Five Tips to Keep Your Business Off Regulators’ Radars During Supply Chain and Other Economic Disruptions | Cozen O’Connor
As consumers and businesses recover from the holiday trade frenzy and look forward to the New Year, the supply chain disruptions that grabbed headlines at the end of 2021 may seem like a distant memory. However, these problems are not yet a thing of the past, especially in the eyes of regulators. Businesses should educate themselves on federal and state regulations implicated by supply chain disruptions and stay tuned for signals from regulators about what those laws require – economic phenomena with global impact do not excuse the no – compliance with state or federal regulations.
When supply chain disruptions, the pandemic, inflation or other forces converge to create the perfect storm of economic pressures, companies must remain vigilant to avoid drawing the attention of state regulators – in particular, state attorneys general – in addition to the FTC, CFPB, or other federal agencies. Potential risks include violation of state consumer laws that prohibit unfair and deceptive acts and practices, prohibitions on price gouging, the FTC Act, and federal regulations promulgated thereunder, such as the goods by mail, internet, or telephone or the Made in USA standard, or even state and federal antitrust laws.
The FTC’s recent investigation into supply chain disruptions provides clear evidence of regulators’ interest in how companies are handling current economic pressures. In late November 2021, the FTC ordered nine major retailers to provide information to the FTC, so it can better understand the causes of the disruptions and their impact on consumers and competition in the economy.1 The results of this study will no doubt be of great interest to federal and state regulators.
Some economists are predicting more supply chain disruptions in the first quarter of 2022, and companies would do well to remember the lessons of the past year when faced with these lingering supply chain issues, further disruptions to trade due to the COVID-19 pandemic or other unforeseen events. economic challenges.2
FIVE TIPS TO DETER REGULATORY VERIFICATION
Companies should pay particular attention to the following as they navigate supply chain and other economic disruptions.
1. Ship goods within promised time, communicate delays to consumers, or allow consumers to cancel
The Federal Goods Order Rule requires sellers to ship goods within the promised time frame or, if the goods cannot be shipped within the promised time frame, provide the consumer with a new ship date or the option to cancel the order .3 In addition to federal enforcement, state MAs can also rely on this regulation as a benchmark for potential consumer protection violations. For example, Kansas AG Derek Schmidt issued an alert during the 2021 supply chain disruptions advising consumers of this federal requirement, while warning consumers more generally to beware of increased fraud during the disruptions. of the supply chain.4
2. Manufacturers and retailers should also be wary of price gouging
With the onset of the COVID-19 pandemic, MAs have not been shy about exercising their powers to prosecute price gouging – that is to say, raising the prices of goods, services or commodities to unreasonable or unfair levels after a demand or supply shock. The AGs also clarified that predatory pricing laws don’t just apply to consumer sales. Other parties in the supply chain, such as manufacturers and distributors, are also prohibited from abusive pricing practices. For example, Texas AG Paxton warned grocery and drug store retail suppliers that price gouging bans include supply retailers, and “[n]o we are exempt from predatory pricing laws[.]”5
Indeed, the pandemic has prompted some AGs to push back or expand the limits of their respective states’ predatory pricing laws — for example, then-Virginia AG Mark Herring’s bill to amend the Anti-Corruption Act. State Price Gouging to also apply to manufacturers and distributors was enacted in October 2020.6 AG Herring’s bill followed actions by 20 AGs across the country in the spring of 2020 to combat price gouging in the PPE supply chain.seven
3. Double-check the “Made In USA” claims
The federal Made in USA standard requires that any product advertised as Made in the USA be “substantially all” made in the USA, which includes the origin of all components used. For example, if a piece of furniture is made in the United States, but the parts that make it up come from other countries, that item is not “made in the United States” according to federal standards. Sellers can remain compliant with this rule if they bring the appropriate qualifications, for example, “Made in the USA from US and Imported Parts.” A 2021 update, reportedly enacted in response to “rampant Made in USA fraud,” clarified requirements for labeling products as made in the United States and increased civil penalties the FTC can impose. in case of violation of the rule.8
In times of difficult economics and sourcing complications, companies may be tempted to exaggerate the extent to which products are made in the United States, overlook changes in manufacturers that would render products ineligible for claims of manufacturing in the United States States or failing to notice that a supplier switches to components from another country of origin. However, paying close attention to the origin of products and components is worth it, as Made in USA violations are actionable under FTC law and may form the basis of a consumer protection claim by the state.
4. Avoid the Appearance of Collusion with Other Businesses
Refusal to supply goods to another party down the supply chain may risk violating federal and state antitrust laws. As the FTC has stated, while companies have the right to choose their business partners, denial cannot be the product of an anticompetitive agreement or part of a predatory or exclusionary business strategy.9 For example, a manufacturer may refuse to supply a dealer for unrelated reasons, but not if the manufacturer has agreed with the dealer’s competitors to exclude the dealer in order to maintain a certain market price for the goods.
In addition to the FTC, most state AGs have broad authority to enforce antitrust laws. Companies should think carefully before refusing supply contracts from another party and ensure that their reasons for doing so do not include exclusion of the other party from the market.
5. Stay alert to scams and fraud from other parts of the supply chain
When economic pressures are high, reputable companies need to be even more vigilant than usual to protect themselves against supply chain scams or fraud, which could both negatively impact their business and lead them inadvertently pass on delays or costs to consumers. As AG Schmidt warned during the supply chain disruptions in late 2021, such conditions present an opportunity for increased fraud and scams, especially online scams.ten Additionally, price gouging or misrepresentation of a product’s origin at any point in the supply chain could have serious consequences for all parties involved.
By following these tips, companies can better serve their customers, while avoiding scrutiny from regulators. And any companies that get caught up in supply chain scams or fraud must act quickly to avoid serious consequences and penalties.