Lesson 3 of 107 minutes
Customers and consumer law: deception, refunds, auto-renewal, reviews and testimonials
Consumer law is the set of rules about what you may say to customers and how you may take their money. The federal anchor is Section 5 of the FTC Act, which bans unfair or deceptive acts or practices. Every state has its own version, and most of those let a customer sue. This lesson covers the four places a small business most often trips: claims, refunds, auto-renewals, and reviews.
The rule underneath everything
Section 5 of the FTC Act, 15 U.S.C. § 45, prohibits unfair or deceptive acts or practices in commerce. Deception means a representation or omission that is likely to mislead a reasonable consumer and is material to their decision. Unfairness means a practice that causes substantial injury consumers cannot reasonably avoid and that is not outweighed by benefits. The FTC enforces § 5; consumers generally cannot sue under it directly. But every state has a consumer protection statute modelled on it, and most of those do allow private suits, often with fee-shifting and sometimes with multiplied damages.
Claims you make
Any claim about your product or service, express or implied, has to be truthful and, if it is a factual claim, substantiated before you make it. "Clinically proven" needs the clinical proof. "Lowest price in town" needs the price survey. "Guaranteed results" is a promise you will be held to. Disclaimers in fine print do not cure a misleading headline. The test is the overall impression on a reasonable consumer, not whether a careful lawyer could find the qualification.
Refunds
Federal law does not set a general refund right for in-person sales; state laws do, and they vary. The common requirement is disclosure: if you have a no-refund or restocking policy, it has to be stated clearly before the sale, usually at the point of sale and on the receipt. Then honor it as written. A refund policy you disclosed and follow is a defense. A refund policy you did not disclose, or did not follow, is a deceptive practice claim. For specific sales channels (door-to-door, telephone, online) additional federal and state rules apply; check the FTC's business guidance for your channel.
Auto-renewal and subscriptions
Recurring billing is where consumer complaints and state enforcement concentrate. The federal Restore Online Shoppers' Confidence Act and a growing number of state laws require three things: clear disclosure of the recurring terms before the customer agrees, the customer's affirmative consent to those terms, and a simple way to cancel. "Simple" is read strictly: if you sign up online, you must be able to cancel online. Charging a card after a cancellation request is the fact pattern behind most enforcement. The acceptance record is also what makes the subscription a contract that holds up.
Keep the record of what the customer saw and clicked at signup, with the date and the version of the terms. It is the only evidence that the disclosure happened.
Reviews and testimonials
The FTC's rule on consumer reviews and testimonials, 16 C.F.R. Part 465, took effect in 2024. In plain terms it prohibits: writing or buying fake reviews; reviews by your own staff or family without disclosure; paying for reviews on condition they are positive; suppressing or hiding negative reviews while showing positive ones; and running a review site you control while presenting it as independent. Separately, the FTC's endorsement guidance requires any material connection between you and an endorser, such as payment, free product or a family relationship, to be disclosed, and any testimonial to reflect a typical result or say clearly that it does not.
A testimonial page that shows only your best outcomes without a disclosure is a problem. Asking customers for honest reviews is not.
State attorneys general
Most consumer protection enforcement against small businesses comes from state attorneys general, who act on complaint volume. A pattern of complaints about one practice draws an inquiry. Resolving complaints individually and fixing the practice is cheaper than any investigation. Lesson 7 covers what to do when the letter is from a regulator.
What you should now know
- Section 5 of the FTC Act bans unfair or deceptive practices. State laws copy it and let consumers sue.
- Every factual claim needs substantiation before you make it. Fine print does not fix a misleading headline.
- Disclose your refund policy before the sale and honor it as written.
- Auto-renewal needs clear disclosure, affirmative consent and an easy cancellation route.
- Fake, incentivized or selectively suppressed reviews violate the FTC’s 2024 rule. Disclose connections with endorsers.
Questions from this lesson
Can a customer sue me under the FTC Act?
Generally not directly. They can sue under your state’s consumer protection statute, which usually prohibits the same conduct and often allows attorney’s fees.
Is a no-refund policy legal?
In most states, yes, if it is clearly disclosed before the sale. Some states impose extra requirements for particular goods or channels. Check your state’s consumer protection office.
Can I offer a discount for leaving a review?
You can offer it for an honest review regardless of its rating, with disclosure. You cannot condition it on a positive review or pretend the review was unprompted.
We remove reviews that contain profanity. Is that suppression?
Applying a neutral, disclosed moderation policy evenly is allowed. Removing negative reviews because they are negative is not.