Dynamic Business Law Fourth Edition Chapter 45 Consumer Law Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Overview 45-1 What is the purpose of the Federal Trade Commission Act? 45-2 How does the Federal Trade Commission determine what constitutes deceptive advertising? 45-3 What is the purpose of labeling and packaging laws? 45-4 What are the different methods of sales? 45-5 What are the different acts that provide credit protection? 45-6 What are the different acts that help ensure consumer health and safety? Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education [45-2] Hypothetical Case (1 of 2) • Sheldon Elgin Jernigan III was intrigued by a commercial he saw on television for a new shower gel produced by Bilever Global, Inc called Thor's Hammer The advertisement depicted a bespectacled, pale, short and skinny male (i.e., a nerd) lamenting the absence of female interest in him Later in the ad, while surfing the Internet, the nerd read about the alluring power of Thor's Hammer to attract the fairer sex The nerd rushed to his local retailer and purchased the shower gel, returned home and showered with it, and then went out on the town The end of the commercial portrayed the former nerd with newfound confidence, surrounded by a host of beautiful women at a dance club Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education [45-3] Hypothetical Case (2 of 2) • • Reality immediately mimicked fiction, at least to a certain point Jernigan rushed out to the drugstore and purchased the shower gel, returned home and showered with it, and then, like the nerd in the ad, went out on the town The similarities ended there —Jernigan wandered dejectedly from club to club, with not a single female even giving him the time of day Jernigan believes Bilever Global, Inc has violated Section of the Federal Trade Commission Act More specifically, he believes the company's Thor's Hammer advertisement is unfair and deceptive Do you agree? [45-4] Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Hypothetical Case (1 of 2) • • Last year, Juan Ramirez purchased a washerdryer combination from I I Gregory Appliances, Inc Ramirez satisfied the monthly obligations on his I I Gregory credit card until he lost his job at D Funk Steel Industries, Inc He is now four months behind on his I I Gregory credit card payments I I Gregory has turned the matter over to a collection agency, Shady Way Collections, Inc Since Shady Way only gets paid if it recovers on delinquent accounts, the company is very aggressive about collecting overdue sums [45-5] Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Hypothetical Case (2 of 2) • • A representative of Shady Way has called Juan as early as 3:30 a.m and as late as 11:45 p.m., often using foul language when lecturing him about his debt repayment obligations Despite Ramirez's repeated proclamations that he will only deal with I I Gregory, Shady Way continues to contact him The agency has even called Ramirez's brother and sister, telling them how dishonorable their sibling is, how they should be ashamed of him, and that they need to tell Ramirez that real men pay their debts In its communications with Ramirez and his family, has Shady Way Collections, Inc violated the Fair Debt Collection Practices Act? If so, why should the law protect Ramirez? Has Ramirez violated his legal and ethical obligations by not repaying his credit card debt? Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education [45-6] Consumer Law • Definition: A statute or administrative rule serving to protect consumer interests [45-7] Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Federal Trade Commission (FTC) • • • • Created by Congress through Federal Trade Commission Act (FTCA) of 1914 Purpose of FTCA: Prevent fraud, deception, and unfair business practices Purpose of FTC: Enforce provisions of FTCA FTC methods to protect consumers: – Consumer education – Legal action [45-8] Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education How the FTC Brings an Action • • • • • FTC conducts an investigation FTC sends a complaint to the violator FTC and violator settle complaint through consent agreement If company refuses to enter consent agreement, FTC may issue formal administrative complaint, which leads to administrative hearing If company has violated the law, FTC issues a cease-and-desist order [45-9] Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Remedies for Violation of Ceaseand-Desist Order • FTC can: – Seek injunction against company – Fine company up to $10,000 per violation [45-10] Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Telemarketing and Electronic Advertising (1 of 3) • 1991 Telephone Consumer Protection Act: Telemarketers cannot use an automatic telephone dialing or prerecorded voice system [45-13] Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Telemarketing and Electronic Advertising (2 of 3) • Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994: Congress asked FTC to define deceptive and abusive telemarketing practices and requested that FTC create and enforce rules governing telemarketing that would prohibit such practices – According to FTC-created Telemarketing Sales Rule of 1995, telemarketers must:  Identify call as sales call  Identify product name and seller  Tell total cost of goods being sold  Notify listener/reader whether sale nonrefundable  Remove consumer's name from contact list if consumer so requests Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education [45-14] Telemarketing and Electronic Advertising (3 of 3) • Federal "Do Not Call" registry: Telemarketers cannot call consumers who have voluntarily placed their phone numbers on the federal Do Not Call list [45-15] Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Regulation of Tobacco Advertising • • Public Health Cigarette Smoking Act of 1970: Prohibits radio and television cigarette advertisements Smokeless Tobacco Health Education Act of 1986: Also prohibits radio and television advertisements for smokeless tobacco [45-16] Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Labeling and Packaging Laws • • Federal and state governments have passed laws requiring that manufacturers provide accurate, understandable labeling information If product is potentially harmful, manufacturer must make consumer aware of harm [45-17] Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Sales • • • Door-to-door sales: The Cooling-Off Rule gives consumers three days to cancel purchases they make from salespeople who come to their homes Telephone and mail-order sales: The Mail or Telephone Order Merchandise Rule of 1993 extends protections to those who purchase over the phone or by fax Unsolicited merchandise: Consumer allowed to treat any unsolicited merchandise as a gift; consumer free to keep/return unsolicited merchandise as he/she wishes [45-18] Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education FTC Regulation of Specific Industries • • • • Used-car sales Funeral home sales Real estate sales Online sales [45-19] Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Credit Protection (1 of 2) • • • • Truth In Lending Act (TILA): Requires that sellers disclose terms of credit/loan to facilitate consumer's comparison of a variety of credit lines/loans Fair Credit Reporting Act (FCRA): Ensures accurate credit reporting Fair Debt Collection Practices Act (FDCPA): Regulates actions of debt collectors that regularly attempt to collect debts on behalf of others Credit Card Fraud Act: Closes loopholes in federal laws to further punish people who commit credit card fraud Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education [45-20] Credit Protection (2 of 2) • • • Fair Credit Billing Act (FCBA): Seeks to remedy problems and abuses associated with billing errors Fair and Accurate Credit Transactions Act (FACTA): Takes affirmative actions to control and prosecute identity theft Credit Cardholders' Bill of Rights Act : Targets unfair credit card practices [45-21] Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Collection Practices Expressly Prohibited by the FDCPA • • • • • • • Contacting debtor at work (if debtor's employer objects) Contacting debtor who has notified collection agency that he/she wants no contact with agency Contacting debtor before a.m or after p.m Contacting third parties about the debt (exceptions: contacting debtor's parents, spouse, or financial adviser) Using obscene/threatening language when communicating with debtor Misrepresenting collection agency as a lawyer/police officer Note: These restrictions apply to all debt collectors Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education [45-22] Consumer Health and Safety • • Federal Food, Drug, and Cosmetic Act (FFDCA): Protects consumers against misbranded or adulterated food, drugs, medical devices, or cosmetics Consumer Product Safety Act: Created the Consumer Product Safety Commission (CPSC) to protect the public against unreasonable risks of injuries and deaths associated with consumer products [45-23] Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Hypothetical Case (1 of 2) • • Tancredo's Television and Appliance is preparing for its annual Labor Day sale The store's sales manager, Chase Randleman, has arranged for an ad to run in Sunday's edition of the local newspaper The full-page advertisement features a 60" Sanyoshiba TV with a price of $495 The average competitor price for a similar Sanyoshiba TV is $1,299 By 5:00 a.m on Labor Day, 300 eager customers wind around the store There is a mad rush to the door when the store opens at 8:00 a.m., and Bailey Simmons is the third customer through the door Simmons's principal goal is to head to the TV section and buy the Sanyoshiba, but he does stop for a few minutes to check out some other appliances [45-24] Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Hypothetical Case (2 of 2) • • At 8:15 a.m., Simmons informs a sales representative, Mike Petty, that he would like to purchase the $495 Sanyoshiba television, but Petty tells him he doesn't have another one like that to sell because the store already sold through the five they had in stock, and that the store has made a marketing decision to discontinue carrying the Sanyoshiba brand Petty tells Simmons, however, that he has an Toshamaha of the same size and options for $995, which is $200 less than its manufacturer's suggested retail price Is Tancredo's Television and Appliance legally obligated to either find and sell Simmons the featured television for the advertised price or sell him another brand of like dimensions and features for the $495 price? [45-25] Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Hypothetical Case (1 of 2) • Baby Love Toys has a problem A stuffed animal it manufactures, the Squeezy Teddy, has been a popular seller, but the mechanism inside it that makes a noise when a child squeezes it has been found to be a choking hazard Two toddlers, one in Arizona and one in Connecticut, have extracted the mechanism from the stuffed toy, swallowed it, and have nearly choked on it [45-26] Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education Hypothetical Case (2 of 2) • • Baby Love Toys has received a notification from the Consumer Product Safety Commission (CPSC) about the issue The notification requests that the company conduct a voluntary recall of the product Baby Love Toys' management is very concerned about the financial repercussions of a recall of its most popular toy and does not want to it What will the CPSC likely if Baby Love Toys does not issue a voluntary recall of the product? Does Baby Love Toys have the right to ignore the CPSC's request? [45-27] Copyright © 2017 McGraw-Hill Education All rights reserved No reproduction or distribution without the prior written consent of McGraw-Hill Education ... prior written consent of McGraw-Hill Education Labeling and Packaging Laws • • Federal and state governments have passed laws requiring that manufacturers provide accurate, understandable labeling... Shady Way Collections, Inc violated the Fair Debt Collection Practices Act? If so, why should the law protect Ramirez? Has Ramirez violated his legal and ethical obligations by not repaying his... reproduction or distribution without the prior written consent of McGraw-Hill Education [45-6] Consumer Law • Definition: A statute or administrative rule serving to protect consumer interests [45-7]