CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)1 CHAPTER 14: CONSUMER PROTECTION Chapter 14 explains: Why and how the law focuses

CHAPTER 14: CHAPTER 14: CONSUMER PROTECTIONCONSUMER PROTECTION

August 9, 2002 BUSINESS LAW (Ms. Hawkins) 1


Chapter 14 explains:

Why and how the law focuses on the protection of

consumers, and discusses trade practices

prohibited by consumer law.

Implied and express warranties, full and

limited warranties

Ralph Nader

Clark Howard




Hot Debate (Page 244):Hot Debate (Page 244):

Edison buys a lawnmower from a department store. Because of a defect in design, a protective plastic flap binds the lawnmower whenever the lawnmower is pulled backwards. For efficiency’s sake Edison removes the flap. Later, as he is pulling the mower backwards, he trips and falls backwards. Due to the lack of protective flap, his foot shoots upwards into the mower blade. Edison, who was only wearing tennis shoes, loses half his foot. Later, he brings suit against the manufacturer.




Hot Debate (Page 244):Hot Debate (Page 244):

What are some legal reasons supporting Edison’s suit?

What are some legal reasons supporting the manufacturer?

If the defect had not been present, the protective shield would have been in place and the injury would not have been sustained.

The plaintiff’s action in removing the safety feature released the manufacturer from liability.




Why Does The Law Protect Consumers?Why Does The Law Protect Consumers?

Some Terms…

Consumer-an individual who acquires goods that are primarily intended for personal, family, or household use.

Caveat emptor-”Let the buyer beware”– this leaves the buyer responsible to judge a product’s safety and utility.

Large corporations are not always responsive to consumer

complaints.

Technology can make it difficult for the consumer to judge.




Why Does The Law Protect Consumers?Why Does The Law Protect Consumers?Local, state, and federal governments have passed legislation to help restore a balance of power between sellers and buyers in the marketplace.

Consumers have several courses of action that can be taken if they have been deceived while contracting:

Individual court action (costly and time consuming).Class actions (allows one or several persons to sue on

behalf of others similarly wronged)—initiated by consumer or administrative gov’t agency.





When a government agency acts on behalf of the injured consumer, there are several possible remedies:

Issue a cease-and-desist order requiring the company to stop

the specified conduct.

Issue a consent order, a voluntary court-enforceable

agreement to stop an illegal or questionable practice.

Order restitution, the return to customers of money

wrongfully obtained.





There are additional avenues of recourse for the wronged consumer:

The State Attorney General’s Office (Thurbert E. Baker:

(404-656-3300).

The local Better Business Bureau (503 Oak Place, Suite 590

Atlanta, GA 30349/(404-766-0875)

Customer Service Dept. of the corporation involved.





The overall purpose of consumer laws:

Help protect against the production and sale of

substandard or dangerous consumer goods.

Prohibit improper trade practices.

Provide remedies for persons injured.





What’s Your Verdict? (Page 245)What’s Your Verdict? (Page 245)

Simmons wanted his car painted. He saw a newspaper advertisement for “car painting, $99.99 complete.” He went to the place of business, contracted for the service, and selected a dark blue metallic finish. However, when the paint job was completed, and Simmons examined the car, the color was obviously light blue. Simmons complained, but the manager claimed the color was close enough to the color Simmons had selected and refused to make any correction.





What’s Your Verdict? (Page 245)What’s Your Verdict? (Page 245)

What should Simmons do?Simmons might contact the State Attorney General’s Office, the local BBB, or the company’s customer service department. As a last resort, he can take his problem to small claims court.




Protection Against Substandard GoodsProtection Against Substandard Goods

Although the ultimate responsibility for protection against

substandard goods rests with the consumer, the law provides

help.

Safety Standards

Food and Drug Administration (FDA)

The National Bureau of Standards





Safety StandardsSafety Standards

The Consumer Product Safety Act was passed in 1972; it

created the Consumer Product Safety Commission (CPSC)

which issues and enforces safety standards.

The CPSC receives reports from the nation’s hospitals on

product caused injuries.

The CPSC requires manufacturers and distributors of

unsafe products report to the commission.




Protection Against Substandard GoodsProtection Against Substandard Goods Food and Drug Administration (FDA)Food and Drug Administration (FDA)

The FDA requires that the production facilities for cosmetics, food, and drugs be clean and that the products be prepared from ingredients fit for human consumption.

New drugs cannot be marketed in this country without approval.

The U.S. Department of Agriculture also inspects canners, packers, and processors of poultry and meat entering interstate commerce.





The National Bureau of StandardsThe National Bureau of Standards

The U.S. Constitutions gives Congress the right to set

standards for weights and measures through the National

Bureau of Standards.

This means uniformity for a gallon of gasoline, pound of

bananas, or a foot of rope.

Violations are punishable by fine, imprisonment, or both;

goods may be confiscated.




Protection Against Unfair Trade PracticesProtection Against Unfair Trade Practices

An unfair trade practice is any method of business that is dishonest or fraudulent or that illegally limits free competition. Unfair trade practices include:

Agreements to control or fix prices

False and misleading advertising

Illegal lotteries and confidence games

Unfair pricing and service

Mislabeled goods

Used articles sold as new





Agreements to control or fix prices:Agreements to control or fix prices:

Any agreement that controls or fixes prices and thereby

eliminates competition, is illegal and unenforceable.




Protection Against Unfair Trade PracticesProtection Against Unfair Trade Practices False and misleading advertising:False and misleading advertising:

This is advertising that intentionally deceives, makes untrue claims of quality or effectiveness, or fails to reveal critically important facts.

Bait and switch is when a store advertises an understocked, low-priced “come-on” item to lure customers into a store.

The Federal Trade Commission (FTC) has the main responsibility for preventing false and misleading advertising.

The FTC may order corrective advertising.





Illegal lotteries and confidence games:Illegal lotteries and confidence games:

To be a lottery there must be three elements:

• A required payment of money to participate

• Winners determined by chance

• A prize to be won.

Many states allow some religious groups to run bingo and other games to generate revenue; some states generate revenue for education through lotteries.





Unfair pricing and service:Unfair pricing and service:

Intentionally stating that goods are being sold at a

considerable discount

Stating that goods are being sold at wholesale prices

The estimated price of a repair is significantly less than the

actual price.

Being charged for repairs that were not authorized





Mislabeled goods:Mislabeled goods:

Mislabeling a good to make it more marketable is

prohibited by law.

The shape or size of a good must not mislead the consumer

into thinking the package contains more than it does.

The law requires that certain products carry warning labels

(poisons, cigarette packaging, etc.)





Used articles sold as new:Used articles sold as new:

It is illegal to sell a used item as new.

It is illegal to represent an item as being in a better

condition than it really is.





Other Unfair Trade Practices:Other Unfair Trade Practices:

Confusing brand name or trademark

Sending unordered merchandise and demanding payment

Commercial bribery (industrial espionage; paying “push”

money for a retail salesperson promoting a manufacturer’s

product)

Fraudulent telemarketing and Internet schemes





FTC Guidelines:FTC Guidelines:Creditors must explain to borrowers the methods of figuring

finance charges.Sellers and manufacturers must provide written warranties.Commercial bribery (industrial espionage; paying “push”

money for a retail salesperson promoting a manufacturer’s product)

Businesses selling door-to-door must give purchasers 3 days to cancel contracts for purchases of $25 or more.




State and Local Government ProtectionState and Local Government Protection

What’s Your Verdict? (Page 250)What’s Your Verdict? (Page 250)As Wilson and Perquot were driving past the Downtown Electronics Warehouse, Perquot noticed their going-out-of-business sale. “They had a sale like this last year and I bought a C.D. player. I thought I as getting a great deal because they were getting rid of all their merchandise. Hey stayed in business though, and I paid more than the regular price for the same C.D. player at other stores.”





What’s Your Verdict? (Page 250)What’s Your Verdict? (Page 250)Are such sales by the Downtown Electronics Warehouse

legal?

States regulate special sales by retailers by requiring a special license. Such sales include bankruptcy and going-out-of-business.

If the business does not shut down, they would be guilty of fraud. What Downtown Electronics Warehouse did was illegal.





Licensing Laws:Licensing Laws:Suppliers of consumer goods and services often have to be licensed:• Health services (doctors, nurses, lab techs, pharmacists)• Teachers• Lawyers• Realtors• Insurance agents• Beauticians





Licensing Laws:Licensing Laws:Other businesses and institutions require inspections and operating licenses:•Hospitals•Rest homes•Private schools•Check-cashing services•Insurance companies•Auto repair shops





Remedies Available to Injured Consumers:Remedies Available to Injured Consumers:Many states have given consumers rights against those who

take unfair advantage or cause injury.Victims may sue for damages and get a court order

preventing future violation (this includes class action suits)





Sanitation and Food Adulteration Laws:Sanitation and Food Adulteration Laws:States and localities provide for the inspection of businesses where food is handled.

Meat marketsBakeriesRestaurantsHotels





Safety Laws:Safety Laws:There are laws that deal with buildings where the general public gathers.

•Type of construction•Location•Accessibility•Occupancy rate





Safety Laws:Safety Laws:Safety regulations for the public apply to

•Fire escapes•Elevators•Parking•Sprinkler systems•Exit location and marking•Sanitary facilities




What is Product Liability?What is Product Liability?

What’s Your Verdict? (Page 251)What’s Your Verdict? (Page 251)Tackett removed a safety guard from his power radial saw. This was contrary to a warning prominently printed on the guard. Because of a manufacturing defect, a saw blade broke. The safety guard was not in place, so the blade hit and seriously injured Tackett.





What’s Your Verdict? (Page 251)What’s Your Verdict? (Page 251)Can Tackett recover for the injury caused by the defective product?

Tackett’s removal of the fully adequate safety guard bars his recovery. Legally, the injury was the result of Tackett’s action, not the defect in the saw.





Some Terms…Some Terms…Under common law, Privity of Contract is the relationship

that exists between or among the contracting parties as a result of their legally binding agreement. An injured consumer could sue the retailer, but not the wholesaler or the manufacturer.

The UCC now provides for all injured persons who are the buyer’s family, household, or guests to sue. Most states even allow a nonuser, to sue retailers, intermediate sellers, and manufacturers.





Recovering Damages:Recovering Damages:

A product liability suit may be based on—

• Breach of warranty

• Torts (fraud, negligence, or strict liability)





Recovering Damages:Recovering Damages:Injured consumers may have difficulty recovering damages:• No warranty• The warranty is not applicable• The warranty has expired• Fraud requires proof of intent, which is difficult to prove.

The best bet is to rely on strict liability. Most states hold the manufacturer, wholesaler, and retailer strictly liable if someone is injured due to a defect.





Recovering Damages:Recovering Damages:There is NO liability if:• Injury was suffered while using product for a purpose other than intended.• Product is used for a purpose which could not reasonably be foreseen.• Injured person is found guilty of improper conduct that causes the accident.• One is hurt while improperly using a product that may be dangerous when misused.




Warranties

Express and Implied Warranties:Express and Implied Warranties:

Some Terms…

• Warranty-a statement about the product’s qualities or

performance that the seller assures the buyer is true.

• Express Warranty-An assurance of quality or promise of

performance explicitly made by the seller; it may be oral or

written.




Warranties


Magnuson-Moss Warranty Act (FTC)

The FTC has established minimum standards that must be met by sellers who give written warranties on consumer products that cost more than $15, and that normally are used for personal, family, or household purposes.




Warranties


Magnuson-Moss Warranty Act (FTC)

Certain information must be included in the written warranty:

• To whom the warranty is extended

• Product description

• When warranty begins

• Procedure to obtain performance of warranty




Warranties

Express and Implied Warranties:Express and Implied Warranties:Some Terms…• Full warranty-An express warranty that obligates the seller to repair or replace a defective product without cost to the buyer and within a reasonable time• Limited warranty-any warranty that provides less protection than a full warranty.• Puffing-exaggerated sales talk (e.g., “the best on the market”—merely personal opinions)




Warranties

Implied Warranties:Implied Warranties:An implied warranty is an implicit warranty obligation imposed by all sellers, in order to ensure minimal standards of contractual performance.

• Warranty of Title-implicit in the act of selling, the seller warrants that he or she has title to the goods and the right to transfer them. • Warranty Against Encumbrances-implicit warranty that goods are free from claims of third party ties (unpaid balances)




Warranties

Implied Warranties:Implied Warranties:

• Warranty of Fitness for a Particular Purpose-the seller makes an implied warranty that the goods delivered to the buyer are reasonably fit for the stated purpose

• This warranty does not apply when the buyer personally selects the goods and does not rely on the seller’s judgment.




Warranties

Additional Information About Warranties:Additional Information About Warranties:

Warranty Implied by Law for Merchants-the seller

Merchants are typically held to higher standards in their dealings with consumers than are casual sellers.

•Warranty Against Infringement

• Warranty of Merchantability




Warranties

Additional Information About Warranties:Additional Information About Warranties:

• Warranty Against Infringement A merchant makes an implied warranty that the goods in

which she or he normally deals shall be delivered to a buyer free of any third party’s claims for patent, copyright, or trademark infringement.

• Warranty of Merchantability Every merchant who customarily deals in goods of a

particular kind makes an implied warranty of merchantability to all buyers of the goods (fit for ordinary purposes)




Warranties

Express Warranties Made by All Sellers:Express Warranties Made by All Sellers:

In addition to warranties implied by law, sellers may make

express warranties.

•Warranty of Conformity to Seller’s Statement or Promise

•Warranty of Conformity to Description, Sample, or Model




Warranties

Express Warranties Made by All Sellers:Express Warranties Made by All Sellers:

•Warranty of Conformity to Seller’s Statement or PromiseEvery seller is bound by any express statement of fact or promise that is part of the bargain. It is desirable to have such statements in writing.

•Warranty of Conformity to Description, Sample, or ModelWhen these are made a part of the contractual agreement, there is an express warranty that all the goods shall conform to the description, sample, or model used. This is true even if the words “warranty” or “guarantee” do not appear in the contract.




Warranties

Exclusion of Warranties:Exclusion of Warranties:

A seller may offer to sell goods without any warranties:

Use a disclaimer: “there are no warranties of merchantability or fitness that extend beyond the description on the label.”

Exclusion of implied warranties is achieved by such expressions as “with all faults,” or “as is.”



CHAPTER 14: CONSUMER PROTECTION

Documents

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)1 CHAPTER 14: CONSUMER PROTECTION Chapter 14 explains: Why and how the law focuses