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Regulation of Trade Practices

Consumer Law Tutorial for Judges in New Mexico

The Regulation of Unfair, Deceptive, and Unconscionable Trade Practices

Unfair, deceptive, and unconscionable trade practices are regulated by federal and state statutes as well as the common law torts of fraud and negligent misrepresentation.

A. The Torts of Fraud and Negligent Misrepresentation

The tort of fraud is used when a person is harmed by relying on another’s intentional misrepresentation of a fact, either by an affirmative misstatement or by failure to disclose known factual information.  A person does not commit fraud by expressing an opinion.

To prove the tort of fraud, a plaintiff must successfully show the defendant made a representation of fact (not opinion) that was not true, that the defendant knew the representation was false or that the representation was made recklessly, that the representation was made with the intent to deceive and to induce the plaintiff to rely on the representation, and that the plaintiff actually relied on the representation to his or her detriment.  UJI 13-1633.  For example, fraud would exist where a retail clerk purposely advises a buyer that the food processor he is considering purchasing comes with all of the accessories, when in fact the clerk knows most of those accessories must be purchased separately.  However, the representation is purposely made in order to make the sale.  The tort of fraud is completed with the buyer relies on that representation and purchases the food processor, believing it is a great bargain given all of the additional accessories included in the price.

Consumers may also be harmed by factual misinformation that is negligently communicated.  A plaintiff may bring a claim of negligent misrepresentation when the defendant negligently (unintentionally) provides “false information or information which, while true as far as it goes, is incomplete in a material respect and therefore misleading.”  Committee Comment to UJI 13-1632.  To prove the tort of negligent misrepresentation, a plaintiff must prove that the defendant made a false representation of fact or a representation of fact that, while literally true, was misleading, the defendant did not exercise ordinary care in obtaining or communicating the information conveyed, the defendant should reasonably have foreseen the plaintiff would be harmed if the information conveyed was incorrect or misleading, and that the plaintiff justifiably relied on the information to his or her detriment.  UJI 13-1632.  For example, the retail clerk tells the consumer the food processor comes with a full life-time warranty and the clerk fully believes that is the case, and the consumer relies on that and purchases the product.  However, the retail clerk’s information was misleading given that the life-time warranty applies only to the food processor’s motor, while every other component of the product has only a one-year warranty.  The retail clerk would have been aware of this had she carefully read the product information supplied to the store’s employees to assist them with sales.

B.  The Unfair Practices Act Generally

While the torts of fraud and negligent misrepresentation attempt to remedy the harm caused by deceptive and misleading commercial practices, the Unfair Practices Act, §§57-12-1 through -26, prohibits unfair or deceptive trade practices, as well as unconscionable trade practices or acts in connection with the sale, lease, rental or loan of any goods or services, including services provided by licensed professionals, or in the extension of credit or in the collection of debts. “Unconscionable” refers to a trade practice that is excessive, unreasonable or shockingly unfair or unjust.

1. Prohibited Practices

The Act contains a general prohibition against “unfair or deceptive trade practices,” as well as “unconscionable trade practices” in the conduct of any trade or commerce.

a. An unfair or deceptive trade practice is a practice specifically declared unlawful by the Act.  Generally, prohibited practices include false or misleading oral or written statements, visual descriptions or other representations knowingly made in connection with the sale, lease, rental, or loan of goods or services or in the extension of credit or in the collection of debts by a person in the regular course of his or her trade or commerce, which may, tends to, or does deceive or mislead a consumer.  §57-12-2(D).

The following unfair or deceptive practices affecting consumers are specifically declared unlawful by the Act:

(i)   Representing goods or services as those of another when the goods or services are not the goods or services of another;

(ii)  Causing confusion or misunderstanding regarding the source, sponsorship, approval or certification of goods or services;

(iii) Causing confusion or misunderstanding regarding affiliation, connection or association with or certification by another;

(iv) Using deceptive representations or designations of geographic origin in connection with goods or services;

(v)  Representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits or quantities that they do not have or that a person has a sponsorship, approval, status, affiliation or connection that he or she does not have;

(vi) Representing that goods are original or new if they are deteriorated, altered, reconditioned, reclaimed, used, or secondhand;

(vii) Representing that goods or services are of a particular standard, quality or grade or that goods are of a particular style or model if they are of another;

(viii) Disparaging the goods, services or business of another by false or misleading representations;

(ix) Offering goods or services with intent not to supply them in the quantity requested by the prospective buyer to the extent of the stock available, unless the purchaser is purchasing for resale;

(x)  Offering goods or services with intent not to supply reasonable expectable public demand;

(xi) Making false or misleading statements of fact concerning the price of goods or services, the prices of competitors’ or one’s own price at a past or future time or the reasons for, existence of, or amounts of price reduction;

(xii) Making false or misleading statements of fact for the purpose of obtaining appointments for the demonstration, exhibition or other sales presentation of goods or services;

(xiii) Packaging goods for sale in a container that bears a trademark or trade name identified with goods formerly packaged in the container, without authorization, unless the container is labeled or marked to disclaim a connection between the contents and the trademark or trade name;

(xiv) Using exaggeration, innuendo or ambiguity regarding a material fact or failing to state a material fact if doing so deceives or tends to deceive;

(xv) Stating that a transaction involves rights, remedies or obligations that it does not involve;

(xvi) Stating that services, replacements or repairs are needed if they are not needed,

(xvii) Failure to deliver the quality or quantity of goods or services contracted for; or

(xviii) Violating the Tobacco Escrow Fund Act [6-14-4].

§57-12-2-(D)(1) through (18).

b. An unconscionable trade practice is any act or practice in connection with the sale, lease, rental or loan, or in connection with the offering for sale, lease, rental or loan, of any goods or services (including professional services), or in the extension of credit or in the collection of debts, which to a consumer’s detriment:

(i)   Takes advantage of the lack of knowledge, ability, experience or capacity of a person to a grossly unfair degree; or

(ii)  Results in a gross disparity between the value received by a person and the price paid.  §57-12-2(E)(1)(2).