Chapter 15

Consumer Protection and Product Liability

Consumer:

Any person who purchases or leases goods, services, or property primarily for persona, family use.

Caveat Emptor: Let the Buyer Beware

Caveat Venditor: Let the Seller Beware

Unfair and Deceptive Practices

One that misleads (or has the potential to mislead) consumers

Almost all states have laws relating to this but they differ among states.

Fraudulent Misrepresentation

Any statement that deceives the buyer

i.e.: misstating the facts

Deceptive Pricing

Unfair for a store to raise the price of an article with the intention of lowering the price later and claiming a “bargain”

Cannot claim prices are

wholesale or factory if they are not

Watch out for 2 for 1 sales that look too good to be true

Deceptive Service Estimates

It is unfair to significantly underestimate the cost of repair or to charge for repairs that were not authorized.

Work-At-Home Schemes

One of the oldest types of classified advertising fraud

Hidden costs and membership fees

Unordered Merchandise

Under federal and state laws, unordered merchandise may be considered a gift. You can keep it!

Only two types of products can be sent legally; free samples and merchandise mailed by charities

False Advertising

Cease and Desist Orders

Legally binding orders to stop a practice, to anyone using ads that would mislead the public

Federal courts rarely

overturn these orders from the FTC

Bait and Switch

Advertise a non-existent bargain to lure customers so they can be sold more expensive merchandise

SEE Pg. 321 Bullets

Negative Option Rule

An Example: CD Clubs The seller send you the month’s

selection, if you want it - do nothing and if you don’t – send it back.

There are guidelines for these companies on p. 322.

The Cooling-Off Rule

Gives consumers three business days to cancel most contracts made away from the seller’s place of business ($25. or more)

Salesperson must inform you of your right to cancel

Must give you two copies of the contract or receipt

Contract or receipt should be dated, and show name & address of seller, and explain your right to cancel

Under FTC,

the seller must do the following within 10 days:

Cancel and return any papers signed Refund your money Inform you about product pick ups Return any trade-ins

Does not apply to real estate, insurance, securities, or emergency home repairs.

Telemarketing Fraud

“free” or “low cost” vacations

tickets for charity benefits

900-number scams FTC states you must be informed of

the cost for the calls

Shopping by Mail, Phone, Fax, or Internet

Sellers must ship goods within times stated; if no time is stated then it is 30 days.

Sellers must inform you of any delay

Product Liability

Manufacturers and sellers are responsible for injuries to consumers when they place defective, unhealthy, or unsafe items on the market.

Strict Liability

Makes manufacturers or suppliers responsible for selling goods that are unreasonably dangerous.

This is true even if: the manufacturer has not been negligent the user of the product is not the person

who bought the product

Consumer Product Safety Act (1972)

Test quality and reliability

Obtain proof that it has been tested

Have capability to recall the product

Take action on any valid complaints

Food, Drug, and Cosmetic Act (1938)

Prohibits the manufacture and shipment in interstate commerce of any food, drug, cosmetic or device for health purposes that is injurious, adulterated, or misbranded.

Adulterated Product

One that contains any substance mixed or packed with it to reduce its quality or strength below minimum standards.

Misbranded

Prohibits the manufacture and shipment in interstate commerce of any food, drug, cosmetic or device for health purposes that is injurious, adulterated, or misbranded.

Requires that packaged drugs bear the name and address of manufacturer

Labels on non-prescription drugs must give common name

Labels must caution any use that may be unsafe

Delaney Amendment (1958)

Gives the right to remove any food or food additive shown or believed to cause cancer in humans or animals.

The government has taken action to discourage the sale of goods considered a threat to public health.

Unusually High Taxes, Labeling and Packaging, and Outright Prohibition (Cigarette ads 1971)

Consumer Protection Assistance

Better Business Bureau (BBB) A nongovernmental agency that

hears consumer complaints at the local and state levels

See p. 331 bullets