Section 15.1

Chapter 15 Consumer Protection and Product Liability Section 15.1

What You’ll Learn How to explain the main differences between state and federal consumer protection law (p. 316) How to describe two unfair and deceptive practices (p. 317)

What You’ll Learn How to recognize bait and switch advertising (p. 321) How to identify four Federal Trade Commission rules that protect consumers (p. 321)

Why It’s Important Knowledge of consumer protection laws will prevent you from falling victim to fraud and deception.

Legal Terms caveat emptor (p. 316) caveat venditor (p. 316) consumer (p. 316) unfair and deceptive practice (p. 317) fraudulent misrepresentation (p. 318)

Legal Terms cease and desist orders (p. 320) bait and switch (p. 321) cooling-off rule (p. 322) telemarketers (p. 323)

Section Outline The Development of Consumer Protection Law Federal and State Consumer Protection Laws

Section Outline Unfair and Deceptive Practices Fraudulent Misrepresentation Work-at-Home Schemes Unordered Merchandise

Section Outline False Advertising FTC Trade Regulation Rules Bait and Switch Advertising FTC Trade Regulation Rules Negative Option Rule The Cooling-Off Rule

Section Outline FTC Trade Regulation Rules, continued Telemarketing Sales Rule 900-Telephone-Number Rules Shopping by Mail, Telephone, Fax, or Internet

Pre-Learning Question How did consumer protection laws develop?

The Development of Consumer Protection Law Years ago, caveat emptor, which means “let the buyer beware,” reflected society’s attitude toward consumers.

The Development of Consumer Protection Law There were few ways to seek compensation for damages and those injured had no recourse due to privity of contract.

The Development of Consumer Protection Law Today, however, society demands that manufacturers be held responsible for foreseeable injuries to people who use their products.

The Development of Consumer Protection Law Caveat venditor, which means “let the seller beware,” now guides consumer transactions.

Pre-Learning Question To whom do consumer protection laws apply?

Federal and State Consumer Protection Laws Consumer protection laws apply to transactions between consumers and people conducting business.

Federal and State Consumer Protection Laws A consumer is someone who buys or leases goods, real estate, or services for personal, family, or household purposes.

Federal and State Consumer Protection Laws Consumer protection laws do not protect you if: You acquire a product from another consumer You buy a product to use in a business

What is the difference between caveat emptor and caveat venditor?

ANSWER Caveat emptor is Latin for “let the buyer beware” and means that the buyer is the responsible party. Caveat venditor is Latin for ”let the seller beware” and means that the seller is responsible.

State Consumer Protection State consumer protection offices provide information and help enforce state consumer protection laws. Offices may assist consumers with individual problems.

Federal Consumer Protection Federal consumer protection law applies to businesses that sell real estate, goods, or services in interstate commerce, or business activity that touches more than one state.

Federal Consumer Protection The Federal Trade Commission (FTC) is the U.S. government agency that promotes free and fair trade competition in the American economy. The Bureau of Consumer Protection safeguards consumers against unfair, deceptive, or fraudulent practices.

Federal Consumer Protection Both organizations investigate violations of federal consumer protection law.

Pre-Learning Question What do you think are unfair and deceptive practices?

Unfair and Deceptive Practices An unfair and deceptive practice is an act that misleads consumers. Most states have enacted some kind of unfair and deceptive trade practice law.

Unfair and Deceptive Practices Examples include: Work-at-home schemes Unordered merchandise False advertising

Unfair and Deceptive Practices If you feel you are the victim of an unfair or deceptive practice: Speak to the business owner or manager about the problem Write a complaint letter to the company.

Elements of a Complaint Letter Description of purchase Product name and serial and model number or service Statement and history of problem Ask for specific action, state reasonable time for action

Elements of a Complaint Letter Copies of documents Your address and work and home phone numbers

Fraudulent Misrepresentation A fraudulent misrepresentation is any statement that deceives the buyer. A fraudulent misrepresentation usually occurs when a seller misstates the facts about something that is important to the consumer.

Work-at-Home Schemes Home employment schemes are among the oldest kind of advertising fraud. They often promise big incomes without explaining the costs.

Unordered Merchandise Under state and federal laws, unordered merchandise may be considered a gift. You can keep it without paying for it. It is illegal for anyone who sends free samples to include a bill.

What does FTC stand for and what does it do?

ANSWER The Federal Trade Commission is the agency of the U.S. government that promotes free and fair trade competition in the U.S. economy.

Pre-Learning Question What is an example of false advertising?

False Advertising The FTC regulates false advertising on the national level and has the power to issue cease and desist orders. These orders are legally binding orders to stop a practice that would mislead the public.

Bait and Switch One example of false advertising is bait and switch advertising. This happens when a store advertises bargains that do not really exist to lure customers in hopes that they will buy more expensive merchandise.

Pre-Learning Question What are some FTC trade regulation rules?

FTC Trade Regulation Rules The FTC has established trade regulation rules for interstate commerce to correct wrongdoing in the marketplace.

FTC Trade Regulation Rules They include: The negative option rule The cooling-off rule The telemarketing sales rule 900-telephone-number rules Rules for shopping by mail, telephone, fax, or Internet

Negative Option Rule When you subscribe to a magazine or CD club or other plan that sends products regularly, the negative option rule applies. Under such plans, the seller sends you announcements describing the current selection.

Negative Option Rule If you want the selection, you do nothing; the seller will ship it automatically. If you do not want it, you must tell the seller not to send it, and there is a deadline for notification.

The Cooling-Off Rule The cooling-off rule gives you three days to cancel contracts for most purchases made away from the seller’s regular place of business.

The Cooling-Off Rule The rule applies to purchases of $25 or more made at the buyer’s home, workplace, or dormitory. It does not apply to contracts for real estate, insurance, securities, or emergency home repairs.

Telemarketing Sales Rule The Telemarketing Sales Rule protects you from abusive telemarketers, the people who try to sell you products by telephone.

900-Telephone-Number Rules Unlike 800-telephone-numbers, if you dial a 900-area-code telephone number, you are charged for the call. Sometimes consumers are charged excessively for 900-number calls.

Protect Yourself Against 900-Number Scams Deal only with reputable companies. Think twice before calling a 900-number for a “free gift.”

Protect Yourself Against 900-Number Scams Know precisely what the 900-call will cost—before you make the call. Don’t confuse 900-numbers with toll-free 800-numbers.

Shopping by Mail, Telephone, Fax, or Internet The FTC has established rules to protect you when ordering goods by mail, telephone, fax, and the Internet.

Shopping by Mail, Telephone, Fax, or Internet Sellers must ship goods within the time they promise in the advertising. If shipping time is not stated, they must ship within 30 days after receiving an order.

Shopping by Mail, Telephone, Fax, or Internet You have the right to cancel and get your money back if time limits are not met. Sellers must notify you of any delay in shipment.

Reviewing What You Learned Section 15.1 Assessment Reviewing What You Learned What are the main differences between state and federal consumer law?

Reviewing What You Learned Answer Section 15.1 Assessment Reviewing What You Learned Answer State consumer law provides information and helps protect consumers in the state in which they live. They sometimes assist consumers with individual problems.

Reviewing What You Learned Answer Section 15.1 Assessment Reviewing What You Learned Answer Federal consumer protection law applies to businesses that sell real estate, goods, or services in interstate commerce.

Reviewing What You Learned Section 15.1 Assessment Reviewing What You Learned Describe two unfair and deceptive practices.

Reviewing What You Learned Answer Section 15.1 Assessment Reviewing What You Learned Answer False advertising and work-at-home schemes.

Reviewing What You Learned What is bait and switch advertising? Section 15.1 Assessment Reviewing What You Learned What is bait and switch advertising?

Reviewing What You Learned Answer Section 15.1 Assessment Reviewing What You Learned Answer Bait and switch advertising is an illegal practice in which nonexistent bargains are advertised to lure customers to more expensive merchandise.

Reviewing What You Learned Section 15.1 Assessment Reviewing What You Learned What are four FTC rules designed to protect consumers?

Reviewing What You Learned Answer Section 15.1 Assessment Reviewing What You Learned Answer Answers include the negative option rule, the cooling-off rule, the telemarketing sales rule, 900-telephone-number rules, and rules for shopping by mail, telephone, fax, or Internet.

Critical Thinking Activity Bait and Switch Section 15.1 Assessment Critical Thinking Activity Bait and Switch How do you think bait and switch advertising got its name? What is the bait? What is the switch?

Critical Thinking Activity Answer Bait and Switch Section 15.1 Assessment Critical Thinking Activity Answer Bait and Switch Answers will vary. Bait is what one uses to lure or catch something, as a worm is bait for catching fish. A business advertises a bargain to lure customers into the store.

Critical Thinking Activity Answer Bait and Switch Section 15.1 Assessment Critical Thinking Activity Answer Bait and Switch The switch occurs when the salesperson tries to convince the customer to buy other, more expensive items.

Legal Skills in Action The Federal Trade Commission Section 15.1 Assessment Legal Skills in Action The Federal Trade Commission Merta has been a member of a CD club for two years. She has made several unsuccessful attempts to cancel her membership.

Legal Skills in Action The Federal Trade Commission Section 15.1 Assessment Legal Skills in Action The Federal Trade Commission Roberto suggested she file a complaint with the Federal Trade Commission. Merta needs to know more information.

Legal Skills in Action The Federal Trade Commission Section 15.1 Assessment Legal Skills in Action The Federal Trade Commission Help Merta research the history of the FTC. Next, help her to find out how to file a complaint with the FTC.

Legal Skills in Action Answer Section 15.1 Assessment Legal Skills in Action Answer The Federal Trade Commission Answers will vary, but research could include the FTC Web site at www.ftc.gov.

End of Section 15.1