Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 15 Consumer Protection

15-2 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

15-3 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

15-4 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

15-5 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

15-6 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.

15-7 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.

15-8 Figure 15.2 Major Federal Consumer Protection Agencies and their Main Responsibilities

15-9 Consumer Privacy in the Digital Age  Rapidly evolving information technologies in the early 21 st 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

15-10 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

15-11 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

15-12 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

15-13 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

15-14 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

15-15 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

15-16 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

15-17 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