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  1. 1. Business Law Chapter 22 Consumer Protection
  2. 2. Objectives <ul><li>Define what is and what is not deceptive advertising </li></ul><ul><li>Recognize what information must be included on labels </li></ul><ul><li>Discuss the regulation of credit in consumer transactions </li></ul><ul><li>Describe federal health and safely protection </li></ul>
  3. 3. Deceptive Advertising <ul><li>Advertising that misleads consumers </li></ul><ul><li>Federal Trade Commission Act </li></ul><ul><li>Federal Trade Commission </li></ul>
  4. 4. Deceptive Advertising <ul><li>The advertisement may be interpreted in more than one way and that one of those interpretations is false or misleading. </li></ul><ul><li>False statements </li></ul><ul><li>Claims about own products or competitor’s products </li></ul><ul><li>Quality, effects, price, origin, availability </li></ul>
  5. 5. Deceptive Advertising <ul><li>Omission of important information </li></ul><ul><li>Statements not supported by scientific evidence </li></ul><ul><li>May or may not be misleading </li></ul><ul><li>Deceptive even though true </li></ul>
  6. 6. Bait-and-Switch Advertising <ul><li>Prohibit advertisements that specify a very low price for a particular item that will likely by unavailable to the consumer, who will then be encouraged to purchase a more expensive item </li></ul>
  7. 7. Bait-and-Switch Advertising <ul><li>Seller refuses to show advertised item </li></ul><ul><li>Fails to have reasonably adequate quantities available </li></ul><ul><li>Fails to promise to deliver the advertised item within a reasonable time </li></ul><ul><li>Discourages employees from selling the item </li></ul>
  8. 8. Online Deceptive Advertising <ul><li>Must be “clear and conspicuous” </li></ul><ul><li>Disclosure as close as possible to claim being made </li></ul><ul><li>Hyperlinks to disclosure only for long disclosures or one that is repeated </li></ul>
  9. 9. FTC Actions <ul><li>FTC receives complaints </li></ul><ul><li>FTC investigates, if unfair or deceptive, drafts formal complaint </li></ul><ul><li>Cease-and-desist order </li></ul><ul><li>Counteradvertising </li></ul>
  10. 10. Telemarketing and Electronic Advertising <ul><li>Telephone Consumer Protection Act of 1991 </li></ul><ul><ul><li>Prohibits phone solicitation using automatic dialing systems or prerecorded voice. </li></ul></ul><ul><li>Telemarketing Sales Rule of 1995 </li></ul><ul><ul><li>Must disclose name, product, price, restrictions, terms of sale </li></ul></ul>
  11. 11. Labeling and Packaging <ul><li>Labels must be accurate, using ordinary words </li></ul><ul><li>Must specify raw materials used </li></ul><ul><li>Identify the product, manufacturer, packer, and place of business </li></ul><ul><li>Net quantity of contents and quantity of each serving if number of servings is stated </li></ul>
  12. 12. Consumer Sales and Credit <ul><li>Many statutes protect the consumer in sales transactions by requiring certain disclosures </li></ul><ul><li>Rules governing door-to-door sales, mail-order transactions, and unsolicited merchandise </li></ul><ul><li>Creditors must also meet many procedural requirements when extending credit </li></ul>
  13. 13. Door-to-Door Sales <ul><li>“ cooling off” laws – permit consumers to cancel their contracts within a specified period of time </li></ul><ul><li>FTC requires three days and consumer must be told </li></ul>
  14. 14. Mail-Order Sales <ul><li>State statutes parallel the federal statutes concerning mail fraud </li></ul><ul><li>Redress – satisfaction for damage caused by the wrongdoing of another </li></ul><ul><li>Unsolicited merchandise – retain, use, discard, dispose </li></ul><ul><li>Constitutes unfair trade practice </li></ul>
  15. 15. Specific Industries <ul><li>FTC regulates certain sales practices on an industry-wide basis </li></ul><ul><li>Used-car dealers – “Buyer’s Guide” disclosure </li></ul><ul><li>Funeral home itemization </li></ul>
  16. 16. Truth-in-Lending Act <ul><li>A significant statute regulating credit and credit-card industry </li></ul><ul><li>Consumer Credit Protection Act </li></ul><ul><li>Disclosure law </li></ul><ul><li>Applies to persons (who in the ordinary course of business) lend money, sell on credit or arrange credit </li></ul><ul><li>Regulation Z </li></ul>
  17. 17. Equal Credit Opportunity Act <ul><li>Amendment to Consumer Credit Protection Act </li></ul><ul><li>Prohibits the denial of credit solely on the basis of race, religion, national origin, color, sex, marital status or age </li></ul><ul><li>Also prohibits discrimination on the basis of public assistance benefits </li></ul><ul><li>Cannot require the signature of a spouse </li></ul>
  18. 18. Credit-Card Rules <ul><li>Liability limited to $50 per card for unauthorized charges made prior to the time the creditor is notified </li></ul><ul><li>No liability if credit card was improperly issued </li></ul>
  19. 19. Fair Credit Reporting Act <ul><li>Credit bureaus, investigative reporting companies, detective and collection agencies, and computerized information-reporting companies </li></ul><ul><li>Consumer entitled to know the nature and substance of information contained in the agency’s file </li></ul>
  20. 20. Fair Debt Collection Practices <ul><li>Specialized debt-collection agencies </li></ul><ul><li>Curb perceived abusive tactics </li></ul><ul><li>Prohibits several practices </li></ul><ul><li>“ validation notice” – thirty days to dispute the debt and to request written verification of debt </li></ul>
  21. 21. Health Protection <ul><li>Food and drug laws make manufacturers responsible for ensuring that the food they offer for sale contains no substances that could cause injury to health </li></ul><ul><li>“ Surgeon General’s Warning” </li></ul><ul><li>All advertising except outdoor billboards </li></ul>
  22. 22. Consumer Product Safety <ul><li>Flammable Fabrics Act (1953) </li></ul><ul><li>Consumer Product Safety Act (1972) </li></ul><ul><li>Set standards for consumer products and ban the manufacture and sale of any product deemed potentially hazardous to consumers </li></ul><ul><li>Enforced by Consumer Product Safety Commission </li></ul>
  23. 23. State Consumer Protection Laws <ul><li>Many protections for consumers under the UCC </li></ul><ul><li>Uniform Consumer Credit Code adopted by a few states </li></ul><ul><li>Typically, state laws focus on deceptive trade practices </li></ul><ul><li>Some legislation is quite broad </li></ul>