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Good News for Good Businesses: Snake Oil* Sellers Beware

Charles Ponzi (March 3, 1882–January 18, 1949)...Image via Wikipedia

Ever wonder how unscrupulous sellers get away with going door to door (or phone to phone) spewing pitches for deals that are too good to be true? Whether it’s a fund-raising scam, a vacation club, or a highbrow ponzi scheme, we repeatedly read about segments of the population who are swindled by miscreants. Until this year, it was incumbent upon law enforcement and the Attorney General to clean up the mess.  With the July 1, 2009 enactment of Iowa’s Consumer Fraud Act (Section 714.16), attorneys in private practice have greater power to redress unscrupulous conduct. More [bad] businesses will be targeted. The good news is that they are not targeting your business. Parasitic competitors who infringe on your clientele are in jeopardy.

Iowa is the latest and last state to adopt legislation allowing a private individual to not only sue a business for fraud, but to collect attorney fees for doing so. The new law provides a stiff deterrent to businesses that willfully and wantonly disregard the safety or rights of the consumer: Wrongdoers may be on the hook for three times the actual amount taken and attorney fees above and beyond that amount.

 

There are good reasons to legislate a private right of action for consumer fraud. Most attorneys have turned away some aggrieved consumers because we couldn’t get paid for the cases and couldn’t afford to represent consumers on small dollar cases. Wronged consumers, upon hearing that even if they won a case, the fees may exceed the award, dropped the pursuit to avoid King Pyrrhus’ fate. In the past, Iowans had to rely on a common law action for causes of fraud under which only the most seriously injured consumers would prevail. The Attorney General was left to handle all the claims and had to choose which merited attention (and litigation).  Now, Iowans have a statutory cause of action for fraud.

 

The statute provides a cause of action for a consumer who is the victim of an “unfair practice, deception, fraud, false pretense or false promise, or in the misrepresentation, concealment, suppression, or omission of a material fact with the intent that others rely upon”  them for a purchase, or solicitation of charitable contributions. Not a lot of translation is needed to determine what is actionable. (And not a lot of translation is needed to determine how to stay out of trouble.)

 

Business owners may worry about seeing more litigation. Don’t worry, buyer’s remorse is not a cause of action. The statute is clear about the nature of acts covered and cause of action only exists if the business was provably fraudulent or unfair in conduct.

 

Additionally, many regulated professionals, such as architects, doctors, attorneys, et cetera, are exempt from this legislation because their codes of conduct subject them to both discipline for unprofessional conduct and civil liability for malpractice. 

 

Avoiding lawsuits is commonsensical: be honest with your customers and clearly convey the scope of the purchased service or good.

 

Overall, the new law provides the consumer the power of industry regulation with the cost shifted to the wrongdoer rather than the government.   Good businesses will benefit – a rising tide lifts all boats.



[*] This applies equally to sellers of bird milk.

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