Restoring the Purpose of Consumer Protection Laws: Ten Principles for Courts and Legislatures

Today, consumers are largely bystanders in consumer protection litigation, sitting on the sidelines until they have an opportunity to fill out paperwork to receive a few bucks of a multimillion dollar settlement that primarily benefits the creative lawyers who dream up the case. State consumer protection laws can again serve consumers through application of basic legal principles.  In many cases, courts can interpret and apply state consumer protection laws in a manner that refocuses them on recovering actual losses stemming from misleading advertising or deceptive practices.  Where state laws are written so broadly as to require courts to permit lawsuits that are driven by creative plaintiffs’ lawyers rather than consumers, or where judges fail to rein in this unhinged consumer litigation, state legislators can and should act.  Application of the ten principles below can restore sanity and a legitimate purpose to state consumer protection litigation:

1. All private plaintiffs must show an actual injury.

This basic principle ensures that lawsuits provide recovery for actual harms, not hypothetical or speculative theories.

2. Plaintiffs must show that the injury they suffered was in fact caused by the alleged misrepresentation or deception.

Lawsuits should not result in awards to consumers who never saw or heard the alleged misrepresentation or were otherwise not influenced to purchase a product by the conduct at issue. Nor should the law permit recovery based on statements that any reasonable consumer would understand as acceptable “puffery” in advertising.

3. Consumer protection laws should provide for recovery of actual economic losses stemming from purchase of consumer goods or services.

They should not apply in cases involving personal injuries, wrongful death, or other areas where the law already provides a specific means for recovery.

4. Courts should interpret “unfair” and “deceptive” in a commonsense manner, dismissing cases where reasonable consumers would not have been deceived.

If needed, state legislatures can better define and enumerate prohibited practices. They can also take the approach, adopted in Tennessee in 2011, of limiting enforcement of its “catch all” provision, which generally prohibits “any other act or practice which is deceptive,” to the government.

5. Manufacturers should not be liable under consumer protection acts when they follow the law.

When the conduct that a plaintiff’s lawyer claims is unfair or deceptive complies with federal law, courts should find that the claim is “preempted,” meaning that the federal law governs. A separate federal doctrine, known as “primary jurisdiction,” similarly permits courts to decline to decide cases when a government agency is considering the public policy issue involved in the litigation.

6. Consumer protection laws should not apply to conduct that is already closely regulated by government agencies.

About two-thirds of state consumer protection laws explicitly state that they do not apply to conduct that is authorized or permitted by a state or federal agency. In such situations, there is already a safeguard against unfair and deceptive practices. There is “no need to fill in a legal gap or create a consumer right” where the practice at issue is already regulated by a government agency.

7. Consumer protection acts should not create new rights to sue under other laws for which the legislature decided not to provide a private right of action.

Legislatures know full well how to provide a private right of action to enforce a law. The choice of elected officials to charge a government agency with enforcing the law in a consistent and understood way should not be overridden by a court by creating a right to sue where a legislature has not done so.

8. Statutory and treble damages, and awards of attorneys’ fees, serve no purpose in class action litigation.

These provisions were intended to make it feasible to bring small suits for individual consumer purchases, not augment recovery in an already massive class action, which serves the same purpose of facilitating litigation of small claims.  For these reasons, several states either do not permit consumer lawsuits to be brought as class actions or provide that statutory damages are unavailable in class actions.

9. Companies should not be punished for innocent mistakes.

Some level of willfulness or intentional conduct should be required for an award of treble (triple) damages.

10. Class action settlements should be subject to careful judicial scrutiny.

Careful judicial review of settlements is needed to assure that consumer protection litigation does not result in a windfall for lawyers and meaningless “coupon” recovery for actual consumers.

Enacted Legislation

Current Legislation