Chapter 15 Consumer Protection and Product Liability

Consumer: Any person who purchases or leases goods, services, or property primarily for persona, family use. Caveat Emptor: Let the Buyer Beware Caveat Venditor: Let the Seller Beware

Unfair and Deceptive Practices

One that misleads (or has the potential to mislead) consumers Almost all states have laws relating to this but they differ among states.

Fraudulent Misrepresentation Any statement that deceives the buyer i.e.: misstating the facts

Deceptive Pricing Unfair for a store to raise the price of an article with the intention of lowering the price later and claiming a “bargain” Cannot claim prices are wholesale or factory if they are not Watch out for 2 for 1 sales that look too good to be true

Deceptive Service Estimates It is unfair to significantly underestimate the cost of repair or to charge for repairs that were not authorized.

Work-At-Home Schemes One of the oldest types of classified advertising fraud Hidden costs and membership fees

Unordered Merchandise Under federal and state laws, unordered merchandise may be considered a gift. You can keep it! Only two types of products can be sent legally; free samples and merchandise mailed by charities

False Advertising

Cease and Desist Orders Legally binding orders to stop a practice, to anyone using ads that would mislead the public Federal courts rarely overturn these orders from the FTC

Bait and Switch Advertise a non-existent bargain to lure customers so they can be sold more expensive merchandise SEE Pg. 321 Bullets

Negative Option Rule An Example: CD Clubs The seller send you the month’s selection, if you want it - do nothing and if you don’t – send it back. There are guidelines for these companies on p. 322.

The Cooling-Off Rule Gives consumers three business days to cancel most contracts made away from the seller’s place of business ($25. or more) Salesperson must inform you of your right to cancel Must give you two copies of the contract or receipt Contract or receipt should be dated, and show name & address of seller, and explain your right to cancel

Under FTC, the seller must do the following within 10 days: Cancel and return any papers signed Refund your money Inform you about product pick ups Return any trade-ins Does not apply to real estate, insurance, securities, or emergency home repairs.

Telemarketing Fraud “free” or “low cost” vacations tickets for charity benefits 900-number scams FTC states you must be informed of the cost for the calls

Shopping by Mail, Phone, Fax, or Internet Sellers must ship goods within times stated; if no time is stated then it is 30 days. Sellers must inform you of any delay

Product Liability Manufacturers and sellers are responsible for injuries to consumers when they place defective, unhealthy, or unsafe items on the market.

Strict Liability Makes manufacturers or suppliers responsible for selling goods that are unreasonably dangerous. This is true even if: the manufacturer has not been negligent the user of the product is not the person who bought the product

Consumer Product Safety Act (1972) Test quality and reliability Obtain proof that it has been tested Have capability to recall the product Take action on any valid complaints

Food, Drug, and Cosmetic Act (1938)  Prohibits the manufacture and shipment in interstate commerce of any food, drug, cosmetic or device for health purposes that is injurious, adulterated, or misbranded.

Adulterated Product One that contains any substance mixed or packed with it to reduce its quality or strength below minimum standards.

Misbranded Prohibits the manufacture and shipment in interstate commerce of any food, drug, cosmetic or device for health purposes that is injurious, adulterated, or misbranded. Requires that packaged drugs bear the name and address of manufacturer Labels on non-prescription drugs must give common name Labels must caution any use that may be unsafe

Delaney Amendment (1958) Gives the right to remove any food or food additive shown or believed to cause cancer in humans or animals. The government has taken action to discourage the sale of goods considered a threat to public health. Unusually High Taxes, Labeling and Packaging, and Outright Prohibition (Cigarette ads 1971)

Consumer Protection Assistance Better Business Bureau (BBB) A nongovernmental agency that hears consumer complaints at the local and state levels See p. 331 bullets