Consumer Protection

LAW FOR BUSINESS AND PERSONAL USE LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING© SOUTH-WESTERN PUBLISHING

Chapter 17Chapter 17 Slide Slide 11

Consumer Protection

17-117-1 Federal Protection

17-217-2 State and Local Protection and Product Liability

17-317-3 Warranties

CHAPTER 17

Lessons



Federal Protection

Explain why and how the law focuses on the protection of consumers

Discuss the trade practices that are prohibited by consumer law

LESSON 17-1

GOALS



Hot Debate

Edison buys a lawnmower from dept. storeDesign defect – protective plastic flap binds

the mower whenever it is pulled backwardsEdison removes flapPulling mower backwards – he trips and falls

backwardFoot shoots upwards into the mower bladeWearing tennis shoes – loses half his foot



brings suit against the manufacturer

Reasons for supporting Edison’s suit



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



Edison’s act of removing the safety feature released the manufacturer from liability



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



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.



Advertising – most effective way of creating consumer attitudes toward products



Class actions

Product problem – court action is time consuming and costly

Alternative – Class actionsClass actions allow one or several persons to sue not only on behalf of themselves, but also on behalf of many other similarly wronged



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 violationConsent Order – voluntary agreement to

stop illegal/questionable practice



Class actions

An agency may also order restitutionRestitution – the return to customers of

money wrongfully obtained



Remedies for consumers

State Attorney General’s Office

Better Business Bureau

Customer Service Department of company

Small claims court



What’s Your VerdictSimmons saw an ad “car painting, $99.99

complete”Contracted for service and selected a dark

blue metallic finishWhen car was finished, it was painted light

blueSimmons complainedManager claimed it was “close enough” to the

color he selected and refused to make a correction



What’s Your Verdict

What should Simmons do?

He can use any of the previously mentioned options



Consumer laws

1 - help protect against the production and sale of substandard or dangerous consumer goods

2 - prohibit improper trade practices3 - require licenses and inspections to

help ensure compliance with the law4 - provide remedies for persons

injured



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.



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.



PROTECTION AGAINST SUBSTANDARD GOODS

Safety standardsDrugs, food, and cosmeticsStandards for weights and measures



Safety Standards1972 – Consumer Product Safety ActCPSCLaw 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



CPSC

Can order company to repair, replace, or refund purchase price

Levy fines and imprisonment for non-compliance

Can ban products from the marketplace



Drugs, Food, and Drugs, Food, and CosmeticsCosmetics

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



FDA

Adulterated products may be confiscated by the government.

US Dept. of Agriculture inspects:CannersPackersProcessors of poultry & meat

Disease free & sanitary conditions



FDA - Labeling

name, address of manufacturer quantity nutrition

FatSodiumCarbohydrateprotein



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”



Weights and Measures

U.S. Constitution Congress

National Bureau of Standards

State & Local Governments



Weights and Measures

Violators punished by fine, imprisonment, or both

Scales gasoline pumpsScanners lumberyard scales

-- commercial sales

-- unit pricing



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 FTCConcerned mainly with unfair practices in

interstate commerce




Competition best serves consumersDrives business to create new and

better products and servicesDrives inefficient businesses outPrice fixing attempts to ensure a

company’s survival - illegal




False and Misleading Advertising intentionally deceives makes untrue claims of quality or

effectiveness fails to reveal critically important facts




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 statedRain checks provided by “good” merchants




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




Illegal Lotteries1) A required payment of money or

something else of value to participate

2) Winner/winners to be determined by change rather than by skill

3) A prize to be won

Participants subject to fine and imprisonment




Illegal Lotteries exempt – religious and benevolent groups

Bingo

No lottery by businesses allowed to promote sales




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




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




Repair Service – continued

Most states require written estimates before the work is done.




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.



Law requires certain products carry warning labels:

Insecticides – “danger”Cigarettes & advertisements – dangers





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)




Confusing Brand Name or Trademark –

using a brand name or trademark that is so similar to the original that it confuses the consumer.




Unordered Merchandise

no obligation to pay for unordered merchandise deliberately sent.




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




Telemarketing and Internet

-- get rich quick

-- real estate

-- precious metals

-- free gifts

-- free travel



UNFAIR TRADE PRACTICES

Agreements to control or fix pricesFalse and misleading advertising Illegal lotteries and confidence gamesUnfair pricing and serviceMislabeled goodsUsed articles sold as newConfusing brand name or trademarkUnordered merchandise and commercial briberyFraudulent telemarketing and Internet schemes



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)



State and Local Protection and Product Liability

Discuss the contribution of local and state governments to consumer protection

Define product liabilityExplain how strict liability law can protect

consumers injured by defective products

LESSON 17-2

GOALS



Federal to State and Local Laws

Caveat VenditorCaveat Venditor – let the seller beware



Licensing Laws

Suppliers of consumer and goods must be licensed:

Doctors ● LawyersNurses ● TeachersLaboratory Technicians ●AccountantsPharmacists ●Beauticians

Pass inspections before operating:Hospitals, private schools, insurance companies, rest homes, check-cashing services, etc.



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



What’s Your Verdict?

Are such sales legal?

They were guilty of fraud.



Remedies - Injured

States have given consumers rights to act against those who have taken unfair advantage when an agency has failed to act.



Sanitation

Restaurants, bakeries, hotels and (where food is handled) are “rated” for cleanliness.



Safety Laws

Laws regulate type of construction, location, accessibility, and type of buildings for public gatherings.

Fire escapesElevatorsParkingSprinkler systemsSigns / restrooms



STATE AND LOCAL GOVERNMENT PROTECTION

Licensing lawsRemedies available to injured

consumersSanitation and food adulteration lawsSafety laws



WHAT ISPRODUCT LIABILITY?

Privity of contractRecovering damages



Privity of Contract

Relationship between or among the contracting parties as a result of their legally binding agreement

Under common law – only immediate contracting buyers could sue the seller (not wholesaler or manufacturer)

UCC modification – all injured persons (family, guests, etc.) may sue beyond immediate seller



Recovering DamagesProduct Liability based on:

Breach of warrantyTorts of fraudNegligenceStrict liability

Even with these alternative, injured parties may find it difficult to recover:

no warrantywarranty not applicable

warranty expired fraud requires proof of intent



Recovering Damages

Often the best alternative is suing under strict liability Obstacles –

if product was used for an unintended purpose used for a purpose which could be reasonably

foreseen modifying or altering a product improper conduct that causes accident improperly using products that may be

dangerous when misused (knives, guns)



Lemon Laws - New Vehicles

WHAT IS NOT COVERED:The Lemon Law does not cover vehicles registeredfor commercial use.The Lemon Law does not cover the living quartersof motor homes.The Lemon Law does not cover the defects causedby accident, vandalism, abuse or neglect.The Lemon Law does not cover defects caused byattempts to repair or to modify the vehicle by a person

other than the manufacturer, its agent or an authorized dealer



WHAT YOU MUST DO

Before you can file a claim under the Lemon Law in the Division of Consumer Affairs, you must give the manufacturer one final chance to repair the defect.

A letter to the manufacturer (not the dealer) must be sent by certified mail, return receipt requested, stating that you may have a claim and that you are giving the manufacturer one last chance to repair the defect.

The letter may be sent only after two repair attempts for the same defect have failed to fix the problem, or after the vehicle has been out of service for a cumulative total of 20 days.



WHAT YOU MUST DO

In the case of a serious safety defect, the letter can be sent after a single repair attempt fails to fix the problem.

The manufacturer should be allowed 10 days following the date on the certified mail return receipt to repair the vehicle.

Your “final-chance” letter must be mailed to the manufacturer’s regional office. Contact the Division ofConsumer Affairs’ Lemon Law Unit to get the address for the regional office of your car’s manufacturer.



Your LetterYour letter must be sent by certified mail-

return receipt requested.It must be received by the manufacturer

before the odometer hits 24,000 miles or two (2) years from the original date of delivery, whichever occurs first.

Send the letter to the manufacturer using only the address provided by the Lemon Law Unit.

Be sure to include your name, address and telephone number.



Used Vehicle - WHAT IS COVERED BY THE LAW?

a motor vehicle has 24,000 miles or less on its odometer, the dealer must provide the customerwith a warranty for 90 days or 3,000 miles, whichever comes first.

a motor vehicle has more than 24,000 miles but less than 60,000 miles on its odometer, the dealer must provide the customer with a warranty lasting 60 days or 2,000 miles, whichever comes first.



a motor vehicle that has between 60,000 and 100,000 miles on its odometer, the dealer must provide the customer with a warranty for 30 days or 1,000 miles, whichever comes first.



WHAT IS NOT COVERED BY THE LAW?

Motor vehicles sold for less than $3,000Motor vehicles which are more than seven (7) model

years oldMotor vehicles that have been declared a total loss

by an insurance companyMotor vehicles that have odometer readings of more

than 100,000 milesMotor vehicles that were not purchased from a dealerThe consumer must pay a $50 deductible for

each repair of each covered item.



To avoid problems:

■ Look for leaks

■ Taking the car on a test drive

■ Getting an independent evaluation



Warranties

Distinguish between implied and express warranties and explain the protection they provide

Explain the warranty of merchantability and how it may be limited or excluded

Differentiate between a full and a limited warranty

LESSON 17-3

GOALS



EXPRESS ANDIMPLIED WARRANTIES

In sales, a warranty is a statement about the product’s qualities or performance that the seller assures the buyer is true.

An assurance of quality or promise of performance explicitly made by the seller is an express warranty.

Warranty obligation implicitly imposed by law on all sellers is an implied warranty.



SELLERS’ CLAIMS

A positive statement about the value of goods or a statement that is just the seller’s opinion does not create a warranty.



IMPLIED WARRANTIES

Warranty of titleWarranty against encumbrancesWarranty of fitness for a particular

purpose



ADDITIONAL INFORMATION ABOUT WARRANTIESWarranties implied by law for merchants

Warranty against infringementWarranty of merchantability

Express warranties made by all sellersWarranty of conformity to seller’s statement

or promiseWarranty of conformity to description,

sample, or modelExclusion of warranties

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