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					     Session 7: Consumer Law

          Session Assignments

               7A       Reading, Contracts, Warranties and Credit
               7B       Bankruptcy, Florida Style (FCAT Alert)
               7C       Key Terms/Concepts
               7D       Consumer Protection Acts
               7E       Practice: Consumer Protection
               7F       Internet Search, The Florida Consumer
               7G       Analyzing Warranties
               7H       Take Session 7 Test

Law Studies Session 7                                               Page 1 of 9
          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 (conside ration). 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 questio n 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. Disclaime rs are attempts by sellers to
                        cap their responsibilities, should there be a problem.

Law Studies Session 7                                                                      Page 2 of 9
                        Credit may be convenient, but is it always wise? A consumer should
                        always check the finance charge, the inte rest 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 payme nts,
                        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.

Law Studies Session 7                                                                      Page 3 of 9
                        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, Chapte r 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

Law Studies Session 7                                                                      Page 4 of 9
                        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 betwee n
                        Chapter 7 and Chapter 13 and the steps he needs to take to file.

                        R   Explain_________________________________________________________________________
                        a   _________________________________________________________________________________
                        i   _________________________________________________________________________________
                        ,   _________________________________________________________________________________
                        c _________________________________________________________________________________
                        t _________________________________________________________________________________
                        n _________________________________________________________________________________
                        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

Law Studies Session 7                                                                                Page 5 of 9
                         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 attachme nt, 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
                         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.

Law Studies Session 7                                                                         Page 6 of 9
                        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
                            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.

Law Studies Session 7                                                                      Page 7 of 9
               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? _____

Law Studies Session 7                                                                    Page 8 of 9
                        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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