Governmental Rules and More Rules: What’s an Advisor to Do? Part 6

Continuing with the Federal Trade Commission advertising regulations, we turn now to the rules governing “retail prices which have been established or suggested by manufacturers (or other nonretail distributors).” 16 CFR § 233.3.  It seems clear that this rule, comprised of nine separate parts, is intended to apply to the sale of goods and not to the sale of services. For that reason, I am not going to go into detail about the rules that suffer from the uncertainties and qualifications mentioned in the previous article in this series.

Pricing Issues
It is possible, of course, that someone, the FTC or an unhappy consumer, might argue that if a tour operator published an established or suggested price for a tour package and a retail travel advisor offered that tour at a different price, the deception concerns implicated by this rule could arguably be in play.  This seems a very rare case, however, in the usual course of selling tours packaged by others.

If your business is advertising in this way, however, you should pay attention to the principles set out in this rule to avoid inadvertent deception. The basic idea is not to indicate that a current selling price represents a discount from a suggested or established price when in fact few sales are made at such prices. As stated by the FTC, “the … retailer must in every case act honestly and in good faith in advertising a list price, and not to establish a basis, or create an instrumentality, for a deceptive comparison in any local or other trade area.”

The next potentially relevant FTC rule is § 233.4 addressing “Bargain offers based upon the purchase of other merchandise.” This rule too is primarily addressed to sales of merchandise. The central idea is that offers of “free” or “Buy One-Get One Free” or other forms of “sale prices” that tie two items together must be clear at the outset regarding all the terms and conditions of the offer so that no consumer deception occurs. The seller may not, for example, increase the price of the base item that must be bought to get the second item.

 Such promotional techniques are not common in retail travel sales but there may be circumstances where tours and cruises are sold this way. If so, care should be taken to apply the principle of the FTC rule.

Other applications of the rule include a prohibition on advertising a retail price as a “wholesale” price and the offer of an “advance sale” under circumstances where the seller does not in good faith expect to increase the price later. In all cases, the so-called “bargain offer” must be “genuine and truthful.”

Baiting Issues
FTC regulations define “bait advertising” this way:

Bait advertising is an alluring but insincere offer to sell a product or service which the advertiser in truth does not intend or want to sell. Its purpose is to switch consumers from buying the advertised merchandise, to sell something else, usually at a higher price or on a basis more advantageous to the advertiser. The primary aim of a bait advertisement is to obtain leads as to persons interested in buying merchandise of the type so advertised.[16 CFR § 238.0]

Again, the rules appear designed primarily to address sales of “merchandise,” but the principles are potentially applicable to what would be considered “services” in the travel sector. Even if the regulations don’t technically apply to a particular promotion, nothing prevents an aggressive buyer from claiming deception based on the principles they embody. Travel advisors should therefore avoid the conduct addressed by the FTC rules in the sale of tours, for example.

To be clear, as much as possible, this does not mean that a travel advisor may not discuss with and counsel a client regarding more expensive options that might better suit the type of travel experience the client is seeking. Among the many values that travel advisors deliver to the traveling public, this is surely one. This is not the same as a deliberate misleading through the offering of, for example, a low-grade tour in the expectation of converting the client to a more costly one. The distinction is a subtle one but important. Most professional advisors will know what they are about and can easily avoid misleading promotions designed merely to start conversations during which they plan to “sell up.”

Bait advertising requires a state of mind and the making of insincere offers that, when the full truth is disclosed about the promotion, the advisor knows, and intended all along, that the client will not want the promoted tour and is primed to be sold a higher priced alternative. The details of the FTC’s explanation of this process as regards the sale of merchandise are set out in 16 CFR § 238.2, § 238.3, and § 238.4 which may be read on the ECFR website.

This article concludes the series on government rules that apply, directly or indirectly, to the sale of travel services by advisors. If you have concerns about how to apply these principles in practice, you should consult your attorney.