Everyone loves a good deal! But how do we know if the deal is really a deal? Many of us rely on the integrity of the retailer, and trust that the advertised discount is actually a discount. This trust is founded in part on the understanding that false advertising is “illegal”.

A federal law, the Competition Act, makes it an offence to make any representation ‘to the public’ that is false or misleading in a material respect by any means whatever, regardless of the advertising medium. This means that it doesn’t matter if the advertising was on the radio, internet, television, telephone, email, flyer, newspaper, billboard, or magazine, the rules prohibiting false advertising will apply.

Advertising a higher ‘regular’ price when the advertiser has not actually sold products at that higher price in large enough amounts, or for a long enough period of time, is also an offence. But what about the ads that promise a product for a fixed low price “and up”? The price isn’t a discount, but there always seem to be additional charges which apply to you. Is this misleading ‘in a material respect’?

The Competition Bureau thinks it can be. In April of 2015, the Competition Bureau filed an application against both Avis and Budget and their parent companies asking for a fine of $10 million each for misleading advertising. The Bureau alleged that for a number of years, the car rental companies had charged more than the advertised rental rates by requiring customers to pay ‘non-optional fees’ in addition to the rental charge. Those ‘non-optional fees’ were labelled as ‘taxes’ or ‘tire management fees’ or ‘energy recovery fees’, making the consumer believe that the rental company was obliged to collect the fee. Budget’s literature stated:

“Please be aware that in addition to the base car rental rate customers are required to pay taxes, surcharges, and other rental related fees, which are mandated by the government and other authorized agencies. All rental companies, including Budget, must collect them in order to continue to provide the appropriate services to our customers.”

The Competition Bureau alleged that Avis and Budget were not obliged by any government agency to collect these fees. The fees were part of the cost of operating the car rental business – they were an essential part of the rental rate.

The result was that no one could actually rent a car for the cost advertised. The actual rental cost was up to 35% higher than the advertised rate. Separating the cost into ‘rental charge’ and ‘non-optional fees’ tricked the public into thinking that the price was lower than it actually was – and that the rental companies were forced by ‘the government’ to charge the ‘extra’ amounts.

While it is too early to tell whether the Competition Bureau will win its case against Avis and Budget, there are some important lessons for both businesses and consumers.

Businesses need to be aware of the provisions of the Competition Act. The temptation to exaggerate the ‘savings’, or to understate the price, can come at a high cost if the advertising is false or misleading ‘in a material respect’. Fines under the Competition Act can be substantial, and the negative publicity can damage the reputation of the business.

Consumers need to take the time to read the fine print. If the deal seems too good to be true, it probably is! There is no substitute for ‘shopping around’, and in the case of rental cars, there is no substitute for comparing the total cost of various rental options. Even though false advertising is illegal, those who break the law are only caught after enough people have complained.

 

Takeaways:

  • Consumers should ask for the total cost of the product or service before making any decision, and should compare that total cost with the total cost of competitors to find the best ‘deal’.
  • Businesses need to be aware that failure to accurately state the cost of a product or service by advertising a low price and then imposing non-optional ‘extra charges’ may risk costly fines under the Competition Act.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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