Chapter 15: Consumer Protection

By Hannah Williams, John Baker, Alannah Balfour & Mira Rosenkotz

Consumers and Consumer CaveatsConsumer: An individual who acquires goods that are intended primarily for personal, family or household use.

Consumer Caveats:caveat emptor: “let the buyer beware”caveat venditor: “let the seller beware”

Governmental ProtectionClass Actions:Allows one or several persons to sue not only on behalf of themselves, but also on behalf of many others similarly wronged.

Governmental Procedure:

Cease-and-desist order: order requiring the company to stop the specified conduct.

Consent order: A voluntary court-enforceable agreement to stop illegal practice.

Restitution: Permits a party to a contract to recover money or property given to the other party.

What’s your verdict?Eliza had a little more than 3,000 miles on her new car when she drove into Lester’s Lightning Lube Center and ordered the all fluid replacement special. At the first stop light she encountered after turning out of Lester’s Lightning Lube, Eliza’s brakes failed and her car rammed the back of a garbage truck. She found that Lester’s had mistakenly replaced the brake fluid with transmission fluid causing the brake failure. Lester refused to pay for the damages. How can Eliza resolve the problem in her favor?

What’s your verdict?Eliza should try to solve her problem through renewed private negotiations with Lester.

Those failing, she can initiate a small claims court suit and notify the appropriate government agencies of what happened.

Governmental ProtectionLicensing:Suppliers of consumer services must be licensed.

Unsafe products:CPSC=Consumer Product Safety Commission.

CPSC requires any manufacturer, distributor, or retailer must notify any purchasers about hazards.

RegulationsAdulterated Food, Drugs and

Cosmetics:A product that does not meet the

minimum standards for purity and quality set by the FDA is considered adulterated.

FDA requires that labels on regulated products give the name and address of the manufacturer, packager, or distributor and reveal quantity, such as the weight or fluid ounces.

Improper weights and measures:

Most states inspect and test weighing and measuring devices at least once a year. Violations of the weights and measures laws are punishable by fine, imprisonment, or both.

Protection against unfair methods of competition

● Unfair method of competitiono Any method of doing business that is characterized by bad

faith, deception, a tendency to inhibit competition, or monopolize

● Federal Trade Commission (FTC)o Try to prevent in interstate commerceo Main responsibility is to stop or prevent false or misleading

advertising1. Order stop of advertising 2. Order corrective advertising

Types of unfair methods of competition

● Agreements to control or fix priceso Competition

Forces businesses to be efficient and create new and better services and products

If businesses fail to do so, they are pushed out of the market

o Companies or individuals enter an agreement to control or fix the price of a good or service to eliminate competition and guarantee survival and profit

Types of unfair methods of competition cont.

● False and Misleading Advertisingo Intentionally deceive, make untrue claims of quality or

effectiveness, or fail to reveal critically important factso Bait and switch

Advertise a low cost, understocked item to lure customers in. When the advertised product is sold out, redirect the customers to a higher profit margin item

Not deceptive if state how many of the product or that there is a limited number

o Rainchecks If an item is sold out, then the customer can purchase

the item at a later date at the advertised price

Types of unfair methods of competition cont.

● Illegal Lotterieso 3 elements of a lottery

Consideration Chance Prize

o exceptions Charities, service groups, State run lotteries

● confidence games: disguising an illegal scheme as a legitimate businesso Pyramid scheme

Chain lettero Ponzi investment scheme

Large returns on investments in the fraudulent concern (false business) are paid by using new investments in the concern rather than legitimate business transactions

Types of unfair methods of competition cont.

● Unfair pricing and serviceo Common unfair pricing

Claiming item is discounted when it isn’t Claiming the price is a wholesale price when it isn’t By one for an inflated price during the sale and get one

freeo Repair services run into this a lot

● Mislabeled goodso The size and shape of a package can’t be misleadingo Cigarettes, insecticides, and poison must have the

appropriate danger and warning labelso Can’t mark an item in new or better condition than the item

is

Other unfair methods of competition

1. Use a brand name or trademark so similar to competitors that it confuses the consumer

2. Sending unordered merchandise and demand payment for the return

3. Giving money “under the table” for an order from a supplier or giving “push money” to a retail salesperson to put extra effort into promoting your product

4. Conducting “industrial espionage” to find out competitor’s secrets

5. Fraudulent telemarketing and internet schemes6. Failing to provide written warranties when required7. Figuring finance charges improperly8. For door to door (home solicitation) sales, Failing to tell

purchasers they have until midnight on the 3rd business day to cancel purchases of $25 or more

Product Liability

● Federal governments give consumers the rights to take legal action for injuries. This allows them to sue for damages in cases certain government agencies might ignore.

● Product Liability: The legal obligation for marketers to responsibly compensate buyers, users, and bystanders who are injured by a defective product they provided.o Product Liability can be based on the torts of:

Fraud Negligence Strict Liability

For Instance...

Amil recently purchased a car from Joaquin Motors. He paid roughly $14,000 for it, believing it was functional and had low gas mileage as had been advertised. Two days after his purchase, Amil’s new car broke down just as he pulled out of his driveway on his way to work. He took the car to a mechanic who said the car had a faulty engine and never should have been let onto the road.

Can Amil sue Joaquin Motors for product liability?

No He Can’t!

But why…?

Amil was not injured as a result of the defective product. Although Amil can still sue Joaquin Motors for other acts of negligence, fraud, etc. he cannot sue for product liability unless he or an unfortunate bystander was injured by the defective product.

But Wait! What If...

...Amil’s car broke down on the highway, thereby getting injured in a car crash and severely injuring his back and had to be sent to the hospital.

Yes, then Amil could sue Joaquin Motors for product liability.

Breach of Warranty

Amil could sue for product liability if his suit was based on a ‘breach of warranty.’

● Warranty: An assurance the seller gives the consumer about their products performance and quality.o Warranties are covered by Article 2 of the Uniform

Commercial Code (UCC).

Privity of Contract:

Warranty liability depends on the contract between the buyer and the seller who were said to be in Privity of Contract: the relationship that exists between or among contracting parties.

● Manufacturers or producers that make inaccurate or misleading statements in advertising or labels is liable for resulting injuries to consumers.

● These people are held strictly liable for fraudulent misrepresentation. This liability imposed without a reliance on warranties, negligence, or fraudulent intent.

Recovery for Tortious Conduct:

● In the past, consumers who were injured by a defective product had difficulty in winning lawsuits to recover damages.

● To correct this problem, federal agencies have begun this trend of holding producers to strict liability. Nowadays, manufacturers and producers are held liable for misleading or inaccurate statements in advertisements.

● Manufacturers who are held accountable will compensate the injured consumer. Reparations are variable depending on the situation.

Consumer Misuse:

Marketers and advertisers are not held liable for situations when the consumer used the product improperly or ignored the provided instructions.

How Important are Warranties?● Full or limited● Express

o Explicitly made quality assurance, description, or performance in written or oral terms.

o Can additionally be implied from conduct.

● Requirementso Certain minimum standards

must be met by sellers.o Sellers are not mandated to give

warrants.o Must be explained clearly

before customers sign.

Information Included in a Warranty

To whom the warranty is extended (ex. if limited to original buyer).

Description of product and any parts excluded from the warranty coverage.

What the warranter (one who gives warranty) will and will not do if warranty is breached.

When the warranty begins (if different from purchase date) and when it ends.

The step-by-step procedure to obtain performance of warranty obligations, & a list of expenses the warrantee must bear.

Availability of informal methods of dispute settlements.

Any limitation on how long implied warranties last.

Exclusion or limitation of incidental or consequential damages.

“This warranty gives you specific legal rights, and you may also have other rights which vary from state to state.”

Clear identification of the names and addresses of the warrantors.

Opinions, Explicit & Implicit Warranties by All Sellers

● Opinions v. Warrantieso “Puffing”: Exaggerated sale talk (“Best on the

Market”).● E: Every seller bound by description of goods.● I: Law compels all sellers to honor certain

implicit warranties to ensure minimal standards.

Types of Warranties Made to All Sellers

● Warranty of Title○ Seller warrants he or she has title to the

goods and the right to transfer them.● Warranty Against Encumbrances

○ The goods shall be delivered free of unknown claims by 3rd parties enforceable against the goods.

● Warranty of Fitness for a Particular Purpose○ A buyer who sells goods for a purpose

tells the seller of the purpose. ■ Does not happen when buyer selects

goods or doesn’t depend on seller for skill and judgement.

Implicit Warranties for Merchants

● Warranty Against Infringemento Goods shall be delivered to a buyer free of

third party’s claims (ex. copyright).● Warranty of Merchantability

o Assurance goods are fit for ordinary purposes for which such goods are used (ex. food or medication).

Exclusion of Warranties● Seller may offer to sell goods without

warranties.o If goods are known to have defects, or a new

design.o Must give appropriate notice of the exclusion

of warranties (a disclaimer).

Lemon Laws● Warranties augmented by consumer

self-help laws. ● Protect customers of vehicles

o Chronically defective vehicles are referred to as “lemons.”