Chapter 14 Consumer Protection.

Name: Chapter 14 Consumer Protection.
Uploaded: 2017-07-27T23:55:15+00:00
Duration: PTM20S2
Channel: Hester Higgins
Description: Chapter 14 Consumer Protection.

Chapter 14 Consumer Protection

Governmental Protection in Today’s Marketplace
Consumer Individual who acquires goods that are intended primarily for personal, family, or household use Protected in the marketplace through actions they may take on their own as well as through actions of the government

Consumer Caveats Caveat emptor—”let the buyer beware” Consumers were thought to be adequately protected by their own ability to judge a product’s safety and utility Forces of supply and demand in a competitive marketplace were to keep product makers and sellers committed to producing the best product for the money Can seek advice from: Better Business Bureau Attorney General’s office Customer service department of store

Caveat Venditor—”let the seller beware” Local, state, and federal governments have passed legislation to help put consumers on the same level as sellers in the marketplace Difficult for consumers to judge products properly for quality or advantages/disadvantages Laws fund agencies that add to the common-law based contract, tort, and criminal protection against such abuses Sellers may be sued by the individual consumer as well as be subject to charges by a government agency

Class Actions Allows one or several persons to sue not only on behalf of themselves, but also on behalf of the many others similarly wronged The law has recognized that if the product in question costs little or the potential damages are low, court action is expensive and time consuming The ability to combine individual causes of action into one suit provides incentive for law firms to handle such cases

Governmental Procedure Cease-and-desist order Requires a company to stop the specified conduct If the defendant violates the order, heavy civil penalties may be imposed Consent Order Voluntary, court-enforceable agreement to stop an illegal or questionable practice Eliminates a long court battle Restitution The return to customers of money wrongfully obtained

Licensing Protection of consumers begins with licensing suppliers of consumer services Certain businesses and institutions must pass inspection before receiving operating licenses Written estimates and detailed bills must be submitted for all work performed States regulate special sales by retail businesses Going out of business; bankruptcy

Unsafe Products Consumer Product and Safety Act (1972) Created the Consumer Product and Safety Commission Issues and enforces safety standards for most consumer products Requires any manufacturer, distributor, or retailer discovering the failure of its product to comply with safety regulations to report that fact to the commission Receives reports from the nation’s hospitals on product-caused injuries If a product is substantially dangerous, it will be recalled and repaired, replaced, or the purchase price will be refunded

Adulterated Food, Drugs, and Cosmetics Federal Food and Drug Administration (FDA) Requires that the production facilities for cosmetics, food, and drugs be clean Requires that the products be prepared from ingredients fit for human use or consumption If a product does not meet the minimum standards for purity and quality set by the FDA, it is called adulterated Such products may be confiscated, or seized, by the government Requires that labels on regulated products give the name and address of the manufacturer, packager, or distributor, and reveal the quantity and nutritional information

Adulterated Food, Drugs, and Cosmetics United States Department of Agriculture (USDA) Inspects canners, packers, and processors of poultry and meat entering interstate commerce Ensures that products are free of disease and are processed under sanitary conditions

Improper Weights and Measures The U.S. Constitution gives Congress the power to set standards for weights and measures Currently, the Weights and Measures Division of the National Institute of Standards and Technology promotes uniformity in U.S. weights and measures laws, regulations, and standards Inspect, test, and enforce at the state and federal levels Gallon of gasoline, pound of bananas, foot of rope is uniform

Protection Against Unfair Trade Practices
Any method of business that is dishonest or fraudulent or that illegally limits free competition Anti-trust Laws Federal Trade Commission Act (FTC) Designed to prevent unfair trade practices in interstate commerce

Agreement to Control or Fix Prices Competition is the force that drives efficient business to create new and better products and services Competition drives inefficient firms out of business Some individuals and companies enter into agreements to control or fix prices to try and eliminate competition Illegal and unenforceable Violators are subject to criminal penalties

False and Misleading Advertising Intentionally deceives, makes untrue claims of quality or effectiveness, or fails to reveal critically important facts Bait and Switch Using understocked, low-priced items as a “come on” to lure prospective buyers into the store; once there customers find out that the item is sold out and are redirected to a more expensive item Not illegal if quantity is stated or “supply is limited” Many stores give rain checks

False and Misleading Advertising The Federal Trade Commission (FTC) has the main responsibility for preventing false and misleading advertising Can order an advertisement terminated May order corrective advertising Advertiser must admit wrongdoing and state the truth in a prescribed number of future advertisements

Illegal Lotteries and Confidence Games Lottery/Game Requirements: Payment of money or something else of value to participate Winner(s) determined by chance rather than skill Prize to be won Illegal to hold or participate in a gambling scheme Regulated by states—religious organizations, state lotteries Use of lotteries to promote business is unfair competition Confidence game—victim is persuaded to trust the swindler with the victim’s money or other valuables in hopes of a quick gain Pyramid schemes

Unfair Pricing and Service Common unfair pricing methods: Intentionally misrepresenting that goods are being sold at a considerable discount Stating that the price charged for goods is a wholesale price Both illegal Representing goods or services as being free with purchase of another good that is sold at an inflated price Estimate for repair far lower than actual price Repairs that are not authorized

Mislabeled Goods Mislabeling a good to make it more marketable Selling used goods as if new or in better condition than the really are Law requires that certain products contain warning labels Poisons and insecticides must have appropriate “danger” labels Cigarette packaging and advertisements must carry warnings indicating the dangers of smoking

Other Unfair Trade Practices Using a brand name or trademark so similar to a competitor’s that it’s hard to know the difference Sending unordered merchandise and demanding payment for it or its return Giving a corporation’s purchasing agent money “under the counter” in exchange for ordering from the supplier or paying retail salespeople “push money” for promoting a certain product Conducting “industrial espionage” to find out trade secrets Conducting fraudulent telemarketing and internet schemes Figuring finance charges improperly Failing to provide written warranties when required In door-to-door home solicitation sales, failing to notify purchasers that they have three days to cancel contracts for purchases of $25 or more

What is Product Liability?
The affixing of responsibility to compensate buyers, users, and even those standing nearby for injuries caused by a defective product Product liability suits may be based on: Fraud Negligence Strict liability Breach of warranty—assurance that the seller makes about the product’s quality and performance Governed by the UCC

Expansion of Product Liability
Privity of Contract The relationship that exists between or among the contracting parties as a result of their legally binding agreement The UCC broadens common law rule so that all injured persons who are the buyer’s family, household, or guests may sue Courts in most states permit the injured party, even a nonuser, to sue retailers, intermediate sellers, and manufacturers Can be a result of misleading or inaccurate advertising, or defective goods

Recovering Damages A product liability suit may be based on a breach of warranty, or on torts of fraud, negligence, or strict liability Damages may be difficult to obtain No warranty, warranty is not applicable, or warranty expired Negligence is hard to prove because the defective product may have been designed and made months or years prior to purchase

Recovering Damages Most likely to recover damages by relying on strict liability Many states hold the manufacturer, wholesaler, and retailer strictly liable if someone is injured by a defective product Liability is imposed without reliance on warranties or on the presence or absence of fraudulent intent or negligence NO LIABILITY: Using a product for something other than its intended use Using the product for a purpose that could not be reasonably foreseen Altered product Improper conduct Improper use

How Important are Warranties?
Express Warranty Assurance of quality or a promise of performance explicitly made by the seller May be oral or written If the contract is written, the warranty must be included in the writing If the warranty is given after the sale, it may be oral A warranty or any other term may be added to a sales contract later by mutual agreement without additional consideration

Requirements of Express Warranties Magnuson-Moss Warranty Act Federal Trade Commission has established certain minimum standards that must be met by sellers giving written warranties on products that cost more than $15 Sellers are not required to give warranties If they do give warranties, they must make them available to consumers prior to the sale in a single document, written in simple, understandable language

Requirements of Express Warranties The following information must be included: To whom the warranty is extended A description of the product and any excluded parts What the warrantor will and will not do in the event of a breach of warranty When the warranty begins and when it ends The step-by-step procedure to obtain performance of warranty obligations Availability of any informal methods of settling disputes Any limitation on how long implied warranties last Any exclusion or limitation on incidental or consequential damages The words “ This warranty gives you specific legal rights, and you may also have other rights which will vary from state to state”

Requirements of Express Warranties Full Warranty—obligates the seller to repair or replace a defective product without cost to the buyer and within a reasonable time Limited Warranty—provides less protection than a full warranty Seller must identify type of warranty

Opinions v. Warranties Positive statements about the value of goods is an opinion If the buyer views the merchant as an expert, a positive statement may be taken as a warranty Example: Jeweler states that a diamond is flawless

Express Warranties made by all Sellers Every seller is bound by any express statement of fact or promise that is part of the bargain It is desirable to have these statements in writing When a description of goods or a sample or a model is made part of the contractual agreement, there is an express warranty that all the goods shall conform to the description, sample, or model used True even if “warranty” or “guarantee” do not appear in the contract True even if the seller had no intention to give such warranty

Implied Warranties given by all Sellers Law compels all sellers to honor certain implicit, or unstated, warranties in order to ensure minimal standards of contractual performance Implicit Warranty—obligation imposed by law on all sellers Types: Warranty of title Warranty against encumbrances Warranty of fitness for a particular purpose

Implied Warranties given by all Sellers Warranty of Title Implicit in the act of selling, the seller warrants that he or she has the title to the goods and right to transfer them Implied by law Exclusions: Seller doesn’t have the title Sheriff selling a debtor’s goods by court order to satisfy a judgment

Implied Warranties given by all Sellers Warranty Against Encumbrances Implicit in the act of selling is the seller’s warranty that goods shall be delivered of all encumbrances (claims of third parties) of which the buyer is not aware at the time of contracting Does not ensure that the goods are free of encumbrances at the time of the sale, but rather that they will be free at the time of delivery Pay off third party claims before transferring ownership

Warranty of Fitness for a Particular Purpose A buyer who needs goods for a specific purpose often tells the seller about that purpose Buyer relies on the seller’s skill and judgment for a selection of appropriate goods Seller makes an implied warranty that the goods delivered are reasonably fit for the stated purpose If they are unfit, the buyer has a right of action for breach of warranty Exceptions: When the buyer personally selects the goods When the buyer orders the goods according to his/her specifications When the buyer does not rely on the skill and judgment of the seller because of independent testing or other reasons

Implied Warranties given by Merchants Warranty Against Infringement A merchant makes an implied warranty that the goods in which he/she normally deals shall be delivered to a buyer free of any third party claims for patent, copyright, or trademark infringement This warranty may be excluded by agreement between the parties If the buyer furnishes specifications to the seller that lead to a claim of infringement against the seller, the buyer is obligated to compensate the seller for any loss suffered because of the infringements

Implied Warranties given by Merchants Warranty of Merchantability Requires that the goods be fit for the ordinary purposes for which the goods are used All goods sold must pass without objection in the trade under the sales contract description Implied warranty of merchantability greatly increases the merchant’s duties of care and performance beyond those of a casual seller Merchantability requires that any warranty protection that is customary in the trade be extended to all buyers May be expressly excluded by agreement of the parties

Exclusion of Warranties A seller may offer to sell goods without any warranty Most likely to occur if the goods are known to have defects or if they are a new design or model To sell without a warranty, the seller must refrain from making any express warranties, and use appropriate language that will exclude any implied warranties Must use a DISCLAIMER—notice of exclusion Must be in writing and be easily noticed

Lemon Laws Laws protect consumers of vehicles but may extend to other consumer products in certain jurisdictions Chronically defective vehicles are called “lemons” How they work: A consumer returns a vehicle with a major defect to an authorized dealership for repair within the warranty period. If the dealership tries unsuccessfully to fix the vehicle several times, the consumer should then, in writing, request a refund or replacement vehicle. If the request is not met, the consumer should contact an attorney

Chapter 14 Consumer Protection.

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