In May 2023, Michelle Cortez Gomez purchased a JBL portable speaker from Kohl’s that was marked down from $129.99 to $99.99. However, it turns out that when Kohl’s first sold the speaker, the company immediately listed it at its discounted price without ever offering the item at the higher price of $129.99 to begin with.
Here we have a classic case of deceptive pricing, a direct violation of consumer protection principles and some states’ laws.
As a result, Gomez filed a class action complaint against Kohl’s in the state of Wisconsin for violating state law. The 29-page complaint* alleges that Kohl's deliberately promotes misleading reference prices, creating the impression that customers are purchasing items at a discount from a higher market value.
Many products, according to the lawsuit, are never actually sold at the advertised original price.
The complaint reads:
“In short, the so-called “Regular” and “Original” prices are nothing other than artificially-inflated markups over the prices at which Kohl’s actually expects to sell its products.”
This allegation points to a larger issue with deceptive pricing practices and how they can damage consumer trust while undermining fair competition; these tactics not only mislead shoppers but also create unfair advantages over competitors who adhere to honest pricing strategies.
What is deceptive pricing? An overview
Deceptive pricing is often a tactic used to intentionally mislead shoppers into believing they’re getting a good deal. This practice occurs in both brick-and-mortar stores and online e-commerce platforms, and happens far more often than people realize.
In 2022, Consumers’ Checkbook spent 33 weeks tracking sale prices at 24 major retailers around the country. They found that most stores’ discounts aren’t really discounts at all, but attempts to mislead consumers that they’re getting an item on sale.
Deceptive pricing is an interesting tactic because it works by exploiting the psychological triggers that influence consumer behavior, particularly the emotional appeal of sales and deals. When shoppers see discounts or limited-time offers, their brains often prioritize the perceived urgency and savings over rational decision-making.
This taps into the consumer fear of missing out, encouraging impulsive purchases to avoid losing a “good deal.” Psychological concepts like scarcity and loss aversion come into play, where consumers place higher value on products that appear exclusive or time-sensitive. Instead of carefully evaluating whether a purchase is necessary or worthwhile, shoppers fixate on the illusion of saving money, even when the original price is artificially inflated.
Here are 3 real-world examples of deceptive pricing:
1) Fake limited-time discounts
This occurs when retailers advertise discounts as "limited-time offers," but the sale price is identical to or only slightly lower than the regular price, creating a false sense of urgency to buy.
Home Depot was accused of using this tactic over Black Friday this year. A TikTok video revealed that the home improvement warehouse covered up original price stickers with “Black Friday Deals” that listed the exact same price. The viral video, which garnered over half a million views, showed a customer peeling back a "holiday sale" price sticker on a high-pressure inflator, only to reveal the same $24.97 price underneath.
2) Hidden fees at checkout
Hidden fees, or junk fees, at checkout happen when retailers lure customers with low advertised prices but tack on unexpected charges during the final steps of the purchase process. Consumer Reports estimates the average family of four loses more than $3,200/year to junk fees, a number that becomes even higher if they make a significant purchase such as a car.
While there are various state laws and FTC regulations addressing junk fees, there is no overarching regulation at the federal level yet (patiently waiting on the Junk Fees Prevention Act to pass).
One significant federal regulation currently in existence targets drip-pricing in airline fees. Passed in 2012, the US Department of Transportation's Full Fare Advertising Rule mandates that airlines display the total cost, including all mandatory taxes and fees, during the booking process—a shift from previous practices where hidden charges were common.
3) Bait and switch tactics
Bait and switch tactics involve advertising a product or service at an attractive price, only to replace it with a higher-priced alternative during the final stages of the purchase.
At Darrow, we recently uncovered that an international tourist attraction operator has been misleading consumers through a bait-and-switch tactic. The company advertises adult ticket prices at one rate on its website but increases the price at the checkout page. Unlike the previous example, this practice does not involve hidden fees; instead, the company simply raises the price during the final steps of the purchase process.
This case has potential to make a big impact, with approximately 330,000 victims and $16.5 million in damages.
Interested in learning more about this case? Contact us.
Regulations surrounding deceptive pricing
In consumer protection cases, especially those involving false advertising, deceptive pricing, or misleading practices, the primary challenge is navigating the interplay between federal and state laws and regulations. Consumer protection for private litigants heavily relies on state-specific regulations, as there isn’t a federal law with private right of action governing these issues.
This creates a high degree of procedural as well as substantive legal complexity, particularly when pursuing nationwide class actions. Identifying a clear legal violation under one state’s law or a federal regulation may seem straightforward, but finding the appropriate legal framework or claim to attach to that violation can be more difficult. The patchwork of state laws make it harder to build and execute a cohesive legal strategy.
That being said, Reps. Ruben Gallego (D-AZ) and Jeff Jackson (D-NC) introduced the Junk Fees Prevention Act on April 4, 2023. If passed, this law will eliminate hidden and excessive fees across various industries at the federal level, with the goal of providing all American consumers with clear, upfront pricing. It targets practices like surprise airline seat selection charges, hidden ticket service fees, and excessive bank overdraft penalties.
Federal deceptive pricing regulations
As of now, the Federal Trade Commission (FTC) regulates deceptive pricing practices in the US under 16 CFR Part 233, also known as the Guides Against Deceptive Pricing.
While these regulations don’t create a private right of action or provide evidentiary standards or legal tests for private litigation, they offer guidance for companies on promoting transparency and fairness in pricing practices. The guides aim to prevent retailers from misleading consumers about discounts or product values through deceptive tactics, and are sometimes invoked as a defense; companies will argue that their compliance with recommended FTC practices mean they aren't violating state deceptive pricing laws. Additionally, violations of FTC regulations have been recognized in California as a basis for a UCL claim.
A key focus of these regulations is ensuring that advertised discounts or “sale” prices are based on a product’s actual former price; meaning the price at which the item was genuinely offered to the public for a reasonable period. Retailers cannot inflate original prices simply to make discounts appear larger than they are.
The FTC provides the following example of deceptive pricing conduct, which is cited in Gomez’s complaint:
“John Doe is a retailer of Brand X fountain pens, which cost him $5 each. His usual markup is 50 percent over cost; that is, his regular retail price is $7.50. In order subsequently to offer an unusual “bargain”, Doe begins offering Brand X at $10 per pen. He realizes that he will be able to sell no, or very few, pens at this inflated price. But he doesn’t care, for he maintains that price for only a few days. Then he “cuts” the price to its usual level--$7.50--and advertises: “Terrific Bargain: X Pens, Were $10, Now Only $7.50!” This is obviously a false claim. The advertised “bargain” is not genuine.” (16 C.F.R. § 233.1(C).
The guides also address comparative pricing claims, such as “50% off competitors’ prices,” which must reflect accurate and verifiable competitor pricing. Another critical component is the prohibition of bait-and-switch tactics, where businesses lure consumers with low-priced offers only to pressure them into purchasing higher-priced alternatives.
Additionally, the FTC prohibits "phony free" offers, where the cost of a "free" item is disguised by inflating the price of an accompanying product.
State laws and notable cases
Deceptive pricing lawsuits are common across the US, with certain states experiencing more cases due to their more stringent consumer protection laws and proactive enforcement.
For example, California has some of the most stringent deceptive pricing laws in the country. California’s Unfair Competition Law (UCL) and False Advertising Law (FAL) are frequently invoked state statutes in deceptive pricing cases. In fact, 64.8% of all US deceptive pricing cases since 2014 have been in California.
FAL specifically prohibits businesses from making untrue or misleading statements in their advertisements. In Hinojos v. Kohl’s Corp., 718 F.3d 1098 (9th Cir. 2013), for example, a consumer successfully alleged that the retailer violated the FAL by advertising products at false “sale” prices, where the “original” prices were never actually offered to consumers.
Other common states where these cases are filed are New Jersey, Oregon, Washington, and Illinois.
For a time, Missouri was also a favorable jurisdiction for plaintiffs due to its strict regulations on price comparisons. The law presumed such comparisons were deceptive unless retailers could prove the former price was offered 40% of the time or actually charged 10% of the time in recent transactions (Code Regs. Ann. Tit. 15, § 60-7.060(2)).
However, on November 14, 2023, the Eighth Circuit weakened these claims. In Hennessey v. Gap, Inc., 92 F.4th 1133 (8th Cir. 2023), the court ruled that a plaintiff who purchases an item on sale cannot show the "ascertainable loss" required under Missouri’s Merchandising Practices Act if the price paid does not exceed the actual value of the product.
Challenges of building deceptive pricing cases
Proving deception can be challenging because different jurisdictions have different requirements of evidence and intent. For example, California requires demonstrating intentional misconduct rather than simple errors or isolated incidents. Notably, New York does not impose fraud pleading standards and does not require proof of intent to mislead.
Many deceptive practices, such as inflated discounts or hidden fees, occur subtly over time, meaning attorneys need to track pricing histories and advertisements. However, companies are not always transparent, and obtaining these records can require subpoenas or advanced monitoring tools like web scraping software.
Another hurdle is proving consumer reliance on the deceptive claim. Defendants frequently argue that consumers were not misled or did not suffer real harm, especially when the financial loss per individual is small. This makes quantifying aggregate damages difficult, often requiring expert analysis to calculate the broader impact on a consumer class.
Additionally, navigating varying state consumer protection laws adds another layer of difficulty, as each state has unique statutes governing deceptive pricing, making nationwide class actions challenging to unify.
Using technology to spot and litigate deceptive pricing violations
Traditional methods of gathering evidence, like manually tracking pricing data or reviewing advertisements, are incredibly time-consuming and tedious. Proving consumer reliance, dealing with varying state laws, and uncovering hidden pricing tactics only add to the complexity.
Fortunately, legal tech and AI can streamline the process of detecting deceptive pricing violations, organizing evidence, and litigating cases.
Here’s how we do it at Darrow.
We use AI to detect legal violations at scale, including e-commerce deceptive pricing patterns. This means that attorneys and their legal teams don’t need to manually check online data to hunt for evidence.
Our Legal Intelligence Platform scans a multitude of online databases, websites, social media, videos, and review sites to detect common complaints or occurrences that might indicate deceptive practices.
Our tech recognizes these patterns and clusters similarities together, allowing our legal experts to identify if a legal violation has occurred. We’ve also developed systems that track discounts across major retailers to evaluate if they’re engaging in any illegal consumer protection violations.
Once we’ve detected a violation, we continue working with our attorney partners throughout the entire litigation process. We use specific, targeted marketing to find plaintiffs for each case while our in-house legal team works hand-in-hand with partners to build compelling, evidence-backed consumer protection cases.
*Cortez’s case is filed in the US District Court in the Western District of Wisconsin, under case number 3:23-cv-00678.
Interested in learning how Darrow can help you find and litigate your next class action? Contact us.
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