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Deceptive Trade Practices

Deceptive Trade Practices:

Texas Trial Lawyer Steve Ferrell handles lawsuits involving violations of the Texas Deceptive Trade Practices Act.

Steve Ferrell is Double Board Certified by the Texas Board of Legal Specialization in Civil Trial Law and Personal Injury Trial Law.

What Is The “Deceptive Trade Practices Act?”

The Texas Deceptive Trade Practices-Consumer Protection Act (“DTPA”) was enacted on May 21, 1973. The primary purpose of the DTPA is to protect consumers against false, misleading, and deceptive business and insurance practices, unconscionable actions, and breaches of warranty. It does so by prohibiting certain acts and practices that tend to deceive and mislead consumers.

Because the DTPA is very broad and is constantly being interpreted by the courts, it is impossible to explain its complete meaning and impact in this short description. If you believe that you are the victim of a deceptive trade practice, you should consult an attorney immediately.

Which Transactions Does the DTPA Apply To?

Most consumer transactions are covered by the DTPA. Although the DTPA does not cover every deceptive or unconscionable act or practice, it is quite broad. The DTPA provides that “false, misleading, or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.”

The DTPA prohibits certain acts or practices “in the conduct of any trade or commerce.” This is a very broad provision. “Trade and commerce” means “the advertising, offering for sale, lease, or distribution of any good or service, or any property, tangible or intangible, real, personal, or mixed, any other article, commodity, or thing of value wherever situated, and shall include any trade or commerce directly or indirectly affecting the people of this state.” The term “goods” includes tangible things or real property purchased or leased for use. The word “service” includes work, labor, or services purchased or leased for use, including services furnished in connection with the sale or repair of goods. The DTPA does not apply to the rendering of a professional service, the essence of which is the providing of advice, judgment, opinion or similar professional skill. “For example, an accountant can probably not be held liable for violating the DTPA if they give the wrong opinion. However, professionals can violate the DTPA by making misrepresentations of fact or breaches of warranty. For example, if an accountant lies about his qualifications to attract business, a customer probably has a DTPA claim.”

The term “unconscionable” appears frequently in the DTPA, and in this handbook. The DTPA defines an “unconscionable action” as one that “takes advantage of the lack of knowledge, ability, experience, or capacity of a person to a grossly unfair degree.”

So what does this all mean?

The DTPA has a very broad application. The DTPA can be used by someone that is charged for an unnecessary $50 car repair; it can be used by someone buying a used car; it can be used by a homeowner buying a home; it can be used by a small business purchasing materials; it can be used by a business buying a $400,000 franchise; and it can be used in all transactions in between. Simply put, the DTPA was enacted to protect consumers in small transactions and businesses in rather large transactions.

Who Is Entitled To Protection Under the DTPA?

Other than the Texas Attorney General, only consumers are allowed to file under the DTPA. The phrase “consumer” means an individual, partnership, corporation, or governmental entity who seeks or acquires by purchase or lease any goods or services. It does not cover a business consumer that has assets of $25 million or more or that is owned or controlled by a corporation or entity with assets of $25 million or more.

What Is Included Within the “Laundry List” of Acts and Practices Made Illegal by the DTPA?

The DTPA contains a “laundry list” of specific practices that are prohibited. This laundry list is found in section 17.46(b) of the Texas Business and Commerce Code. It contains 25 acts that violate the DTPA and for which consumers may sue, if the consumers relied on the act to their detriment. These twenty-five acts are described on the following pages.

(1) Passing off goods or services as those of another.
It is illegal to advertise or represent goods or services under a different company than the company in which the good or services were made.

(2) Causing confusion or misunderstanding as to the source, sponsorship, approval, or certification of goods or services.
This section prohibits acts that tend to confuse consumers. First, this section prohibits acts that tend to cause confusion regarding the source of goods or services. This section is broader than section (1) because the consumer need not prove that the defendant was actually “passing off” goods or services as those of another. Instead, all the consumer must show is that the defendant caused confusion regarding the source of the goods or services.

This section also prohibits acts that cause confusion regarding the sponsorship, approval, or certification of goods or services. It prohibits people from representing a product has the approval of an organization that has not really approved it. Certification is a formal process that often has significant meaning to consumers. Examples of certification includes various seals of approval, such as the Good Housekeeping Seal and the U.L. or Underwriters Laboratories certification for electrical products.

(3) Causing confusion or misunderstanding as to affiliation, connection, or association with, or certification by, another.
This section prohibits acts or practices that cause confusion regarding the affiliation or relationship between the seller of goods or the provider of services and some other organization or person. For example, this section prohibits business owners from giving the impression that their company is closely connected with another business or with the state government or an agency of the state government.

(4) Using deceptive representatives or designations of geographic origin in connection with goods or services.
This section prohibits people from stating that products come from a certain country or location when, in fact, they did not. This would include stating falsely that a certain wine is from France, a fine watch was made in Switzerland, or a certain coffee is made from beans grown in Columbia.

(5) Representing goods or services that claim to have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities but do not or a person claiming to have a sponsorship, approval, status, affiliation or connection but does not.
This section has two main parts: one concerning misrepresentations about goods or services and the other concerning misrepresentations about authority.

It is illegal to represent that goods and services have sponsorship or approval when they do not. This is similar to section (2) above. It is also illegal to represent that goods and services have characteristics, ingredients, uses, benefits, or quantities that they do not. For example, it is illegal to represent that a product is made out of steel when it is really made out of aluminum. Moreover, this provision forbids a salesman from telling you that goods have features that they do not have or that the goods can do things that they cannot do.

Misrepresentations about quantities include misstating the number of acres being sold in a real estate transaction and misstating the number of items contained in a box of candy. Misrepresentations about benefits of goods or services include misrepresentations about the ailments that a medicine can cure and the effect upon one’s self after only three visits to a health spa. Misrepresentations about ingredients include stating that a product contains vegetable fat when it really contains animal fat.

This section also prohibits misrepresentations regarding the sponsorship, approval, status, or affiliation of an individual. It prohibits misleading and false statements about the nature and authority of a person. For example, an accountant may not claim to be a Certified Public Accountant if that person has not taken and passed the CPA exam. Also, physicians may not represent themselves as qualified specialists when they are not.

(6) Representing that goods are original or new if they are deteriorated, reconditioned, reclaimed, used, or second-hand.
This section prohibits sellers from passing off secondhand or reconditioned goods as new. This section affects many types of goods which might be sold, used on a trial basis, returned and then resold again as “new.” The Federal Trade Commission has guidelines regarding the amount of prior use that is allowed before a good can no longer be sold or advertised as “new.”

(7) Representing that goods or services are of a particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another.
This section covers statements made to induce a consumer to choose a certain item. It prohibits misrepresentations concerning certain specific quality or model designations. A very general statement, such as “this is a high quality product” or “this is a top-of-the-line model” may not violate this section, even if the good is of poor quality because the representation is too broad and too vague. But the statement that meat being sold is U.S. Choice when, in fact, it is only U.S. Good, or that certain electrical wiring or equipment has a wattage rating of 1000 when, in fact, the rating is 700, is probably a violation.

(8) Disparaging the goods, services, or business of another by false or misleading representations of facts.
A seller may not attempt to get your business by putting down a competitor, unless the negative comments are true. If a salesperson starts disparaging a competitive product, ask for proof to support the negative comments.

(9) Advertising goods or services with intent not to sell them as advertised.
This section prohibits advertisers from using misleading advertisements to attract business. Perhaps the oldest technique of this kind is the so-called “bait and switch” — a seller advertises a certain low-priced item but when a customer tries to buy that item, the seller talks the customer into buying a more expensive item by claiming that the lower-priced item is out of stock or is inferior.

(10) Advertising goods or services with intent not to supply a reasonable expectable public demand, unless the advertisement disclosed a limitation of quantity.
This section is designed to prevent one of the main methods by which unscrupulous sellers have employed the “bait and switch” technique. Some businesses advertise a certain product at a very low price, when in fact they have only a limited quantity of that product in stock. For example, a consumer enters a store specifically to purchase the advertised item (“bait”) and the sales clerk tells them they’re out of the item and suggests (“switch”) a better product that just happens to be available. Sellers can avoid liability under this section by advertising the number of items on sale, or by indicating that quantities are strictly limited and that purchasers will be satisfied on a first-come-first-serve basis.

This section is also violated when a store with several outlets in the same metropolitan area fails to disclose that the sale item can be found only in one of its stores.

(11) Making false or misleading statements of fact concerning the reasons for, existence of, or amount of price reductions.
This section has three parts. The first prohibits misleading advertisements about the reasons for price reductions; for example, a store that advertises “going out of business sales” every few months.

The second also prohibits misleading statements about the existence of price reductions. A seller cannot advertise that prices are being reduced by 50 percent unless the item has previously been offered by the same seller at the stated regular price. Likewise, sellers cannot advertise that prices are marked 50 percent off suggested retail price unless the representation is accurate.

The third prohibits misrepresentations about the amount of price reductions. When a seller advertises “X percent lower prices,” those representations must be true.

(12) Representing that an agreement confers or involves rights, remedies, or obligations which it does not have or involve, or which are prohibited by law.
This section prohibits misrepresentations or false statements about a written contract. For example, a seller may not state that a contract contains a full warranty or a right to return the product when the contract does not have such a warranty or right. Similarly, when a person attempts to return a product based on the warranty, the seller cannot tell a consumer that the contract does not contain such a warranty. This provision is also violated when a seller sends threatening letters to a buyer claiming that the seller may repossess the property or force the forfeiture of the prior payments made for the goods when, in fact, the agreement confers no such rights. It is important to note that this section covers false statements regarding the rights conferred by the agreement or contract that are made at the time of the contract and even those statements that are made after the contract or sale has been signed or taken place.

(13) Knowingly making false or misleading statements of fact concerning the need for parts, replacement, or repair service.
This section prohibits repairpersons from representing that certain work or parts are needed when they are not. To violate this section the repairperson must have made the misrepresentation “knowingly.” This is required because there may be honest differences of opinion regarding the need for some repairs.

(14) Misrepresenting the authority of a salesperson, representative, or agent to negotiate the final terms of a consumer transaction.
This section is designed to prevent salespeople from misrepresenting their ability to commit their employer to the terms of a purchase contract. For example, it is illegal for automobile salespeople to agree to sell a car for a certain price, say that they need to check with their boss, and then say that the boss will not agree to that price, but will agree to a price of $500 higher.

(15) Basing a charge for the repair of any item in whole or in part on the quantity or warranty instead of on the value of the actual repairs made or work to be performed on the item without stating separately the charges for the work and the charges for the warranty or guaranty, if any.
If a seller is going to charge an additional amount of money for a certain guaranty or warranty, over and above the actual charge for the part or labor involved, the seller must disclose that charge separately and clearly.

(16) Disconnecting, turning back, or resetting the odometer of any motor vehicle so as to reduce the number of miles indicated on the odometer gauge.
It is illegal to tamper with the odometer on any motor vehicle and thereby reduce the apparent number of miles on the vehicle when it is sold.

(17) Advertising of any sale by fraudulently representing that a person is going out of business.
This section is similar to section (11). Under this section, it is illegal for any person to advertise “fraudulently,” with knowledge that the statement is false and with intent that a person seeing the advertisement will rely upon such false representation, that the seller is going out of business. All that is necessary to constitute a violation of this section is a false statement that the seller is going out of business.

(18) Using or employing a chain referral sales plan in connection with the sale, or offer to sell, of goods, merchandise, or anything of value, which uses the sales technique, plan, arrangement, or agreement in which the buyer or prospective buyer is offered the opportunity to purchase merchandise or goods and, in connection with the purchase, receives the seller’s promise or representation that the buyer shall have the right to receive compensation or consideration in any form for furnishing to the seller the names of other prospective buyers if receipt of the compensation or consideration is contingent upon the occurrence of an event subsequent to the time the buyer purchases the merchandise or goods.
The chain-referral sales device has been used in many different forms, including promotions of swimming pools, home siding installation, and home encyclopedia sales. An unreasonable price that the consumer normally would not pay for the merchandise is somehow made acceptable by the promise that the buyer will receive a price reduction for each prospective buyer whose name and address is supplied to the seller. A crafty salesperson using this technique will create the impression that consumers are going to get some kind of tremendous discount after all the people whom they have listed as prospects are contacted by the seller, without disclosing to the buyers that they will get these discounts only if certain things happen after they have committed himself to the transaction. Usually, the buyers are given the impression that they are going to get credit for all of the sales, but then none of the sales occur and the consumers are stuck with higher prices.

(19) Representing that a guaranty or warranty confers or involves rights or remedies which it does not have or involve; provided however, that nothing in this subchapter shall be construed to expand the implied warranty or merchantability as defined in Section 2.314 and 2.318 of the Business and Commerce Code to involve obligations in excess of those which are appropriate to the goods.
If a salesperson says that you have certain warranty rights when you purchase an item, and you later discover you have no warranty rights, this section probably has been violated.

(20) Selling or offering to sell, either directly or associated with the sale of goods or services, a right of participation in a multi-level distributorship. As used herein, “multi level distributorship” means a sales plan for the distribution of goods or services in which promises of rebate or payment are made to individuals conditioned upon those individuals recommending or securing additional individuals to assume positions in the sales operation, and where the rebate or payment is not exclusively conditioned on or in relation to proceeds from the retail sales of goods.
This section concerns multi-level distributorships or “pyramid sales plans.” A “multi-level distributorship” occurs when a person involved in a sale or distribution is expected to solicit others to sell or distribute, forming multi-levels of distribution. Included in these levels is the promise that the initial person receives not only a percentage or commission for goods sold but also receives a certain rebate or commission based on the number of persons signed up, forming a sales “pyramid.” These schemes create the false impression that one can get rich merely by signing up a number of people in the program who will then in turn have an incentive to sign up a number of people below each of them, without ever really having to sell any products. These schemes almost always fail, and you run the risk that you are participating in an illegal scheme. If someone approaches you with a pyramid scheme, contact a reputable attorney to determine whether it is legal.

(21) Representing that work or services have been performed on, or parts replaced in, goods when the work or services were not performed or the parts replaced.
While section (13) prohibits persons from “knowingly” making false or misleading statements concerning the need for parts, replacement, or repairs, this section requires no proof of knowledge or intent. Instead, it is illegal for a repair shop or service person to tell you that certain parts have been replaced or certain services have been performed, when they have not.

(22) Filing suit founded upon a written contractual obligation of and signed by the defendant to pay money arising out of or based on a consumer transaction for goods, services, loans, or extensions of credit intended primarily for personal, family, household, or agricultural use in any county other than in the county in which the defendant resides at the time of the commencement of the action or in the county in which the defendant in fact signed the contract; provided however, that a violation of this section shall not occur where it is shown by the person filing such suit he/she neither knew nor had reason to know that the county in which suit was filed was either the county in which the defendant resides at the commencement of the suit nor the county in which the defendant in fact signed the contract.
This section prohibits “distant forum abuse.” Companies sometimes make a promissory note payable in a city far away from the place where the consumer resides. To fall under this section, you must have signed a “written obligation,” such as a contract, invoice, or promissory note. Also, the transaction must be a “consumer transaction,” which includes purchases and loans or extensions of credit. The key factor in determining whether a transaction is a “consumer transaction” is whether the money loaned or the goods or services provided are “intended primarily for personal, family, household or agricultural use.” If you bought a car for personal or family use in El Paso, or a television set for household use in Houston, and you live in one of those counties, you cannot be sued in Dallas for the unpaid balance on those purchases, even if the documents that you signed state that your payments are due and payable in Dallas, Dallas County, Texas.

(23) The failure to disclose information concerning goods or services known at the time of the transaction and was used to induce the consumer into a transaction whom otherwise would not have entered had the information been disclosed.
This section prohibits a seller from failing to disclose information known by the seller at the time of the transaction if such withholding of information is intended to induce the consumer into a transaction, and if the information is such that had the consumer known it at the time of the transaction, the consumer would not have made the purchases. However, if the information which is not disclosed by the seller would be unimportant to the consumer, or if the seller does not intend to induce the consumer to make the purchase by such omission, there is no violation of the statute. For example, the section may be violated by a homeowner or real estate agent who knows that the home has foundation damage but fails to disclose that to a potential buyer, or when an auto dealer knows that a car has been in a wreck and fails to disclose that to the potential buyer.

(24) Using the term “corporation,” “incorporated,” or an abbreviation of either of those terms in the name of a business entity that is not incorporated under the laws of this state or another jurisdiction.
A company cannot state or indicate that it is a corporation if it is not. For example, a company that is not a corporation cannot call itself “______________, Inc.” or “____________________ Corp.”

(25) Taking advantage of a disaster declared by the Governor under Chapter 418, Government Code, by: (A) selling or leasing fuel, food, medicine, or another necessity at an exorbitant or excessive price; or (B) demanding an exorbitant or excessive price in connection with the sale or lease of fuel, food, medicine, or another necessity.
Our legislature recently added this section to the DTPA, in response to widespread “price gouging” following disasters.

Private Remedies

When consumers suffer actual damages, they may sue under the DTPA for any of the following:

  1. violations contained in the “laundry list”, so long as the consumer relied on the act to his or her detriment;
  2. breach of an expressed or implied warranty;
  3. unconscionable action; and
  4. certain violations of the Texas Insurance Code.

What may you as a consumer expect to recover in the event you are successful in a DTPA lawsuit? First, the DTPA provides for recovery of economic damages. If the court finds the wrongful conduct was “knowingly” committed, it may award up to three times the amount of economic damages, in addition to damages for mental anguish. If the act was committed “intentionally,” up to three times the mental anguish damages may be awarded. The question of whether a violation was “knowing” or “intentionally” is determined by the court or jury, after considering all the facts and circumstances relating to the transaction. Also, a consumer who prevails “shall be awarded court costs and reasonable and necessary attorney fees.”

How Long Can You Wait to File a Suit?

A DTPA lawsuit generally must be filed within two years after the date on which the false, misleading, or deceptive act or practice occurred. If the deceptive act took place over a period of time, then, to be safe, you should begin suit two years from the date of the first such action. Some violations of the DTPA, by their very nature are concealed or difficult to detect. In these cases, the consumer has a longer time within which to file suit; two years after he or she discovered, or in the exercise of reasonable diligence should have discovered, the occurrence of the false, misleading, or deceptive act or practice.

Finally, there is a special provision stating that, if the consumer proves that failure to begin the lawsuit within these time limits was caused by the defendant knowingly engaging in conduct solely calculated to induce the consumer to refrain from or postpone the commencement of the suit, the right to file suit may be extended for an additional 180 days. In other words, if a violator of the DTPA strings you along by promising to make good, and does this intending to make you wait past the two-year time limit, and then “changes his or her mind” once the time limit has passed, he or she may not be able to get away with the trickery.

Questions regarding the statute of limitations or time limit for filing suit are often difficult and confusing. Consulting an attorney is strongly advised. Remember that you should make your demands for correction of the problem or violation right after you discover it. If you do not get your complaint satisfied within a reasonable period of time, and after giving the alleged violator a good faith opportunity to make good, you should promptly contact a lawyer to protect your legal rights. In general, two years is the absolute maximum allowed for filing suit, but you should never wait to take action until the last minute, because you might be wrong, and thereby lose your legal rights.

When Should You Consult a Lawyer to Protect Your Rights?

The safest and simplest answer to this question normally is “as soon as possible.” If you wait too long, you can lose all of your legal rights.