Consumer Rights and Regulations Overview

1. Chapter 26 Consumer Law

2. Quote of the Day Everyone lives by selling something.” Robert Louis Stevenson, Author of Treasure Island and Kidnapped

3. Federal Trade Commission • Created in 1915 to regulate business. • The FTC may enforce the law by: • Voluntary compliance • Administrative hearings and appeals • Penalties • Consumer Financial Protection Bureau – • Created in to regulate consumer financial products and services • Including mortgages, credit cards, and private student loans

4. Sales • Section 5 of the Federal Trade Commission Act (FTC Act) prohibits “unfair and deceptive acts or practices” • Deceptive acts or practices • Under the FTC Act, an advertisement is deceptive if it contains an important misrepresentation or omission that is likely to mislead a reasonable consumer

5. Sales • Unfair practices • The Commission considers a practice to be unfair if it meets all of the following three tests: • It causes substantial consumer injury • The harm of the injury outweighs any countervailing benefit • The consumer could not reasonably avoid the injury • In addition, the FTC may decide that a practice is unfair simply because it violates public policy, even if it does not meet these three tests

6. Additional Sales Rules • Bait-and-switch: A practice where sellers advertise products that are not generally available but are being used to draw interested parties in so that they will buy other products • FTC rules prohibit bait-and-switch advertisements • A merchant may not advertise a product and then disparage it to consumers in an effort to sell a different item

7. Additional Sales Rules • Merchandise bought by mail, telephone, or online • The FTC had established the following rules • Ordered items must be shipped when promised, or within 30 days • If a company cannot ship the product promised, it must send the customer a notice with the new shipping date and an opportunity to cancel • If the company cannot ship by the second shipment date it must send the customer another notice • This time, the company must cancel the order unless the customer returns the notice, indicating that he still wants the item

8. Additional Sales Rules • Telemarketing – FTC rules prohibit telemarketers from calling any telephone number listed on its do-not-call registry • Unordered merchandise • Under §5 of the FTC Act, anyone who receives unordered merchandise in the mail can treat it as a gift • Door-to-door sales – A salesperson is required to notify the buyer that she has the right to cancel the transaction prior to midnight of the third business day thereafter

9. Consumer Credit • Penalty for violating usury statutes varies among states • Depending upon the jurisdiction, the member may forfeit: • Interest above the usury limit • All of the interest • All of the loan and the interest

10. The Truth in Lending Act (TILA)—General Provisions • Application – TILA applies to a transaction only if all of the following tests are met: • It is a consumer loan • The loan has a finance charge or will be repaid in more than four installments • The loan is for less than $51,800 or secured by a mortgage on real estate, or is a private educational loan • The loan is made by someone in the business of offering credit

11. The Truth in Lending Act (TILA)—General Provisions • Disclosure - In all loans regulated by TILA: • The disclosure must be clear and in meaningful sequence • The lender must disclose the finance charge • The creditor must also disclose the annual percentage rate (APR)

12. The Truth in Lending Act (TILA)—General Provisions • Closed-end credit - Before finalizing the loan, the lender must disclose: • The cash price • The total down payment • The amount financed • An itemized list of all other charges • The number, amount, and dates of all payments • Total amount of payments • Late payment and pre-payment penalties • The lender’s security interest in the item purchased • Enforcement – FTC generally has the right to enforce TILA

13. Home Loans • Mortgage loans - TILA prohibits unfair, abusive, or deceptive home mortgage lending practices

14. Home Loans • TILA: • Requires lenders to make good-faith effort to determine whether a borrower can afford to repay the loan • Prohibits lenders from coercing or bribing an appraiser into misstating a home’s value • Bans prepayment penalties on adjustable rate mortgages • Subprime loan: A loan that has an above-market interest rate because the borrower is high-risk • Regulated by the TILA

15. Home Loans • If a home equity loans: • Has an APR that is more than 10 percentage higher than Treasury securities, or • The consumer must pay fees and points higher than 8% of the total loan amount • Then: • The lender must notify the consumer that he does not have to go through with the loan, and he could lose his house if he fails to make payments, and • Loans for less than five years may not have a balloon payment

16. Home Loans • Rescission - Under TILA, consumers have the right to rescind a mortgage for up to three business days after the signing

17. Summary of Major Provisions of TILA page 10

18. Credit Cards • Disclosure • TILA establishes disclosure rules for credit cards • Called open-end credit • In any advertisement or solicitation, the lender must disclose: • Credit terms • That the rate is introductory • Before establishing an open-end credit account, the lender must disclose to the consumer: • When a finance charge will be imposed • How the finance charge with be calculated

19. Credit Cards • In each monthly statement, the lender must disclose: • The amount owed at the beginning of the billing cycle • Amounts and dates of all purchases, credits, and payments • Finance charges and late fees • The date by which a bill must be paid to avoid these charges • Either the consequences of making the monthly minimum payment or a toll-free number that can be used to obtain such information

20. Credit Cards • Regulation of credit card debt • Many consumers struggled to pay their credit card bills during the economic crisis in 2008 • In response, Congress increased oversight of credit card companies by passing the Credit Card Act of 2009

21. Credit Cards • Liability • Stolen cards – Under the TILA, you are liable only for the first $50 in charges the thief makes before you notify the credit card company • Disputes with merchants - In the event of a dispute between a customer and a merchant, the credit card company cannot bill the customer if: • She makes a good faith effort to resolve the dispute • The dispute is for more than $50 • The merchant is in the same state where she lives or is within 100 miles of her house

22. Credit Cards • Disputes with the credit card company – The Fair Credit Billing Act (FCBA) provides additional protection for credit card holders • And for holders of revolving charge accounts

23. Fair Credit Billing Act • Under the FCBA: • Credit card companies must acknowledge receipt of a complaint from a cardholder • Credit card company must investigate complaints and respond: • In case of error, by correcting the mistake and notifying the consumer • If there is no error, by writing to the consumer with an explanation

24. Fair Credit Billing Act • If the consumer requests it, the company must supply documentation of the transaction in question • The company may not try to collect the disputed debt while it is in investigation • The company cannot report to credit agencies that the consumer has an unpaid bill until 10 days after the response

25. Debit Cards • Liability • Liability from a stolen debit card is much greater • Fees • Traditionally, banks would charge a flat fee of $20 to $30 each time cardholders overdrew their bank account • Under new rules, banks are not allowed to overdraw an account and charge the fee unless the consumer signs up for an overdraft plan

26. Credit Reports • Accuracy of credit reports • Consumer reporting agencies: Businesses that supply consumer reports to third parties • Consumer report: Any communication about a consumer’s creditworthiness, character, general reputation, or lifestyle that is considered as a factor in: • Establishing credit • Obtaining insurance • Securing a job • Acquiring a government license • Any other legitimate business need

27. Credit Reports • Under the FCRA: • A consumer reporting agency cannot report obsolete information • An investigative cannot be ordered without first informing the consumer • Investigative report: Discusses character, reputation, or lifestyle and becomes obsolete in three months • A consumer reporting agency cannot report medical information without the consumer’s permission • An employer cannot request a consumer report on any current or potential employee without employee’s permission

28. Credit Reports • Anyone who makes an adverse decision against a consumer because of a credit report must reveal the name and address of the reporting agency • A reporting agency must make a consumer’s report available upon request • A reporting agency must investigate and forward the data to the information provider any content reported to be inaccurate

29. Credit Reports • Access to credit reports and credit scores • Under Fair and Accurate Credit Transactions Act (FACTA), consumers are entitled by law to one free credit report every year from each of the three major reporting agencies: • Equifax • Experian • Trans Union • Consumer advocates recommend that you do check your credit reports every year to make sure: • They are accurate • No one else has been obtaining credit in your name

30. Credit Reports • Identity theft – A fraudster steals the victim’s personal information • Such as social security number, credit card information, etc. • FACTA created National Fraud Alert System • Permits consumers who feel they may be the victim of identity theft to place an alert in their credit files

31. Debt Collection • Under Fair Debt Collection Practices Act (FDCPA), collectors may not: • Call or write a debtor who has notified the collector in writing that he wishes no further contact • Call or write a debtor who is represented by an attorney • Call a debtor before 8:00 a.m. or after 9:00 p.m. • Threaten a debtor or use obscene or abusive language • Call or visit the debtor at work if the consumer’s employer prohibits such contact

32. Debt Collection • Imply that they are attorneys or government representatives when they are not • Threaten to arrest consumers who do not pay their debts • Make other false or deceptive threats that would be illegal if carried out • Contact acquaintances of the debtor for any reason other than to locate the debtor (and then only once) • Tell acquaintances that the consumer is in debt

33. Equal Credit Opportunity Act • Prohibits any creditor from discriminating against a borrower: • Because of race, color, religion, national origin, sex, marital status, age (as long as the borrower is old enough to enter into a legal contract) • Because the borrower is receiving welfare

34. Consumer Leasing Act • Before a lease is signed, the lessor must disclose the following in writing: • All required payments, including deposit, down payment, taxes, license fees • The number and amount of each payment and how the payments are calculated • Balloon payments • Required insurance payments • Annual mileage allowance • The total amount the consumer will have paid by the end of the lease

35. Consumer Leasing Act • Available warranties • Maintenance requirements and a description of the lessor’s wear and use standards • Penalties for late payments • The consumer’s right to purchase the leased property, and at what price • The consumer’s right to terminate a lease early • Any penalties for early termination

36. Magnuson-Moss Warranty Act • Does not require: • Manufacturers or sellers to provide a warranty on their products • Any supplier that offers a written warranty on a consumer product that costs more than $15 to disclose the terms of the warranty in simple understandable language before the sale

37. Consumer Product Safety • Consumer Product Safety Act – Prevents injuries in the first place • Created the Consumer Product Safety Commission (CPSC) that • Evaluates consumer products and develops safety standards

38. “Virtually no one will go through life without reading an advertisement, ordering from a catalog, borrowing money, needing a credit report, or using a consumer product. It is important to know your rights.”