A phantom markdown is a “sale” price measured from a reference price the item was rarely or never actually sold at. Federal pricing guides and state laws, led by California’s three-month former-price rule, restrict the practice, and fake-discount class actions against retailers have multiplied.
What Is a Phantom Markdown?
A phantom markdown is a sale price measured from a number that was never really the price. The tag or product page shows a crossed-out “regular” or “original” price, a lower sale price and often a percentage saved, but the higher figure was not what the store actually charged for the item for any meaningful stretch of time. The discount exists only on the tag.The higher number is called a reference price, and it does most of the persuading. The complaints in these cases argue that shoppers judge a deal by how far the price has supposedly fallen, not just by the price itself. A $40 sweater reads differently when it sits beside a struck-through $100.
How the Fake Reference Price Works
The patterns alleged in fake-discount class actions tend to fall into a few shapes:The permanent sale. An item is listed at a “regular” price for a few days, or not at all, and then sold “on sale” for months. Complaints often rely on archived snapshots of a retailer’s website showing the same item at the same discounted price week after week.
The resetting deadline. A “limited time” banner or countdown timer that restarts, so the same offer is always about to expire. The dark patterns label covers this kind of false urgency.
The “compare at” or “value” price. A comparison figure that suggests what the item sells for elsewhere, attached to goods that are not sold anywhere else, such as outlet-only or private-label lines.
The stale list price. A manufacturer’s suggested price or an old list price that the market abandoned long ago, still shown as the benchmark for a discount.
What the Law Says
The federal standard is the FTC’s Guides Against Deceptive Pricing, in their current form since 1964. Under 16 C.F.R. § 233.1, a former-price comparison is legitimate when the former price is “the actual, bona fide price at which the article was offered to the public on a regular basis for a reasonably substantial period of time.” A former price set artificially high so that a later reduction looks large is, in the guides’ words, “fictitious.” The guides explain how the FTC reads the FTC Act; they do not create a private right to sue, and the agency has brought few cases under them in recent decades.Most fake-discount litigation instead runs through state consumer protection law. California is the main venue because its rule is specific: Business and Professions Code § 17501 says a price may not be advertised as a former price unless it was the prevailing market price within the three months immediately before the ad, or the ad clearly states when that price prevailed. Shoppers sue under that section together with California’s False Advertising Law, Unfair Competition Law and Consumers Legal Remedies Act. In Hinojos v. Kohl’s Corp. (9th Cir. 2013), the federal appeals court held that a shopper who buys an item because of a false “original” price has suffered an economic injury and can sue, even if the item was worth what was paid.
Other states rely on their general deceptive practices statutes, such as Florida’s Deceptive and Unfair Trade Practices Act and North Carolina’s Unfair and Deceptive Trade Practices Act. Online marketplaces add a wrinkle: the reference price may come from the seller, the platform or the manufacturer, and complaints often fight over who is responsible for it.
The Lawsuits Over Fake Sale Prices
Fake-discount suits have been filed against apparel chains, electronics retailers, direct-to-consumer brands and marketplaces. OCA is tracking several, including claims against Nike, Duluth Trading, iRobot, American Eagle, Best Buy, Amazon’s Prime Day discounts and Shein. In each, the allegations are unproven unless and until a court rules or the case settles.The cases are harder than they look. A shopper who paid $40 for a sweater still has the sweater, so courts and defendants press on what the loss actually is. Plaintiffs usually argue they paid a price premium created by the fake discount, or that they would not have bought at all. Some courts accept those theories; others dismiss for lack of a measurable loss, or because a reasonable shopper would not have relied on the reference price. Class certification can turn on whether a retailer’s pricing history can be proved for everyone at once.
When these cases settle, the payout is often store credit or a voucher rather than cash, sometimes with a cash option for those who ask. Recent examples on OCA include the Fashion Nova discounted-price settlement ($12 vouchers), the mattress discount settlement covering Leesa, Helix, Bear and Brooklyn Bedding ($110 store credit or a cash election), and the Mixbook discount pricing settlement ($12 credit or cash). Settlements also sometimes require the retailer to change how it displays reference prices.
How Shoppers Spot a Phantom Markdown
Nothing on a tag proves a price is fake, but the same warning signs come up again and again in these complaints:• the item is “on sale” every time the shopper looks;
• a countdown timer resets, or a “today only” offer returns the next day;
• price-history tools for large marketplaces show the item rarely or never sold at the crossed-out price;
• a “compare at” or “value” price appears on goods sold only in that store; and
• the discount percentage is unusually large and nearly identical across a whole category.
Screenshots with dates are what complaints in these cases rely on, because retailer websites change constantly. State attorneys general and the FTC accept consumer complaints about deceptive pricing, and OCA’s state attorney general directory lists where each state takes them.
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Frequently Asked Questions
What is a phantom markdown?
A phantom markdown is a discount measured from a reference price that the seller rarely or never actually charged. The tag shows a crossed-out “regular,” “original” or “compare at” price next to a lower sale price, but the higher price was never the real selling price for any meaningful time, so the advertised savings are partly or entirely illusory.
Is it illegal to advertise a fake original price?
Federal and state law restrict it. The Federal Trade Commission’s Guides Against Deceptive Pricing, 16 C.F.R. § 233.1, say a former-price comparison is fair only if the former price was offered to the public in good faith for a reasonably substantial period. California’s Business and Professions Code § 17501 says a price cannot be advertised as a former price unless it was the prevailing market price within the three months before the ad, or the ad clearly states when it was. Other states have their own consumer protection statutes and rules. Whether a particular tag breaks any of these laws depends on the facts and is decided case by case.
How do fake sale price class actions usually end?
Many are dismissed or settled. Settlements in pricing cases often provide store credit, vouchers or modest cash rather than a full refund, because the shopper still received the product. Some cases also produce changes to how a retailer displays reference prices. Courts have dismissed others, often over how damages would be measured or whether the shopper relied on the reference price.
How can a shopper tell whether a sale price is real?
Price-history tools for large online marketplaces show how long an item has sold at a given price. Other signs that commonly appear in fake-discount complaints are a “sale” that never ends, a countdown timer that resets, an “original” price that the store’s own history never shows, and “compare at” or “value” prices for items sold only in that store. None of these proves a violation by itself.
Does a shopper need a receipt to join a fake discount class action?
It depends on the settlement. Some pricing settlements pay automatically or accept a claim with basic identifying information, while others ask for an order number or proof of purchase. Each settlement’s notice and claim form state what is required.
Sources
• eCFR — 16 C.F.R. Part 233, Guides Against Deceptive Pricing• California Legislative Information — Business and Professions Code § 17501
• Hinojos v. Kohl’s Corp., 718 F.3d 1098 (9th Cir. 2013)
