By: Steven M. Williams
This article was originally published in Currents, POWER’s quarterly Environmental newsletter.
In consumer protection investigations, governmental agencies such as state Attorneys General and the Federal Trade Commission investigate business practices to identify civil or criminal violations of consumer protection laws. While these laws are intended to stop deceptive and fraudulent companies and people that break the law, even good companies can become a target of consumer complaints.
Various state and federal consumer protection laws provide for investigations into “unfair methods of competition” and “unfair or deceptive acts or practices.” The definitions of these phrases can sometimes be quite lengthy and confusing. Frequently, they include acts ranging from deceptive advertising and pyramid schemes to unlawful telephone solicitations, excessive shipping delays, and other conduct that creates a likelihood of confusion or misunderstanding.
Penalties for violating these laws can include civil penalties and the payment of costs and restitution. These penalties, however, often pale in comparison to the injunctive relief and/or forfeiture of the right to do business that can accompany them. Thus, it is imperative that companies handle such investigations properly by employing these steps:
- Pay attention to the signs. A consumer protection investigation frequently begins with a letter or administrative subpoena demanding an extremely broad amount of information. This often sends companies scrambling for outside counsel before the deadline expires. However, there are often warning signs that trouble may be brewing beforehand, such as repeated correspondence from governmental investigators asking the company to respond to informal complaints filed by consumers. While the occasional consumer complaint may not warrant the attention of the C-Suite, repeated complaints evidencing a pattern of misconduct should be addressed. A comprehensive and proactive response can help companies avoid the likelihood of an official investigation.
- Hire experienced counsel. Perhaps this goes without saying, but hiring counsel experienced in consumer protection investigations is essential to a successful outcome. Using the same outside counsel that handles litigation matters for the company may result in an overly contentious exchange with the investigatorꟷwhile entirely appropriate in litigation this often proves to be extremely harmful in consumer protection investigations.
- Communicate early and often. While the opening salvo of requests may appear calculated to overwhelm and intimidate the company into an early settlement, it is most often the result of an investigator’s lack of understanding of the company’s operations and record-keeping practices. Investigators do not want to wade through thousands of irrelevant documents any more than the company wants to collect them.A good starting point is a candid discussion about the nature and extent of the consumer complaints. Challenging the investigation will often force the investigator to explain why the requested documents are relevant. Many investigators will err on the side of limiting their original request to get the documents they need hence avoiding an undue burden on the company.
- Lend some perspective. An investigator conducting a consumer protection investigation may be under the impression that 5-10 consumer complaints against the company for a specific transaction or series of transactions is “a lot.” However, this may be a minuscule number when compared to the total number of transactions conducted by the company in a given year. As a result, it is important for counsel to educate the investigator on the full scope of the company’s consumer operations to lend the proper perspective. This may, in turn, lead to the investigation closing early.
- Use caution when settling. Investigators frequently seek settlements to resolve consumer protection investigations. But these settlements can be onerous, allowing the governmental agency (by agreement) to monitor the activities of the company and investigate matters that would otherwise fall outside of its jurisdiction. These agreements are also frequently publicly filed and may be accompanied by a loud press release that will dog the company on the Internet for years to come. Therefore, it is important to understand all the consequences of any proposed settlement before the company agrees to it.To avoid unintended consequences, companies who find themselves in the cross hairs of a consumer protection investigation should immediately consult with an attorney who is experienced in these types of investigations. A prompt and targeted response can often prevent a long and expensive investigation.