Chapter 15

Consumer Protection
and Product Liability
Consumer:

   Any person who purchases or leases
    goods, services, or property primarily for
    persona, family use.
...
Unfair and Deceptive Practices
   One that misleads (or has the potential
    to mislead) consumers

   Almost all states have laws relating to
    thi...
Fraudulent Misrepresentation


   Any statement that
    deceives the buyer

i.e.: misstating the facts
Deceptive Pricing
   Unfair for a store to raise the
    price of an article with the
    intention of lowering the
    p...
Deceptive Service Estimates


               It is unfair to significantly
                underestimate the cost of
    ...
Work-At-Home Schemes

   One of the oldest types of classified
    advertising fraud

   Hidden costs and membership fees
Unordered Merchandise

   Under federal and state laws,
    unordered merchandise may be
    considered a gift. You can k...
False Advertising
Cease and Desist Orders

               Legally binding
                orders to stop a
                practice, to any...
Bait and Switch

           Advertise a non-existent
            bargain to lure
            customers so they can
      ...
Negative Option Rule

 An Example: CD Clubs
 The seller send you the month’s
  selection, if you want it - do nothing
  ...
The Cooling-Off Rule
   Gives consumers three business days to cancel most
    contracts made away from the seller’s plac...
Under FTC,
the seller must do the following within 10 days:

   Cancel and return any papers signed
   Refund your money...
Telemarketing Fraud

          “free” or “low cost” vacations

          tickets for charity benefits

          900-nu...
Shopping by Mail, Phone, Fax, or Internet


   Sellers must ship goods within times
    stated; if no time is stated then...
Product Liability

   Manufacturers and sellers are
    responsible for injuries to consumers
    when they place defecti...
Strict Liability

   Makes manufacturers or suppliers
    responsible for selling goods that are
    unreasonably dangero...
Consumer Product Safety Act (1972)

   Test quality and reliability

   Obtain proof that it has been tested

   Have c...
Food, Drug, and Cosmetic Act (1938)

 Prohibitsthe manufacture and shipment
 in interstate commerce of any food,
 drug, c...
Adulterated Product

   One that contains any substance mixed
    or packed with it to reduce its quality or
    strength...
Misbranded
   Prohibits the manufacture and shipment in interstate
    commerce of any food, drug, cosmetic or device for...
Delaney Amendment (1958)
   Gives the right to remove any food or food additive
    shown or believed to cause cancer in ...
Consumer Protection Assistance

   Better Business Bureau (BBB)
       A nongovernmental agency that hears
        consu...
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Chapter 15

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Chapter 15

  1. 1. Chapter 15 Consumer Protection and Product Liability
  2. 2. Consumer:  Any person who purchases or leases goods, services, or property primarily for persona, family use.  Caveat Emptor: Let the Buyer Beware  Caveat Venditor: Let the Seller Beware
  3. 3. Unfair and Deceptive Practices
  4. 4.  One that misleads (or has the potential to mislead) consumers  Almost all states have laws relating to this but they differ among states.
  5. 5. Fraudulent Misrepresentation  Any statement that deceives the buyer i.e.: misstating the facts
  6. 6. Deceptive Pricing  Unfair for a store to raise the price of an article with the intention of lowering the price later and claiming a “bargain”  Cannot claim prices are wholesale or factory if they are not  Watch out for 2 for 1 sales that look too good to be true
  7. 7. Deceptive Service Estimates  It is unfair to significantly underestimate the cost of repair or to charge for repairs that were not authorized.
  8. 8. Work-At-Home Schemes  One of the oldest types of classified advertising fraud  Hidden costs and membership fees
  9. 9. Unordered Merchandise  Under federal and state laws, unordered merchandise may be considered a gift. You can keep it!  Only two types of products can be sent legally; free samples and merchandise mailed by charities
  10. 10. False Advertising
  11. 11. Cease and Desist Orders  Legally binding orders to stop a practice, to anyone using ads that would mislead the public  Federal courts rarely overturn these orders from the FTC
  12. 12. Bait and Switch  Advertise a non-existent bargain to lure customers so they can be sold more expensive merchandise  SEE Pg. 321 Bullets
  13. 13. Negative Option Rule  An Example: CD Clubs  The seller send you the month’s selection, if you want it - do nothing and if you don’t – send it back.  There are guidelines for these companies on p. 322.
  14. 14. The Cooling-Off Rule  Gives consumers three business days to cancel most contracts made away from the seller’s place of business ($25. or more)  Salesperson must inform you of your right to cancel  Must give you two copies of the contract or receipt  Contract or receipt should be dated, and show name & address of seller, and explain your right to cancel
  15. 15. Under FTC, the seller must do the following within 10 days:  Cancel and return any papers signed  Refund your money  Inform you about product pick ups  Return any trade-ins Does not apply to real estate, insurance, securities, or emergency home repairs.
  16. 16. Telemarketing Fraud  “free” or “low cost” vacations  tickets for charity benefits  900-number scams  FTC states you must be informed of the cost for the calls
  17. 17. Shopping by Mail, Phone, Fax, or Internet  Sellers must ship goods within times stated; if no time is stated then it is 30 days.  Sellers must inform you of any delay
  18. 18. Product Liability  Manufacturers and sellers are responsible for injuries to consumers when they place defective, unhealthy, or unsafe items on the market.
  19. 19. Strict Liability  Makes manufacturers or suppliers responsible for selling goods that are unreasonably dangerous.  This is true even if:  the manufacturer has not been negligent  the user of the product is not the person who bought the product
  20. 20. Consumer Product Safety Act (1972)  Test quality and reliability  Obtain proof that it has been tested  Have capability to recall the product  Take action on any valid complaints
  21. 21. Food, Drug, and Cosmetic Act (1938)  Prohibitsthe manufacture and shipment in interstate commerce of any food, drug, cosmetic or device for health purposes that is injurious, adulterated, or misbranded.
  22. 22. Adulterated Product  One that contains any substance mixed or packed with it to reduce its quality or strength below minimum standards.
  23. 23. Misbranded  Prohibits the manufacture and shipment in interstate commerce of any food, drug, cosmetic or device for health purposes that is injurious, adulterated, or misbranded.  Requires that packaged drugs bear the name and address of manufacturer  Labels on non-prescription drugs must give common name  Labels must caution any use that may be unsafe
  24. 24. Delaney Amendment (1958)  Gives the right to remove any food or food additive shown or believed to cause cancer in humans or animals.  The government has taken action to discourage the sale of goods considered a threat to public health.  Unusually High Taxes, Labeling and Packaging, and Outright Prohibition (Cigarette ads 1971)
  25. 25. Consumer Protection Assistance  Better Business Bureau (BBB)  A nongovernmental agency that hears consumer complaints at the local and state levels  See p. 331 bullets

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