CHAPTER 38 CONSUMER PROTECTION DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8 th Ed.)

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 2 INTRODUCTIONINTRODUCTION State laws regulated consumer credit activities. State laws regulated consumer credit activities. But they lacked uniformity. But they lacked uniformity. Led to the enactment of numerous federal laws. Led to the enactment of numerous federal laws. Adopted to provide uniformity and correct abuses in commercial practices. Adopted to provide uniformity and correct abuses in commercial practices. Product safety also remains significant issue to vast majority of the American public. Product safety also remains significant issue to vast majority of the American public.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 3 NEED FOR REGULATION Large volume of credit transactions in the United States. Large volume of credit transactions in the United States. Creates giant industry involving sale of credit reports. Creates giant industry involving sale of credit reports. Which has led to government regulation. Which has led to government regulation.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 4 THE CONSUMER CREDIT PROTECTION ACT Title I of the Consumer Credit Protection Act of 1968, also known as the Truth in Lending Act (TILA). Title I of the Consumer Credit Protection Act of 1968, also known as the Truth in Lending Act (TILA). Landmark consumer protection law. Landmark consumer protection law. TILA primarily a disclosure statute, forcing creditors inform consumers of actual costs of credit. TILA primarily a disclosure statute, forcing creditors inform consumers of actual costs of credit. Statute carries civil, criminal, and statutory liabilities for failure to comply. Statute carries civil, criminal, and statutory liabilities for failure to comply.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 5 TILA also regulates transactions in which consumer uses home as collateral. TILA also regulates transactions in which consumer uses home as collateral. TILA allows three-day period for consumers to cancel loans. TILA allows three-day period for consumers to cancel loans. Lobbying led to passage of Truth in Lending Simplification and Reform Act. Lobbying led to passage of Truth in Lending Simplification and Reform Act. Act designed to simplify disclosures mandated by the TILA. Act designed to simplify disclosures mandated by the TILA. TILA amended to provide relief from liability for certain creditor finance charges. TILA amended to provide relief from liability for certain creditor finance charges. THE CONSUMER CREDIT PROTECTION ACT

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 6 Regulation Z summarizes scope of TILA. Regulation Z summarizes scope of TILA. – Covers persons who regularly offer/extend credit to consumers for personal, family, or household use and transactions have a finance charge or are payable in four or more installments. – Requires detailed disclosures in initial statement and periodic statements containing specified disclosures. – Tells consumer how to satisfy notification procedures. THE CONSUMER CREDIT PROTECTION ACT

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 7 Regulation Z summarizes scope of TILA. Regulation Z summarizes scope of TILA. – Covers “open-ended” and “close-ended” credit transactions. – Covers only leases of personal property. – Prohibits the issuance of a credit card except to an oral, written request, or application. THE CONSUMER CREDIT PROTECTION ACT

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 8 Remedies to individuals for creditors violation of TILA: Remedies to individuals for creditors violation of TILA: – Actual and statutory damages of an amount equal to the lesser of $500,000 or 1% of creditors net worth. – Awards of attorney’s fees. – Fines of not more than $5,000 and/or one year’s imprisonment. THE CONSUMER CREDIT PROTECTION ACT

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 9 THE FAIR CREDIT REPORTING ACT Regulates practices by companies that regularly engage in credit reporting. Regulates practices by companies that regularly engage in credit reporting. Requires consumer-reporting agencies maintain reasonable procedures to for meeting the needs of consumer credit. Requires consumer-reporting agencies maintain reasonable procedures to for meeting the needs of consumer credit. Agencies must report information in a manner that is fair and equitable to the consumer and ensures confidentiality. Agencies must report information in a manner that is fair and equitable to the consumer and ensures confidentiality.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 10 THE FAIR CREDIT REPORTING ACT Act requires information be provided only those eligible to receive it. Act requires information be provided only those eligible to receive it. Consumers have little recourse against agencies reporting irrelevant information that invades their privacy. Consumers have little recourse against agencies reporting irrelevant information that invades their privacy. Consumers have no right under FCRA to see their files but do have right to be notified if adverse actions have been taken on a credit report. Consumers have no right under FCRA to see their files but do have right to be notified if adverse actions have been taken on a credit report.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 11 THE FAIR CREDIT REPORTING ACT Consumers must be informed of the identity and address of the reporting agency. Consumers must be informed of the identity and address of the reporting agency. Which compiled a report that led to adverse action. Which compiled a report that led to adverse action. Consumer has limited right to correct erroneous information contained in a report. Consumer has limited right to correct erroneous information contained in a report. The FCRA sets out civil remedies for violations of the act. The FCRA sets out civil remedies for violations of the act.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 12 THE FAIR CREDIT REPORTING ACT Willful failure to comply with the act, suits for compensatory/punitive damages are possible. Willful failure to comply with the act, suits for compensatory/punitive damages are possible. Violations stemming from negligent noncompliance, injured consumer can only recover compensatory damages. Violations stemming from negligent noncompliance, injured consumer can only recover compensatory damages. The FCRA prohibits court actions brought for defamation, invasion of privacy, or negligence. The FCRA prohibits court actions brought for defamation, invasion of privacy, or negligence.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 13 THE EQUAL CREDIT OPPORTUNITY ACT Prohibits discrimination whenever creditors extend credit. Prohibits discrimination whenever creditors extend credit. Based on sex, marital status, race, religion, national origin, age, receipt of public assistance, and exercise of consumer protection rights. Based on sex, marital status, race, religion, national origin, age, receipt of public assistance, and exercise of consumer protection rights. Federal Reserve Board (FRB) Regulation B sets out rules and implementing regulations for ECOA. Federal Reserve Board (FRB) Regulation B sets out rules and implementing regulations for ECOA.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 14 THE EQUAL CREDIT OPPORTUNITY ACT ECOA requires creditors follow rules in making evaluations of credit worthiness. ECOA requires creditors follow rules in making evaluations of credit worthiness. ECOA requires creditors to give notice to applicants an any action taken concerning request for credit. ECOA requires creditors to give notice to applicants an any action taken concerning request for credit. Actions include: Actions include: – Approval of the application. – Extension of credit under different terms. – Adverse action.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 15 THE EQUAL CREDIT OPPORTUNITY ACT Remedies under ECOA include: Remedies under ECOA include: – Actual and/or punitive damages. – Maximum of $10,000 for individual actions. – Maximum of $500,000 for class actions. – Equitable relief, attorney’s fees, and cost may also be granted.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 16 Regulates the activities of those who collect bills owed to others. Regulates the activities of those who collect bills owed to others. Intended to eliminate abusive, deceptive, and unfair debt-collection practices to protect consumer. Intended to eliminate abusive, deceptive, and unfair debt-collection practices to protect consumer. Limits manner in which debt collector can communicate with debtor. Limits manner in which debt collector can communicate with debtor. THE FAIR DEBT COLLECTION PRACTICES ACT

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 17 THE FAIR DEBT COLLECTION PRACTICES ACT Debt collector in communication must disclose only that communication is from a debt collector. Debt collector in communication must disclose only that communication is from a debt collector. Statute permits for communication to stop if debtor notifies in writing to debt collector that debtor will not pay and wishes communication to stop. Statute permits for communication to stop if debtor notifies in writing to debt collector that debtor will not pay and wishes communication to stop.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 18 FDCPA provides for civil and criminal penalties. FDCPA provides for civil and criminal penalties. Civil remedies of actual plus statutory damages not to exceed $1000, that court can set are possible in individual suits. Civil remedies of actual plus statutory damages not to exceed $1000, that court can set are possible in individual suits. Class actions $1000 per person awarded, but damages awarded not to exceed lesser of $500,000. Class actions $1000 per person awarded, but damages awarded not to exceed lesser of $500,000. Criminal penalty of $1000 and/or sentence of one year’s imprisonment. Criminal penalty of $1000 and/or sentence of one year’s imprisonment. THE FAIR DEBT COLLECTION PRACTICES ACT

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 19 THE UNIFORM CONSUMER CREDIT CODE Designed to replace state laws governing consumer credit. Designed to replace state laws governing consumer credit. Few states have adopted the Uniform Consumer Credit Code (UCCC). Few states have adopted the Uniform Consumer Credit Code (UCCC). Most states rely on their own statutes. Most states rely on their own statutes. Represents an additional statutory attempt to benefit consumers. Represents an additional statutory attempt to benefit consumers.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 20 THE CONSUMER PRODUCT SAFETY ACT Established Consumer Product Safety Commission (CPSC). Established Consumer Product Safety Commission (CPSC). An independent federal regulatory agency. An independent federal regulatory agency. Has authority over a great number of consumer products. Has authority over a great number of consumer products. To help protect the public from injuries from consumer products, the commission can take several actions. To help protect the public from injuries from consumer products, the commission can take several actions.