Improving New York's Deceptive Acts and Practices Statute

May 14, 2010

Author: Saima Akhtar| Peter Dellinger

Every state has a statute or collection of  statutes intended to target unfair and deceptive acts and practices (UDAP) that occur in the course of business transactions.  A strong UDAP statute contributes to consumer protection in two significant ways.  First, UDAP statutes that truly protect consumers are flexible.  A UDAP statute can protect consumers from problems in a range of different business transactions including debt collection, automobile sales, lease of goods, mortgage transactions and any of hundreds of others.  The scope of the protection offered by a UDAP statute is determined by the language of the statute.  Thus, a thoughtfully crafted UDAP statute will serve many consumers and apply to a widely varied array of commercial transactions.  As new and harmful consumer schemes emerge, the flexibility of a good UDAP statute will provide an already existing statutory remedy for the consumer.  Secondly, UDAP statutes create a right of private enforcement for consumers who have been subject to unfair or deceptive acts in a business transaction.  Thus, with a good UDAP statute, consumers have a direct mechanism for remedying abusive business practices by telemarketers, mail order companies, warranty providers, creditors, insurers, or others.  The private legal remedies provided in a strong UDAP statute can deter further misconduct by businesses, as well as easing the expectation of and need for enforcement by thinly-stretched government agencies charged with consumer protection responsibilities. 

New York’s collection of UDAP-type statutes, General Business Law §§349-350-f, fail to offer consumers the greatest protection possible because of three significant barriers.  First, New York’s primary UDAP-type statute, General Business Law §349, applies only to deceptive practices, but not those practices that are unfair or unconscionable.1  Under the current language in General Business Law §349, an act that is found to be improper will not necessarily be construed as a deceptive act within the scope of the statue.2  Moreover, “a plaintiff may not maintain a cause of action under General Business Law §349 where…she has failed to identify any ‘material’ ‘deceptive acts’ engaged in by the defendant.”3  The current text of General Business Law §349, as interpreted by courts, limits the scope of protection to outright deceptions that do not rise to the level of a fraud, and fails to address acts that may be generally wrongful and misleading without outright deception.4

The second significant barrier faced by consumers and their attorneys hoping to raise a deceptive acts and practices claim in New York is the required showing of public impact.  Under existing case law, General Business Law §349 is only useable for transactions that affect the public at large.5  The cases preclude the Deceptive Acts and Practices statute from being applied to individual transactions like private contracts, individually negotiated rates or purchase of a single unique good, like a piece of property.6  In summary, to make a valid claim under New York’s Deceptive Acts and Practices statute, the plaintiff will be required to show that the defendant’s behavior was “part of a pattern directed at the public generally.”7 

Finally, punitive damages awarded to the consumer in New York are limited generally to $50, or $1,000 in cases where the court finds the violation was willful.8  If there is sufficient proof, the court may award punitive damages up to $10,000 if the victim of the scheme was a senior citizen and the scam was directed at the primary resources (home, pension, Social Security, etc.) of the senior.9  In reality, the inadequacy of the current punitive damages provisions mean that it is almost impossible to deter large scale schemes targeting hundreds of consumers by using UDAP.  The statute’s $1,000 cap on damages renders New York State’s deceptive practices act ineffective as a deterrent to future scams.  Not only does the cap limit damages on a deceptive act, but it limits the damages on all violations brought through a single claim to a  single $1,000 award.  Therefore, even if a consumer has been subjected to multiple deceptive acts, without some other remedy, the most that consumer could recover under General Business Law §349 is $1,000.  Where scams and schemes rake in thousands of fraudulently obtained dollars, violating the deceptive practices act becomes a cost of doing business.

As compared to many other states, New York’s current UDAP-type statute is one of the least protective of consumers in the country.  New York is one of only ten states nationally that fail to provide any kind of protection against either unfair or unconscionable acts.  The strongest UDAP statutes provide broad protections and strong remedies.  For example, the remedies found in Hawaii10 and New Jersey’s11 UDAP statutes provide for enforcement by both state officials and private consumers, and allow the possibility of injunctive relief, multiple damages, and attorney’s fees in consumer cases.  In addition, both states allow their respective Attorneys General to enact regulations to protect consumers from emerging scams.12

Although the current Deceptive Practices Act in New York does not provide adequate protection to consumers, there is an opportunity to amend New York’s law.  At the time this article was being written, A.10306 was introduced in the New York State Assembly by Assemblywoman Audrey Pheffer (D-Queens) to amend several parts of the Deceptive Practices Act.  The bill draft includes a variety of improvements which include prohibiting unconscionable practices, explicitly permitting class action suits, allowing punitive damages for any violation that are three times the actual damages incurred by the plaintiff, and increasing the statutory damages provisions.  Empire Justice Center is looking forward to working with members of both houses to build on the protections created in the draft bill and improve them.  These potential improvements include: expanding the scope of General Business Law  349 to include practices that are unfair; removing the public impact requirement that has been read into the statute through case law; enabling the Attorney General to make rules and regulations necessary to combat problematic business practices as they emerge; and permitting the court to assess statutory damages up to $10,000 per statutory violation in addition to the plaintiff’s reasonable attorney fees and costs.

Footnotes

1  McKinney General Business Law §349 (a).
2  Diller v Steurken, 712 NYS2d 311 (New York County Sup Ct 2000).
3  Benjaminov v Republic Insurance, 241 AD2d 473, 474 (2 Dept 1997).
4  Gaidon v Guardian Life Ins Co of America, 94 NY2d 330 (1999).
5  H2O Swimware, Ltd v Lomas, 560 NYS2d 19 (1 Dept 1990); Canario v Gunn, 751 NYS2d 310 (2 Dept 2002); Green Harbor Homeowners’ Association v GH Development and Construction, Inc, 763 NYS2d 114 (3 Dept 2003); Graham v Eagle Distributing Co. Inc, 637 NYS2d 583 (4 Dept 1996).
6  See, Canario v Gunn, 751 NYS2d 310 (2 Dept 2002).
7  Lynch v McQueen, 765 NYS2d 645 (2 Dept 2003).
8  McKinney General Business Law §349 (h).
9  McKinney General Business Law §349-c (2).
10  Hawaii Revised Statutes §480-13.
11  New Jersey Statutes Annotated §§56:8-8, 56:8-19.
12  Hawaii Revised Statutes §487-5(5); New Jersey Statutes Annotated §56:8-4.