Consumer Protection

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ConsumerProtection

• Chapter 14

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Consumers

• Individuals who acquire goods that are intended
  primarily for personal use
• Caveat Emptor - let the buyer beware
• Caveat Venditor let the seller beware

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Class Actions (Class Action Suits)

• allows one or several persons to sue not only on
  behalf of themselves, but also on behalf of many
  others similarly wronged

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Governmental Procedure

• Cease-and-desist order order requiring the
  company to stop specific conduct
• Consent order voluntary, court-enforceable
  agreement to stop an illegal or questionable
  practice
• Restitution return of money wrongfully obtained
  from a customer

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Licensing

• Certain businesses and institutions must acquire
  proper licensing before providing products or
  services
• ie. Doctors, nurses, teachers, lawyers, realtors,
  beauticians
• May also be required to pass inspections

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Unsafe Products

• 1972 Consumer Product Safety Act
• CPSC (Consumer Product Safety Commission) was
  created to issue and enforce safety
  standards/regulations

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• Also regulates
• Construction
• Accessibility
• Occupancy rates
• Parking
• Fire escapes
• Sanitary facilities
• Etc.
• Consumers who think the CPSC is not taking proper
  action may bring suit in federal district court
  for enforcement

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Adulterated Food, Drugs Cosmetics

• Food and Drug Administration (FDA)
• Requires that the production facilities for
  cosmetics, food and drugs be clean
• Requires labels on regulated products
• Regulates new drugs entering the market (and
  whether they are prescription or OTC)

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Food and Drug Administration

• Products that do not meet FDA standards are
  deemed adulterated and may be confiscated or
  seized by the government

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• The U.S. Department of Agriculture inspects
  canners, packers, and processors of poultry and
  meat entering the market
• Helps ensure that products are free of disease
  and are processed under sanitary conditions

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Improper Weights and Measures

• The U.S. Constitution gives Congress the power
  to set standards for weights and measures
• Gallon of gasoline
• Pound of bananas
• Foot of rope

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Unfair Trade Practice

• any method of business that is dishonest or
  fraudulent or that illegally limits free
  competition

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• ACTIVITY BREAK!
• FORM 6 GROUPS

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• Each group will receive one type of unfair trade
  practice
• As a group, make a poster that portrays your
  unfair trade practice
• Make sure the class can understand that what your
  portraying is wrong!

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1. Agreements to Fix Prices

• No company/companies may work together to
  eliminate competition and set (fix) prices

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2. False and Misleading Advertising

• Intentionally deceives, makes untrue claims, or
  fails to reveal critical facts

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• Bait and Switch using an understocked,
  low-priced hook to lure consumers into a store
• Advertised item is out of stock and customers are
  redirected to a more expensive product

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• Advertisement is not considered deceptive if it
  states limited quantity or specifies of items
  available
• FTC (Federal Trade Commission) regulates false
  and misleading advertising

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• Corrective advertising requires the advertiser to
  publicly admit wrongdoing and state the truth in
  a prescribed number of future ads

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3. Illegal Lotteries

• To be an illegal lottery, a gambling scheme or
  game must have 3 elements
• Required payment of money or something of value
  to participate
• Winner to be determined by chance, not skill
• Prize to be won

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• Holding or participating in illegal lotteries are
  subject to fines and imprisonment
• Some statues exempt religious and charity groups
  from lottery prohibition to produce revenue for
  non-profit organizations

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• Confidence Games
• The victim is persuaded to trust the swindler
  with the victims money in hopes of a quick gain
• Ex. Pyramid schemes

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4. Unfair Pricing and Service

• Misrepresenting
• Goods being sold at a considerable discount
• Good being sold at wholesale price
• Goods as being free when purchased with another
  at an inflated price

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5. Mislabeled Goods

• Size and shape of container may not be misleading
• Certain products must carry warning labels
• Selling used articles as new or in better
  condition than they actually are

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Other Unfair Trade Practices

• Using a brand name/trademark so similar to a
  competitors that it confuses the public
• Sending unordered merchandise and demanding
  payment or return
• Recipient is under no legal obligation to return
  or pay!

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Protection Through Action by the Consumer

• Chapter 14 section 2

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Product Liability

• The responsibility to compensate buyers, users
  and even bystanders for injuries caused by a
  defective product

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Product Liability

• May be based on
• fraud
• negligence
• breach of warranty or
• strict liability

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• Strict Liability is a liability that exists even
  if the defendant is not negligent

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Warranty

• An assurance that the seller makes about the
  products quality or performance

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1. Express Warranty An assurance of quality or
   promise of performance explicitly made (plainly
   stated) by the seller
2. Implied Warranty An obligation imposed by law
   on all sellers (assumed by the buyer at time of
   sale)

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Requirements for Express Warranties

• There are 9 requirements of information to be
  included for express warranties to be valid
• See pgs 254 and 255 in text

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Full vs. Limited Warranties

• Full Warranty an express warranty that
  obligates the seller to repair or replace without
  cost within a reasonable amount of time
• Limited Warranty any warranty that provides
  less protection than full (ie. Customer pays for
  labor)

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• Puffing enthusiastic overstatements made by
  sellers (exaggerated sales talk)
• Such words are not grounds for warranties or
  statements of fact
• CAVEAT EMPTOR!!!

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Warranty against Encumbrances

• Implied Warranty
• Sellers warranty that the goods are free of all
  encumbrances (claims of third parties, such as
  unpaid balances)

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Warranty of Merchantability

• Requires that the goods be fit for the ordinary
  purposes for which such goods are used

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Disclaimer

• A notice of exclusion
• Items sold as is
• Seller is free of all obligation

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Lemon Laws

• Typically protects consumers of chronically
  defective vehicles
• May extend to other consumer products

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Lemon Laws

• Consumer returns vehicle for repair of major
  defect
• Dealership fails to repair after several attempts
  (usually 3 or more)
• Consumer requests refund can sue if request not
  met