Legal Forum: Does Flat-Rate Pricing Deceive Consumers?

March 23, 2002
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Question:

Most states have consumer protection laws that govern the manner in which citizens are to be invoiced for services rendered. A few contractors suggest that their overhead is so high that they are forced to use a pricing method called flat rate to hide the labor cost they allegedly are required to charge to make a decent profit.

The consumer protection laws, however, imply that intentionally “hiding” the labor charges — for any purpose — is a violation of the state’s desire to have open and fair pricing of such work, as set forth in their adopted consumer protection laws.

Attorneys General in many states have successfully argued that using flat-rate pricing schemes is inherently anti-consumer, because it prevents the consumer from being able to differentiate the cost of labor and materials for the work done. Therefore, they assert it is illegal. Do you think flat-rate pricing deceives consumers?

Answer:

In my view, flat-rate pricing should not be viewed as inherently anti-consumer. Many consumers today like the relative convenience of “no-hassle,” flat-rate types of pricing, as demonstrated by the growing popularity of businesses like Car-Max that sell automobiles for a set price and relieve the customer of the need to negotiate or question specific items.

As long as the customer understands up front that he or she is being offered a set price, the customer can decide if he or she is satisfied with that type of arrangement. The customer is always free to call another contractor who will offer standard “time and materials” pricing.

With that having been said, whether flat-rate pricing complies with the laws of a particular state will, of course, depend on how the laws of the state are worded. As with many areas of the law, state requirements can vary considerably. The consumer protection statutes in many states are worded generally to prohibit false or misleading statements or knowing concealment of material facts.

Without more specific requirements in state regulations or other state laws, such generally worded statutory provisions should not prohibit the use of flat-rate pricing. On the other hand, some states have more specific requirements that would make the use of flat-rate pricing of questionable legality.

For example, consumer protection regulations in Ohio define prohibited deceptive acts or practices to include a failure to provide to the consumer an itemized list of repairs performed or services rendered, as well as the cost of those repairs or services, including the amount charged for labor.

Statements or opinions of a state Attorney General on the use of flat-rate pricing do not represent the law of the state, but they are certainly an indication of how the Attorney General will seek to enforce more general requirements of state law and therefore should also be carefully considered by contractors using flat-rate pricing.

Accordingly, contractors who are using flat-rate pricing or who are considering using it should review the laws of the state or states in which they offer their services, including any opinions issued by the Attorney General of the state, and make an assessment regarding whether flat-rate pricing may be used in that state.

Tom Jackson is an attorney with the Washington law firm of Kelley, Drye & Warren, LLP.

Note: This feature is intended only as a forum for information and general discussion. Any information provided is not in the nature of legal representation and is not intended to establish any attorney-client relationship. Any information provided should not be relied on without consulting an attorney to discuss the specific facts relevant to your situation.

Publication date: 03/25/2002

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