Consumer Fraud

For Frank and Stephanie Terkenson, the trek from their home in suburban New Jersey to the megamall about twenty miles to the southeast was anything but enjoyable. Faced with weekenders heading to the Jersey Shore, tourists shuttling to Atlantic City on fleets of air-conditioned motor coaches, and the construction-related lane merges that are commonplace in the Garden State, the Terkensons were motivated by only one thing: an advertisement in their local newspaper offering a 50-inch television for only $299. One can only imagine their thoughts, when upon arriving at the video and electronics store harried and disheveled, they were informed by the sales clerk that the item was temporarily out of stock. “Fortunately,” the salesperson continued, “we have a similar television for only $75 more than the one in the ad.” Exhausted, Frank and Stephanie agreed to purchase the higher priced product, the friendly sales clerk placed the television in the back of the Terkensons'minivan, and they began the onerous journey back to their home in the suburbs.

Had the Terkensons not been so fatigued by their commute, they might have realized that they were the victims of the classic “bait-and-switch” technique commonly found in retail sales. Basically, the scheme involves a retailer or professional firm advertising a product or service at a drastically low price. However, when a customer attempts to purchase the item, they are informed it is “out-of-stock” or “sold out.” Typically, the salesperson will feign remorse and offer the customer a special deal on a more expensive version of the product.

The Scope of Consumer Fraud

Activities such as this form of false advertising represent only a portion of the wide range of offenses that are collectively referred to as consumer fraud. This type of fraud—sometimes referred to as theft by deception, or larceny by trick—takes many forms. However, when such illicit activities involve an individual purchaser or group of customers, and the result is substantial financial loss or physical harm, state regulatory agencies may investigate the matter and pursue civil or criminal penalties. Examples of consumer fraud frequently investigated and prosecuted by federal and state regulatory agencies include marketing defective products that result in consumer injury or death, publishing false advertisements (e.g., “bait and switch”), misrepresenting the condition of homes and other real property (e.g., failing to disclose hazardous conditions, tax liens, or the presence of toxic substances), selling motor vehicles with bogus certifications (e.g., fictitious odometer statements, nonexistent warranties, or counterfeit inspection stickers), overbilling or generating fraudulent [Page 308]fee statements for professional services, pressuring individuals to invest in “get rich quick” schemes (e.g., high-risk stocks, multilevel marketing strategies, or uninsured bonds or securities), marking counterfeit products or selling inferior quality goods at excessive prices, and tampering with foods, medicines, cosmetics, and other consumer items.

In 1977, the San Francisco district attorney brought suit against the General Mills company, charging that they fraudulently advertised Wheaties when they claimed that Bruce Jenner, the Olympic decathlon gold champion medalist, had prepared for the Olympics by eating a lot of Wheaties. Pictured here at a news conference, Jenner says that he ate and continues to eat a lot of Wheaties.

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