In many different countries, a bait and switch is known as a type of fraud. Bait and switch advertising occurs when a consumer thinks they are getting a certain product and the company falsely advertises it. Here are the two players in this transaction:
The person who is baited. This individual is usually a customer who is trying to buy a specific product or service.
The person who switches the product or service in question. This could include false advertising, or the absence of the product in question and a push for a different product. This person is usually the salesperson or sales advocate for a certain company.
Bait and Switch In Mortgages
Bait and switch advertising commonly refers to a lender or broker misleading consumers with a teaser rate or upselling them to a higher interest rate. An example of this may be a lender that offers a low introductory interest rate that increases dramatically overtime. A lender may opt for this strategy to entice prospective buyers to use their loans. While it is legal to offer adjustable rate mortgages, it is not legal to offer a rate with the idea of upselling a client into a higher and more expensive mortgage rate. The switch portion in this example is the upsell to the higher interest.
Although it is technically unlawful to bait and switch mortgage products to consumers, it is very difficult to prove beyond a reasonable doubt that a lender engaged in such a tactic. The reason filing a lawsuit against a lender for bait and switching is because a lender can claim that the borrower knowingly accepted and signed the mortgage product with the higher interest rate at their own discretion. Furthermore, a lender can use a defense against such a claim by stating that the borrower did not qualify for a lower interest rate, therefore could only qualify for the higher interest rate loan. Because loan qualification standards vary by lender, that defense will typically hold up in court.
An example of bait and switch advertising in mortgages is when a lender advertises a low interest loan, knowing that little to no customers can qualify for the rate. Using this strategy, the lender would then upsell the client to the higher rate loan. This increased rate helps the lender make more money by charging a higher basis point, which is the spread between the A.P.R. and rate set by the federal reserve.
Why Does Bait and Switch Happen
Bait and switch most commonly happens in the retail environment when a customer is in a store or online shopping. If a customer is baited into buying a certain product, they generally don’t benefit in any way. However, the salesperson is able to not only reel in clients, but attract them and make a sale without having to do extraneous work. It’s simple economics. If a company does not have to pay as much to stock every product they want to sell, yet pull in people who will settle for a different product, the company will make more money.
Non-retail Bait and Switch
While bait and switch occurs most frequently in the retail environment, there are other instances in which bait and switch can happen as well. These include, but are not limited to:
Mortgages
Airline or travel promotions/ agencies
Marketing for certain foods
Business Consultants such as loan advisers, real estate agents, and stock market specialists
Used car dealerships/ Craiglist postings
Laws Regarding Bait and Switch
Since bait and switch are fairly common, many countries have taken steps to protect consumers from falling in to the trap of bait and switch. Here are some common rulings:
In the United States, the Federal Trade Commission (FTC) protects consumers under numerous bait and switch laws. If a company advertises a certain product even when they do not have the product, and a consumer feels they are unfairly treated, a consumer is required to contact the FTC and can pursue a lawsuit against the company. Yet, if a salesperson pressures the customer to buy a certain product, this is not considered bait and switch and is legal.
In countries like England, bait and switch is strictly prohibited to protect consumers from false advertising. The Consumer Protection from Unfair Trading Regulations, formulated in 2008, helps guarantee consumers will have fair transactions and if not, companies who break these laws will be criminally charged.
Protections Against Bait and Switch
In general, it is important for consumers to be well-informed about products they are buying, paying close attention to the advertising strategies companies use. The following are some tips that consumers can use to protect themselves from bait and switch:
Carefully analyze advertising.
Avoid online scams. If a website seems unreliable, offers products that are too good or too cheap to be true.
When making big purchases, visit the product in person.
Be detailed oriented and ask the salesperson for all available information.
