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Dynamic business law essentials 3e 2016 chapter 25

Chapter 25
Consumer Law

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2013 The McGraw-Hill
Inc. All
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McGraw-Hill
Education. 
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rights reserved.

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Chapter 25 Case Hypothetical and Ethical Dilemma
Tancredo’s Television and Appliance is preparing for its annual Labor Day sale. The store’s sales
manager, Chase Randleman, has arranged for an advertisement to run in Sunday’s edition of the
local newspaper, the Glenwood News and Record. The full-page advertisement centers around a 70”

Sanyoshiba LED television with an advertised price of $795.00. The average competitor price for a
Sanyoshiba television with like dimensions and features is $1,499.00.
By 5:00 a.m. on Labor Day, three hundred eager customers wind around the store like a coiled snake
ready to strike. 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. Bailey’s principle goal is to head to the television
section and purchase the Sanyoshiba, but he does stop for a few minutes to examine the washerdryer combinations.
At 8:15 a.m., Bailey informs a sales representative, Mike Petty, that he would like to purchase the
$795 Sanyoshiba television, but Petty informs him that he does not have another one like that to sell
because the store had “sold through” the five they had in stock, and that the store has made a
marketing decision to discontinue carrying the Sanyoshiba brand. Petty does inform Bailey, however,
that he has an outstanding Toshamaha of the same size and options for $1295.00, two hundred
dollars less than its manufacturer’s suggested retail price.
Is Tancredo’s Television and Appliance legally and/or obligated to either find and sell Bailey the
featured television for the advertised price, or sell him a competitor’s brand of like dimensions and
features for the $795.00 price?
© 2013 The McGraw-Hill Companies, Inc. All rights reserved.

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Chapter 25 Case Hypothetical and Ethical Dilemma
Last year, Juan Ramirez purchased a washer-dryer combination from I. I. Gregory Appliances, Inc.
Juan 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 (4) 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 particularly
aggressive in terms contacting debtors and collecting overdue sums. When I. I. Gregory assigned
the Juan Ramirez account to Shady Way, the collection agency “focused its wrath” on Juan.
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 to impress upon Juan his debt repayment obligations. Despite Juan’s
repeated proclamations that he will only deal with I. I. Gregory, the company he bought the washerdryer combination from and whose credit card he holds, Shady Way continues to contact him. The
collection agency has even called Juan’s brother and sister, telling them how dishonorable their
sibling is, how they should be ashamed of him, and that they need to impress upon Juan that “real
men” pay their debts.
In its communications with Juan Ramirez and his family, has Shady Way Collections, Inc. violated the
Fair Debt Collection Practices Act? If so, why should the law protect Juan? Has not Juan violated his
legal and ethical obligations in terms of not repaying his credit card debt?

© 2013 The McGraw-Hill Companies, Inc. All rights reserved.


3


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

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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
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How The FTC Brings An Action:
•FTC conducts an investigation
•FTC sends a complaint to the violator
•FTC and violator settle complaint through “consent
order”
•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 “ceaseand-desist” order
© 2013 The McGraw-Hill Companies, Inc. All rights reserved.

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Remedies For Violation of “Cease-AndDesist” Order
FTC can:
•Seek injunction against company; and/or
•Fine company up to $10,000 per violation

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Elements of Deceptive Advertising
•Material misrepresentation, omission, or
practice that is…
•Likely to mislead a…
•Reasonable consumer

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Ad Substantiation
Definition: FTC requirement that
advertisers have reasonable basis for
claims made in advertisements

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“Bait-And-Switch” Advertising
A form of deceptive advertising;
advertising low price to “bait” consumer
into store, only so that salesperson can
“switch” consumer to a higher-priced item

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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
© 2013 The McGraw-Hill Companies, Inc. All rights reserved.

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Telemarketing And Electronic Advertising
•1991 Telephone Consumer Protection Act: Telemarketers cannot use an
automatic telephone dialing or pre-recorded voice system
•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 non-refundable
-Remove consumer’s name from contact list if consumer so
requests
•Federal “Do Not Call” Registry: Telemarketers cannot call consumers
who have voluntarily placed their phone numbers on the federal “do not
call” list
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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

© 2013 The McGraw-Hill Companies, Inc. All rights reserved.

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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

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Sales
•“Door-to-Door” Sales: The “cooling-off” rule gives consumers
3 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: In accordance with the Postal
Reorganization Act of 1970, consumer allowed to treat any
unsolicited merchandise as a gift; consumer free to
keep/return unsolicited merchandise as he/she wishes

© 2013 The McGraw-Hill Companies, Inc. All rights reserved.

15


FTC Regulation of Specific Industries
•Used-Car Sales
•Funeral Home Sales
•Real Estate Sales
•Online Sales

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Credit Protection Legislation
•Truth-In-Lending Act: Requires that sellers disclose
terms of credit/loan to facilitate consumer’s comparison
of a variety of credit lines/loans
•Fair Credit Reporting Act: Ensures accurate credit
reporting
•Fair Debt Collection Practices Act: Regulates actions
of debt collectors that regularly attempt to collect debts
on behalf of others

© 2013 The McGraw-Hill Companies, Inc. All rights reserved.

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Credit Protection Legislation
(Continued)
•Credit Card Fraud Act: Closes “loopholes” in federal
laws to further punish people who commit credit card
fraud
•Fair Credit Billing Act: Seeks to remedy problems and
abuses associated with billing errors
•Fair and Accurate Credit Transactions Act: Takes
affirmative actions to control and prosecute identity
theft

© 2013 The McGraw-Hill Companies, Inc. All rights reserved.

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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”)

© 2013 The McGraw-Hill Companies, Inc. All rights reserved.

19


Consumer Health and Safety
•Federal Food, Drug, and Cosmetic Act: 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”

© 2013 The McGraw-Hill Companies, Inc. All rights reserved.

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