Transcript Chapter 20: Consumer Protection

Chapter 20: Consumer Protection
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Selected Areas of Consumer Law
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Deceptive Advertising
 Occurs if a reasonable consumer
would be misled by the advertising
claim.
• Puffery: Vague generalities and obvious
exaggerations are permissible and not
considered deceptive. 
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Deceptive Advertising
 Bait and Switch.
• Advertising of a product at an
attractively low price to lure customers
in to buy more expensive items.
 Online Deceptive Advertising.
• FTC monitors websites for deceptive
claims involving everything from medical
treatments, to exercise equipment. 
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Deceptive Advertising
 Online Advertising (cont’d).
• 1. All ads—both online and offline—must
be truthful and not misleading.
• 2. The claims made in an ad must be
substantiated; that is, advertisers must
have evidence to back up their claims. 
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Deceptive Advertising
 Online Advertising (cont’d).
• 3. Ads cannot be unfair, which the FTC
defines as “likely to cause substantial
consumer injury that ads must: be truthful,
substantiated, and fair.
• CASE 20.1 Hyptertouch, Inc. v
ValueClick, Inc. (2011). Why was the
state SPAM law preempted by the federal
CAN-SPAM Act?
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Deceptive Advertising
 Federal Trade Commission Actions.
• The FTC is charged with enforcing federal
laws against deceptive advertising, can:
• Issue Complaint Orders.
• Issue Cease and Desist Orders.
–Counteradvertising.
–Multiple Product Order.
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Telemarketing and
Fax Advertising
 Telephone Consumer Protection Act:
Prohibits telephone solicitations using
automated dialing systems or a prerecorded voice or unsolicited faxes.
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Telemarketing and
Fax Advertising
 Telemarketing and Consumer Fraud
and Abuse Prevention Act 1994:
requires telemarketers to identify
themselves and not misrepresent facts.
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Labeling and Packaging Laws
 Labeling must be accurate, and must
use words that are easily understood
by the ordinary consumer.
 Federal Statutes: product labeling and
packaging are regulated by various laws,
depending on the product. 
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Labeling and Packaging Laws
 Federal Statutes (cont’d).
• CASE 20.2 PADUANO V. AMERICAN
MOTOR HONDA CO. (2009). Is a state
action for false advertising better for the
consumer?
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Labeling and Packaging Laws
 Food Labeling.
• Fair Packaging and Labeling Act
requires food product labels to identify:
• 1) the product;
• (2) the net quantity of the contents and, if the
number of servings is stated, the size of a
serving;
• (3) the manufacturer; and
• (4) the packager or distributor, plus additional
requirements on descriptions.
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Labeling and Packaging Laws
 New Menu Labeling Regulations.
• President Obama signed new labeling law
in 2010, aimed at combating obesity.
• FDA is developing a national standard for
menu and caloric information.
• Applies to any restaurant chain with over
20 restaurants.
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Sales
 Door-to-Door sales. 
 Telephone and Mail Order Sales. 
 Online Sales. 
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Sales
 Door-To-Door Sales.
• The FTC and many states require that, for
door-to-door sales, consumers have a postsale “cooling-off” period during which they
can cancel their purchase without
obligation.
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Sales
 Telephone and Mail-Order Sales.
• FTC rules require mail and telephone
merchants to:
• Ship orders within the time promised in
their catalogues and advertisements,
• Notify consumers when orders cannot be
shipped on time, and
• Issue timely refunds when orders cannot
be shipped.
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Sales
 Telephone and Mail-Order Sales.
• The Postal Reorganization Act of 1970
provides that unsolicited merchandise sent
by U.S. mail may be retained, used,
discarded, or disposed of in any manner
deemed appropriate, without the recipient’s
incurring any obligation to the sender.
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Sales
 Online Sales.
• FTC and other federal agencies have
brought a number of enforcement actions
against deceptive online sales.
• Some states are now requiring explicit
refund and return policies.
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Protection of Health and Safety
 Food and Drugs.
• Federal Food, Drug, and Cosmetic Act.
• This statute protects consumers against
adulterated and misbranded foods and
drugs.
• Also charges the FDA to ensuring drugs are
safe and effective before marketed to the
public.
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Protection of Health and Safety
 Consumer Product Safety.
• The Consumer Product Safety Commission
(CPSC) has broad regulatory authority over
the safety of consumer products, including:
1. Setting safety standards for consumer
products.
2. Ban the manufacture and sale of any
product that the commission believes
poses an “unreasonable risk” to
consumers. 
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Protection of Health and Safety
 Consumer Product Safety.
• The Consumer Product Safety Commission
(CPSC) has the authority to:
3. Remove from the market any products it
believes to be imminently hazardous and issue
recalls.
4. Require manufacturers to report on any
products already sold or intended for sale if
the products have proved to be hazardous.
5. Administer other product-safety legislation,
such as the Child Protection and Toy Safety
Act.
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Protection of Health and Safety
 Health Care Reforms.
• In 2010, President Obama signed the
new Patient Protection and Affordable
Care Act.
• Reforms help more children and young
adults get health coverage.
• Businesses are now given tax credits to
assist in providing healthcare.
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Credit Protection
 Truth-in-Lending Act. 
 Fair Credit Reporting Act. 
 Fair Debt Collection Practices Act.
 Wage Garnishment.
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Credit Protection
 Truth in Lending Act.
• TILA is essentially a disclosure law. Only
applies to firms who lend funds, sell on
credit, or arrange an extension of credit.
• Disclosure Requirements.
• Equal Credit Opportunity: requires credit
be extended without regard to race, sex,
color, national origin, age, or marital
status. 
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Credit Protection
 Truth in Lending Act.
• Credit Card Rules.
• Limits consumer liability for credit card
debt in cases of stolen cards to $50.
• 2010 Credit Card Protections.
1. A company may not retroactively increase
the interest rates on existing card balances,
unless the account is sixty days delinquent.
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Credit Protection
 Truth in Lending Act.
• 2010 Credit Card Protections.
2. A company must provide forty-five days’
advance notice to consumers before
changing the credit card terms.
3. Monthly bills must be sent to cardholders
twenty-one days before the due date. 
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Credit Protection
 Truth in Lending Act.
• 2010 Credit Card Protections.
4. The interest rate charged on a customer’s
credit-card balance may not be increased
except in specific situations, such as when
a promotional rate ends.
5. A company may not charge over limit fees
except in specified situations.
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Credit Protection
 Truth in Lending Act.
• 2010 Credit Card Protections.
6. If a customer has balances at different
interest rates, payments in excess of the
minimum amount due must be applied
first to the balance with the highest rate.
7. A company may not compute finance
charges based on the previous billing cycle
(known as double-cycle billing).
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Credit Protection
 Truth in Lending Act.
• Consumer Leases.
 Fair Credit Reporting Act.
• Protects consumers against inaccurate
credit reporting and requires lenders and
creditors to correct errors.
• Consumer Notification and Inaccurate
Information. If denied credit, consumer
has right to source of information.
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Credit Protection
 Fair And Accurate Credit Transactions
Act (combat identity theft).
• Allows consumers to place an alert on
national fraud alert system.
• Requires major credit companies provide
free credit report.
• Allows consumers victimized by identity
theft to rebuild their credit.
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Credit Protection
 Fair Debt Collection Practices Act.
• 1. Contact the debtor at the debtor’s place
of employment if the debtor’s employer
objects.
• 2. Contact the debtor during inconvenient
or unusual times or at any time if the
debtor is being represented by an attorney.

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Credit Protection
 Fair Debt Collection Practices Act.
• 3. Contact third parties other than the
debtor’s parents, spouse, or financial
adviser about payment of a debt without
court order.
• 4. Harass or intimidate debtor or make
false or misleading statements.
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Credit Protection
 Fair Debt Collection Practices Act.
• 5. Communicate with the debtor at any
time after receiving notice that the debtor
is refusing to pay the debt, except to advise
the debtor of further action to be taken by
the collection agency.
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Credit Protection
 Fair Debt Collection Practices Act.
• Notification and Bona Fide Errors.
• Bona fide error is a defense against
violations.
• CASE 20.3 JERMAN V. CARLISLE, MCNELLIE,
RINI, KRAMER & ULRICH, LPA (2010). What is
the status of this defense after this case?
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