Consumer Protection Notes

8/6/2019 Consumer Protection Notes

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Consumer protection notes

(413) 536-19771707 N. Hampton St.Hoyoke, MA

[email protected]

exam – two essays two hoursopen supplement, can write whatever you want

INTRO:

- in consumer law pattern of abuse then a judge makes case law to protect against abuse- common law, statutes, regulations

CHAPTER 1: Deception- Code of mass regulations CMRs- Deception, fraud, nondisclosure, concealment, misrepresentation,- Tort damages – price paid minus actual value- Elements of deceit = rep of fact that seller knows or disregards, fact induces buyer

and buyer’s reliance is justifiable and injury ON TOP of pg 7Jones v west side buick 1936

- Rolled back odometer, lower court found for P, $150 actual damages $2000 punitive

- D argued not representation, and trade practice, and that he spun the odometer tomore accurately reflect the refurbished value

- This is a misrepresentation bc rep is not confined to words or positive assertions- Now there is an odometer rule that says dealer has to give written statement of odometer

- Materiality – something that would influence buyer in price or decision of whether or not to buy

- P is saying that d is not justified to act on basis of odometer statemento Dealer acted with knowledge in spinning odometer

o It was false statement of fact

o Don’t tell consumer bc it will impact the sale

- Element of inducement – rep of fact made for purpose of inducing buyer - To prove reliance, the p can either testify or it can be inferred

- Trouble with justifiable reliance – even application to all peopleo Reasonable person standard

- Freedom of contract plus you have Freedom from contract9/6

King v towns 1960- cancer pots- salesman is not saying anything about his pots and pans- deception representation of material fact that is false

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- the misrepresentation is implicit- is he justified in relying

o are we measuring the consumer

- consumer from unsolicited sale is protected more than someone who goes to storeo trapped by door to door

o in mass door to door contracts have to be rescindablesaylor v handley 1961

- agreed on payment of $80 a month then signed blank paper, salesman filled in$88 per month

- want to protect the consumer even if they haven’t acted prudentlyvokes v Arthur murray 1968

- vokes was widow took dance lessons, convinced time and time again that she wasimproving and had potential, she was sold 2302 hours of dancing lessons andspent $31,000

- saying she was an excellent dancer was representation of opinion but made by anexpert (superior knowledge)

o court said that school had fiduciary duty as experts to mrs. Vokes even if they are holding themselves out as experts

opinion rises to level of facto puffing is not actionable

parker v Arthur murray 1973

- college educated man goes to dance studio, was in car accident and could notcontinue dancing

- court said that misrepresentation had to deal with present or pre-existing facts-

ELEMENTS OF DECEPTION:1. makes representation of 2. present fact 3. that is material and 4. false 5. if the seller

knew it was false or 6. made the representation to inducing the buyer and the buyer 7. relied on the representation 8. was justified in relying on it and 9. sustained injury

Halpert v Rosenthal 1970

- bought house, told that there were no termites, inspection showed there weretermites

- innocent misrepresentation of fact warrants granting of a claim for recission(voidable)

- merger clause is overridden bc of fraudulent misrepresentation- remedy of putting parties in position as if they had not made contract

pumphrey

- realtor said walls constructed of tile although they weren’t

- held against realtor but not against seller - speaker/realtor didn’t know and didn’t care if statement was true

ollerman v orourke 1980 (silence)

- sold land where buyer was going to build a house, a well was discovered and hadto be capped, everyone in community knew about well

- seller was in better position to know of the well than the buyer who had no way of finding out (or had special knowledge)



- silence is an actionable misrepresentation if the condition is latent, if there isreliance, or if seller has special knowledge (has special knowledge if they are adeveloper)

- material fact the buyer may not have bought the lot

9/13/07- availability of info relieves seller of duty to disclose- elements

o latent

o buyer acts as if it doesn’t exist

o is it material

- when in doubt disclose (ghosts)

• if it reduces the value of what is for sale than you were not disclosing it for areason

- if a murder took place in a house have to be able to prove damagesdavey v brownson (mutual mistake)

- p bought motel from ds- diff bt fraud and mutual mistake:

o mutual mistake - neither knew

o fraud - seller knew

- expert testified that the infestation was not apparent- here unlike cases where silence, opinion or other, we had mutual mistake leading

to recission

CHAPTER 2FTCA – focuses on unfair methods of competition

- section 5 is the pertinent section (may have to cite on the exam)

- under ftca individuals do not have a cause of action, that is left to state statuteso this is for the ftc to bring actions

o ftc acts to protect the public

- unfair deceptive act or practice is not defined in acto have to look at prior cases and regulations

- deceptive act or practice elements:o 1. there must be representation practice, or omission likely to mislead

consumers 2. the consumers must be interpreting the message reasonablyunder circumstances 3. misleading effects must be material that is likely toaffect consumers conduct

Charles of the ritz distributors v ftc 1944

- marketing rejuvenescence cream- ftc has cease and desist order against them saying it falsely represents that skin

will be restored to youth or appearance of youth- said word rejuvenescence had diff meanings- said reasonable person would be suckered into buying this- cease and desist using the word rejuvenescence- having capacity to deceive is unlawful (don’t have to show actual deception)

o as standard applied both to advertisement and name of cream



- the reasonable consumer moves over timeo target audience is going to be the reasonable consumer

- what is deceptive in 1944 may not be what is deceptive in 2007aspercreme case

- a representation does not become deceptive simply because it may be

unreasonably believe

Harvester left off on…

9/27/07

Mini FTCs (state consumer protection act)

- violation fo the FTCA is violation of section 5- when you have a violation of Mass chapter 93A it is violation of section 2

o attorney general can write statutes under this section

o cannot have business claiming against a consumer in mini FTC’s

o mass has adopted the mirror image of FTCA

o

State deception acts (little ftc acts)

- 1. FTC has limited resources 2. FTCA confers no private remedy- 3 types of state acts

o 1. broadly prohibiting deception

o 2. broadly prohibiting deception and specific provisions

o 3. consumer fraud acts broadly prohibits deception, fraud, misrep,

concealmentSearle v exley express

- action to recover damages for misrep of condition of truck - lower court found for p

- d was in trucking industry offered truck on lease-back arrangemento d was obliged to supply lessor w/refrig trailer and provide hauling jobs

and purchaser would receive portion of revenue- sale of truck was not w/in unlawful trade practices act

o the stat refers to real estate, goods or services

o court finds these to be for personal, family or household purposes

stat describes the transaction type not the ultimate intent of purchaser

if goods customarily bought by substantial number of purchasersfor personal, family or household uses and were in fact bought by p for his resale that stat applies and vice versa

notes:- consumer is not a business – purchases things for personal use- section 9 says- * consumer purpose – personal, family or household- always look at the purchase objectively- *two part test 1. is item customarily used and purchased for household use if yes

go to 2. was that purchased for this particular reason



o must do test forward

o mixed use if it satisfies the first test and there is a mixed use becomes

harder - if it is a consumer purpose then you get protection of the statute (consumers get

more protection than businesses)

Dick v attorney general- claimed that d was guilty of prescribing medication w.out authorization- stat said that nothing in the chapter shall apply to action or transaction otherwise

permitted, prohibited or regulated under laws administered by…- petitioner maintains that director of licenses is not regulatory body since pwers

are not as comprehensive- intent of the act wsa that if particular practice found to be unfair or deceptive is

not regulated even though business is regulated generally the provisions of the actapply

- the commissioner had to show what acts were covered by the statutewiegel v ton Tonkin Chevrolet

- dealer told consumer car had 260 miles bc it was driven from another dealer o actually another consumer had bought it but their financing fell through

- Oregon stat says that unlawful practice when person says goods are new if theyare second hand

- Court says that what is meant by new is statutory interpretation not for factfinder o Two elements 1. significance of actual physical use 2. significance of prior

transactions involving same vehicle

Automobile is new even though dealers and potential buyers havedriven it

Mileage was accurately stated

Existence of a prior sales contract alone cannot constitute used;

actual use at least to the extent of taking possession is required If automobile is used beyond purposes incident to sales must be

disclosed- Unlawful trade practice must be 1. willful and 2. result in loss of money

o Difference bt paid price and measurable market value

o Or loss of money could be expenditure of funds for goods that are not

desired by customer o Statute allows recovery of actual damages or $200 whichever is greater,

plus punitive damages etco Lost money when he paid for product he thought he was getting, or lost

benefits of the product he was led to believe he had purchasedo That loss does not include diminution of value is immaterial

o Even if the loss fell short of $1000 the court or jury is allowed to award

the $200 minimumo

Notes:- dealer lied about the reason for the mileage bc the price would be different- 1200 miles on car used as demo must be disclosed as demo



- Court says that actual use as to taking possession is required- Must disclose former totaled vehicle, former taxi, former emergency vehicle- Under oregon stat has to be willful and loss of money and property- Losses should be viewed broadly in this case- In Mass you don’t even have to have damages, minimum award is $25

Golt v Phillips- ad offered to rent furnished apartment for $135 per month plus utes- apartment was dirty, ensured that it would be cleaned and repaired, paid first

months rent and $200 deposit- after moving in learned toilet was outside apartment and shared- some repairs not done- called city and discovered those running apartments did not have license or

inspection to operate as multiple dwelling- additional violations were found by inspector - told to remove tenants and cooking unit in one of the three apartments- p was the only one ordered to vacate

- denied relief under Maryland consumer protection act bc he had inspecteddwelling- CPA applies to this agreement- Court found that advertising and renting unlicensed dwelling violates all 3 parts of

CPAo 1. MISLEADS Advertisment and rental of apartment implies it is legal,

Phillips could not provide P with unimpeded right to possessiono 2. CHARACTERISTIC IT DOES NOT HAVE license is implied to any

leaseo 3. FAIL TO DISCLOSE MATERIAL FACT THAT DECEIVES failed to

disclose fact that they lacked license

Does not require scienter, only statement that has propensity tomislead

- Inspection of apartment cannot inform tenants that it is unlicensed- DAMAGES

o Look only at actual loss or injury

o Golt may recover full damage bc unlicensed lessors can realize no benefit

at all from illegal lease

Also gets cost of moving, plus 60 days at new place bc no 60 daynotice given as required as long as new place was similar to premises

Notes:

- cases like this usually brought bc person has not paid the rent- there are two types of licenses 1. revenue raising 2. meant to protect the public- capacity to deceive unlicensed apartment consumer had right to rely on it and it wasa material decision bc it could have effected his decision and he was damaged

Fenwick v kay American jeep

- rules for motor vehicle advertising practiceso failure in any price advertisement to disclose bona fide odometer reading

of specifically advertised used car



o friedman owns ad agency and he reps 30-35 auto dealers

one ad stated the price but did not say the odometer readingo friedman said that the omission of the odometer reading was his fault it

was an oversighto hearing officer found both of them guilty

- court found that omission must be intended and nondisclosure must be knowingo nondisclosure of fact unknowingly and by reason of inadvertence does not

constitute unlawful practiceo original bill was amended so act had to being intended and knowing

- attny general may not make rules that run counter to legislationdissent:notes:

- Mass motor vehicle advertising requirement have to show odometer and VINo Private party not governed by this

On appeal NJ Sup court said:

- attny general has power to make rules to prevent fraud and other deceptive actso this was w/in authority of attny generalo since consumer protection is goal, the standards must be met regardless of

intentnotes on fenwick:

- court cites capacity to mislead – sounds like deception- statutory interpretation – have to pay attention to commas, ands and ors- legislative history has to be examined to determine the intent of congress

o bill passed included that omission of any material fact had to be knowing

o this is more important bc it sets precedent for the entire industry

- final orders of the division of consumer affairs were reinstated

STOPPED HERE - Going to start truth in lending act next week, look atthe act in the book look at regulation (z)

PREEMPTION

Jones v rath packing

- ordered certain bacon and flour removed from saleo bc average net wt was less than stated on packages

- rath and miller said that he was preempted by federal laws regulating weight- issue whether federal laws governing packaging preclude state from enforing their

law- if preemption of historic police powers was the intent of congress

o when congress has stated that enactments alone are to regulate a part of

congress the state law must fall (explicit or implicit)o state law says average weight shall not be less at time of sale or offer for

saleo federal meat inspection act makes sure labels are accurate in plants

producing items



includes requirement of accurate statement of quantity andcontents

o federal meat inspection act expressly states there are to be no other

requirements in addition or different to those in the act- with respect to the bacon it is preempted

- FDCA and Fair Packaging and labeling act govern flour o Requires accurate statement of quantity

o Nothing in the FPLA shall be construed to repeal, invalidate or supersede

FDCA

Nothing in FPLA explicitly permits any variation bt stated weightand actual weight

FDCA does not preempt but the FPLA says express intent of congress to supersede states

o Since it would be possible to comply with state law w.out triggering

federal enforcement action court says this is not inconsistent w/federal law- Must consider whether state law stands as obstacle to accomplishment and

executiono With respect to flour not allowing for reasonable variations would prevent

accomplishment and execution of the full purposes and objectives of congress

Notes in class:- the state probably did not include variation for moisture bc then it would promote

local flour distributors which would not have to worry about loss of moisture dueto short distance of travel, out of state flour distributors would be at adisadvantage due to longer travel and more loss of moisture

- the federal act says about preemption that you cannot have anything different thanfed law

- purpose of federal preemption is to protect interstate commerceo out of state flour producers would have to overpack

- each state is permitted to make their own laws and federal government is notallowed to occupy what should be left up to the states

- federal laws are for the purpose of having states get along- california’s refusal to permit any reasonable weight variations puts out of state

producer on different footing-Kellerman v mci telecommunications corp

- ps says that mci advertising violates consumer fraud and deceptive business practices act and uniform deceptive trade practices and deceptive advertising

practices are breach of contract- compares costs in commercials but billing practices are different

o mci bills for uncompleted calls but at&t does not, plus surcharge where

phone rang 6 or more times, plus local charge- claim that advertising falsely represented policies and practice- communications act- d argues that congress intended to occupy the entire field of telephone service or

alternately act governs carrier’s charges, practices and tariffs



- act states that provisions of this chapter are in addition to common law andstatutes

- Illinois case found that state law claims alleging common law fraud and violationsof deceptive trade and consumer fraud acts were not preempted by the act

- Reasonable to presume that state laws that interfere with congress’ intent to creat

rapid, efficient communication service would be preempted- Should preserve State law causes of action for breaches of duties not covered bythe act

- Ps don’t argue about quality of service they just allege deceptive advertising Notes in class:

- rate regulation = had to negotiate with the commission and they would approveyou so you were good

o consumer could not say that the rates were not reasonable

- p argues that- federal preemption:

o act is comprehensive in nature

o if there is a federal interest in dominating and precluding state actiono where there is a same purpose

- here reason for fed law was to provide greater service to the most people- state law did nothing to interfere with what the federal government has done- where the duties of the state are in some way distinguishable from the duties of

the federal governmtn then there will be no preemption- the consumer would not be able to bring any federal charges for rate, court thinks

they should have remedy under state law on the deceptive practice- consumers trying to bring deceptive act claims are not obstacles to what the

federal government is trying to do- preemption has more to do with the 3 standards listed above rather than the

specific language of the statute-

10/4/07- Mass state statute- If we talk about a mini ftca it will be the mass state statute

TRUTH IN LENDING ACT- this is a disclosure statute that applies to loans and sales- applies to open ended and closed ended transactions- not a regulatory act it is a disclosure act

o there are other statutes that regulate interest rates

o this just regulates disclosure

- 1967 mass became the first state to require interest rates disclosed in transactions- 1978 simplified truth in lending act was passed- 1988 truth in lending act amendment to add something…- Reg z is regulation dealing with truth in lending

o FRB writes regulations

- Have to be able to cross reference TRLB and reg Z- Reg z has official commentary * it is really important



- First thing when you look at a credit transaction have to ask does the truth inlending act apply (if any of these factors does not apply don’t have to look at truthin lending act):

o Status of the debtor

o business of the creditor

o whether there is a finance chargeo the purpose of the loan is

o the amount

- Amount:

o 104 says what transactions are exempted and shows was is included

If it is under $25000 and not a permanent dwelling

Cross reference to 226.3(b)

Use table of contents to see where cross references areo Have to be talking about personal, family and household (consumer

purchase)- Status of the debtor

o Must be a natural person

- Creditor

o Must be person who in 1. ordinary course of business 2. regularly extends

credit (professional creditor)*appliance guy who lends credit not always obvious- credit has to be payable by agreement in 1. more than four installments or for which the payment of a finance charge is or may be required and 2. is the person to whom the debt is payable

- Regular extension of credit is more than 25 times in the precedingcalendar year with exception of principal dwelling which number is setat 5

Finance charge (not just the interest rate read 226.4 carefully)

o Must be payable by written agreement in more than four

installmentsPurpose:

Dwelling:- duplex if you live in it is covered- duplex solely as investment not covered

open ended v. closed ended credit different disclosures apply

- open ended – where there is expectation of repeated transactions- anything that is not openended is closed (ie. car loan)- all disclosures must be clear and conspicuous, in writing and in some

format that consumer can keep- 226.5 has disclosure requirements- APR and finance charge must be more conspicuously disclosed than

other finance charges

10/18/07

Benion v bank one



- ds moved for summary judgment- superior satellite was selling systems in sam’s club- agreed to purchase for 4297.52- plus one year of programming cost 996.00- salesman suggested that she apply for echostar revolving charge plan

o

did not read the charge plan and signed it- charge account opened for $4500- the credit card was offered by bankone- once the account is opened for a consumer they are allowed to make

purchases at any echo authorized dealer or to order television programming directly from echo

- superior satellite was an authorized dealer - bank one periodically imposes a finance charge on outstanding

balances- when enrolling in the plan consumers are supposed to receive all

disclosures required by TILA for open-end credit planso

ps state they did not receive such disclosures- issue – whether in deciding to structure echostar plan as credit card plan bankone viewed repeat sales as goal of the plan and genuinely believed that the credit card would encourage repeat sales to relativelycaptive consumer base

o bankone planned to encourage such sales through advertising

enclosed with monthly account statements and other promotions

- in 1994 12.3% of all purchases were repeat purchaseso it was only 2.3% of income

- closed ended disclosures must be made unless credit qualifies as an

open end plano closed end disclosures have to include – total amount financed

including both sale and total amount of interest, length of timeover which payments may be made, amount of each installmentand intervals bt payments and amount of finance charge

o must be made at point of sale

- open ended account disclosures may be given bf account is openedtelling annual percentage rate of interest, and nature and amount of anyfinance charges

- open ended credit account:o creditor reasonably contemplates repeated transactions

o creditor may impose finance charge from time to time onoutstanding unpaid balance

o amount of credit that may be extended to consumer during term

of plan is made available to extent that outstanding balance isrepaid

*dispute is over the first aspect- reasonably contemplate repeated transactions = credit plan must be

usable from time to time and creditor must legitimately expect that



there will be repeat business rather than one time transaction, msutexpect repeated use under credit plan as a whole not particular feature,fact that particular consumer does not return doesnot prevent plan from being openended

- have to consider nature of creditor’s business and relationship bt

creditor and consumer - bc they sell wide array of products that expire or need to be regularlyrenewed repeat sales are likely

o large number of echo approved dealers also makes repeat

purchases more likelyo bankone also tried hard to encourage repeat business

o don’t have to focus on the size of the price tag

o although credit card requires you to make large one time

purchase to open it does not remove the account from thecategory

o legitimate expectation of repeat sales not probability of repeat

sales- d granted summary judgment

LEASES

- leases may be either closed or open endedo closed= consumer agrees to pay fixed rent for fixed period of

time at the end they surrender property (no risk of depreciationto consumer)

o open = transfers risk of loss to consumer

fixed rental for fixed term

agreement says value that lessor expects property tohave at the end of the term if value is less the consumer

must pay the difference if higher lessor will pay excess- extension of credit is implicit in leases- lessor allocates each payment first to financing costs, then to

depreciation- portion of the payment allocable to financing costs is larger in early

months of the lease than it is in later monthso result is that earlier in the lease that termination occurs, larger

the amount of damages- liability for early termination is included in lease, limited by 183

RENT TO OWN

- when consumer leases goods for fixed term and acquires ownership by

completing monthly lease payments, the transaction is functionallyequivalent to a sale

- rent to own is neither a credit sale nor a consumer lease- states have required disclosures, ny requires that certain disclosures be

posted on the item itself CLARITY

- states may pass laws regarding clarity but it is up to the federal reserve board to determine whether those laws are consistent



Fair credit reporting act

- allowed to check credit report for free once a year bc credit bureauswere being inaccurate

- FCRA passed in 1970 purpose to protect consumers from inaccurateinfo, to make sure info is up to date, relevant, accurate and make sure

info is kept confidentialo Only so many instances in which someone may request your

credit report- FCRA 603(d) defines consumer report- Consumer reporting agency definition 603(f)

o Somebody for 1. some compensation, 2. must be regular

engagement in business and 3. purpose must be of furnishingreports to third parties

- Reports that are excluded 603(d)(2)- Investigative consumer report 603(e) – obtained through personal

interviews

o Don’t use your credit card in bars or package stores- 1996 congress made amendments to FCRA

o Credit reporting agencies were obligated to ensure info was

accurate (businesses have obligation to give info that is correct)- If info is inaccurate you challenge the reporting agency

o As consumer challenge all incorrect transactions at once, the

reporting bureau will have to delete all that you challenge (if they can’t verify or if too burdensome to verify)

- Do we have a credit reporting agency, do we have a credit report, dowe have a consumer, other important player is the creditor who has tosupply correct info

- When challenging credit report examine two things: 1. content and 2.use

- 607 compliance procedures refers you to 604 and 605o 607(b) addresses the accuracy of report – maximum possible

accuracyPERMISSIBLE PURPOSES

- permissible purposes - credit transactions, employment, insurance,license, investment, any other legitimate

o agency may deny request if it feels not for permissible

purposeso special requirements if credit report to be used for employment

purposes – strict standard 613(a)(2)- 607 requires disclosure of investigative consumer reports – consumer

must know that they are going to have investigative report prepared onthem (has to be in writing no more than three days after the report wasrequested)

- 614 restrictions on investigative reports – procedures for verifying info- Requires that reporting agencies show respect for consumer’s right of

privacy



- 615 requirements on users of consumer reports - must show that youare using report for one of the permissible reasons

o Must provide consumer with the report with no cost to them

o If user is extended credit for personal use and adverse action is

taken against consumer have to tell consumer info on which it

is based (adverse action may be a partial denial under 603(k)even an increase in % rate is adverse action)

- Second largest group of users of credit reports are employers- User of report has to use it for permissible use- 609 disclosures to consumers – if consumer asks for report they

entitled to all sources and all people that have requested to see your report, any adverse info on report you are entitled to know what thatadverse info is,

o Inquiries only have to be kept for a year

o All other info there for good

- 611 in the event a consumer disputes accuracy:

o Agency has obligation to reinvestigate and verify w/in 30 daysof request

o From reporting agency’s view it is sometimes easier to just

delete

They will go back to provider of info to verify it tothem

*things that consumer should watch out for: closed accounts (if you haveclosed an account make sure it appears as closed by you and not by issuer,if you have paid off an account and have not told them to close it tell themto close it otherwise negative), make sure that there is nothing older thanseven years on credit report (no activity for seven years get rid of it, runs

from date of last activity, bankruptcies may remain for ten years, don’tinitiate activity if it should be off), makes sure bankruptcies reportedcorrectly,- FTC is responsible for administering enforcement of FCRA,

o if violation of FCRA it is also violation of section 5 of FTCA

o also potential for criminal liability (info obtained under false

pretenses results in fines and imprisonment of up to two years)

if you are officer or employee of reporting agency andyou knowingly and willfully offer info that is notauthorized you to are open to crim prosecution

civil liability – one who willfully fails to comply with

any requirements

person who requests report can be held liable for employees even with apparent authority to act

o if you are negligent in failing to comply may be liable for out

of pocket costs and attneys fees- 607 just have to follow reasonable procedures



- 615© allows user to discharge duty to consumer by notificationrequirements???

- Issue of identity theft- Have to ask do I have a consumer, do I have a consumer reporting

agency, do I have a permissible use

- This act is meant to regulate the reports and permissible use but your creditor can do what they want when it comes to granting credit(disparate treatment would fall under equal credit opportunity)

greenway v information dynamics

- ps seek prelim injunction- IDL is defendant that collects data on check cashing histories- Idl gives merchants info that allows merchants to ascertain name,

driver’s license number and checking account- Merchants get names of everyone who has had check returned by

members of idl

- When congress came up with FCRA they noted that reporters of creditshould respect consumer’s right to privacy- Court concludes that the reports here fall within this section- Consumer reporting agency may disseminate report –

o To a person which it has reason to believe

Intends to use it for credit transaction with theconsumer

o Or otherwise legitimate business need in connection with a

transaction involving the consumer - Dissemination only allowed to third party who require it for

transaction with that consumer

o IDL fails to comply- Purpose for furnishing the report must exist at the time the request for

the report is made- Check to make sure it meets the definition under 603 then Look at 604

and permissible purposes- This case involves 604(a)(3)(F) has to involve the consumer for which

info is being provided- Reporting agency says that it’s for a subscriber for business purpose- Problem of overdissemination- Have to have one user one consumer and one transaction- Mortgage lender may however review your credit report every once

and a while- 603 will tell you if you have a consumer, a report then 604 will tell

you if it is a permissible use- Permissible purpose must exist at the time of the request- The consequences of this case are that now the reporting agency will

only issue info upon request and they will decide if it is a permissibleuse

Belshaw v credit bureau



- law firm requested info- credit bureau allowed it saying only that it was a permissible use

NEXT CLASS LOOK AT PROBLEM 6 P232 PROLBEM 6, 8 AND PROBLEM 9Problem 6

a. – is a consumer report under belshaw, they said a consumer report isanything that could be used for one of the purposes enumerated

– not a consumer report under henry the report has to be procured for thecertain purpose

– 603(d) says it should be used or expected to be used b.

- credit bureau does violate the FCRA bc they did not take reasonablesteps to verify the use under 607(a), nor was the purpose certifiedusing argument in the alternative under 604(a)(4) request from head of state for purpose of child support

c. - Andrews does violate the act by asking for the report there is noevidence that Andrews is using it for any of the purposes outlinedunter 604

- 619 provides for fines and imprisonmentProblem 8

- 604(f) provides for other legitimate business needProblem 9- any authorization of extension of credit

Austin v bankamerica service corp

- p applied for credit but was outright denied the first time and told tocome into the bank to discuss the type of account

- credit bureau of Atlanta reported to the bank that the p was named as ad in a lawsuit

o in that lawsuit he was a d due to his official capacity

o p contends that there is a difference bt his personal and official

capacity- credit bureau of Atlanta moves for summary judgment saying since the

fact was true and that failure to note what capacity he was named a

defendant as does not constitute a violation- court said that requiring anymore than the d had done would be beyond the intended scope

- act does not impose strict civil liability for agency’s inaccuracy or incompleteness

- court finds that p has failed to state a cause of action Notes:

- 607(b) reasonable procedures ensuring max possible accuracy



- Have to define accuracyo Technical accuracy is all that matters

o Accuracy v. complete

It was accurate but he is arguing that it is not complete- Court is saying that the standard is met

- Misleading info- P239 number 4 all are true and fine according to Austin case

koropoulos v credit bureau inc

- koropoulos defaulted on a loan with Virginia National Bank but endedup paying it back to Nationwide credit corp

- then he couldn’t get credit bc CBI was reporting that he was an I9- ps say this was misleading- district court granted sum judgement for CBI bc VNB did lose 40% on

the loan and- consumer can bring suit only for inaccuracy- credit bureau have to have procedures that for meeting the needs of

commerce for consumer credit- this court does not believe in maximum accuracy- agency must follow reasonable procedures to assure such accuracy- find that there is a genuine issue of fact as to whether the report was

sufficiently misleading so as to raise the issue of whether CBI’s procedures for assuring max possible accuracy were reasonable

- another issue is – whether using classification for all bad debtswhether ultimately paid or not renders the report of the VNB loansufficiently incomplete

- report must be reasonably complete- ps don’t complain for reinvestigation, they just criticize the methods

- under moore case balancing test weighing potential that info will cretemisleading impression against availability of more accurate info and burden of providing such info

- summary judgment was improper bc the only looked at the technicalaccuracy of the info

- ps argue that cbi’s reporting method is so imprecise that it fails toconstitute a reasonable procedure

o whether using 9 for all bad debts renders the report sufficiently

incompleteo report must be reasonably complete regardless of the fact that it

is not misleading

o bc different types of bankruptcies have to be noted 607(b) doesinclude some types of incomplete info

o imprecise or incomplete reports that are not misleading,

although undesirable, are not noxious as erroneous andmisleading ones

o no evid that potential creditor would deny credit to an

individual who has failed to pay back a loan , but would grantit to one who repaid the loan after it was referred for collection



and 2. the burden imposed on agencies by requiring adistinction bt skips, loans never repaid etc

up to distict court to determine if it is unreasonable per se

- allowed to send info on Mr. K as long as it has bearing on Mrs. K

o but here lord and taylor did not request info on Mr. nor did theyget only Mr. K’s info that dealt with Mrs. K

notes:- the 0 balance can sometimes mean that it was written off not

necessarily paid off - trial court allowed summary judgment under Austin saying it was

technically accurate- 607(b) – maximum possible accuracy- Peller case said that accuracy of report was absolute defense- If someone was denied credit for the same factor over and over again- Mrs. Koropoulos

- This case changed the test on 607(b) to the balancing

EQUAL CREDIT OPPORTUNITY ACT

- often these three acts are linked together - ECOA and reg b- 1974 ECOA was enacted and amended in 1976

o Prohibits discrim on basis of race, color, religion, national

origin, sex, age, marital status, and fact that all income is from public assistance

- Regulated by the fed reserve systemo Fed reserve board has passed reg b

- Anyone who regularly extends credit is subject to the acto Sometimes extends to those who arrange financing as well

- This act protects consumers and also applies to extension of businesscredit

- Does not regulate content of informationo Cannot ask about sex, color, child bearing, race, religion

o Has model forms – don’t have to use them but should to protect

yourself - Credit worthiness is evaluated objectively

o And there is statistical analysis (credit scoring)

- Rules concerning taking of applications

- Credit score is tied up with fair credit reporting act – it has to beaccurate

- Credit scoring system can and does use age as systemo Base it on the stream of income

- 701(d) requires creditors to provide…- 202(9) says notification must include certain info and when

notifications are giveno 202.9(a) governs content of the notification



- Civil liability in this act for actual and punitive damages- Two years to bring an action under this- Discrimination = any adverse treatment on a class regardless of

individual merito Drawing of distinctions on individuals concerning credit

o Characteristics relevant to credit worthiness- Look at whether we have a creditor, and whether we have an applicant,

not just a consumer applicant (not just personal family or household)o Consumers only are covered under TILA and FCRA

- EOCA applies to certain class of individuals (have to belong to class to be discriminated against)

o If discriminates against someone outside of protected class may

have action elsewhere- Credit system can be used to create a discriminatory pattern

o If you have one that provides credit to disproportionate number

of men you have violated

- 202.5(a) – content is important but if you are not advertising to a protected class the content is not acting to discourage the protectedclass

- Preemption occurs if there are inconsistencies but not if it offers more protection

Markham v colonial mortgage service co

- couple that applied for loan was engagedo would not aggregate incomes of unmarried couple

- 70? Says cannot discriminate on basis of marital status- If you are married and spouse incurs a debt and does not pay

ECOA two thrusts – prohibition of discrim on specified bases and requirement that thecreditor inform applicant of reasons

- If action is adverse creditor must either inform applicant of reasons or inform them of right to request statement of reasons 701d

Fischl v general motors acceptance

- creditor would not extend credit for car bc person had not had manyloans for same duration

- creditor said credit references were insufficient- court said credit references are insufficient relates a different meaning

o did not signal the nature of deficiency nor did it give address of

credit reporting bureau- fischl could not improve his credit application, correct any

misinformation in credit record, or guard against discrim- this vague language thwarted both educational and protective

objectives of ECOAHiggins v jc penney inc

- denied app bc applicant did not have checking account, bank creditcard or oil company credit card



- letter informing consumer said as reasons for denial type of bank accounts and type of credit references

- court said must evidence sufficient deference to agency regulatoryexpertise required in this circuit

o agency said creditors need not describe how or why a factor

affected applicant- court also said although statement required some investigation by p itis okay bc she knows about her financial status

us v Montgomery ward

- scoring systems and specificity requirement cannot coexistENFORCEMENT

- if agency believes litigation is necessary it refers matter to dept. of justice

- person injured by failure to comply with the act may recover actualand punitive damages

o punitive damages recoverable even if no actual damages

o one factor to consider is extent to which failure was intentionalo successful p entitled to costs and attny fees

mcpherson v commerce bank

- offending creditor should not be permitted to look for payment to parties who, but for ecoa violation would not have incurred personalliability on the underlying debt in the first instance

- spouse whom creditor wrongfully requires to sign a debt instrumentmay assert violation by way of recoupment as defense to liability evenafter stat of lim

cherry v Amoco oil

- white woman resides in predominately nonwhite residential area

- Amoco uses computer system to figure out applications, says that zipcodes with high rate of delinquency gets low points, white and black zip codes included

- Evid showed that if p lived in higher rated zip code she would havegotten the credit

- P lived in black neighborhood- Says she has had to divulge denial on other credit applications- Amoco witnesses said that did not prove anything about relationship bt

use of zip code ratings and rejection of black credit applicantso Unsupported assumption that applicant pool for zip code

reflected racial composition

- Not required for p to prove actual damages to be entitled to relief o Cost and attny fees added to any damages awarded

o Power to award punitive damages where no actual damages

exist- Effects test – effect of disparate impact was enough to make out prima

facie caseo Hard to prove effects test with a creditor that does not know

the race of applicants



o Here the p tried to show that disparate impact on black people

by showing that percentage of applicants rejected in variouslow-rated zip code areas correlated to percentatage of black population in each of said areas

This is not a prima facie case

- This method of proof does not test the single criteria but rather all 38and it does not deal with actual applicant pool or with one which couldreasonable be assumed to possess approx characteristics of applicant pool

- If housing is such that whites live in neutral or high rated zips andvirtually all black persons live in low rated areas then zip codecriterion becomes suspect

- Here most low rated zips are predominantly whiteWilliams v first federal savings

- court said that since the second loan for which she was approved was at a higher rate of interest and was based on more complete info than p had supplied to d, p failed to make

out prima facie case

PREEMPTION- main preemption provision of ECOA is 705f – displaces state law only

to extent that it is inconsistent with the act

CHAPTER 7Quality standards

- warranty developed along torts and contracts lines

UCC and contractual modification of quality standards

- warranty liability exists for loss other than physical injury to person or property- privity of contract is an element if consumer seeks to recover for

breach of implied warranty of fitness but not if consumer seeks torecover for breach of express warranty

o mixed if concerning breach of implied warranty of

merchantabilityo courts do not want to extend ability to recover for purely

economic losso some states legislatures have said that lack of privity is no

defense

berg v stromme 1971 pre ucc case- p tried to return car for refund, dealer said that there was no warranty

of quality and that p had waived all warranties in writing- superior court ordered dismissal saying p had signed disclaimer of

warrantyo court of appeals affirmed

- this court reverses



- issue: whether buyer despite disclaimer was entitled to car that wouldoperate with reasonable efficiency, safety and comfort

- presumption that buyer would not in sales agreement negate and udo bargain by disclaiming right to car of merchantable quality

- the disclaimer was on the back and at the bottom of pageo

said things like: verbal promises not binding, that dealer didnot warrant correctness of speedometer, mileage, year or model, that if buyer failed to complete purchase forfeited tradein or down payment

o disclaimer said there is no guarantee on automobile unless a

separate one was written

also no warranties, express or implied have been made by seller unless endorsed hereon in writing

- to follow the old rule means that buyer nullifies all things to which hehas just bargained

- should not be bound to it unless he has agreed to be bound by it with

same degree of explicitness that he bound himself to the other vitalconditions of the contract purchase

- seller must show just which defects or conditions the buyer is waivingo with the sale of brand new automobile there exists an implied

warranty of fitnesso must be reasonably fit for and adapted to the purposes for

which it is purchases – carry passengers with reasonable safety,efficiency and comfort

- strict liability (liability w/out proof of negligence) should be applied tothe dealer bc he impliedly warrants that the car is of merchantablequality

concurrence: too restrictive to say that waiver of warranty must benegotiated

notes:- merger clause means that everything in the contract is it nothing

outside of the contract- merchantability – 2-314 for ordinary purpose- contract of adhesion – one with all that boilerplate (no negotiation)- fitness for particular purpose – seller has to know what buyer is going

to use it for sell the item and buyer has to rely on seller’s expertise- mass 2-316a says consumer purchase cannot disclaim implied

warranty of merchantability

- mutual agreement of the parties- lemon laws – allow consumers to get replacement or refund after

trying to rectify the problem- good faith – defined three times in ucc- this was a pre ucc case

knipp v weinbaum



- trike had been assembled by a bike enthusiast then traded to threeother people bf getting to d’s shop, bill of sale said CYCLE SOLD ASIS, same day p lost control of trike bc of defective weld

- lower court granted summary in favor of ds- appellant said as is was not intended to operate as disclaimer of

implied warranties of merchantability and fitness for particular purpose- issue: whether law implies no warranties at all on these facts

o whether implied warranties of merch and fitness have viability

in this actiono effect of words as is in personal injury action

- implied warranties may be imposed on sale of used goods when seller knows purpose for which it is sold

- limiting damages for injury to person in case of consumer goods is prima facie unconscionable

o clause in statute saying “unless circumstances indicate

otherwise” as is can replace all implied warranties- seller may disclaim all warranties as long as the buyer understands this

is being done- understanding of as is is in dispute- no summary judgment

notes:- dealers in mass can’t sell inoperable cars since it won’t perform it’s

ordinary purpose

has to be sold under salvage license- 2-316 fits into this bc warranty was disclaimed but it says unless the

circumstances indicate otherwise

- 2-316b ought to have discovered in examination- As is – understanding of the defect is part of the basis of the bargain- As is suffices in a commercial setting but in consumer setting you

aren’t going to be able to use this to disclaim merchantability andfitness for a particular purpose

- Warranties negotiated for may be more than those required by the law-

overland bond v howard

- cannot be inherently dangerousmurray v d and j motor company

- as is disclaimer is ineffective due to fraudulent representations or

misrepresentations concerning condition, value, quality, characteristicsor fitness of goods sold

murray v holiday rambler 1978

- in first 7 months of owning motor home it was taken in for repairs 9 or 10 times, final repair was going to require the murrays to go toIndiana, they revoked acceptance of motorhome and demanded money back

- issues:



o does limited warranty together with disclaimer preclude

revocation of acceptanceo were ps entitled to revoke acceptance

o were ps entitled to recover damages for loss of use of

motorhome

- ds say that limited express warranty prevents ps from revokingacceptance

o under ucc seller may 1. disclaim or limit warranties or 2. may

limit buyer’s remedies for breach of warranty

disclaimer of warranties limits seller’s liability (number of circumstances in which seller will be in breach)

limitation of remedies - restricts remedies available to buyer once breach is established

• limitation of implied warranties must beconspicuous and otherwise consistent with provision and not unconscionable in light of

contracto said in bold to read what was on the

back bf signing, said in two places onthe back in caps no warranties express or implied

- court said that language constitutes a warranty that the product wasfree of defects at time of delivery

- ucc disfavors limitations of remedies where their deletion woulddeprive a party of reasonable protection against breach

o any clause limiting remedies in an unconsciouable manner will

be deleted making ordinary ucc remedies available

allowance to repair or replace any part is notunconscionable

• where limited remedy fails its purpose it isdisregarded

• fails when cumulative effect of allnonconformities substantially impairs value of the goods

• right to revoke is found in ucc remedies- jury decision disturbed only if there is no credible evidence that fairly

admits of inference supporting their verdict- murrays claims of problems were not incredible, satisfaction with

repairs was conflicting- the goods were not restored to nondefective condition w/in reasonable

time- acceptance may be revoked where nonconformities substantially

impair the value of the goods to the buyer and where acceptance isrevoked within reasonable time and bf any substantial change incondition of the goods



o have to consider all money spent on repairs and consequential

costso jury could have found that there was no substantial change in

motor home since time of acceptance

only reason in delay of revocation of acceptance is p

was allowing d to minimize damages as required by ucc- damages for loss of use – since limited remedy failed its purpose ps

allowed to recover any damages under ucco loss of use damages allowed where p relied on seller’s

assurance that defects will be curedo if something cannot be repaired limited warranty of repair is

inapplicable- when exclusive contractual remedy fails, buyer may recover

consequential damages- only evidence of how much the motor home would have been used

was the trip that was cut short for a week

notes:- limited warranty was for repair - 2-316- Purpose of limitation of remedies is to give buyer a working product- Seller may be fulfilling the repair or replace warranty but buyer is

losing use of the rv (should have been repaired w/in reasonable periodof time)

- All remedies under ucc are available if limited remedy fails under contract

- Parties must receive benefit of their bargain- Not in good faith/unconscionable good contract arguments

- Dealer said revocation was not w/in reasonable period of time or substantial change in value (mileage on motorhome)

Court said that since the motorhome did not conform in the first place and it was dealer’s fault that the delay occurred

• Court used irs allowance for mileage

• Use of miles is a valid defense- Consequential damages 2-719

article 2

LEMON LAW

- within 12 months or 12,000 miles must be able to remedy problem or manufacturer replace or refund

MMA- section 108 says implied warranties exist as long as there is an express

warranty- if you claim under mma the warranty must be in writing

USED CARS-



NEXT CLASS CHAPTER 8

Sale Credit – purchase item and defer payment through installment sales contract

Loan credit – borrow form lending institution

Carper v Kanawha banking 1974

• Fairmont says that Carper was offered mobile home at cash price of 6,180 or credit price of 9144

• Carper says he agreed on 6180 with 1000 down and 5180 left paid in 96 paymentso Carper says he was told that interest of 6.5% would be calculated on the

5180 balance

• Explicit sales contracts carries on its face 9144

• Fairmont called the 3128 a finance charge and when calculated interest came out

to be 11.23%• Bank officer said that the finance charge if calculated at 6.5% if considered

interest would be in excess of statutory limit

• Issue: whether the questioned commercial transaction and the conditional salescontract sued upon containing finance charges which, if interest, exceeded thelawful rate allowable by law in WVa were subject to the usury laws of the state

• Statute said – all contracts made directly or indirectly for loan or forebearance atgreater rate than 6%, shall be void

• A forebearance is subsequent agreement entered bt debtor and creditor to securerepayment of debt previously created

• Fairmont argues that sale of property is not loan or forebearanceo 1774 Precedent shows that seller was allowed to offer credit price or cash

price and interest rate could exceed usury rate

Immaterial if time price exceeded the cash price by more than thestatutory allowance for interest on a loan for the same duration

• 1861 case adopted the time-price doctrine

• 1892 cases said: if what is called interest or what is aimed at on the basis of acertain rate of interest is in fact part of purchase-money or price of tract of landsold, and not mere cover for loan or forbearance of money it is not usurious

• 1895 case said: patently usurious where lender negotiated with borrower newloans at usurious rates

•Whether transaction was usurious or bona fide sale saved by time-price isquestion in fact

• If negotiation bt seller and buyer involves bona fide quotation of both cash priceand credit price transaction does not involve usury even if credit price exceedscash price plus lawful interest thereon

o The credit interest, the contract, may also be assigned to a lending

institution

• Court notes that reference is made to the word bona fide



o If any device is attempt to avoid usury laws jury may find

o If price is really cash estimate and amount is assumed to be paid greater

than cash price with legal interest transaction may be usuriouso 1. have to examine whether both cash and credit price were presented and

buyer given choice

o 2. examine closeness of relationship bt seller and lender o 3. when credit terms expressed to buyer-borrower are couched and

calculated in terms of interest or percentage

• Evidence though disputed demonstrated that sale of trailer and financingarrangements to pay for it was conducted in manner to call for app of usury laws

o Jury resolved all factual conflict in carper’s favor

Documents

Consumer Protection Notes