Business Law and the
Regulation of Business
Chapter 45: Consumer Protection
Richard A. Mann
Barry S. Roberts
Topics Covered in this Chapter
A. State and Federal Consumer
B. Consumer Purchases
C. Consumer Credit Transactions
D. Creditors' Remedies
Federal Trade Commission
Purpose - to prevent unfair methods of
competition and unfair or deceptive acts
Unfairness - requires injury to be
(1)-substantial, (2)-not outweighed by any
countervailing benefit, and (3)-unavoidable by
reasonable consumer action.
Deception - misrepresentation, omission, or
practice that is likely to mislead the consumer
acting reasonably in the circumstances.
Ad Substantiation - requires advertisers to
have a reasonable basis for their claims.
Cease and Desist Order - command to stop
doing the act in question.
Affirmative Disclosure - requires an
advertiser to include certain information in its
ad so that the ad is not deceptive.
Corrective Advertising - requires an
advertiser to disclose that previous ads were
Multiple Product Order - requires an
advertiser to cease and desist from deceptive
statements regarding all products it sells.
Consumer Product Safety Act
Federal statute enacted to:
– Protect public against unsafe products
– Assist consumers in evaluating products
– Develop uniform safety standards
– Promote safety research
Federal Warranty Protection
Applies to sellers of consumer goods who
give written warranties.
Presale Disclosure - requires terms of
warranty to be simple and readily understood
and to be made available before the sale.
Labeling Requirement - requires warrantor
to inform consumers of their legal rights
under a warranty (full or limited).
Disclaimer Limitation - prohibits a written
warranty from disclaiming any implied
The Magnuson-Moss Act
May Be Disclaimed
May NOT Be Disclaimed
State “Lemon Laws”
State laws that attempt to provide new
car purchasers with rights similar to full
warranties under the Magnuson-Moss
Consumer Right of Rescission
In certain instances a consumer is
granted a brief period of time during
which she may rescind (cancel) an
otherwise binding obligation.
Consumer Rescission Rights
Law Rescission Period Solicitation Credit or
State “cooling-off” Varies Yes Varies
FTC trade Within 3 days of Yes Both
regulation signing contract
Consumer Credit Within 3 days of No Credit only
Protection Act signing contract
Interstate Land Within 7 days of No Both
Sales Full signing contract
Consumer Credit Transactions
Definition - any credit transaction involving
goods, services, or land for personal,
household, or family purposes.
Access to the Market - discrimination in
extending credit on the basis of gender,
marital status, race, color, religion, national
origin, or age is prohibited.
Truth-in-Lending Act - requires creditor to
provide certain information about contract
terms, including annual percentage rate
(APR), to consumer before he incurs the
Consumer Credit Transactions
Contract Terms - statutory and judicial
limitations have been imposed on
Consumer Credit Card Fraud Act -
prohibits certain fraudulent practices and
limits a card holder's liability for
unauthorized use of a credit card to $50.
Fair Credit Reporting - consumer credit
reports are prohibited from containing
inaccurate or obsolete information.
Wage Assignments and Garnishment -
most States limit the amount that may be
deducted from an individual's wages through
either assignment or garnishment.
Security Interest - seller may retain a
security interest in goods sold or other
collateral of the buyer, although some
restrictions are imposed.
Debt Collection Practices – unfair, abusive,
and deceptive practices by debt collectors in
collecting consumer debts are prohibited by
the Fair Debt Collection Practices Act.