Unfair business practices is a term that refers to the use of various deceptive, fraudulent, and unethical methods in order to do or obtain business. Unfair trade practices include false representation, fraudulent advertisements or misleading representation of a good or service, tied sales, false prizes or free samples, or false gifts, deceptive pricing, and failure to comply with manufacturing standards. In the United States, such acts are considered illegal by rule via the Consumer Protection Act, which is open to consumer recourse as a means of seeking compensation or punishment for harm caused by these practices. An unfair trade practice is sometimes referred to as “a deceptive trade practice” or an “unfair business practice.”
Understanding unfair business practices
Unfair business practices are commonly seen in consumer purchases of goods and services, ownership, insurance agreements and claims, and debt collections. Most states introduced unfair trade practices statutes between the 1960s and 1970s. Since then, many other states have adopted these laws to prevent unfair trade practices. Consumers who have been victims of these practices should examine the unfair trade practices statutes in their states to determine if they have recourse to appropriate authorities.
In the United States, unfair trade practices are covered by Section 5A of the Federal Trade Commission Act, which prohibits “unfair and deceptive acts or practices in or affecting commerce.” This applies to individuals engaged in commercial activities, including institutions, and sets the legal standards for unfair trade practices, which could be considered unfair or deceptive, or both. Below is a list of unfair and deceptive practices labeled by rule.
Unfair practices:
An act of commerce is unfair when it meets the following criteria:
Causes or is likely to cause substantial harm to customers.
It cannot be reasonably avoided by consumers.
It offers no compensating benefits to consumers or competition.
Deceptive practices
An act or practice is deceptive when it meets the following criteria:
A representation, omission, or practice that leads the consumer to have a conception of a probable benefit of the product that is not true.
When there is an interpretation of this misleading representation by consumers as reasonable under the current circumstances.
When the misleading representation, omission or practice carried out is material.
Examples of deceptive business practices in the insurance industry.
Unfair business practices can occur in any industry, but they are significant enough to prompt the National Association of Insurance Commissioners (NAIC) to issue guidance related to the sale of insurance products. The NAIC defines unfair trade practices in the following ways:
Misrepresents the benefits, advantages, conditions or terms of any policy.
Misrepresents the dividends or portion of the surplus that will be received on any policy.
Makes a false or misleading statement about the dividends or share of surplus previously paid on any policy.
It is misleading or is a misrepresentation as to the financial condition of any insurer, or as to the legal reserve system upon which any life insurer operates.
Use any name or title of any policy or class of policies that misrepresents the true nature of the policy.
It is a misrepresentation, including any intentional misquotation of the premium rate, for the purpose of inducing or tending to induce the purchase, lapse, loss, exchange, conversion or surrender of any policy.
It is a misrepresentation for the purpose of making a promise or assignment or making a loan against any policy.
The NAIC considers a deceptive trade practice to be any of the above acts along with the following conditions:
It is committed in a flagrant manner and in conscious disregard of the act or any enacted rule noted
Examples of unfair and deceptive commercial practices with consumers that have acquired international fame.
The claim by the company Monsanto that its herbicide Roundup, with its active ingredient: glyphosate, is safe for human health and does not represent any risk.
The German company Volswagen deceived the regulatory authorities about its levels of gas emissions and polluting particles in several of its vehicles, making the authorities and consumers believe that they were purchasing less polluting vehicles than they really were.
The company Purdue Pharma deceived the health system and patients, making them believe that its pain reliever Oxycontin was safe to use and did not cause health problems. Oxycontin, an opium derivative, caused serious addictions and thousands of overdose deaths.
During the twentieth century, companies that sold gasoline in the United States added lead to it to make it more efficient. For a long time they tried to deny the harm of lead, but over time its use was banned when the harm of lead to health was proven.
