Consumer Protection - PowerPoint by benbenzhou


 Chapter 14
 The United States Government
  Protection of the Consumer
► As civilized society has developed, the dangers we
  face are increasingly of our own making poisonous
  chemicals, polluted air, automobile accidents,
  defective products.
► We have increasingly looked to government to
  protect us from man-made dangers that we feel
  incapable of protecting ourselves from.
► Deaths, injuries, and property damage from
  consumer product incidents cost the nation more
  than $900 billion annually.
       AGENCIES in Court the Most
1.   Federal Trade Commission (FTC)- 1913 -
     Interstate Trade
2.   Food and Drug Administration (FDA) - 1931 -
     Food, drugs, cosmetics
3.   Equal Employment Opportunity Commission -
     (EEOC) - 1964 Hiring practices
4.   Environmental Protection Agency (EPA) - 1970 -
     Pollution of the environment
5.   Occupational Safety and Health Administration
     (OSHA) - 1971 - Conditions in workplaces
6.   Consumer Product Safety Commission (CPSC) -
     1972 - Design and labeling of goods
  The Consumer Product Safety Act

► enacted  in 1972 by Congress
► an independent agency of the federal government
► The act gives CPSC the power to develop safety
  standards and pursue recalls for products that
  present unreasonable or substantial risks of injury or
  death to consumers.
► CPSC has jurisdiction over more than 15,000
  different products.
   International Car Theft Ring
► Individuals who acquire goods that
 are intended primarily for personal

Caveat Emptor - “let the buyer beware”

Caveat Venditor – “let the seller beware”
       The Attorney General Office
► isdedicated to ensuring that their State’s
  consumers are treated fairly and properly.
► guarding against:
    telemarketing scams or identity theft
    monitoring charitable organizations
    protecting consumers from deceptive advertising or
     other unfair business practices.
► Each year, the Attorney General's Bureau of
  Consumer Protection receives more than 50,000
  complaints from consumers - ranging from shoddy
  home remodeling work to violations of
  Pennsylvania's Do Not Call law.
  Attorney General in each State
    Class Actions
 (Class Action Suits)
►   allows one or several
persons to sue not only on
 behalf of themselves, but
  also on behalf of many
 others similarly wronged
     Governmental Procedure
1.   Cease-and-desist order – order
     requiring the company to stop specific

2.   Consent order – voluntary, court-
     enforceable agreement to stop an
     illegal or questionable practice

3.   Restitution – return of money
     wrongfully obtained from a customer
► Certain businesses and institutions
 must acquire proper licensing
 before providing products or
     ie. Doctors, nurses, teachers,
      lawyers, realtors, beauticians

►May  also be required to pass
1. Agreements to Fix Prices
►No  company/companies
may work together to
eliminate competition and
set (fix) prices
       DOJ Suit against Apple
2. False and Misleading Advertising

►  Intentionally deceives,
  makes untrue claims, or fails
  to reveal critical facts
Activia –
Dannon Yogurt

►   lured consumers into paying more for its purported
    nutritional benefits -- when it was actually pretty much the
    same as every other kind of yogurt.
►   Falsely touting the "clinically" and "scientifically" proven
    nutritional benefits of the product, Dannon even got a
    famous spokesperson, Jamie Lee Curtis, for the supposed
    digestion-regulator. But after a while, some customers didn't
    buy it.
►   A class action settlement last year forced Dannon to pay up
    to $45 million in damages to the consumers that filed the
    lawsuit and others who said they'd been bamboozled. The
    company also had to limit its health claims on its products
    strictly to factual ones.
Hyundai and KIA vehicles'
►   Hundreds of car owners were extremely disappointed
    to find out that Hyundai and Kia overstated the
    horsepower in some of their vehicles.

►   In 2001, the Korean Ministry of Construction and
    Transportation uncovered the misrepresentation, which
    for some models was as much as 9.6 percent more
    horsepower than the cars actually had.
►   A class action lawsuit in southern California claimed
    the companies were able to sell more cars and charge
    more per vehicle because of the false claims. In the end,
    the auto powerhouses had to pay customers -- the
    settlement was estimated to be between $75 million and
    $125 million.

►   Herbal supplement Airborne was a national hit throughout the
    1990s. Marketing of the product claimed that it helped ward off
    harmful bacteria and germs, preventing everyday ailments like
    the flu and common cold. But did Airborne actually have these
►   Apparently not, which sparked a huge false advertising
    scandal. There were no studies to support Airborne's
    effectiveness that met scientific standards -- so the Center
    for Science in the Public Interest (CSPI) got involved.
►   The high-profile scandal ended with a huge settlement,
    with Airborne having to pay $23.3 million in the class-
    action lawsuit, and an additional $7 million settlement
    later. The exact benefits to users of Airborne remain
    The one probably most familiar to
     consumers is false advertising.
►   Examples of false advertising practices that
    would violate the FTCA include:
    1. false advertising of food, drugs, devices, services or
    2. inaccuracy of prices, falsehoods as to "free gifts,"
    3. distortions as to credit or payment terms;
    4. misleading representations as to the type, content,
       origin, or test/surveys relating to a product;
    5. or deceptive T.V. commercials
►Bait and Switch – using an
 understocked, low-priced
 “hook” to lure consumers into
 a store

 Advertised item is out of stock
  and customers are redirected
  to a more expensive product
►Advertisement is not considered
deceptive if it states “limited
quantity” or specifies # of items

►FTC (Federal Trade Commission)
regulates false and misleading
Corrective advertising
 requires the advertiser
 to publicly admit
 wrongdoing and state
 the truth in a prescribed
 number of future ads
      3. Illegal Lotteries
►To be an illegal lottery, a gambling
 scheme or game must have 3
      Required payment of money or
       something of value to participate
      Winner to be determined by
       chance, not skill
      Prize to be won
►Holding   or participating in illegal
 lotteries are subject to fines and

►Some   statues exempt religious and
 charity groups from lottery
 prohibition – to produce revenue
 for non-profit organizations
►Confidence   Games
  The victim is persuaded to trust
   the swindler with the victim’s
   money in hopes of a quick gain

Ex. Pyramid schemes
4. Unfair Pricing and Service
►   Misrepresenting…
     Goods being sold at a considerable
     Good being sold at wholesale price
     Goods as being free when
      purchased with another at an
      inflated price
     5. Mislabeled Goods
►Size  and shape of container may
 not be misleading
►Certain products must carry
 warning labels
►Selling used articles as new or in
 better condition than they actually
 Other Unfair Trade Practices
►Using  a brand name/trademark so
 similar to a competitor’s that it
 confuses the public
►Sendingunordered merchandise
 and demanding payment or return
  Recipient is under no legal obligation
   to return or pay!
►Each  group will receive one type of
 unfair trade practice

►As a group, make an ANIMOTO
 that portrays your unfair trade

  Make sure the class can understand
   that what your portraying is wrong!
         Consumer Sentinel
► Consumer    Sentinel is the unique
  investigative cyber tool that provides
  members of the Consumer Sentinel Network
  with access to millions of consumer
  complaints. To learn more visit:
    Cases: FTC v. Countrywide
► Lucy Morris, Senior Attorney - Bureau of
  Consumer Protection
What is Operation Bottom Dollar?
► Monica  Vaca, Bureau of Consumer
     Unsafe Products
►1972 – Consumer Product
Safety Act

►CPSC (Consumer Product
Safety Commission) was
created to issue and enforce
safety standards/regulations
   Also regulates…
    ►Occupancy    rates
    ►Fire escapes
    ►Sanitary facilities
Consumers who think the CPSC is not taking
 proper action may bring suit in federal
 district court for enforcement
Food and Drug Administration (FDA)
►Requires that the production facilities
 for cosmetics, food and drugs be clean
►Requires   labels on regulated products
►Regulates  new drugs entering the
 market (and whether they are
 prescription or OTC)
   Tough Decisions that the FDA is
            faced with
► Pharma   Drugs:
► Cigarettes:
► Supplements:
Food and Drug Administration
►Products that do not meet
FDA standards are deemed
adulterated and may be
confiscated or seized by the
The U.S. Department of Agriculture
  inspects canners, packers, and
  processors of poultry and meat
  entering the market

►   Helps ensure that products are
    free of disease and are processed
    under sanitary conditions
Improper Weights and Measures
►The U.S. Constitution gives
Congress the power to set
standards for weights and

     Gallon of gasoline
     Pound of bananas
     Foot of rope
    Unfair Trade Practice
► any method of business
that is dishonest or
fraudulent or that illegally
limits free competition
►   If you’re in the debt collection business, it’s up to
    you to comply with the Fair Debt Collection
    Practices Act.
►   If you market your products or services by phone –
    or if someone has hired you to handle their
    telemarketing for them – it’s a good idea to know
    about the Do Not Call provisions of the
    Telemarketing Sales Rule and how to comply.
  How to File a Complaint with the
Protection Through
   Action by the
  Chapter 14 – section 2
    Product Liability
The responsibility to
 compensate buyers, users
 and even bystanders for
 injuries caused by a
 defective product
       Product Liability
May be based on
(1)   fraud
(2)   negligence
(3)   breach of warranty or
(4)   strict liability:
► Product    Liability Case
► Strict   Liability
Strict Liability is a
 liability that exists even if
 the defendant is not
An assurance that the seller
 makes about the product’s
 quality or performance
1.   Express Warranty – An assurance
     of quality or promise of
     performance explicitly made
     (plainly stated) by the seller

2.   Implied Warranty – An obligation
     imposed by law on all sellers
     (assumed by the buyer at time of
        Types of Warranties
► Example:   Car Dealer
       Requirements for
      Express Warranties
There are 9 requirements of
  information to be included for
  express warranties to be valid

►   See pgs 254 and 255 in text
  Full vs. Limited Warranties
►FullWarranty – an express warranty
 that obligates the seller to repair or
 replace without cost within a
 reasonable amount of time

►Limited Warranty – any warranty that
 provides less protection than full (ie.
 Customer pays for labor)
Puffing – enthusiastic
 overstatements made by sellers
 (exaggerated sales talk)

  Such words are not grounds for
   warranties or statements of fact
Warranty against Encumbrances
►Implied  Warranty
►Seller’s warranty that the goods
 are free of all encumbrances
 (claims of third parties, such as
 unpaid balances)
 Warranty of Merchantability
►Requires    that the goods be
 fit for the ordinary purposes
 for which such goods are
►A notice of exclusion
►Items sold “as is”
►Seller is free of all obligation
        Lemon Laws
►Typically protects consumers
 of chronically defective
►May extend to other consumer
           Peters vs Honda
► Case:
        Lemon Laws
 Consumer returns vehicle for
  repair of major defect
 Dealership fails to repair after
  several attempts (usually 3 or
 Consumer requests refund – can
  sue if request not met

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