Chapter 15

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