Legally Speaking: Protecting consumers and maintaining your customer base

Thomas Clement MRA General Counsel
Thomas Clement Vice President, Operations and General Counsel

By TOM CLEMENT, MRA General Counsel

Spring is one of my favorite times of the year. The sun emerges, warm weather activities are on the horizon and the feeling of a fresh start generates a positive and optimistic attitude. This year has many of us feeling even more optimistic than usual. Many retailers have been in survival mode for well over a year. As the winter months set in, we braced for a predicted surge of COVID-19 cases and the possibility of additional shutdowns. But retailers proved yet again that they could remain open for business and ensure public safety and the dire predictions never came to pass. Now, with spring upon us, vaccines being widely distributed and businesses of all kinds slowly ramping up their capacities, many businesses are hoping for a slow return to “normal” operations.

As retailers continue taking the steps necessary to defeat COVID-19 we realize that normal has a different meaning. A year ago many brick and mortar retail shops were content with standard operating hours and did not feel a need to expand their businesses into the online world or explore customer friendly alternatives to in-person shopping like delivery and curbside pick-up. It’s incredible how much can change in a year! Retailers’ fresh look at how business is done, and seamless adaptation is a long term positive in the face of very difficult times.

While providing new forms of service to meet customer needs is vital to long term success, so too is the need to be vigilant against customer disservice, whether deliberate or inadvertent. Customer disservice may be most prevalent where the pricing of goods is grossly out of line with prices of the same or similar goods in the marketplace. The common term for this practice is price gouging and engaging in its practice can result in significant civil penalties and a hit to your reputation. The other day I spoke to a friend and former colleague at the Attorney General’s office and was surprised to learn that price gouging is the number two complaint received by the Consumer Protection Division. Second only to robocalls, which are universally despised. This tells me that consumers have no interest in being taken advantage of and no problem standing up for themselves, as they should.

The legal definition of price gouging is unfortunately non-specific. MCL 445.903(z) defines price gouging as “charging the consumer a price that is grossly in excess of the price at which similar property or services are sold.” To do so constitutes an unfair, unconscionable, or deceptive method, act or practice in violation of the Michigan Consumer Protection Act. MCL 445.903. The exact point at which a price crosses the threshold from higher than others to “grossly in excess” is not clear and tends to reside in the “know it when you see it” category, which offers little safety net for retailers. The closest we have come to a hard and fast definition was during the height of the pandemic through Executive Orders 2020-53 and 2020-89 which prohibited sale prices of greater than twenty percent higher than those prices that were in place as of March 9, 2020 unless the increase was a direct result of an increased cost in bringing the product to market. While this provided a clear rule, it was only intended for the short term, with an expiration date of June 12, 2020. As a result, factors such as inflation, market changes, inventory and long term supply and demand did not come into play as substantially as they would with any attempt to establish a permanent rule.

The Consumer Protection Act permits an aggrieved consumer to pursue two courses of action, so retailers should take note.

First, they may file a complaint with the Department of Attorney General – Consumer Protection Division. The Attorney General will receive the complaint and reach out to the alleged offending party to make them aware of the complaint and invite a response. Through this process, the Attorney General’s goal is to mediate a resolution to the satisfaction of both parties. While the Attorney General will not represent individual consumers in price gouging lawsuits, she does have the authority to sue for injunctive relief, preventing the offending party from engaging in the price gouging and costs awarding costs to the prevailing party. There are also potential monetary penalties. A persistent and knowing violation of the Consumer Protection Act can result in a civil penalty of not more than $25,000.00 (MCL 445.905(1)) and a retailer who knowingly violates the terms of any court order is subject to a $5,000 civil fine for each violation (MCL 445.905(4)).

Second, the individual may sue the retailer and seek a declaratory judgment. A court may deem the practice unlawful and order injunctive relief requiring the offending party to cease the activity and pay actual damages or $250.00 (whichever is greater) plus reasonable attorneys’ fees. Perhaps more significant than the legal remedies available, however, is the potential damage to business reputation and a negative impact on income.

The overwhelming majority of retailers are well-intentioned honest brokers, but all business owners should be mindful of the prices they are charging relative to their competitors. Business, by its nature, is competitive and retailers can and should command fair prices consistent with their business model and unique circumstances. When setting prices, the best course of action is what any good business owner should already be practicing; keep an eye on your competition and the best interests of your customer and business in mind.