COPYRIGHT © 2011 South-Western/Cengage Learning. 1 Click your mouse anywhere on the screen to advance the text in each slide. After the starburst appears, click a blue triangle to move to the next slide or previous slide.

COPYRIGHT © 2011 South-Western/Cengage Learning. 2 Quote of the Day “Everyone lives by selling something.” Robert Louis Stevenson, author of Treasure Island and Kidnapped

COPYRIGHT © 2011 South-Western/Cengage Learning. 3 Federal Trade Commission  Created in 1915 to regulate business.  The FTC may enforce the law by: Voluntary compliance with regulations. Administrative hearings and appeals, which may lead to a voluntary consent order or a forced cease and desist order.  Violations of voluntary consent or cease and desist orders will lead to penalties.

COPYRIGHT © 2011 South-Western/Cengage Learning. 4 Sales  Section 5 of the Federal Trade Commission Act (FTC Act) prohibits “unfair and deceptive acts or practices.”  Under the FTC Act, an advertisement is deceptive if it contains an important misrepresentation or omission that is likely to mislead a reasonable consumer.

COPYRIGHT © 2011 South-Western/Cengage Learning. 5 Sales (cont’d)  The Commission considers a practice to be unfair if it meets all of the following three tests: It causes substantial consumer injury. The harm of the injury outweighs any countervailing benefit. The consumer could not reasonably avoid the injury.  In addition, the FTC may decide that a practice is unfair simply because it violates public policy.

COPYRIGHT © 2011 South-Western/Cengage Learning. 6 Bait and Switch  FTC rules prohibit bait and switch advertisements: a merchant may not advertise a product and then disparage it to consumers in an effort to sell a different item.  In addition, merchants must have enough stock to meet reasonable demand for an advertised product.

COPYRIGHT © 2011 South-Western/Cengage Learning. 7 Mail and Telephone Sales  Ordered items must be shipped when promised, or within 30 days. If this is not possible, the customer must have the opportunity to change his mind.  The FTC has established “do-not-call” lists for consumers who do not wish to be contacted by telemarketers and FTC rules prohibit telemarketers from blocking their names and telephone numbers on caller ID systems.  Under §5 of the FTC Act, anyone who receives unordered merchandise in the mail can treat it as a gift.

COPYRIGHT © 2011 South-Western/Cengage Learning. 8 Door-to-Door Sales  Door-to-door salespersons are required to notify the buyer of the right to cancel the transaction prior to midnight of the third business day after the sale.  The notification of this right must be oral and in writing; the cancellation must be in writing.

COPYRIGHT © 2011 South-Western/Cengage Learning. 9 Consumer Credit  The Truth in Lending Act applies to a transaction only if all of the following tests are met: It is a consumer loan. The loan has a finance charge or will be repaid in more than four installments. The loan is for less than $25,000 or secured by a mortgage on real estate. The loan is made by someone in the business of offering credit.

COPYRIGHT © 2011 South-Western/Cengage Learning. 10 Required Disclosure  In all loans regulated by TILA: The disclosure must be clear and in meaningful sequence The lender must disclose the finance charge. The creditor must also disclose the annual percentage rate (APR).

COPYRIGHT © 2011 South-Western/Cengage Learning. 11 Required Disclosure: Open-End Credit  In each statement, the lender must disclose: the amount owed at the beginning of the billing cycle (the previous balance); amounts and dates of all purchases, credits and payments; finance charges; and the date by which a bill must be paid to avoid finance charges.

COPYRIGHT © 2011 South-Western/Cengage Learning. 12 Required Disclosure: Closed-End Credit  Before finalizing the loan, the lender must disclose: the cash price; the total down payment, the amount financed; an itemized list of all charges; amounts and dates of all payments; total amount of payments; late payment and pre-payment penalties; and the lender’s security interest in the item purchased.

COPYRIGHT © 2011 South-Western/Cengage Learning. 13 Home Mortgage Loans  A new provision of TILA prohibits unfair, abusive or deceptive home mortgage lending practices. Lenders may not coerce appraisers into misstating a home’s value. They may not advertise a loan as “fixed” if some rate or payment may change.  Subprime loans (higher priced mortgage loans) Must verify borrower’s ability to repay the loan May not charge prepayment penalty if monthly payments can change in first four years. Must collect property taxes and insurance.

COPYRIGHT © 2011 South-Western/Cengage Learning. 14 Home Equity Loans  If a home equity loan: Has an APR more than 10 points higher than Treasury securities, OR The consumer must pay fees and points higher than 8% of the total loan amount…  THEN… The lender must notify the consumer that he does not have to go through with the loan, and he could lose his house if he fails to make payments, AND Loans for less than 5 years may not have a balloon payment.

COPYRIGHT © 2011 South-Western/Cengage Learning. 15 Other TILA Provisions  Under TILA, consumers have the right to rescind a mortgage for up to three business days after the signing; if the lender does not comply with TILA, the consumer has three years to rescind.  Advertising of financing rates must be accurate: No bait and switch!  Enforcement is done by the FTC.

COPYRIGHT © 2011 South-Western/Cengage Learning. 16 Special Credit Card Rules  Under TILA, you are liable only for the first $50 in charges a thief makes.  In a dispute between a customer and a merchant, the company cannot bill the customer if: she tries to resolve the dispute, the dispute is for more than $50, and the merchant is in the same state or is within 100 miles of her house.  Debit Cards DO NOT have the same protection as stolen or lost credit cards!

COPYRIGHT © 2011 South-Western/Cengage Learning. 17 Credit Card Act of 2009  Passed in response to an economic crisis that left many consumers unable to pay credit card bills.  Adds requirements such as APR limits, credit limits, payment schedules and warnings to consumers.  Prohibits unfair practices such as unfair increases in rates or fees, due dates on weekends or middle of the day, issuing credit cards to those under 21. (see book for fuller discussion of this Act.)

COPYRIGHT © 2011 South-Western/Cengage Learning. 18 Fair Credit Billing Act  Under the FCBA Credit card companies must acknowledge receipt of a complaint from a cardholder. Credit card company must investigate complaints and report the results. If the consumer requests it, the company must supply documentation of a transaction. The company may not try to collect the amount of the dispute while it is in investigation. The credit card company cannot report the disputed unpaid bill to a credit agency until 10 days after a dispute report is made.

COPYRIGHT © 2011 South-Western/Cengage Learning. 19 Fair Credit Reporting Act  Under the FCRA: A consumer report can only be used for legitimate business needs. Information must not be obsolete. An agency cannot report medical information without permission. Employers may not seek a report on a current or potential employee without permission.

COPYRIGHT © 2011 South-Western/Cengage Learning. 20 Fair Credit Reporting Act  Under the FCRA: Anyone making an adverse decision against a consumer because of a report must reveal the name and address of the reporting agency. A reporting agency must make a consumer’s report available upon request. A reporting agency must investigate and correct any content reported to be inaccurate.

COPYRIGHT © 2011 South-Western/Cengage Learning. 21 Fair and Accurate Credit Transactions Act  Under the FACTA: Consumers are entitled by law to one free credit report per year from each of the major reporting agencies. Creates the National Fraud Alert System, which allows possible victims of identity theft to place a warning alert in their credit files.

COPYRIGHT © 2011 South-Western/Cengage Learning. 22 Fair Debt Collection Practices Act  Under the FDCPA, collectors may not: Call or write the debtor who has notified the collector in writing that he wishes no further contact. Call or write a debtor who is represented by an attorney. Call a debtor before 8:00 a.m. or after 9:00 p.m. Threaten a debtor or use obscene or abusive language. Call or visit the debtor at work if the consumer’s employer prohibits such contact.

COPYRIGHT © 2011 South-Western/Cengage Learning. 23 FDCPA (Cont’d)  Under the FDCPA, collectors may not: Imply that they are attorneys when they are not. Threaten to arrest consumers who do not pay their debts. Make other false or deceptive threats, that is, threats that would be illegal if carried out. Contact acquaintances of the debtor for any reason other than to locate the debtor (and then only once). Tell acquaintances that the consumer is in debt.

COPYRIGHT © 2011 South-Western/Cengage Learning. 24 Equal Credit Opportunity Act  The Equal Credit Opportunity act (ECOA) prohibits any creditor from discriminating against a borrower because of race, color, religion, national origin, sex, marital status, age (as long as the borrower is old enough to enter into a legal contract), or because the borrower is receiving welfare.

COPYRIGHT © 2011 South-Western/Cengage Learning. 25 Consumer Leasing Act  Before a lease is signed, the lessor must disclose the following in writing: All required payments, including deposit, down payment, taxes, license fee and balloon payment. The number and amount of each payment and total amount paid by the end of lease. Required insurance payments and available warranties. Maintenance requirements. Penalties for late payments. The consumer’s right to purchase the leased property or terminate a lease early.

COPYRIGHT © 2011 South-Western/Cengage Learning. 26 Magnuson-Moss Warranty Act  Manufacturers or sellers are not required to offer a warranty.  Any supplier that does offer a written warranty (on a consumer product that costs more than $15) must disclose the terms of the warranty in simple understandable language before the sale.

COPYRIGHT © 2011 South-Western/Cengage Learning. 27 Consumer Product Safety Commission  The Consumer Product Safety Commission (CPSC) evaluates consumer products and develops safety standards.

COPYRIGHT © 2011 South-Western/Cengage Learning. 28 “Virtually no one will go through life without reading an advertisement, ordering from a catalog, borrowing money, needing a credit report, or using a consumer product. It is important to know your rights.” “Virtually no one will go through life without reading an advertisement, ordering from a catalog, borrowing money, needing a credit report, or using a consumer product. It is important to know your rights.”