Chapter 15 Consumer Protection

Ch. 15: Key Learning Objectives Analyzing the reasons for consumer advocacy and the methods consumer organizations use to advance their interests Knowing the five major rights of consumers Assessing the ways in which government regulatory agencies protect consumers and what kinds of products are most likely to be regulated Determining how consumer privacy online can best be protected Examining how the courts protect consumers and efforts by businesses to change product liability laws Evaluating how socially responsible corporations can proactively respond to consumer needs

Advocacy for Consumer Interests As long as business has existed—consumers have tried to protect their interests when they go to the marketplace to buy goods and services Consumerism/consumer movement – the organized activates, collective efforts by consumers in many countries to safeguard their own rights Examples of U.S. advocacy organizations include Consumer Federation of America, National Consumers League, and the American Association for Retired People

Reasons for Consumer Movement Complex products have enormously complicated the choices consumers need to make when they go shopping Services, as well as products, have become more specialized and difficult to judge When businesses try to sell both products and services through advertising, claims may be inflated or they may appeal to emotions Some businesses have ignored product safety

The major rights of consumers

The right to be informed Rights of Consumers The right to be informed Protection against misleading advertising, labeling; given the facts to make an informed purchasing decision The right to safety Protection against the marketing of good that are hazardous to health or life The right to choose Assurance of access to a variety of products and services at competitive prices The right to be heard Assurance that consumer interests will receive fair consideration in government policy and courts The right to privacy Assurance that information disclosed in a commercial transaction is not shared with others

Responsibilities of Consumers Keep yourselves informed as best as possible Exercise due care when making decisions in the marketplace Consider the detrimental consequences that may arise from ill considered decisions Honor reasonable obligations arising from your decisions.

Example of Evolution in Product Safety Circa early 1950s

Theways in which government regulatory agencies protect consumers and what kinds of products are most likely to be regulated

How Government Protects Consumers Taken together the consumer protection laws are safeguards that reflect the goals of government policymakers and regulators in the context of the 5 rights of consumers. The role of government protecting consumers is extensive in the United States as well as many other nations.

Goals of Consumer Laws To provide consumers with better information when making purchases To protect consumers against possible hazards To promote competitive pricing To promote consumer choice To protect privacy.

Major Federal Consumer Protection Agencies and their Main Responsibilities Figure 15.2

Determining how consumer privacy online can best be protected

Consumer Privacy in the Digital Age Rapidly evolving information technologies in the early 21st century have given new urgency to the issue of consumer privacy New technologies have increasingly enabled businesses to collect and use vast amounts of personal data about their customers and potential customers The danger is not only that this information might rarely be used fraudulently, but also that its collection represents an unwarranted incursion into personal privacy

Consumer Protection in the Digital Age Dilemma: how to protect consumer privacy while fostering internet commerce Proposed solutions: Consumer self-help Internet users should use technologies that enable them to protect their own privacy Industry self-regulation Internet-related businesses advocate being allowed to regulate themselves Advantage is they have the best technology to do so, critics feel industry rules may be too weak Privacy legislation Favor new government regulations protecting consumer privacy online

Examining how the courts protect consumers and efforts by businesses to change product liability laws

Product Liability The legal responsibility of a firm for injuries caused by something it made or sold In U.S. and some other countries, consumers have right to sue and collect damages if harmed by unsafe product Consumer advocates and trial attorneys have supported these legal protections By contrast, some in the business community have argued courts and juries have unfairly favored plaintiffs and have called for reform

Product Liability Strict liability – doctrine under which the U.S. courts have held that manufacturers are responsible for injuries resulting from use of their products, whether or not they were negligent or breached a warranty Well-publicized case of McDonald’s and coffee spill where jury award was $2.9M: McDonald’s was held liable even though it provided warning and customer’s actions contributed to her burns Huge settlements, like the McDonald’s case, are the exception. Statistics show plaintiffs win about 34% of the cases filed for an average $201,000 award

Product Liability Product liability systems of other nations differ significantly from that of the United States In Europe, judges (rather than juries) hear cases, punitive damages are not allowed, and victims’ health expenses are not an issue as they are covered by national health insurance Historically, product liability cases have been exceedingly rare in China. But, that began to change in 2009, in the wake of China’s tainted-milk scandal

Product Liability Reform In 2005, Congress passed the Class Action Fairness Act, the first significant product liability reform in many years. The two key elements of this legislation were: Most class-action lawsuits moved from state to federal courts Attorneys in some kinds of cases were paid based on how much plaintiffs actually received, or how much time the attorney spent on the case

Business Efforts for CONTINUED Reform of Product Liability Laws Set up uniform federal standards for determining liability Shift the burden of proving liability to consumers Require the loser to pay the legal costs of the winner Limit punitive damages Establish liability shields for certain kinds of products

Evaluating how socially responsible corporations can proactively respond to consumer needs

Positive Business Responses to Consumerism Quality management Emphasizes defining the customer’s needs, analyzing the quality of finished products to assure defect free, continually eliminating quality problems Building products right the first time reduces liability and improves brand loyalty Complex issue of what to do when business produces safe, high quality product but that is used by others in dangerous ways Voluntary industry codes of conduct Businesses in an industry have banded together to agree on voluntary codes of conduct, spelling out how they will treat their customers

Positive Business Responses to Consumerism Voluntary industry codes of conduct Businesses in some industries have banned together to agree on voluntary codes of conduct, spelling out how they will treat their customers Consumer affairs departments These centralized departments normally handle consumer inquiries and complaints about a company’s products and services, some have consumer hot lines or interactive web sites Product recalls Occurs when a company, either voluntarily or under an agreement with a government agency, takes back all items found to be dangerously defective