January 1, 2012 8:52 PM
Chapter 44 Lecture
Note # 1 by Spring Walton
Note edited by Spring Walton on 01/03/2012 08:07PM
Chapter 44
Consumer Protection

I. Introduction Consumer law issues include those of contracts (including UCC sales), torts, crimes, and product liability, often acting as a backup to the failures and shortcomings of those other areas of the law. All of them provide some measure of consumer protection, yet none stand alone as being complete. They are interdependent and, as such, students must be aware of the big picture of consumer protection. This chapter covers the fourth major set of venues within a quadripartite of remedies available to a wronged or injured consumer. First, there is criminal law. Victims of consumer fraud and similar offenses have always been able to seek state-supported sanctions against wrongdoers. This venue may provide some ephemeral satisfaction for the victim and may even, at least temporarily, protect society from further harm. But criminal law does not truly make the victim whole. As a matter of fact, most of the miscreants convicted of consumer fraud are also judgment proof, i.e., they have no assets from which civil judgments can be satisfied. The second area of consumer protection is found in tort law and the permutations of intentional tort, negligence tort, and strict liability. These remedies can and do provide meaningful substance to civil correction of wrongdoing where the defendant is found to have some financial means. As seen in the prior discussions of these areas, tort law generally and products liability specifically are ripe with controversy and a great deal of uncertainty in today’s legal environment. The major drawback to both the criminal law and tort law methods of consumer protection is that they represent after-the-fact remedies for harm already done. They are reactive remedies as opposed to proactive forms of prevention of harm. It has been argued that large civil judgments act as societal signals that are designed to discourage repetition of undesirable behavior. The third side to our quadrilateral picture is found in contract. Contract law has the advantage of providing the consumer with the opportunity to anticipate any problems before they befall him or her. This notion is traditionally found in the doctrine of caveat emptor which courts of another age used with cavalier abandon. Both the common law of contracts and its progeny, the Uniform Commercial Code, have come a long way from the bad old days of “Let the buyer beware.” In spite of all this progress in the areas of crime, torts, and contract, the gap between consumer harm and consumer protection continues to remain unfilled. Legislators at all levels of government have sought to help fill this void with a number of consumer protections measures. These measures can, and often do, have a prophylactic effect on many potential harms to the consumer. Unfortunately, another hallmark of many of these measures is that they are the end product of a trail of harm that has reached a crisis or disastrous level. Consider how long it took to take certain dangerous prescription drugs or unsafe toys off the market. Where these laws do provide a measure of safety, some consumer comfort may be found in “at least better late than never.” Protection from harm has come a long way, but there is still no light at the end of the tunnel. II. Chapter Objectives * Describe government regulation of food and food additives. * Describe government regulation of drugs, cosmetics, and medicinal devices. * Explain the coverage of consumer product safety acts. * Identify and describe unfair and deceptive business practices. * Describe the coverage of consumer credit protection statutes. III. Key Question Checklist * What consumer concern is at issue—public health, product safety, trade practices, credit, or a combination of two or more of these? * What consumer protection laws cover the issue? * How should the consumer protection law(s) concerned protect the consumer? IV. Text Materials Section 1: Food, Drug, and Cosmetic Safety The Food, Drug, and Cosmetic Act establishes the FDA to regulate the testing, manufacture, distribution, and sale of foodstuff, drugs, cosmetics, and medicinal devices. The FDA is empowered to enforce the act, and requires most food additives, drugs, and medicinal devices to receive approval before entering the market.
The FDA is a federal administrative agency with legislative, executive, and judicial powers.
Regulation of Food – The FDCA prohibits the sale or shipment of adulterated food. It also prohibits false and misleading labeling of food products.
Food Labeling – The Nutrition Labeling and Education Act requires food manufacturers and processors to provide nutritional information and prohibits them from making unsubstantiated health claims.
Regulation of Drugs – The FDA had the power to regulate the testing, manufacture, distribution, and sale of drugs. The FDA has devised a procedure for application and testing of new medicines, which might eventually lead to approval for distribution and sale.
Business Ethics: Safety Warnings about Viagra There are always risks involved in taking any medication. Potential users should be advised about any potential side effects, so that they can make an educated decision as to whether they should ingest the medication.
Many drugs have been removed from the market, and even more have failed to make it to the market because of the costs.
Regulation of Cosmetics – Cosmetics include any substances and preparations for cleansing, altering appearance, or promoting the attractiveness of an individual, and are regulated by the FDA. The FDA also requires labeling of all cosmetic products.
Regulation of Medicinal Devices – The FDA also regulates and requires exact labeling for all medicinal devices.

Section 2: Product Safety The Consumer Product Safety Act established an independent federal regulatory agency known as the CPSC, which adopts rules and regulations, conducts research on consumer products, and collect data regarding injuries.
The CPSC issues product safety standards for consumer products, and can force manufacturers to recall, repair, or replace products that are deemed imminently hazardous. As an administrative agency, the CPSC can seek injunctions and bring lawsuits, seeking both civil and criminal penalties. Business Ethics: Lemon Laws
Lemon laws provide a procedure for consumers to follow to correct recurring problems in a vehicle. Dealerships must be judged individually as to their ethical behaviors. All consumers need protection. Section 3: Unfair and Deceptive Practices The FTC Act prohibits unfair and deceptive trade practices. The FTC, a federal administrative agency, was established to promulgate rules and regulations under this act, and to take all necessary actions to protect the general public and obtain compensation on their behalf for violations. False and Deceptive Advertising – Advertising is deemed to be false and deceptive if it contains misinformation or omits material information that is likely to deceive a reasonable consumer or makes unsubstantiated claims.
Statements of opinion and sales talk are not considered false or deceptive.
Bait and Switch – This deceptive practice occurs when a seller advertises a low-cost product, but pressures interested buyers to purchase more expensive merchandise or fails to have the advertised product in stock.
Door-to-Door Sales – Most states have enacted laws that allow a consumer a short amount of time to rescind door-to-door sales, provided that a notice of cancellation is sent timely to the seller.

Case 44.1: FTC v. ColgatePalmolive Company Facts: Colgate manufactures and sells a shaving cream called “Rapid Shave.” In a television commercial promoting Rapid Shave, a person is shown shaving what was called sandpaper. This sandpaper was in fact a simulated prop of Plexiglas with sand glued on. The FTC issued a complaint against Colgate for false and deceptive advertising. Issue: Was this commercial false and deceptive advertising in violation of the Federal Trade Commission Act? Decision: Yes. Reason: The court found this to be a material deceptive practice. Colgate could have labeled this as a demonstration, or, they could have found another advertisement. The fact that some products do not lend themselves to television commercials does not allow the manufacturer to be deceptive. This case is distinguishable from the case where ice cream companies use mashed potatoes instead of ice cream in their commercials, because the potatoes are not used as additional proof of the claims being made. Here, the sandpaper is being used to give the viewer objective proof of the claims being made. Finally, the FTC order to Colgate not to use such methods in advertising any other products in the future is permissible.

Business Ethics: Do-Not-Call Registry The FTC, in cooperation with the FCC, has created a national registry on which consumers can place their name and phone numbers and end unsolicited commercial telephone calls. Section 4: Debtor Protection Law Truth-in-Lending Act – TILA requires creditors who regular extend or arrange credit for consumers to make certain disclosures when engaging in consumer transactions.
Regulation Z – This regulation requires that creditors disclose specific items to consumer-debtor, including the cash price of product, the down payment and trade-in allowance, any unpaid cash price, finance charges, the APR, and all other charges. The total amount to be financed must be listed, the date finance charges start to accrue, and the dates of payments. A description of any security interest and penalties, including prepayment penalties, must be included.
Consumer Leasing Act – The CLA extends TILA to leases for consumer goods.
Fair Credit and Charge Card Disclosure Act – This act amended TILA to require the APR, any annual membership fees, any minimum or fixed finance charges, any transaction charges, and the due dates be listed in any written solicitation in tabular form.
Equal Credit Opportunity Act – ECOA prohibits discrimination in the extension of credit. Creditors must notify applicants within 30 days of an application, and must provide the applicant with the reason for any adverse actions.
Fair Credit Reporting Act – This act establishes guidelines for consumer reporting agencies and procedures for consumers to view and challenge the information.
Fair Debt Collection Practices Act – FDCPA protects creditors from harassing, abusive, and intimidating actions from collection agencies, as well as false and misleading misrepresentations, and unfair or unconscionable collection practices. V. Terms * adverse action—A denial or revocation of credit or a change in the credit terms offered. * bait and switch—A type of deceptive advertising that occurs when a seller advertises the availability of a low-cost discounted item but then pressures the buyer into purchasing more expensive merchandise. * caveat emptor—“Let the buyer beware,” the traditional guideline of sales transactions. * Consumer Leasing Act (CLA)—An amendment to the TILA that extends the TILA’s coverage to lease terms in consumer leases. * Consumer Product Safety Act (CPSA)—A federal statute that regulates potentially dangerous consumer products and created the Consumer Product Safety Commission. * Consumer Product Safety Commission (CPSC)—An independent federal regulatory agency empowered to (1) adopt rules and regulations to interpret and enforce the Consumer Product Safety Act, (2) conduct research on safety, and (3) collect data regarding injuries. * consumer protection laws—Federal and state statutes and regulations that promote product safety and prohibit abusive, unfair, and deceptive business practices. * credit report—Information about a person’s credit history that can be secured from a credit bureau. * debt collector—An agent who collects debts for other parties. * Equal Credit Opportunity Act (ECOA)—A federal statute that prohibits discrimination in the extension of credit based on sex, marital status, race, color, national origin, religion, age, or receipt of income from public assistance programs. * Fair Credit and Charge Card Disclosure Act of 1988—An amendment to the TILA that requires disclosure of certain credit terms on credit- and charge-card solicitations and applications. * Fair Credit Reporting Act (FCRA)—An amendment to the TILA that protects customers who are subjects of a credit report by setting out guidelines for credit bureaus. * Fair Debt Collection Practices Act (FDCPA)—An act enacted in 1977 that protects consumer-debtors from abusive, deceptive, and unfair practices used by debt collectors. * Fair Packaging and Labeling Act—A federal statute that requires the labels on consumer goods to identify the product; the manufacturer, processor, or packager of the product and its address; the net quantity of the contents of the package; and the quantity of each serving. * Federal Trade Commission (FTC)—Federal administrative agency empowered to enforce the Federal Trade Commission Act and other federal consumer protection statutes. * Food and Drug Administration (FDA)—Federal administrative agency that administers and enforces the federal Food, Drug, and Cosmetic Act (FDCA) and other federal consumer protection laws. * Food, Drug, and Cosmetic Act (FDCA)—A federal statute enacted in 1938 that provides the basis for the regulation of much of the testing, manufacture, distribution, and sale of foods, drugs, cosmetics, and medicinal products. * Medicinal Device Amendment to the FDCA—An amendment enacted in 1976 that gives the FDA authority to regulate medicinal devices and equipment. * Postal Reorganization Act—An act that makes the mailing of unsolicited merchandise an unfair trade practice. * Section 5 of the FTC Act—Prohibits unfair and deceptive practices. * Truth-in-Lending Act—A federal statute that requires creditors to make certain disclosures to debtors in consumer transactions.