Unfair Trade Practices - Explained
What are Unfair Trade Practices?
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What are Unfair Trade Practices?
As the name suggests, an unfair trade practice is using deceptive, fraudulent or unethical means to obtain a business. In most of the countries, such practices are punishable under the law. In the US, such activities are subjected to the Consumer Protection Law. Misinterpretation, false or deceptive advertising of a good or service, deceptive pricing, tied selling, false promise of the free prize of gift and non-compliance with manufacturing standards fall under the provision of Unfair Trade Practice and the consumers can approach the court if they are subjected to any such activities and faced damage. The court may award compensatory damages as well as punitive damages for wrongful acts committed by a company. The court may also direct to pay the plaintiff's legal fees. An unfair trade practice is also known as an unfair business practice, unfair commercial practice or deceptive business practice.
How Does an Unfair Trade Practice Work?
Unfair trade practice may arise in many areas. Most commonly it can be observed in tenancy matter, sales of good and services to the consumers, advertising of good and services, insurance claims and settlements and debt collection in cases of default. In the US most of the states enacted the laws related to the unfair trade practice during the 1960s and 1970s. The provisions of the law may differ from one state to another; thus, the consumers should check the law of their own state before approaching the court. In most of the cases, the consumers are required to send a demand letter to the business which is engaged in unfair trade practice and has caused injury to the consumer. If the company fails to offer a reasonable settlement within a specified period, the consumer may file a lawsuit in the court. Section 5(a) of the Federal Trade Commission Act prohibits unfair trade practices in the US. Any individual and businesses engaged in commerce, including the banks are subject to the law. Business practice is considered to be unfair if it causes or is likely to cause substantial injury to consumers, the consumers cannot reasonably avoid the injury, and it is not outweighed by countervailing benefits to consumers or to the competition. The rule also prohibits deceptive trade practices by the businesses. If a representation, omission, or practice misleads or is likely to mislead the consumers that are considered as a deceptive practice under the law. A consumer's interpretation of the representation, omission, or practice is considered reasonable under the circumstances. According to the law this misleading representation, omission, or practice needs to be material. In the US, the National Association of Insurance Commissioners (NAIC) regulates the trade practices in the insurance sector to protect the interest of the insurance consumers. The NAIC ruling states: "It is an unfair trade practice for any insurer to commit any practice defined in Section 4 of this Act if:
- It is committed flagrantly and in conscious disregard of this Act or of any rules promulgated hereunder; or
- It has been committed with such frequency to indicate a general business practice to engage in that type of conduct.
In Section 4 of the ruling, the NAIC defines the unfair trade practices in the business of insurance as "A. Misrepresentations and False Advertising of Insurance Policies. Making, issuing, circulating, or causing to be made, issued or circulated, any estimate, illustration, circular or statement, sales presentation, omission or comparison that: (1) Misrepresents the benefits, advantages, conditions or terms of any policy; or (2) Misrepresents the dividends or share of the surplus to be received on any policy; or (3) Makes a false or misleading statement as to the dividends or share of surplus previously paid on any policy; or (4) 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; or (5) Uses any name or title of any policy or class of policies misrepresenting the true nature thereof; or (6) Is a misrepresentation, including any intentional misquote of premium rate, for the purpose of inducing or tending to induce the purchase, lapse, forfeiture, exchange, conversion or surrender of any policy; or (7) Is a misrepresentation for the purpose of effecting a pledge or assignment of or effecting a loan against any policy; or (8) Misrepresents any policy as being shares of stock."
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- What is the Federal Trade Commission
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Unfair Trade Practices
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