Back to: LAW, RISK, & TRANSACTIONS
Unfair Trade Practice Definition
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.
A Little More on What is an Unfair Trade Practice
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.”
References for Unfair Trade Practices
Academic Research on Unfair Trade Practice
International Bribery: An Example of an Unfair Trade Practice, Murphy, M. J. (1995). Brook. J. Int’l L., 21, 385. This paper discusses whether the cases of international bribery should be considered as an unfair trade practice. The paper argues, in the high-stakes arena of international business, the foreign officials who have the power to award or renew lucrative contracts to corporations often receive bribery and illicit payments. Although the existing laws prohibit such corrupt practice, this remains to be a common practice.
Antitrust and Unfair Trade Practice Law in North Carolina–Federal Law Compared, Aycock, W. B. (1971). NCL Rev., 50, 199. This paper discusses the antitrust and unfair trade practice law that regulates the businesses operating in the state of North Carolina and compares it with the Federal law.
Settling Unfair Trade Practice Cases Under Section 337 of the Tariff Act of 1930, Glick, L. A. (1980). Harv. Int’l. LJ, 21, 129. Section 337 of the Tariff Act of 1930 deals with antitrust violations, patent infringement claims, and other unfair trade practices involving imported goods and provides a broad-based remedy of such cases. This paper discusses how this section addresses the unfair trade practice cases and prohibits such action.
Section 337 and the GATT: A Necessary Protection or an Unfair Trade Practice, Knight Jr, N. G. (1988). Ga. J. Int’l & Comp. L., 18, 47. This paper discusses the historical perspective of Section 377 of the Tariff Act of 1930 and its status before the GATT. It also provides an overview of the General Agreement and Article III. Then it analyzes whether Section 337 is consistent with the United State’s international obligations under the General Agreement.
The Louisiana Unfair Trade Practice and Consumer Protection Act: An Analysis, Boren, J. E. (1973). La. L. Rev., 34, 634. This paper analyzes the Unfair Trade Practice and Consumer Protection Act of Louisiana legislature and argues that the introduction of this law has injected new life into two previously exiguous fields of Louisiana law. It says, this Act empowers the consumers and protects them against the corrupt business practices, who were otherwise at mercy of the unscrupulous merchants. At the same time, the Act protects the interest of the businessmen who can use this Act against unfair competition by other businessmen.
Developments in Unfair Trade Practice in International Trade: A Review of the Third and Fourth Years under Section 337 as Amended by the Trade Act of 1974, Kaye, H., & Plaia Jr, P. (1979). J. Pat. Off. Soc’y, 61, 115. Section 337 of the Tariff Act of 1930 was amended by the Trade Act of 1974. This paper reviews the developments in unfair trade practice in international trade during the first two years after this amendment took place.
The Unfair Trade Practice of Hiring Illegal Alien Workers, Marshall, K. S. (2008). U. Pa. J. Bus. L., 11, 49. Some businesses hire illegal alien workers for below-market wages and often do not comply with the tax regulation. This paper discusses whether hiring illegal workers constitutes an unfair method of competition and whether the businesses engaged in such activities should be punished under the law of unfair trade practices.
An Overview of the Last Decade of State Antitrust Law, including Little FTC Acts, Unfair Trade Practice Legislation, Franchise and Business Opportunity Legislation …, Lipnick, S. M., & Gibbs, J. M. (1984). U. Tol. L. Rev., 16, 929. This paper provides an overview of the developments of State Antitrust Law, including Little FTC Acts, Unfair Trade Practice Legislation, Franchise, and Business Opportunity Legislation, RICO and the Rejection of Illinois Brick during the last decade.
Connecting trade and international labor standards: denial of worker rights as an unfair trade practice, Hickey, K. (1988). Law & Ineq., 6, 127. This paper discusses the abusive labor practices happening all over the world and argue it to be an unfair trade practice. It connects trade and international labor standards and discusses the denial of workers’ rights.
Exception That Threatens to Swallow the Statute: The Statutory Exception to Maine’s Unfair Trade Practice Act, The, McGlaufflin, B. A. (2006). Maine BJ, 21, 152. Maine Unfair Trade Practice Act declares any unfair or deceptive act or practice in the conduct of trade and commerce is unlawful. Every potential transaction between a business person and a consumer comes under the purview of this law. Section 208(I) of the Act provides an exception for “transaction of actions otherwise permitted under laws” administered by the government. This article argues many defendants have been successfully used this Section in their favor and the scope of the exception has been expanded to the point where, if consistently applied it would threaten to swallow the statute. The article discusses the case law giving rise to this overly expansive interpretation and shows how it has created uncertainty. The paper suggests how the Law Court may clarify the case law to give more appropriate scope to the exception and bring more certainty.
Comments on the Administration of US Unfair Trade Practice Law: Missed Opportunities in NAFTA, Glick, L. (1993). US-Mex. LJ, 1, 185. This paper comments on the procedural problems with the American unfair trade laws. It argues the procedural aspects of the antidumping and countervailing duty laws are onerous when applied to the developing nations like Mexico. The article argues that many had hoped the North American Free Trade Agreement (NAFTA) would address the issues and resolve the problem but nothing was achieved.