Chapter 15 Consumer Protection

After finishing this section, you will know how to: Explain the main differences between state and federal consumer protection law Describe two unfair and deceptive practices Recognize bait and switch advertising Identify four Federal Trade Commission rules that protect consumers

caveat emptor- “let the buyer beware caveat emptor- “let the buyer beware.”- standard in consumer purchases in the early part of the century caveat venditor- “let the seller beware.”- society demanded that consumers be given more rights and held that manufacturers be held responsible

consumer- any person who purchases or leases goods, services, or property primarily for personal, family, or household use consumer protection laws- laws designed to protect consumer against unfair and deceptive acts or practices by businesses

unfair and deceptive trade practice- practices that mislead or have the potential to mislead consumers deceptive pricing- raise prices for a while then lower them and claim this as a sale Example 1

It is also deceptive for a store to claim that the prices are wholesale or factory prices if it is not true. Advertising a two-for-one sale is also a deceptive pricing practice. Example 2

deceptive service estimates- it is unfair and deceptive to understate significantly the cost of repair services. Example 3

In all states, businesses are required to provide a written estimate of the cost of anticipated repairs. cooling off rule- gives customers 3 days to cancel contracts made with door-to-door salespeople Only applies to purchases of $25 or more or made away from the seller’s place of business Also includes parties

FTC- The salesperson must inform you of your cancellation rights at the time of the sale; and give you two copies of a cancellation form Sign one copy and mail or hand deliver it to the seller by midnight of the third day after the sale. You don’t have to give a reason for canceling.

Under the FTC rule, the seller must do the following within 10 days: Cancel and return any papers you signed Refund your money Tell you whether any product left with you will be picked up. Return any trade-in.

Cooling-off rule does not apply to: Sales made totally by mail or phone Real estate Insurance Securities Home repairs

Fraudulent Misrepresentation- any statement that has the effect of deceiving the buyer Example 4

Telemarketing Fraud: calls on behalf of a charity benefit shows free or low cost vacations

Work at Home Ads- spend your own money to place ads, make copies, or buy envelopes and stamps for customer mailings “Would you like to earn hundreds of dollars a week at home in your leisure time? Many people are supplementing their income in a very easy way. Let us tell you how…”

False Advertising FTC- regulates false advertising on the national level cease and desist order- legally binding orders to stop a practice, to anyone using advertising that would mislead the public anyone receiving this order has the right to appeal to a federal court Example 5

Bait and Switch- advertising a nonexistent bargain to lure customers so they can be sold more expensive merchandise

Beware of the following types of bait and switch: Refusal to show, demonstrate, or sell the advertised product. Attempts to discourage customers by criticizing the advertised product. Claims that advertised products are out of stock. Refusal to promise delivery of advertised products within a reasonable time period. Demonstrations of products that are inferior to the advertised item. Example 6

Shopping By Mail Seller must ship goods as promised. No time mentioned—30 days Buyers have the right to cancel an order if the time is not met. Sellers must notify buyers of any delay. Unordered items can be treated as gifts! Free samples merchandise mailed by charities

Assignment Page 326 #1-4

Product Liability 15.2 After finishing this section, you will know how to: Differentiate between product liability and strict liability Describe the purpose of the Consumer Product Safety Act Identify the prohibitions contained in the Food, Drug, and Cosmetic Act Determine where to get consumer protection assistance

Product Liability- manufacturers and sellers are responsible for injuries to consumers when they place defective, unhealthy, or unsafe items on the market.

Manufacturers and sellers are responsible when: the manufacturer or seller has not been negligent in the care, preparation, and sale of the product the user of the product is not the one who bought the item or entered into the contract with the manufacturer Example 7

Consumer Product Safety Act-1972 Test the quality and reliability (fitness) of the product before shipping it from the plant and placing it on the market. Obtain proof that the product has been tested and is safe. Have the capability to recall the product if the need should arise.

Take action on any valid complaints made by users of the product. The fine for violating federal act: $500,000-civil $50,000-criminal 1 year prison term

Food, Drug, and Cosmetic Act-1938- prohibits the manufacture and shipment in interstate commerce of any food, drug, cosmetic, or device for health purposes that is injurious, adulterated, or misbranded.

injurious- a food or drug that contains any substance that may make it harmful adulterated- food or drug that contains any substance mixed or packed with it to reduce its quality of strength below the prescribed minimum standards misbranded- if the labeling or packaging is false or misleading in any way

Delaney Amendment-1958- gives the federal government the right to remove from the market any food or food additive shown or believed to cause cancer in humans or animals

The government uses other “tools” in order to discourage the sale of goods considered harmful to the public health: high taxes- excise taxes on liquor and tobacco labeling and packaging- regulations on warning labels outright prohibition- cigarette advertising on TV has been banned since 1971. If products are manufactured and sold only within one state, that state must have laws to regulate

Consumer Protection Assistance Federal Office of Consumer Affairs-1971- made laws covering liability more accessible and easier to understand

Assignment Page 331 #1-4