Legal Issues to Know Before Offering a Sale or Coupon

Discounts, sales, and coupons are great ways to boost sales transactions, especially during slow periods or when trying to clear overstock. According to one estimate, 62% of U.S. consumers actively search for and use promo codes, discounts, and coupons when shopping online. These types of promotions can help your business incentivize repeat visits, upsell low-volume products, and reward customers for their brand loyalty.

However, before you host a sale or offer a coupon discount, make sure you’re aware of the legal regulations in place to protect customers. Here are some legal issues to know before launching a sale or coupon at your venture.

Background: promotional pricing and fair advertising

Discounts, sales, coupons, and other forms of promotional pricing are governed by the Federal Trade Commission (FTC) and regulations at the individual state level. The FTC rules can be found in the Guides Against Deceptive Pricing, commonly known as “The Guides.” The Guides aim to protect customers from deceptive pricing by requiring businesses to offer an item at a fair price, for a reasonable period of time, and in good faith before lowering the price to encourage sales.

“The FTC considers it deceptive to offer an item for sale at a higher price for a short period of time in order to support a claim that an item is discounted when the price is then lowered,” Thomson Reuters Practical Law states.

The Guides, however, are not prescriptive: The FTC has not taken action to enforce these regulations since the Nixon administration. As a result, businesses are liable to class action lawsuits or enforcement by individual state regulators. For instance, in 2017, the advocacy group Consumer Watchdog asked the FTC to look into deceptive pricing by Amazon. Consumer Watchdog’s analysis found that in 61% of products with reference prices, Amazon’s reference prices were higher than prices for the same product in the previous 90 days.

“Consumer Watchdog argued that the deceptive list prices make Amazon prices look like a bargain, and asked the FTC to stop Amazon from buying Whole Foods while the deceptive discounting is occurring,” reported Reuters.

The FTC’s new Rule on Unfair or Deceptive Fees

As of May 12, 2025, a new rule came into effect that banned bait-and-switch pricing related to live events. “The Rule prohibits bait-and-switch pricing and other tactics used to hide total prices and mislead people about fees in the live-event ticketing and short-term lodging industries,” wrote the FTC. “The Rule also furthers President Trump’s Executive Order on Combating Unfair Practices in the Live Entertainment Market by ensuring price transparency at all stages of the live-event ticket-purchase process, including the secondary ticketing market.”

This rule means that businesses must include all amounts that the customer will be required to pay (such as processing fees for concert tickets) in the total price. If your business passes along costs related to tariffs, inflation, or other market factors, those must be included in the total price. It does not apply to taxes or fees charged by the government or shipping costs (handling costs must be included).

The FTC published FAQs to provide guidance for businesses subject to this rule.

What types of discounts are considered deceptive?

One way to avoid a deceptive pricing lawsuit is to stay away from former price comparisons. A former price comparison is a type of “was/now” pricing that makes a deal look better than it really is. Here’s an example of what this might look like, described in the FTC regulations:

John Doe is a retailer of Brand X fountain pens, which cost him $5 each. His usual markup is 50 percent over cost; that is, his regular retail price is $7.50. In order to subsequently offer an unusual “bargain,” Doe begins offering Brand X at $10 per pen. He realizes that he will be able to sell no, or very few, pens at this inflated price. But he doesn't care, for he maintains that price for only a few days. Then he “cuts” the price to its usual level—$7.50—and advertises: “Terrific Bargain: X Pens, Were $10, Now Only $7.50!” This is obviously a false claim. The advertised “bargain” is not genuine.

The FTC also has specific guidance around the use of the word “free” in a promotion. When making a “free” offer, merchants must set forth “clearly and conspicuously at the outset of the offer” all the terms and conditions that a customer must meet in order to receive the free item. There should be “no reasonable probability” that the offer might be misunderstood.

[Read more: Using Direct Mail to Promote Your Business? How to Get Started]

State-specific laws and variations on promotional pricing

Individual states often impose additional, and sometimes stricter, requirements. These state-specific laws can vary significantly, affecting how businesses must structure, advertise, and substantiate their promotional offers.

California is one of the most heavily regulated markets when it comes to promotional pricing. California is known for aggressive enforcement under its Unfair Competition Law (UCL) and False Advertising Law (FAL). The state has seen the majority of deceptive pricing lawsuits, often focusing on whether the “original” price was ever actually offered to consumers.

New Jersey, Oregon, Washington, and Illinois also have strong consumer protection laws and see frequent litigation over promotional pricing.

The legal risks of BOGO and flash sale tactics

Buy one, get one free (BOGO) is an advertising tactic that can land your company in hot water. “According to Consumer Reports, more than 150 lawsuits have been filed against dozens of retailers in the last few years over misleading BOGO deals. Companies included in BOGO lawsuits include Burger King, MyPillow, and VisionWorks,” wrote Top Class Actions.

Flash sale tactics are also tricky. Some states limit how long a seller can advertise a going-out-of-business flash sale. So-called “doorbuster deals” that are common on Black Friday can also be an issue. “Advertising a sale while intending to stock a limited amount of—and therefore sell out of—an item advertised is legal in the U.S. if the retailer makes clear in its advertisements that quantities are limited, or by offering rain checks on sold-out items,” wrote Consumer Reports.

BOGO deals are best avoided if you’re worried about liability. Flash sales are less risky; however, make sure you’re not trying to dupe customers to avoid any potential lawsuits.

How to avoid a deceptive pricing lawsuit

Again, the FTC can do little to enforce its guidance against deceptive pricing. However, you can open your business to the risk of a lawsuit if customers believe you are using price inflation or confusing coupon terms and conditions to trick people into buying more.

The best option when running a sale or discount is to make sure you’re offering genuine value to your customers. Sale prices should be meaningful and significant. “The price reduction should be sufficiently large enough that the consumer would believe they were receiving a genuine bargain if they knew the amount of the price reduction,” wrote Thomson Reuters.

The bottom line: Do not artificially inflate prices to later make it seem like you’re offering a price reduction. Make sure that discounts are only used after offering the product at a normal price for a reasonable amount of time. And, when offering a coupon, make sure that the terms and conditions are clear and easily understandable.

[Read more: 7 Ways Your Business Can Get Ready For Black Friday (It's Not Just for the Big Guys)]

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