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Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539
Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539

Understanding Civil Fraud: A Comprehensive Guide to Carpet Bagging Scams

Author: Azizur Rahman  28 October 2013
4 min read

Six of the big carpet and furniture retailers have come under investigation for misleading claims about pricing. But why have their sales practices brought the authorities into the showrooms?

We’ve all seen the adverts. Great promises are made about how much you can save right now on a leather sofa, a plush new carpet or a stylish dining suite. Drastic price reductions, interest free credit and many other perks are all available as part of the offers, which seem to have a habit of ending on a Sunday or bank holiday Monday.

It would be interesting to discover just how much attention the great British furniture and carpet-buying public pays to the seemingly constant cycle of adverts that trumpet such giveaways. Now, however, they seem to have attracted the attention of some very important people. But the chances of clinching a sale look very slim indeed.

The Office of Fair Trading (OFT) has announced that it is investigating whether six of these major high street retailers have been misleading would-be buyers by using fake prices. The British Retail Consortium has been critical of the OFT’s approach, claiming that it has breached its own guidelines by assuming consumer protection laws have been broken by the Big Six and by making the names of the retailers public. In response, the OFT denied making the names public. But it made it quite clear that its months of research had found systematic examples of artificially infl ated reference pricing – the use of misleading information on pre-sale prices - to exaggerate the scale of sales reductions and the bargains that were available. To put it simply, the OFT is saying that a store’s claims that it is selling a £999 sofa for just £399 are misleading because the sofa was hardly (if ever) sold at that larger price. OFT monitoring of the companies is said to show that on average only 5% of sales were ever completed at the higher original price cited in the adverts – and in many cases no sales at all were made at that price. OFT director Gaucho Rasmussen said that such pricing practices “can mislead consumers into thinking the item they have bought is of higher value and quality, (and) pressure them to buy there and then so they don’t miss out.’’

The six retailers have been asked to stop using such pricing tactics. They have until the autumn to make their representations on this issue to the OFT. Under Department of Business, Innovation and Skills guidelines, the new lower price in the sale should not last for longer than the old higher price was available for. These guidelines also stipulate that “a previous price used as a reference price to make a price comparison should be a genuine retail price”.

At this stage, the retailers are keen to distance their stores from any suggestion of deliberate wrongdoing or calculated attempts to mislead customers. It may be the case they believe privately that what they were doing is all part of the retail experience – making the customer feel good when they hand over the money by letting them believe they’ve got more for their cash than they normally would. And it’s fair to say that there may be many customers out there who buy that £399 sofa without caring what price it may or may not have been on sale for in previous weeks or months. To them, this talk of higher original pricing is something to be taken with a pinch of salt; something similar to the car salesman who says he’shad a lot of interest in the car he’s trying to sell you.

Yet for people who aren’t quite so worldly wise, such pricing claims are clearly misleading. And by the letter of the law, they can be considered fraud. This may sound like a straitlaced approach to what most people regard as routine salesmanship but, nonetheless, fraud is what it is. Under Section 1 of the Fraud Act 2006, such conduct can quite clearly be classed as the offence of fraud by false representation. The Act defi nes fraud by false representation as when a person dishonestly makes a false representation with intent to gain or cause loss to another, or to expose another to risk of loss. Under the Act, there is no requirement of an actual loss, risk of loss or even the need to be able to prove that the alleged victim believed the false representations. For a representation to be false in accordance with the Act, the person making that statement must “know that it is or might be, untrue or misleading”. Such a definition covers all situations where the person making the claim knows or merely believes there is a chance that it is misleading. The catch-all nature of this defi nition was created so that people involved in boiler room operations, mortgage frauds or similar schemes that promised unrealistically high returns on investment could not merely shrug their shoulders and say they weren’t misleading anyone as they couldn’t foresee how things would turn out. After all, it is far easier for the authorities to prove that someone knew what they were saying may be misleading rather than having to show that they knew for a fact it was incorrect.

This part of the Fraud Act could perhaps cause a few headaches for the men and women who run and staff the Big Six retailers who have come under scrutiny from the OFT. It is unlikely that this investigation will end in prosecutions for fraud. At the moment, it seems as if the retailers are bracing themselves for a rap over the knuckles and the OFT is looking to secure undertakings that this will not happen again. The chance of this particular retail saga reaching the point of criminal prosecutions seems very slim.

At some point, it is inevitable that the retailers will produce proof that the higher prices did actually exist, even if only for a tiny period when nobody paid them any attention.

It is tempting to view what has happened as a bit of a non event. The retailers look like they will receive a telling off, the authorities are not taking an especially strict line – at least as regards criminal prosecutions – and there isn’t a huge outcry from members of the public claiming that they have been ripped off. Yet this should certainly serve as a reminder that everyone has to be careful to avoid misrepresentation if they want to remain free of prosecution.

It would not have taken a lot of forethought for the companies under investigation to have checked that all aspects of their sales operation were legally compliant. There are specialist legal fi rms who could have made sure that no laws were being breached. Unfortunately, it does not appear that these companies sought such advice. Now it appears that their ability to stay out of the courtroom is reliant on the OFT making them their very own special offer.

Azizur Rahman C 09369

Azizur Rahman

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Aziz Rahman is Senior Partner at Rahman Ravelli and its founder. His ability to coordinate national, international and multi-agency defences has led to success in some of the most significant corporate crime cases of this century and top rankings in international legal guides. He is recognised worldwide as one of the most capable legal experts regarding top-level, high-value commercial and financial disputes.

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