Consumer Protection

1. Lessons Chapter 17 CHAPTER 17 Consumer Protection 17-1 Federal Protection 17-2 State and Local Protection and Product Liability 17-3 Warranties

2. GOALS Chapter 17 LESSON 17-1 Federal Protection Explain why and how the law focuses on the protection of consumers Discuss the trade practices that are prohibited by consumer law

3. Chapter 17 Hot Debate • Edison buys a lawnmower from dept. store • Design defect – protective plastic flap binds the mower whenever it is pulled backwards • Edison removes flap • Pulling mower backwards – he trips and falls backward • Foot shoots upwards into the mower blade • Wearing tennis shoes – loses half his foot

4. Chapter 17 • brings suit against the manufacturer • Reasons for supporting Edison’s suit

5. Chapter 17 • If the flap had not been defective in the first place, Edison would not have removed it and no injury would have occurred. • Legal reason for supporting the manufacturer

6. Chapter 17 • Edison’s act of removing the safety feature released the manufacturer from liability

7. Chapter 17 Why does the law protect consumers? • Consumer – individual who acquires goods that are primarily intended for personal, family, or household use • Caveat emptor – “let the buyer beware” • Caveat venditor – “let the seller beware”  no longer holds true

8. Chapter 17 WHY DOES THE LAW PROTECT CONSUMERS? The complexity and sheer abundance of products make it difficult for the consumer to properly judge the quality of advantages and disadvantages of a product.

9. Chapter 17 • Advertising – most effective way of creating consumer attitudes toward products

10. Chapter 17 Class actions • Product problem – court action is time consuming and costly • Alternative – Class actions allow one or several persons to sue not only on behalf of themselves, but also on behalf of many other similarly wronged

11. Chapter 17 Class actions • Government acting through administrative agencies • Cease-and-Desist Order – court order requiring the company to stop the specified conduct. • Heavy civil penalties for violation • Consent Order – voluntary agreement to stop illegal/questionable practice

12. Chapter 17 Class actions • An agency may also order restitution • Restitution – the return to customers of money wrongfully obtained

13. Chapter 17 Remedies for consumers • State Attorney General’s Office • Better Business Bureau • Customer Service Department of company • Small claims court

14. Chapter 17 What’s Your Verdict • Simmons saw an ad “car painting, $99.99 complete” • Contracted for service and selected a dark blue metallic finish • When car was finished, it was painted light blue • Simmons complained • Manager claimed it was “close enough” to the color he selected and refused to make a correction

15. Chapter 17 What’s Your Verdict • What should Simmons do? • He can use any of the previously mentioned options

16. Chapter 17 Consumer laws • 1 - help protect against the production and sale of substandard or dangerous consumer goods • 2 - prohibit improper trade practices • 3 - require licenses and inspections to help ensure compliance with the law • 4 - provide remedies for persons injured

17. Chapter 17 Vonage Complaints – Nov. 09 • Today’s settlement addresses consumer complaints that Vonage, a Delaware-based corporation with offices in Holmdel, made it difficult or impossible to cancel their Vonage service. • Vonage formerly paid incentives to customer service representatives for retaining or “saving” customers when they called to cancel. • Today’s agreement puts strict limitations on attempts to dissuade consumers from canceling, and requires recording and verification of consumer cancellation calls.

18. Chapter 17 Top 10 consumer complaint categories in New Jersey 2008 • Photography studios • Debt Collection • Home Improvement Repairs • Health Clubs • Used Motor Vehicles • Telecommunications • Internet Sales/Goods • Telemarketing/Phone Solicitation • Home Furnishings/Furniture • Banking/Financial Institutions • The closure of wedding photography company Celebration Studios in January, 2008 led to over 1,800 consumers filing complaints with the Division. • The #2 category, debt collection, generated 729 consumer complaints.

19. Chapter 17 PROTECTION AGAINST SUBSTANDARD GOODS • Safety standards • Drugs, food, and cosmetics • Standards for weights and measures

20. Chapter 17 Safety Standards • 1972 – Consumer Product Safety Act • CPSC • Law created the Consumer Product Safety Commission (CPSC) • - requires companies with defective products to report them to the CPSC • - hospitals must report product-caused injuries • - orders notification to purchasers and recalls

21. Chapter 17 CPSC • Can order company to repair, replace, or refund purchase price • Levy fines and imprisonment for non-compliance • Can ban products from the marketplace

22. Chapter 17 Drugs, Food, and Cosmetics • The federal Food and Drug Administration (FDA) FDA • Ensures products (cosmetics, food, and drugs) are manufactured in clean environments and ingredients are fit for human use or consumption • Products not meeting the standards -- adulterated

23. Chapter 17 FDA • Adulterated products may be confiscated by the government. • US Dept. of Agriculture inspects: • Canners • Packers • Processors of poultry & meat • Disease free & sanitary conditions

24. Chapter 17 FDA - Labeling • name, address of manufacturer • quantity • nutrition • Fat • Sodium • Carbohydrate • protein

25. Chapter 17 FDA - Drugs • Drugs are regulated for safety, effectiveness, and purpose sold. New drugs need approval to be marketed Over-the-counter – decided by FDA Criticized by many as being “overly cautious”

26. Chapter 17 Weights and Measures • U.S. Constitution  Congress National Bureau of Standards State & Local Governments

27. Chapter 17 Weights and Measures • Violators punished by fine, imprisonment, or both • Scales gasoline pumps • Scanners lumberyard scales -- commercial sales -- unit pricing

28. Chapter 17 Unfair Trade Practices • Unfair Trade Practice – method of business that is dishonest or fraudulent or that illegally limits free competition. • Federal Laws: • Antitrust laws Anti-Trust Law • Federal Trade Commission Act FTC • Concerned mainly with unfair practices in interstate commerce

29. Chapter 17 Unfair Trade Practices • Competition best serves consumers • Drives business to create new and better products and services • Drives inefficient businesses out • Price fixing attempts to ensure a company’s survival - illegal

30. Chapter 17 Unfair Trade Practices • False and Misleading Advertising • intentionally deceives • makes untrue claims of quality or effectiveness • fails to reveal critically important facts

31. Chapter 17 Unfair Trade Practices • Advertise low price to entice customers into the store • Once in the store customer finds the advertised product is sold out and is redirected to a better, higher priced item • Called  bait and switch • not deceptive is limited quantity is stated • Rain checks provided by “good” merchants

32. Chapter 17 Unfair Trade Practices • FTC has main responsibility for preventing false and misleading advertising • Corrective advertising – advertiser admits wrongdoing and state truth in a specified number of future advertisements

33. Chapter 17 Unfair Trade Practices • Illegal Lotteries • A required payment of money or something else of value to participate • Winner/winners to be determined by change rather than by skill • A prize to be won Participants subject to fine and imprisonment

34. Chapter 17 Unfair Trade Practices • Illegal Lotteries • exempt – religious and benevolent groups • Bingo • No lottery by businesses allowed to promote sales

35. Chapter 17 Unfair Trade Practices • Confidence Games - persuaded to trust swindler with money in hopes of a quick gain • Pyramid schemes • Chain letters - participating is a felony in most states

36. Chapter 17 Unfair Trade Practices • Misrepresenting the price of goods as “discounted” or being “wholesale” • Getting “free” goods when another good is sold at an inflated price (to cover the cost of the “free” item) • Repair Service – giving a low estimate and then charging substantially more after work is done

37. Chapter 17 Unfair Trade Practices • Repair Service – continued Most states require written estimates before the work is done.

38. Chapter 17 Unfair Trade Practices • Mislabeled Goods – mislabeling a good to make it more marketable is illegal. • Shape or size of container should not lead consumer to think he/she is getting more than is actually in the package.

39. Chapter 17 Unfair Trade Practices • Law requires certain products carry warning labels: • Insecticides – “danger” • Cigarettes & advertisements – dangers

40. Chapter 17 Unfair Trade Practices • Selling items that are used or second-hand as new or better condition than they actually are. • i.e. used cars – (turning odometer back to obtain higher price)

41. Chapter 17 Unfair Trade Practices • Confusing Brand Name or Trademark – using a brand name or trademark that is so similar to the original that it confuses the consumer.

42. Chapter 17 Unfair Trade Practices • Unordered Merchandise no obligation to pay for unordered merchandise deliberately sent.

43. Chapter 17 Unfair Trade Practices • Commercial Bribery -- competitor giving a company’s purchasing agent money (under the table) to get business -- manufacturer paying a retail salesperson money to “push” their product -- spy employed to steal company secrets

44. Chapter 17 Unfair Trade Practices • Telemarketing and Internet -- get rich quick -- real estate -- precious metals -- free gifts -- free travel

45. Chapter 17 UNFAIR TRADE PRACTICES • Agreements to control or fix prices • False and misleading advertising • Illegal lotteries and confidence games • Unfair pricing and service • Mislabeled goods • Used articles sold as new • Confusing brand name or trademark • Unordered merchandise and commercial bribery • Fraudulent telemarketing and Internet schemes

46. Chapter 17 FTC GUIDELINES The FTC has adopted many guidelines and regulations that are intended to correct abusive trade practices by requiring businesses to act certain ways. Credit cards – must explain finance charges Written warranties for certain sellers, manufacturers Door-to-door sales – 3 days to cancel (Cooling Off Rule)

47. GOALS Chapter 17 LESSON 17-2 State and Local Protection and Product Liability Discuss the contribution of local and state governments to consumer protection Define product liability Explain how strict liability law can protect consumers injured by defective products

48. Chapter 17 Federal to State and Local Laws • Caveat Venditor – let the seller beware

49. Chapter 17 Licensing Laws • Suppliers of consumer and goods must be licensed: • Doctors ● Lawyers • Nurses ● Teachers • Laboratory Technicians ●Accountants • Pharmacists ●Beauticians Pass inspections before operating: Hospitals, private schools, insurance companies, rest homes, check-cashing services, etc.

50. Chapter 17 What’s Your Verdict? • Wilson and Pequot drive past Downtown Electronics Warehouse • Pequot notices their going-out-of-business sign • Discusses how he bought a CD player b/c he thought he was getting a good deal since they were getting rid of all the merchandise • They never closed and Pequot discovered he could have bought the CD cheaper elsewhere