Transcript Consumer Protection

Chapter 20
Consumer Protection
Chapter Objectives
1. Summarize the major consumer
protection laws.
2. Indicate some specific ways in which
consumers are protected against
deceptive advertising and sales
practices.
3. Explain how the government protects
consumers who are involved in credit
transactions.
4. List and describe the major statutes that
protect consumer health and safety.
5. Identify state consumer protection laws.
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Deceptive Advertising
One of the earliest—and still one of
the most important—federal
consumer protection laws was the
Federal Trade Commission Act of
1914.
The act created the Federal Trade
Commission (FTC) to carry out the
broadly stated goal of preventing
unfair and deceptive trade
practices, including deceptive
advertising.
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Deceptive Advertising Defined
Generally, an advertising claim
will be deemed deceptive if it
would mislead a reasonable
consumer.
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Bait-and-Switch Advertising
Advertising a lower-priced
product (the “bait”) when the
intention is not to sell the
advertised product but to lure
consumers into the store and
convince them to buy a higherpriced product (the “switch”)
is prohibited by the FTC.
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FTC Actions Against
Deceptive Advertising
Cease-and-desist orders
 Require the advertiser to stop the
challenged advertising.
Counter advertising
 Require the advertiser to advertise to
correct the earlier misinformation.
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Case 20.1 FTC v. Pantron
Pantron I claimed that its Helsinki
Formula reduced hair loss and promoted
hair growth. The FTC filed a suit claiming
that this constituted a deceptive trade
practice.
The court concluded the product had a
“placebo effect” and allowed Pantron to
continue with some claims. The FTC
appealed this order.
What other government agencies might
have taken action against Pantron and
the Helsinki Formula, which is classified
as a drug and sold through the mail?
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Telemarketing and
Electronic Advertising
The Telephone Consumer
Protection Act of 1991 prohibits
telephone solicitation using an
automatic telephone dialing system
or a prerecorded voice, as well as
the transmission of advertising
materials via fax without first
obtaining the recipient’s
permission to do so.
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Labeling and Packaging Laws
Manufacturers must comply
with labeling or packaging
requirements for their specific
products.
In general, all labels must be
accurate and not misleading.
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Sales
Many of the laws that protect
consumers concern the disclosure
of certain terms in sales
transactions and provide rules
governing the various forms of
sales, such as:
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door-to-door sales
mail-order sales
referral sales
unsolicited receipt of merchandise
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Door-to-Door Sales
The FTC requires all door-to-door
sellers to give consumers three
days (a “cooling-off” period) to
cancel any sale.
States also provide for similar
protection.
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Telephone and
Mail-Order Sales
Federal and state statutes and
regulations govern certain
practices of sellers who solicit
over the telephone or through
the mails and prohibit the use
of the mails to defraud
individuals.
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FTC Regulation on
Specific Industries
The FTC has regulations that
apply to specific industries,
such as the used-car business
and funeral homes.
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Real Estate Sales
Various federal and state laws
apply to consumer transactions
involving real estate.
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Credit Protection
Because of the extensive use of
credit by American consumers,
credit protection has become an
especially important area
regulated by consumer
protection legislation.
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The Truth-in-Lending Act
A disclosure law that requires
sellers and lenders to disclose
credit terms or loan terms in
certain transactions, including:
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retail and installment sales and loans
car loans
home improvement loans
certain real estate loans
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The Truth-in-Lending Act
The TILA provides for the following:
 Equal credit opportunity—Creditors are prohibited
from discriminating on the basis of race, religion,
marital status, gender, and so on.
 Credit-card protection—Credit-card users may
withhold payment for a faulty product sold, or for an
error in billing, until the dispute is resolved; liability
of cardholders for unauthorized charges is limited to
$50, providing notice requirements are met;
consumers are not liable for unauthorized charges
made on unsolicited credit cards.
 Consumer leases—The CLA of 1988 protects
consumers who lease automobiles and other goods
priced at $25,000 or less if the lease term exceeds
four months.
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Case 20.2 Purtle v.
Eldridge Auto Sales, Inc.
Purtle purchased a Blazer from Eldridge and
misrepresented her employment status.
In the credit contract, Eldridge did not fulfill
the TILA and its regulations.
When Purtle defaulted and Eldridge
repossessed the car, Purtle sued alleging
violations of TILA. Court awarded Purtle
damages and Eldridge appealed.
Do you think that the greatest number of
consumers are protected by strict
enforcement of consumer laws?
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Consumer Abuse of TILA
In essence, the TILA is a “strict liability”
statute (this is generally true of most
consumer protection statutes).
Intention normally is irrelevant in
determining whether a consumer
protection statute has been violated.
In your opinion, should the court give
more weight to the circumstances
surrounding a transaction and the intent
factor in deciding cases involving alleged
TILA violations? Why or why not?
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Case 20.3 Federal Deposit
Insurance Corp. v. Medmark, Inc.
Merchants Bank asked Bruce Shalbert to sign
a guaranty of repayment for a loan to his
company, Medmark, Inc. Later, for another
loan, the bank required his wife Mary, who had
nothing to do with Medmark, to sign the
guaranty. When the bank failed, FDIC filed a
suit to recover the amount of the loans.
Shalberg filed a motion for summary judgment
contending that the bank had violated the
ECOA.
Why does the ECOA prohibit lenders from requiring a
spouse’s signature on a credit application if the
applicant independently qualifies for the credit?
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Fair Credit Reporting Act
Entitles consumers to
request verification of the
accuracy of a credit report
and to have unverified
information removed from
their files.
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The Growing Problem of Identity Theft
Common forms of ID theft
 Credit card fraud—54%
 Fraudulent communication services—28%
 Bank fraud—17%
 To obtain false documents—1%
The FTC established the Identity Theft Data
Clearinghouse to receive and process consumer
complaints. The FTC also established an ID theft
hotline and website. Congress is currently
considering a bill designed to prevent ID theft.
“ID theft is a natural consequence of living in an
electronic age and there is little that government
can do to effectively control it.” Analyze this
statement.
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Case 20.4 Guimond v. Trans Union
Credit Information Co.
Guimond notified Trans Union of
inaccuracies in her credit file and was
assured they would be corrected. When
it was not corrected for a year, Guimond
filed a suit to recover damages.
Trans Union countered that Guimond had
no claim because she had not been
denied credit before the information was
corrected. The court agreed and
Guimond appealed.
How do the policies underlying the FCRA
support the court’s interpretation of the
statute in Guimond’s case?
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Fair Debt Collection
Practices Act
Prohibits debt collectors from
using unfair debt-collection
practices, such as contacting
the debtor at his or her place
of employment if the employer
objects or at unreasonable
times, contacting third parties
about the debt, harassing the
debtor, and so on.
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Case 20.5 Snow v. Jesse
L. Riddle, P.C.
Alan Snow paid for merchandise with a check
with insufficient funds at a Circle-K store. The
store sent the returned check to its attorney,
Jesse L. Riddle, P.C., for collection. Riddle sent
a letter to Snow informing him that he must pay
the check amount and the $15 service fee
within 15 days or a suit will be filed. Snow paid
the check and filed a suit against Riddle
alleging the letter violated the FDCPA. Riddle
filed for a motion to dismiss and the court
granted it.
Should those who write bad checks to pay for
consumer goods or services be protected by the
FDCPA?
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Consumer Health and Safety
Laws discussed earlier
regarding the labeling and
packaging of products go a
long way toward promoting
consumer health and safety.
Laws include:
 Federal Food, Drug and Cosmetic Act
 Consumer Product Safety Act
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Federal Food, Drug
and Cosmetic Act
The FFDCA of 1938, as amended,
protects consumers against
adulterated and misbranded foods
and drugs.
The act establishes food standards,
specifies safe levels of potentially
hazardous food additives, and sets
classifications of food and food
advertising.
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Consumer Product Safety Act
The Consumer Product Safety Act of
1972 seeks to protect consumers
from risk of injury from hazardous
products.
The Consumer Product Safety
Commission has the power to
remove products that are deemed
imminently hazardous from the
market and to ban the manufacture
and sale of hazardous products.
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State Consumer
Protection Laws
State laws often provide for greater
consumer protection against deceptive
trade practices than do federal laws.
In addition, the warranty and
unconscionability provisions of the
Uniform Commercial Code protect
consumers against sellers’ deceptive
practices.
The Uniform Consumer Credit Code,
which has not been widely adopted by
the states, also provides credit
protection for consumers.
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For Review
1. When will advertising be deemed
deceptive?
2. How does the Federal Food, Drug and
Cosmetic Act protect consumers?
3. What are the major federal statutes
providing for consumer protection in
credit transactions?
4. How does the Consumer Product
Safety Act protect consumers?
5. What are the major state statutes
that protect consumers?
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