Session 7: Consumer Law
Session Assignments
7A 7B 7C 7D 7E 7F 7G 7H Reading, Contracts, Warranties and Credit Bankruptcy, Florida Style (FCAT Alert) Key Terms/Concepts Consumer Protection Acts Practice: Consumer Protection Internet Search, The Florida Consumer Analyzing Warranties Take Session 7 Test
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Session 7: Consumer Law 7A Reading
A Summary: Contracts, Warranties, and Credit When two or more people make an agreement to exchange something of value, it is called a contract. For the contract to be legally binding, some basic essentials must be present. One of the parties must make an offer, while the other party must make an acceptance of the offer, and lastly, something of value must be exchanged (consideration). A breach of contract occurs if either one of the parties does not keep his or her end of the contract. Minors may make contracts, but they cannot be forced to honor them, and because of this, many businesses require someone to co-sign any major contract. If the minor or other person defaults or fails to make payments, the co-signer will be held liable for the payments. Contracts can be oral or written, with the law favoring the written contract. It is difficult to prove anything when there is nothing in writing, so as a smart consumer, get it in writing! There is such a thing as an illegal contract, and these are un-enforceable in court. Furthermore, a contract can be unconscionable if it is unfair or harsh, and the courts may not enforce such a contract. Other grounds for invalidating a contract might be fraud. This is when a false statement is made that is used to persuade someone to sign a contract. Keep in mind that as a consumer, you have the right to question someone about a product or service before you sign any contract. This may be the only way to uncover information that may be left out of ordinary conversation or a sales pitch that doesn’t lie, but doesn’t tell all either. Warranties are guarantees made by sellers about the performance of goods they sell. For example, whenever a consumer purchases a toaster, washer, or television, just to name a few products, a warranty is included in the packaging. Many times people decide not to send it in, and a company may still guarantee the product, but why take the chance? When in doubt, always send in a product’s warranty. With a warranty, the seller agrees to fix the product, or the contract may be breached or violated. A seller does not have to give a warranty, but if they do, the Magnuson-Moss Warranty Act may be applied, but only on the purchase of goods over $15. Warranties might also be implied. This is an unwritten promise that by the product’s very nature, it claims to have met a satisfactory standard of safety and reliability. This says the product will live up to its billing. Disclaimers are attempts by sellers to cap their responsibilities, should there be a problem.
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Credit may be convenient, but is it always wise? A consumer should always check the finance charge, the interest rate, and whatever other fees may be added. In other words, how much will the credit cost you? It all revolves around the term we know as the annual percentage rate or the APR. The rate is stated at the time the credit card is issued and it is also noted on monthly billing statements. Any time there is a change you will get a flyer included in your bill informing you of the new percentage rate, and it is usually higher. How many times have you seen on television advertisements for companies that do debt consolidation? This service is needed because consumers get in over their head with credit card debt, and at exorbitant interest rates to boot! Generally, there are two types of credit: unsecured credit that requires only a guarantee to pay in the future, secured credit, for which something valuable (collateral), is put up. If the debtor falls through on the payments (defaults), then whatever was put up as collateral can be taken as payment on the loan. It is important to safeguard credit cards, and one should keep in a handy location the name of the card, the account number, and the phone number to report a lost or stolen card. Caveat emptor or Buyer Beware! Some unscrupulous business persons, sometimes called loan sharks, may try to charge interest rates that are higher than the law allows, a practice called usury. It is important that you, the consumer, be aware of balloon payments, accelerations clauses, and bill consolidation. If a consumer has set up balloon payments, the final payment is much greater than the monthly payment, and there are times when a debtor does not have the amount required to make that final payment. Initially it may sound good, but in the end it could be devastating. If there is an acceleration clause built into payments, the creditor can make all future payments due immediately if the debtor misses a single payment! As previously stated, bill consolidation is an alternative but proceed with caution. The payments will be spread out over an extended period of time, and generally at a higher rate of interest. By the time the loan is finally paid in full, the debtor has spent an exorbitant amount of money in fees.
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A final solution for many consumers is bankruptcy, the placement of an individual’s assets under the control of a federal court. There are three predominant types of bankruptcy, Chapter 13, Chapter 11 and Chapter 7. Even though bankruptcy is federal law, the laws of each state are used to determine peoples’ rights in bankruptcy court. In Florida, people are assigned to a bankruptcy court according to their county of residence. The debtor initiates the process by filing a petition. After this is completed, creditors cannot continue to bother the debtor without special permission from the court. This is called an automatic stay, and it gives the embattled debtor a reprieve from the baying hounds. In some instances another person called a trustee may be assigned, whose duties are varied. The next step is generally a meeting of the creditors, or the people to whom the debtor owes money. This is an opportunity for the creditors to question the debtor. After this meeting, depending on the type of bankruptcy filed, the paths diverge. Chapter 13, also called personal reorganization, has at its core a promise to pay a certain amount of money monthly to the court. By doing this, the creditors leave the debtor alone. Payments continue to the court for three to five years, and if the debtor makes all of his or her payments in a timely manner, the court may forgive the debtor the balances on the debts owed. Probably one of the most important features of Chapter 13 is that the debtor can keep his or her home. It can stop a foreclosure! The debtor is given time to bring payments up to date. On the other hand, under Chapter 7 or liquidation, the most common form of bankruptcy, the court takes almost all of a debtor’s assets, except those deemed exempt. The federal courts sell the assets and use that money to pay off debts. The Constitution of the State of Florida protects the equity in a person’s home so the home cannot be taken from her or him. A few other pieces of property such as IRS approved pension or retirement plans, social security, and a car are also protected; however, it can vary and each case is treated differently. A lawyer can advise a debtor on this facet of bankruptcy. Business reorganization is another name for Chapter 11 bankruptcy, and this is the most complex of the three discussed here. You may have heard of this one because the corporations file this chapter when the debt becomes overwhelming. Individuals can also file Chapter 11
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bankruptcy, and for attorneys, this type of service commands the highest fees because of the complexities involved.
7B Bankruptcy, Florida Style (FCAT Alert)
The Scenario: Your best friend from high school moved down to Florida about 18 months ago, bought a house, got a great job and settled down. About two months ago, he lost his job and now his unemployment has run out. His credit cards are all maxed out and he is now two months behind in his mortgage payment. He has no idea how to file bankruptcy in Florida, so you agree to help. Directions: Explain to him the differences and similarities between Chapter 7 and Chapter 13 and the steps he needs to take to file.
Read Think Explain_________________________________________________________________________
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R e a d i n g ,
c _________________________________________________________________________________ o _________________________________________________________________________________ n _________________________________________________________________________________ t _________________________________________________________________________________ i _________________________________________________________________________________ n _________________________________________________________________________________ u _________________________________________________________________________________ e d Reading, continued If a consumer gets in over his or her head with debt, creditors may repossess, or take back any collateral. The creditor then sells the repossessed collateral and applies that money toward the debt. If the money is insufficient, the debtor is still accountable for the remaining money owed. In addition, a debtor may be sued by a creditor, and at all costs, the one thing to avoid is a default judgment. This occurs when the creditor “wins” the suit just because the consumer or debtor fails to show up for the court appearance. So, if a consumer ever receives a notice or summons to appear in court, do not ignore it!! It could cost the consumer money even though he or she may be in the “right.” There is a chance that even if a creditor wins the suit, the creditor may have trouble collecting from the debtor, and get a court order to garnish
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wages. This means that the debtor’s employer keeps part of the debtor’s wages and pays it directly to the creditor. There is a limit of 25% of the debtor’s take-home pay. The last option to a creditor is attachment, and this entails a court order that forces a bank to pay the creditor out of the consumer’s bank account.
7C Practice: Key terms/concepts Directions: Use the words in bold from the above reading to fill in the blanks. If further clarification of terms or concepts is needed, use a dictionary or look online. 1. Allen got in over his head with creditors, and now writes 15 checks a month to pay all his bills. He has found a reliable company that will do a _______________ for him, and now he only writes one check a month. 2. When Lissette bought her car, the salesman told her that as part of the package, she would get one free carwash a month for one year. When she went to the dealership for her carwash, they did not know what she was talking about. This statement make by the salesman was nothing more than a ploy to get Lissette to buy the car. This is an example of _______________. 3. The type of warranty that is an unwritten promise is called _______________. 4. When Joe _______________ on his car payments, the creditor got a court order to _______________ Joe’s wages in order to get his money. 5. _______________ is a form of bankruptcy where the debtor loses control of almost all of his or her assets. 6. Since Stacie was a minor, the credit card company required someone to _______________ on the application. 7. In a contract, if either party does not fulfill his or her obligation, this is called a _______________. 8. The type of credit that requires collateral is known as _______________ credit. 9. When the Smiths bought their house, they set up the loan on _______________, and now, the last payment is due, and they do not have enough money to cover the amount due. 10. When Maya got her bank statement, she realized that an _______________ was made to her account by the furniture people she did not pay. 11. When Stan went to get in his car to go to work, his car was not there. He knew he was behind in payments, but he never expected the bank to _______________ his car. 12. Just because a product comes with a _______________, it does not necessarily mean there is not some responsibility on the seller’s part.
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13. Another name for individuals who charge interest rates higher than those allowed by the law are called _______________. This practice is called _______________. 14. If a consumer receives a notice to appear in court, it is important that they go so they can avoid a _______________. 15. For a contract to be valid, there must be an _______________ and an _______________ . 16. When someone’s assets are taken under control of the courts, it is known as __________________. 17. Another name for liquidation is ______________________. 18. Lawyers’ fees are the most expensive if you have to file ____________________________. 19. In Florida, what possession is safe if you file Chapter 7 or 13? _________________. 20. Bankruptcy law is ________________law.
7D Consumer Protection Acts
Magnuson-Moss Warranty Act- requires written warranties 1) disclose essential terms and conditions in a single paper, 2) be easy to read and understand and 3) consumer gets information before the sale. Fair Credit Billing Act- if a consumer complains in writing within 60 days of receiving a bill, the creditor must recognize the communication and respond within 90 days. Truth in Lending Act- this requires the creditor to provide in writing to the consumer, certain information about buying on credit. Equal Credit Opportunity Act- this is protection for the consumer against credit discrimination based on sex, race, color, religion, national origin, old age, marital status or source of income. It also states that a creditor must tell a consumer why they were denied credit, and they must be specific as to the reason. Fair Credit Reporting Act- if a consumer cannot get credit and the reason is because of a bad report from a credit bureau, the person who denies the credit must state the reason. Fair Debt Collection Practices Act- this is the consumer’s protection from unscrupulous collection practices. Wage Garnishment Act- this sets the limit on the amount a creditor may garnish a debtor’s wages. It is set at 25% of take home pay.
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7E Practice: Consumer Protection Acts
Directions: In the spaces provided, write the name of the “act” that will help the consumer in each situation. 1. Jan was not extended credit because of a report the lender received from the credit bureau. ____________________ 2. George wants to buy a high definition television on credit. ____________________ 3. When Mrs. Lopez got her furniture bill, she realized there was a charge for $2,220 for an article she did not buy _______________. 4. Every week, Cindy has $75.00 taken out of her paycheck. ____________________ 5. Every night from 5-8:30 p.m., the creditors call the Kims’ home. ____________________ 6. The refrigerator and dishwasher the Stones purchased came with a written warranty. There are problems with the dishwasher. ____________________ 7. Mr. Pierre was denied credit because he is from Haiti. ____________________
7F Internet Search, The Florida Consumer
1. What is the “Lemon Law”? ____________________________________________________________ _______________________________________________________ 2. What is the purpose of the Florida Motor Vehicle Repair Act? _____ _______________________________________________________ _______________________________________________________
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3. When you initially purchase a new car in Florida, who registers it? _ _______________________________________________________ _______________________________________________________ 4. What are the advantages to living in a deed restricted community? _______________________________________________________ _______________________________________________________ The disadvantages? _______________________________________ _______________________________________________________ _______________________________________________________
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