Michael B. Duffy
402.978.5332mduffy@fraserstryker.com email Michael
Consumer protection laws exist to ensure fairness in the marketplace for consumers. For businesses, however, navigating those laws can be complex and potentially costly. If your company is expanding, revising customer contracts, or has received a civil investigative demand, understanding the CPA is vital. Here’s what you need to know.
What is the Consumer Protection Act?
The CPA, a state-level law present in all 50 states, enables state Attorneys General (AGs) to investigate and prosecute businesses whose practices allegedly harm the public interest. While the exact language and enforcement may vary by jurisdiction, CPAs are largely uniform in that they prohibit unfair, deceptive, or fraudulent business practices that affect the public interest.
For state AGs, prioritizing consumer protection law is essential to protect their constituents from harmful or deceptive business practices. AGs will often have similar priorities when holding businesses accountable and set precedents to encourage compliance across entire industries. If you operate in multiple states, then it is likely you may be under investigation in multiple jurisdictions.
Examples of alleged conduct that may trigger CPA enforcement can include:
- Contracts with unfair, one-sided terms, or inadequate disclosures
- Violating consumer privacy and/or undisclosed data collection
- Misleading product labels, claims, or advertising and marketing
- Deceptive pricing, hidden fees, or charges
- Misrepresentation of a product’s origin, ingredients, or functionality
It is important to note that AGs pursue action against businesses of all sizes, from large national corporations to small businesses. Often, companies unknowingly violate the Consumer Protection Act, and the consequences can be devastating. In some states, fines can be as high as $2,000 per violation, which can have a severe impact on small companies.
Emerging industries can especially be subject to scrutiny. For example, some state AGs have alleged deceptive marketing practices for companies selling cannabinoid-based products such as Delta-9 THC or CBC. Some tech companies are under investigation in multiple states for allegedly collecting user data beyond what their privacy policies disclose.
Whether you’re running a small business or operating a national company, your business may come under scrutiny if a consumer complaint is filed, or your practices violate a state’s consumer protection laws. It is especially important to know the laws of every state in which you do business.
Signs You’re Under Investigation
Often, the first sign that you’re being investigated is not a lawsuit, but something more subtle, such as receiving a civil investigative demand (CID). A CID is a powerful administrative tool used by state AGs to gather information before a lawsuit is filed. CIDs may require you to:
- Produce documents and records
- Answer written questions (interrogatories)
- Sit for depositions under oath
Other signs that you may be under investigation include:
- A call from an AG investigator
- Receiving a copy of a consumer complaint filed with the AG’s office
- Notice that your business has been mentioned in an ongoing investigation
In order to protect your rights, the guidance of legal counsel can be critical before responding to AG inquiries or consumer complaints. Even well-intentioned responses can create legal exposure if not carefully managed.
How to Avoid a CPA Investigation
As with most risks, prevention is the best defense. The earlier legal counsel is involved, the more options you have to align your business practices with state consumer protection laws proactively. An experienced attorney can help businesses take steps to comply with CPA requirements, such as:
- Contract Review Before Expansion: When moving the business into new markets, existing contracts may not be compliant in every state. A contract that has been in effect for 20 years in Nebraska may violate the CPA of another state.
- Marketing and Privacy Disclosures: Ensure that all advertising and privacy policies align with your actual business practices. Overpromising or under-disclosing can trigger investigations.
- Policy Reviews for New Offerings: Launching a new product or service? Get legal advice before rollout to confirm your policies are CPA-compliant.
- Respond Proactively to Consumer Complaints: Even if a complaint seems baseless, it can lead to an AG investigation. Take complaints seriously and consult legal counsel before responding.
Businesses that proactively correct potentially problematic practices before an investigation are less likely to face aggressive enforcement. AGs prefer pursuing cases that make headlines, rather than those where companies have already self-corrected.
Don’t Let the CPA Catch You Off Guard
Whether you’re responding to a civil investigative demand, reviewing your compliance before expanding, or trying to resolve a consumer complaint, our attorneys are here to help.
If you’re facing a CPA investigation, experience on both sides of the issue matters. Our attorneys have decades of combined experience, including serving as former state and federal prosecutors. They have investigated CPA violations from the government side and now defend businesses against those same claims.
From reviewing consumer contracts to defending against multi-state investigations, our team helps businesses understand their risk, respond strategically, and protect their bottom line.
This article has been prepared for general information purposes and (1) does not create or constitute an attorney-client relationship, (2) is not intended as a solicitation, (3) is not intended to convey or constitute legal advice, and (4) is not a substitute for obtaining legal advice from a qualified attorney. Always seek professional counsel prior to taking action.