Consumer Protection Laws

ADVERTISING:

Deceptive Advertising

Generally, deceptive advertising occurs if a reasonable consumer would be misled by the advertising claim. A classic example occurred in a 1944 case in which the claim that a skin cream would restore youthful qualities to aged skin was deemed deceptive. Some advertisements contain "half-truths," meaning that the presented information is true but incomplete and, therefore, lead consumers to a false conclusion. Example #1-The makers of Campbell's soups advertised that "most" Campbell's soups were low in fat and cholesterol and thus were helpful in fighting heart disease. What the ad did not say was that Campbell's soups were high in sodium, and high-sodium diets may increase the risk of heart disease. The FTC ruled that Campbell's claims were thus deceptive. Advertising that contains an endorsement by a celebrity may be deemed deceptive if the celebrity does not actually use the product. Bait -and -Switch Advertising: The FTC has issued rules that govern specific advertising techniques. One of the most important rules is contained in the FTC's "Guides on Bait Advertising." The rule is designed to prevent bait-andswitch advertising-that is, advertising a very low price for a particular item that will likely be unavailable to the consumer and then encouraging him or her to purchase a more expensive item. The low price is the "bait" to lure the consumer into the store. The salesperson is instructed to "switch" the consumer to a different, more expensive item. Online Deceptive Advertising

The FTC has actively monitored online advertising and has identified hundreds of Web sites that have made false or deceptive advertising claims for products ranging from medical treatments for various diseases to exercise equipment and weight -loss aids. Telemarketing and Electronic Advertising

Telephone Consumer Protection Act (TCPA) prohibits telephone solicitation using an automatic telephone dialing system or a prerecorded voice. The TCPA also makes it illegal to transmit ads via fax without first obtaining the recipient's permission. The Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 directed the FTC to establish rules governing telemarketing and to bring actions against fraudulent telemarketers. The FTC's Telemarketing Sales Rule of 1995 requires a telemarketer, before making a sales pitch, to inform the recipient that the call is a sales call and to identify the seller's name and the product being sold. The rule makes it illegal for telemarketers to misrepresent information (including facts about their goods or services and earnings potential, for example). LABELING AND PACKAGING

The rules are designed to ensure that labels provide accurate information about the product and to warn about possible dangers from its use or misuse. In general, labels must be accurate and must use words that are understood by the ordinary consumer. For example, a box of cereal cannot be labeled "giant"

if that would exaggerate the amount of cereal contained in the box. In some instances, labels must specify the raw materials used in the product, such as the percentage of cotton, nylon, or other fibers used in a garment. In other instances, the products must carry a Warning, cigarette packages and advertising, for example, must include one of several warnings about the health hazards associated with smoking. Some cigar manufactures have also agreed to voluntarily put similar warnings on cigar packages and labels. Food Labeling

The Fair Packaging and Labeling Act requires that product labels identify (1) the product; (2) the net quantity of the contents and, if the number of servings is stated, the size of a serving ;( 3) the manufacturer; and (4) the packager or distributor. The act also provides for additional requirements concerning descriptions on packages, savings claims, components of nonfood products, and standards for the partial filling of packages. Door-to Door-Sales

A number of states have passed "cooling-off" laws that permit the buyers of goods sold door to door to cancel their contracts within a specified period of time, usually two or three days after the sale. An FTC regulation also requires sellers to give consumers three days to cancel a door-to-door sale. Telephone and Mail-order Sales

The nation's Better Business Bureaus receive more complaints about sales made by telephone or mail order than about any other transactions. Many mailorder houses are far removed from the buyers who order from them, making it difficult for a consumer to bring a complaint against a seller. To a certain extent, consumers are protected under federal laws prohibiting mail fraud. The FTC's Mail or Telephone Order Merchandise Rule of 1993, which amended the FTC's Mail Order Rule of 1975, provides specific protections for consumers who purchase goods via phone lines or through the mails. The rule requires mail-order merchants to ship orders within the time promised in their catalogues or advertisements, to notify consumers when orders cannot be shipped on time, and to issue a refund within a specified period of time when a consumer cancels an order. HEALTH AND SAFETY PROTECTION

Producers of tobacco products are required to warn consumers about the hazards associated with the use of their products. Food and Drugs

The first federal legislation regulating food and drugs was enacted in 1906 as the pure Food and Drugs Act. That law, as amended in 1938, exits now as the Federal Food, Drug and Cosmetic Act (FFDCA). The act protects consumers against adulterated and misbranded foods and drugs. Consumer Product Safety

Legislation regulating the safety of consumer products began in 1953 with the enactment of the Flammable Fabrics Act, which prohibits the sale of highly flammable clothing or materials. The stuffed teddy bears were recalled because the plastic beads inside the toy could come out and create a choking hazard for young children. Additionally the CPSC administers other product-safety legislation, such as the Child Protection and Toy Safety Act of 1969 and the Federal Hazardous Substances

Act of 1960. The CPSC's authority is sufficiently broad to allow it to ban any product that the commission believes poses merely an "unreasonable risk" to the consumer. CREDIT PROTECTION

A key state regulating the credit and credit-card industries is the Truth-inlending Act (TILA), the name commonly given to Title 1 of the Consumer Credit Protection (CCPA), which was passed by congress inl968. Truth in Lending

The TILA is basically a disclosure law. It is administered by the Federal Reserve board and requires sellers and lenders to disclose credit terms or loan terms so that individuals can shop around for the best financing arrangements .TILA requirements apply only to persons who, in the ordinary course of business, lend funds, sell on credit, or arrange for the extension of credit. Thus, sales or loans made between two consumers do not come under the protection. Equal Credit Opportunity In 1974, Congress enacted as an amendment to the TILA, the Equal Credit Opportunity Act (ECOA). The ECOA prohibits the denial of credit solely on the basis of race, religion, national origin, color, gender, marital status, or age. Fair Credit Reporting

In 1970, to protect consumers against inaccurate credit reporting, congress enacted the Fair Credit Reporting Act (FCRA). The act provides that consumer credit reporting agencies may issue credit reports to users only for specified purpose, including the extension of credit, the issuance of insurance policies, compliance with a court order, and compliance with a consumers request for a copy of her or his own credit report. The act further provides that any time a consumer is denied credit or insurance on the basics of the consumer's credit report, or is charged more than others ordinarily would be for the credit or insurance, the consumer must be notified of the fact and of the name and address of the credit reporting agency that issued the credit report. Consumers Must Be Given Access to Information under the FCRA, consumers may request the source of any information being given out by a credit agency, as well as the identity of anyone who has received an agency's report. Consumers are also permitted to have access to the information contained about them in a credit reporting agency's files. If a consumer discovers that the agency's files contain inaccurate information about the consumer's credit standing, the agency, on the consumer's written request, must investigate the matter and delete any unverifiable or erroneous information within a reasonable period of time. Fair and Accurate Credit Transactions Act

The FACT Act also requires the major credit reporting agencies to provide consumers with a free copy of their credit reports every twelve month. Another provision requires account numbers on credit- card receipts to be shortened ("truncated") so that merchants, employees, and others who have access to the receipts cannot obtain a consumer's name and full credit-card numbers. The act also mandates that financial institutions work with the Federal Trade Commission to identify "ref flag" indicators of identity theft and to develop rules on how to dispose of sensitive credit information. Fair Debt-collection practices

Requirements under the Act: The act explicitly prohibits a collection agency from using any of the following tactics: 1. Contracting the debtor at the debtor's place of employment if the debtor's employer objects. 2. Contracting the debtor during inconvenient or unusual times (for example, calling the debtor at three o'clock in the morning) or at any time if the debtor is being represented by an attorney, (if a collection agency is not aware that the debtor is represented by an attorney, will contacting the debtor about a debt subject the collection agency to liability? For the answer to this question, see this chapters Management perspective feature.) 3. Contracting third parties other than the debtor's parents, spouse, or financial adviser about payment of a debt unless a court authorizes such action. 4. Using harassment or intimidation (for example, using abusive language or threatening violence) or employing false and misleading information (for example, posing as a police officer). 5. Communicating with the debtor at any time after receiving notice that the debtor is refusing to pay the debt, except to advise the debtor of further action to be taken by the collection agency.