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Dynamic business law 4e kubasek 4e CH45 ADA final

Dynamic Business Law
Fourth Edition

Chapter 45
Consumer Law

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution
without the prior written consent of McGraw-Hill Education.


Overview
45-1 What is the purpose of the Federal Trade
Commission Act?
45-2 How does the Federal Trade Commission
determine what constitutes deceptive
advertising?
45-3 What is the purpose of labeling and
packaging laws?
45-4 What are the different methods of sales?
45-5 What are the different acts that provide
credit protection?

45-6 What are the different acts that help
ensure consumer health and safety?
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution
without the prior written consent of McGraw-Hill Education.

[45-2]


Hypothetical Case 1 (1 of 2)


Sheldon Elgin Jernigan III was intrigued by a
commercial he saw on television for a new shower
gel produced by Bilever Global, Inc. called Thor's
Hammer. The advertisement depicted a
bespectacled, pale, short and skinny male (i.e., a
nerd) lamenting the absence of female interest in
him. Later in the ad, while surfing the Internet, the
nerd read about the alluring power of Thor's
Hammer to attract the fairer sex. The nerd rushed
to his local retailer and purchased the shower gel,
returned home and showered with it, and then
went out on the town. The end of the commercial
portrayed the former nerd with newfound
confidence, surrounded by a host of beautiful
women at a dance club.
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution
without the prior written consent of McGraw-Hill Education.

[45-3]


Hypothetical Case 1 (2 of 2)




Reality immediately mimicked fiction, at least to a
certain point. Jernigan rushed out to the drugstore
and purchased the shower gel, returned home and


showered with it, and then, like the nerd in the ad,
went out on the town. The similarities ended there
—Jernigan wandered dejectedly from club to club,
with not a single female even giving him the time
of day.
Jernigan believes Bilever Global, Inc. has violated
Section 5 of the Federal Trade Commission Act.
More specifically, he believes the company's Thor's
Hammer advertisement is unfair and deceptive. Do
you agree?
[45-4]

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without the prior written consent of McGraw-Hill Education.


Hypothetical Case 2 (1 of 2)




Last year, Juan Ramirez purchased a washerdryer combination from I. I. Gregory
Appliances, Inc. Ramirez satisfied the monthly
obligations on his I. I. Gregory credit card until
he lost his job at D. Funk Steel Industries, Inc.
He is now four months behind on his I. I.
Gregory credit card payments.
I. I. Gregory has turned the matter over to a
collection agency, Shady Way Collections, Inc.
Since Shady Way only gets paid if it recovers
on delinquent accounts, the company is very
aggressive about collecting overdue sums.
[45-5]

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution
without the prior written consent of McGraw-Hill Education.


Hypothetical Case 2 (2 of 2)




A representative of Shady Way has called Juan as early
as 3:30 a.m. and as late as 11:45 p.m., often using foul
language when lecturing him about his debt repayment
obligations. Despite Ramirez's repeated proclamations
that he will only deal with I. I. Gregory, Shady Way
continues to contact him. The agency has even called
Ramirez's brother and sister, telling them how
dishonorable their sibling is, how they should be
ashamed of him, and that they need to tell Ramirez
that real men pay their debts.
In its communications with Ramirez and his family, has
Shady Way Collections, Inc. violated the Fair Debt
Collection Practices Act? If so, why should the law
protect Ramirez? Has Ramirez violated his legal and
ethical obligations by not repaying his credit card debt?

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution
without the prior written consent of McGraw-Hill Education.

[45-6]


Consumer Law


Definition: A statute or administrative rule
serving to protect consumer interests

[45-7]

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution
without the prior written consent of McGraw-Hill Education.


Federal Trade Commission (FTC)





Created by Congress through Federal Trade
Commission Act (FTCA) of 1914
Purpose of FTCA: Prevent fraud, deception,
and unfair business practices
Purpose of FTC: Enforce provisions of FTCA
FTC methods to protect consumers:
– Consumer education
– Legal action

[45-8]

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without the prior written consent of McGraw-Hill Education.


How the FTC Brings an Action







FTC conducts an investigation
FTC sends a complaint to the violator
FTC and violator settle complaint through
consent agreement
If company refuses to enter consent
agreement, FTC may issue formal
administrative complaint, which leads to
administrative hearing
If company has violated the law, FTC issues
a cease-and-desist order
[45-9]

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution
without the prior written consent of McGraw-Hill Education.


Remedies for Violation of Ceaseand-Desist Order


FTC can:
– Seek injunction against company
– Fine company up to $10,000 per violation

[45-10]

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution
without the prior written consent of McGraw-Hill Education.


Elements of Deceptive Advertising




Material misrepresentation, omission, or
practice that is likely to mislead a
reasonable consumer
Bait-and-switch advertising: A form of
deceptive advertising; advertising low price
to bait consumer into store so that
salesperson can switch consumer to a
higher-priced item

[45-11]

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution
without the prior written consent of McGraw-Hill Education.


FTC Actions against Deceptive
Advertising






Cease-and-desist actions: Court orders
requiring that firms stop their current
advertising behavior
Multiple-product orders: Court orders
requiring that firms stop current
advertisements on numerous products (as
opposed to one specified product)
Corrective advertising: Advertisements in
which company explicitly states that
formerly advertised claims were untrue
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution
without the prior written consent of McGraw-Hill Education.

[45-12]


Telemarketing and Electronic
Advertising (1 of 3)


1991 Telephone Consumer Protection Act:
Telemarketers cannot use an automatic
telephone dialing or prerecorded voice
system

[45-13]

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without the prior written consent of McGraw-Hill Education.


Telemarketing and Electronic
Advertising (2 of 3)


Telemarketing and Consumer Fraud and Abuse
Prevention Act of 1994: Congress asked FTC to
define deceptive and abusive telemarketing
practices and requested that FTC create and enforce
rules governing telemarketing that would prohibit
such practices


According to FTC-created Telemarketing Sales Rule of
1995, telemarketers must:
 Identify call as sales call
 Identify product name and seller
 Tell total cost of goods being sold
 Notify listener/reader whether sale nonrefundable
 Remove consumer's name from contact list if
consumer so requests
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution
without the prior written consent of McGraw-Hill Education.

[45-14]


Telemarketing and Electronic
Advertising (3 of 3)


Federal "Do Not Call" registry:
Telemarketers cannot call consumers who
have voluntarily placed their phone
numbers on the federal Do Not Call list

[45-15]

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without the prior written consent of McGraw-Hill Education.


Regulation of Tobacco Advertising




Public Health Cigarette Smoking Act of
1970: Prohibits radio and television
cigarette advertisements
Smokeless Tobacco Health Education Act of
1986: Also prohibits radio and television
advertisements for smokeless tobacco

[45-16]

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution
without the prior written consent of McGraw-Hill Education.


Labeling and Packaging Laws




Federal and state governments have
passed laws requiring that manufacturers
provide accurate, understandable labeling
information
If product is potentially harmful,
manufacturer must make consumer aware
of harm

[45-17]

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without the prior written consent of McGraw-Hill Education.


Sales






Door-to-door sales: The Cooling-Off Rule gives
consumers three days to cancel purchases
they make from salespeople who come to their
homes
Telephone and mail-order sales: The Mail or
Telephone Order Merchandise Rule of 1993
extends protections to those who purchase
over the phone or by fax
Unsolicited merchandise: Consumer allowed to
treat any unsolicited merchandise as a gift;
consumer free to keep/return unsolicited
merchandise as he/she wishes
[45-18]

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution
without the prior written consent of McGraw-Hill Education.


FTC Regulation of Specific
Industries





Used-car sales
Funeral home sales
Real estate sales
Online sales

[45-19]

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without the prior written consent of McGraw-Hill Education.


Credit Protection (1 of 2)







Truth In Lending Act (TILA): Requires that
sellers disclose terms of credit/loan to
facilitate consumer's comparison of a variety
of credit lines/loans
Fair Credit Reporting Act (FCRA): Ensures
accurate credit reporting
Fair Debt Collection Practices Act (FDCPA):
Regulates actions of debt collectors that
regularly attempt to collect debts on behalf of
others
Credit Card Fraud Act: Closes loopholes in
federal laws to further punish people who
commit credit card fraud
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution
without the prior written consent of McGraw-Hill Education.

[45-20]


Credit Protection (2 of 2)






Fair Credit Billing Act (FCBA): Seeks to remedy
problems and abuses associated with billing
errors
Fair and Accurate Credit Transactions Act
(FACTA): Takes affirmative actions to control
and prosecute identity theft
Credit Cardholders' Bill of Rights Act : Targets
unfair credit card practices

[45-21]

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without the prior written consent of McGraw-Hill Education.


Collection Practices Expressly
Prohibited by the FDCPA









Contacting debtor at work (if debtor's employer
objects)
Contacting debtor who has notified collection
agency that he/she wants no contact with agency
Contacting debtor before 8 a.m. or after 9 p.m.
Contacting third parties about the debt
(exceptions: contacting debtor's parents, spouse,
or financial adviser)
Using obscene/threatening language when
communicating with debtor
Misrepresenting collection agency as a
lawyer/police officer
Note: These restrictions apply to all debt collectors
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution
without the prior written consent of McGraw-Hill Education.

[45-22]


Consumer Health and Safety




Federal Food, Drug, and Cosmetic Act
(FFDCA): Protects consumers against
misbranded or adulterated food, drugs,
medical devices, or cosmetics
Consumer Product Safety Act: Created the
Consumer Product Safety Commission
(CPSC) to protect the public against
unreasonable risks of injuries and deaths
associated with consumer products

[45-23]

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without the prior written consent of McGraw-Hill Education.


Hypothetical Case 3 (1 of 2)




Tancredo's Television and Appliance is preparing for its
annual Labor Day sale. The store's sales manager,
Chase Randleman, has arranged for an ad to run in
Sunday's edition of the local newspaper. The full-page
advertisement features a 60" Sanyoshiba TV with a
price of $495. The average competitor price for a
similar Sanyoshiba TV is $1,299.
By 5:00 a.m. on Labor Day, 300 eager customers wind
around the store. There is a mad rush to the door when
the store opens at 8:00 a.m., and Bailey Simmons is the
third customer through the door. Simmons's principal
goal is to head to the TV section and buy the
Sanyoshiba, but he does stop for a few minutes to
check out some other appliances.
[45-24]

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution
without the prior written consent of McGraw-Hill Education.


Hypothetical Case 3 (2 of 2)




At 8:15 a.m., Simmons informs a sales representative,
Mike Petty, that he would like to purchase the $495
Sanyoshiba television, but Petty tells him he doesn't
have another one like that to sell because the store
already sold through the five they had in stock, and that
the store has made a marketing decision to discontinue
carrying the Sanyoshiba brand. Petty tells Simmons,
however, that he has an Toshamaha of the same size
and options for $995, which is $200 less than its
manufacturer's suggested retail price.
Is Tancredo's Television and Appliance legally obligated
to either find and sell Simmons the featured television
for the advertised price or sell him another brand of like
dimensions and features for the $495 price?
[45-25]

Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution
without the prior written consent of McGraw-Hill Education.


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