, products, and documents used in the fraud will be confiscated.

Process for Filing a Consumer Fraud Complaint

Consumer protection laws are in place in order to protect consumer's rights, and give them the ability to file a consumer fraud complaint. Before discussing how best to file a consumer fraud complaint, it is helpful to understand these laws and what rights a consumer has.

The Federal Trade and Commissions Act (“FTCA”) outlines industry standards for businesses. Essentially, the Act prevents businesses from making statements that could be misleading or confusing to the average consumer. Another consumer protection law would be the Fair Packaging and Labeling Act, which regulates information presented on the packages of retail products.

Some examples of other issues that consumer protection laws may cover include:

It is not uncommon for consumer claims to involve a violation of more than one consumer protection law.

Additional Consumer Rights

Some examples of additional consumer rights include:

    • Cooling Off Period: Most states give consumers until midnight on the third business day after the product or service was purchased in order to cancel the contract, for whatever reason. This is known as the cooling off period and gives the consumer the chance to change their mind, if they made the purchase without much thought;
    • Shipping Requirements: If a consumer orders something to be shipped, the seller must ship to the consumer in the amount of time stated. If the seller cannot ship the items within the specified timeframe, they must provide the consumer with notice and the option to cancel, or accept either a refund or a new delivery date;
    • Used Car Rule: According to the used car rule, a dealer is required to post a buyer's guide on each vehicle. This guide is to disclose warranty and other important information about the vehicle so that the consumer may make the most informed purchasing decision; and
    • Mail Fraud Schemes: Companies are prohibited from sending consumers an item in the mail that they did not order, and then expect the consumer to pay for it. 

One component of consumer fraud protection is filing a complaint for consumer fraud. The first step in this process is to contact the business that sold the item or performed the services, and inform them of your issue. In order to assist your case, it is important that you keep a record of all communication regarding the matter. If the business takes no action, your next step would be to write a letter of complaint to the business, and forward a copy on to your local Consumer Protection Agency. 

Alternatively, you may forward a copy to the Better Business Bureau. Finally, if no action is taken by any party you have contacted, you may consider hiring an attorney to represent you and resolve your consumer fraud issues.

How Can An Attorney Help Me With Consumer Fraud Issues?

Whether you are being accused of committing consumer fraud, or you are the victim of consumer fraud, you should consult with an experienced and local fraud attorney. A local lawyer can help you understand your legal rights and options according to your state's specific fraud laws, and will also be able to represent you in court, as needed.