TX.h.Tekell.ConsRights W17 blanks 10.10s3.amazonaws.com/mythm-vids-prod/TX.Tekell.ConsumerRights.pdf · CONSUMER RIGHTS PROFESSOR DAVID G ... • At common law, ... If the actionable

CONSUMER RIGHTS PROFESSOR DAVID G. TEKELL

BAYLOR LAW SCHOOL

CHAPTER 1: DECEPTIVE TRADE PRACTICES ACT: OVERVIEW, STANDING AND EXEMPTIONS

A. Purposes

• At common law, consumers generally had two causes of action: breach of contract or tortious fraud.

• The Legislature enacted the Deceptive Trade Practice Act (DTPA) in 1973 as a statutory remedy for consumers against persons practicing deceptive trade or unfair sales practices.

• The DTPA is to be “_______________________________ construed” in favor of consumers. • Purposes:

o Protect consumers from false, _______________________________________ and deceptive acts or practices.

o Provide _______________________________________ and economical procedures to secure such protection.

B. Available Damages

• Economic Damages: The DTPA provides a private cause of action for recovery of _______________________________________ damages that is easier to establish than under contract or tort law.

o Because the DTPA intended to reduce the burden on consumers bringing a cause of action for deceptive trade practices, it got rid of common law fraud requirements of having to show the defendant's state of mind to recover economic damages.

• Other Damages Recoverable: If the plaintiff can show __________________________________ or _______________________________________ conduct, then the DTPA permits additional remedies in addition to economic damages.

o These remedies include _______________________________________ and discretionary additional damages, often called treble damages.

Exam Tip 1: If the actionable conduct is a violation of a tie-in statute, the consumer may also recover any and all “actual damages,” as discussed in Chapter 2.

• Attorney’s Fees: All prevailing consumers shall recover reasonable and necessary attorney’s fees under the DTPA.

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C. Elements

• The elements of a private cause of action under the DTPA are:

o The plaintiff is a _______________________________________; o The defendant is engaged in conduct that is _______________________________________

the consumer transaction; o The defendant engaged in one of the following forms of actionable conduct:

A violation of the DTPA's list of acts or practices that are deemed deceptive (the "__________________________ list") that the consumer relied on to his detriment

A breach of __________________________ An ______________________________________________ action or course of action A violation of Insurance Code, Chapter 541—unfair or deceptive insurance practices A violation of a __________________________ statute

o The defendant’s violation was a _______________________________________; and o The plaintiff suffered _______________________________________.

D. Standing as a Consumer

• In order to have a private cause of action under the DTPA, the plaintiff must be a _______________________________________.

• Definition: A consumer is someone who _____________ or __________________________, by purchase or lease, __________________________ or __________________________ for use.

o Not limited to natural persons: Entities, such as corporations, the state of Texas, and any political subdivision or state agency, can also be consumers.

o “Privity” not required

A consumer need not be the one who pays money in order to “acquire” goods or services.

If the plaintiff is the _______________________________________ beneficiary of the product or service, he can still qualify as a “consumer” under the DTPA.

o Payment of consideration not required: A consumer need not complete the transaction in order to “seek” goods or services.

As long as the consumer has a __________________________ intention of completing the purchase and the __________________________ ability to complete the transaction, the consumer has standing.

• “Goods” and “services” are both broadly defined by the DTPA.

o “Goods” includes both _______________________________________ goods as well as _______________________________________.

It does not cover _______________________________________ like stocks or bonds.

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o “Services” include labor, insurance, and _____________ services. o Not pure loan transactions

The DTPA does not apply to a transaction in which a person goes to a bank just to get a pure loan.

However, if a person goes to the bank to get a loan in order to purchase a good or service, then the person will have consumer status.

E. Statutory Exemptions

• The DTPA does not apply to _______________________________________ consumers (using the goods or services for business or commercial use) with assets in excess of $25,000,000.

• The DTPA does not apply to _______________________________________ when they are giving advice, judgments, or opinions.

o The DTPA still applies if the professional makes an express misrepresentation of fact.

• The DTPA does not apply to __________________________ defendants unless they have actual knowledge of the falsity of their act or practice.

• The DTPA does not apply to real estate brokers or salespersons unless they act unconscionably, or they expressly misrepresent or fail to disclose a material fact.

• The DTPA does not apply to:

o Transactions over __________________________ of consideration (not including the consumer’s residence); or

o Transactions over __________________________ of consideration if the consumer is represented by a licensed attorney (also excluding the consumer’s residence).

• Personal injury claims: As a general rule, the DTPA __________________________ apply to personal injury claims.

o Exception: __________________________ expenses incurred or any lost _____________ suffered as a result of the personal injury are considered economic damages and can be recovered under the DTPA.

CHAPTER 2: ACTIONABLE CONDUCT

A. Overview

• As discussed, the elements of a private cause of action under the DTPA are that (i) the plaintiff is a consumer, (ii) the defendant is engaged in conduct that is connected with the consumer transaction, and (iii) the defendant engaged in actionable conduct.

o “Connected with” is a relatively easy element to meet; just discuss whether the defendant’s conduct is committed “in connection with” the transaction at issue.


• The five categories of actionable conduct under the DTPA are:

o The __________________________ List o Breach of __________________________ o Violation of Chapter 541 o _______________________________________ action or course of action o Violation of a __________________________ statute

B. The DTPA “Laundry List”

• Deceptive trade practices: The DTPA imposes liability on a defendant who commits conduct specifically defined in the DTPA Laundry List as trade practices that are false, misleading, or deceptive.

• Most common:

a. Misrepresentation of goods or services—four laundry list provisions most commonly seen:

Subsection 5: Representing that goods or services have sponsorship, approval, _______________________________________, ingredients, _____________, __________________________ or quantities that they do not have

• No requirement for knowing or intentional misrepresentation • Liability is imposed even for "innocent" misrepresentations if the defendant

believed it to be true.

Subsection 7: Representing that goods or services are of a particular __________________________, quality, or grade, or that goods are of a particular _____________ or model if they are actually of another

o No requirement for knowing or intentional misrepresentation

Subsection 12: Representing that a contract or agreement confers or involves _____________, remedies, or _______________________________________ which it does not have or involve or which are prohibited

o No requirement for knowing or intentional misrepresentation

Subsection 24 : Failing to __________________________ information concerning goods or services which was __________________________ at the time of the transaction if such failure to __________________________ was __________________________ to induce the consumer into a transaction into which the consumer would not have entered had the information been __________________________

o Requires elements of knowledge and intent

b. Misrepresentation of repairs: Knowingly making false or misleading statements of fact concerning the need for _____________, replacement, or _____________ service.


c. Warranty fraud: Representing that a guarantee or warranty confers or involves _____________ or __________________________ which it does not have or involve.

d. Misrepresenting work performed: Representing that work or ________________________ have been performed on, or _____________ replaced when the work or services were not performed or the parts were not replaced.

• Mere puffery: The misrepresentation must be of a material fact; mere opinions and “puffing” are not actionable statements under the DTPA.

o Descriptions of quality, a characteristic, use, or benefit, such as “perfect condition” and “like new,” have been found to be actionable under the laundry list.

• For a laundry list violation to be actionable, the consumer must have _____________ on the deceptive act or practice to his __________________________.

C. Violation of Insurance Code Chapter 541, Subchapter B

• Insurance Code Chapter 541 prohibits unfair methods of __________________________ and unfair or __________________________ acts or practices in the business of insurance as specifically defined in Chapter 541, Subchapter B.

• The Insurance Code is discussed in more detail in Chapter 6 of this lecture.

D. Unconscionability

• A defendant’s “unconscionable action or course of action” is also actionable by a consumer under the DTPA.

• Definition: “Unconscionable action or course of action” is conduct that takes advantage of a consumer's lack of _______________________________________, ability, experience, or __________________________ to a grossly unfair degree.

o Gross unfairness must be glaring, __________________________, flagrant, complete, and _______________________________________.

• A deceptive act or practice can be both a violation of a laundry list provision and an unconscionable action.

Exam Tip 2: Look for ways to characterize the defendant’s conduct as actionable under two or more theories under the DTPA.

E. “Tie-In” Statutes

• The DTPA makes it actionable conduct for a defendant to have violated a "tie-in" statute. • Examples:

o Texas Debt Collection Act (“TDCA”)—discussed in Chapter 7 o Home Solicitations Act—a consumer solicited at her home for the purchase of goods or

services for over $25 payable or real property for over $100 is entitled to a written contract, specific disclosures, and the right to cancel within three days


o Texas Business Opportunity Act—protects against deceptive practices in the advertising, offering for sale or lease, and sale or lease of business opportunities

o Health Spa Act o Manufactured Housing Standards Act o Telephone Solicitation Act

CHAPTER 3: BREACH OF WARRANTY

A. Relationship of DTPA to Warranty Law

• The DTPA takes existing warranty law in Texas and brings it into the DTPA, rather than creating new warranties.

• A breach of an express or implied warranty will allow a consumer to bring a cause of action under the DTPA (subject to any conditions or defenses in the underlying warranty law).

B. Warranties Related to Goods

• Source of warranty law: The UCC serves as the basis for all warranties related to goods.

1. Express Warranties

o An express warranty is created by an affirmation of _____________ or __________________________ to the consumer that becomes the basis of the bargain.

o An express warranty need not be in writing.

Exam Tip 3: Be aware on the exam that a statement about the quality or character of goods can be the basis of both a laundry list violation and an express warranty about those goods.

Example 1: A seller of a car tells the buyer that the car runs well and will run for three years. The seller has created an express warranty that the car will run for three years.

o An express warranty can be created by a description of the goods or by a sample.

Example 2: A consumer wants to buy tiles for renovating his bathroom. The seller presents the consumer with a sample tile that could be suitable for the job. The consumer orders enough to complete his project. There is an express warranty that the tiles ordered will be the same as the sample tile shown to the consumer.

o Modification or disclaimer: An express warranty can be excluded, limited, or modified, but only if the limiting language is consistent with the express warranty.

Example 3: A seller of a car tells the buyer that the car runs well and will run for three years. However, when the buyer purchases the car, the receipt states that the seller makes no express warranties about the car. This disclaimer contradicts the express warranty, and will be ineffective.


2. Implied Warranties

The UCC gives three implied warranties for goods:

o Implied warranty of merchantability (IWOM)

Creation: arises in a sale of goods by a __________________________ The most common definition of the IWOM is that the goods are fit for the

____________________________________________________ for which the goods are used.

• A purchaser of used goods generally cannot sue the seller for a breach of the IWOM if the purchaser knows the goods are used.

• The buyer may be able to sue the manufacturer if the IWOM was breached when the used goods first left the manufacturer's possession.

Modification or disclaimer: The IWOM can be disclaimed orally or in writing by specifically mentioning the IWOM.

Editor's Note 1: An oral disclaimer of an IWOM must include the term “merchantability.”

• If in writing, the modification or disclaimer has to be __________________________.

• An IWOM can be disclaimed by words such as "_____________" or "with all _____________," if done conspicuously.

o Implied warranty of fitness for a particular purpose (IWFFP)

Creation: arises when:

• The seller has reason to know (i) the buyer’s particular purpose for the goods, and (ii) that the buyer is relying on the seller’s judgment; and

• The buyer in fact relies on the seller’s skill or judgment to select suitable goods.

Example 4: A buyer visits a store and asks for a Wi-Fi system that will provide internet access for his whole house. The buyer tells the seller the square footage and layout of his house. The seller recommends a certain product, and the buyer, relying on the seller’s advice, purchases the recommended system. There is an IWFFP guaranteeing that the system will provide internet access to the buyer’s whole house.

Modification or disclaimer: The IWFFP can only be excluded or modified by conspicuous language in writing.

Editor's Note 2: The lecturer does not elaborate on the rule regarding disclaimers of an IWFFP. The rule stated above is correct. Note that unlike the IWOM, an IWFFP is not limited to merchants. Additionally, unlike the IWOM, an IWFFP cannot be disclaimed orally.


o Implied warranty of title: The defendant warrants that he _____________ and has the ability to convey __________________________ of the goods he is selling.

3. Privity

o Under the decisions of Texas courts and under the UCC, privity ______________________ required for warranties to arise under the UCC.

o However, under the DTPA, there is still the requirement that the defendant be "connected with" the transaction at issue in the cause of action.

C. Warranties with Respect to Services

• Source of warranty law: The source of warranty law with respect to services is common law. • There can be express warranties with respect to services.

o Creation: An affirmation of _____________ or __________________________ that becomes the basis of the bargain with respect to the service creates an express warranty.

Example 5: A lawyer hires a partnership to water the plants in his office on a weekly basis. When discussing the services provided, the partnership’s representative promises that their employees will dress conservatively and avoid disrupting the lawyer’s practice. Based on this promise, the lawyer hires the partnership. If the partnership’s employees bring loud music or dress inappropriately while watering the plants, they will be in breach of an express warranty.

• Implied warranties: There are several warranties implied as a matter of Texas common law.

o Services for the repair or modification:

Services for the repair or modification of existing tangible goods will be performed in a _____________ and _______________________________________ manner.

• Applies only for repair or modification of existing tangible goods • Professional services: The implied warranty for services generally _______________

apply to the performance of professional services.

Modification or disclaimer: The implied warranty with respect to services __________________________ be completely disclaimed by the seller.

• However, it can be superseded by an express warranty.

o New home construction (Humber warranties): There are two warranties implied by common law with respect to new home construction:

There is an implied warranty that a new home is __________________________. There is an implied warranty that the house was built in a good and workmanlike

manner. Modification or disclaimer:


• The implied warranty of good and workmanlike construction can be superseded by an express warranty.

• The implied warranty of habitability generally cannot be waived, but because it only applies to latent defects, a purchaser who buys the house with express and full knowledge of any specific defects has waived the warranty as to those defects.

Editor's Note 3: The lecturer incompletely states the rules regarding the modification and waiver of implied warranties for new homes. The correct rules are stated above.

CHAPTER 4: REMEDIES

A. Typical Measures of Economic Damages

• The two primary measures of economic damages are:

o Benefit of the bargain: Difference between the value of the goods or service as _______________________________________ and the value as actually __________________________

Example 6: A buyer purchases a home. The house, as represented, was worth $150,000. The buyer only paid $135,000 for it. As delivered, due to defects, the house was only worth $100,000. The benefit of the bargain damages would be __________________________.

o Out of pocket: Difference between the price paid and the value of goods or services as delivered

Example 7: A buyer purchases a home. The house, as represented, was worth $150,000. The buyer only paid $135,000 for it. As delivered, due to defects, the house was only worth $100,000. The out-of-pocket damages would be $35,000.

o The consumer can choose whether to recover under the benefit of the bargain or out-of-pocket.

• Some additional measures of economic damages to know are:

o Cost of repair: Reasonable cost to make the goods or services as warranted or represented

Example 8: A buyer purchases a home that was represented as having updated plumbing. The buyer later discovers that the plumbing in the home has not been replaced since the home was build, and that it will cost $100,000 to update the plumbing to the promised condition. Thus, the cost of repair damages would be $100,000.


Editor's Note 4: The cost of repair is recoverable so long as the repair is feasible without economic waste and the award would not result in double recovery.

o Loss of use: Cost to rent replacement goods while the purchased goods are unavailable

Example 9: I bought a car that was represented to be in perfect condition. In truth, the brakes need to be serviced. After bringing the car to a mechanic for these necessary repairs, I am without my car for a day or two. The value of this loss of use will be the cost to rent a replacement car while mine is in the shop, regardless of whether I actually rent the car.

The consumer does not need to actually rent replacement goods in order to have loss of use damages.

Exam Tip 4: Loss of use is generally included as part of the calculation of the benefit of the bargain.

o Lost profits: Recoverable under the DTPA, but only if established with reasonable _______________________________________.

B. Personal Injury Damages

• Generally, personal injury damages (like pain and suffering and physical impairment) are not recoverable as economic damages under the DTPA.

o Exception 1: Lost income and __________________________ expenses due to a personal injury are economic damages and are recoverable under the DTPA.

o Exception 2: Compensation for mental anguish is recoverable through the DTPA if certain showings are made:

The actionable conduct must be committed knowingly (or intentionally); and The consumer must present direct evidence showing the nature, degree and severity of

the mental anguish which causes a substantial disruption in the consumer’s daily routine.

o Exception 3: For tie-in statutes, “actual damages” are recoverable, including personal injury damages.

Editor's Note 5: The lecture inadvertently skips this exception for tie-in statutes.

C. Additional Discretionary Damages

• Additional discretionary damages, often called “__________________________ damages,” require knowing or intentional conduct.

o If the conduct was committed knowingly, the consumer can recover no more than three times the economic damages as treble damages.


o If the conduct was committed intentionally, the consumer can recover no more than three times the sum of economic damages and damages for mental anguish as treble damages.

• Remember that these damages are not automatic—instead, the amount is determined by the judge or jury.

D. Mandatory Attorney’s Fees

• The court must award reasonable and necessary attorney’s fees to any consumer who prevails in a claim under the DTPA.

• A net recovery is NOT required for a DTPA consumer to prevail.

Example 10: A consumer sued the builder who constructed his home. The builder alleges that the consumer still owes him $30,000 under their contract, and the consumer alleges that defects in the home’s construction entitle him to $5,000 in damages under the DTPA. The court rules that both parties are correct; the consumer still owes $30,000 to the builder, and the builder has violated the DTPA resulting in damages of $5,000. Therefore, the court orders the consumer to pay the builder $25,000. Because the consumer prevailed in his DTPA claim, he is entitled to recover all reasonable and necessary attorney’s fees and costs.

CHAPTER 5: DEFENSES AND LIMITATIONS

A. Waiver

• A consumer’s remedies under the DTPA may be waived only in very limited and unlikely circumstances.

• To be effective, a waiver of the DTPA must:

o Be ____________________________________ o Be ____________________________________ (statutorily defined as 10-pt. or greater type,

and bold) o State: “I waive my rights under the Deceptive Trade Practices — Consumer Protection Act,

Section 17.41 et seq., Business & Commerce Code, a law that gives consumers special rights and protections. After consultation with an attorney of my own selection, I voluntarily consent to this waiver.”

o Be __________________________ by the consumer who is:

In a similar _______________________________________ position with the seller; and Represented by an attorney.

B. Common-Law Defenses

• Common-law defenses (such as the parol evidence rule, substantial performance doctrine, and the doctrine of merger) __________________________ applicable to DTPA cases.


C. DTPA Statutory Complete Defenses

• There are two significant statutory defenses set out in the provisions of the DTPA that defeat a DTPA claim completely.

a. Reliance on third-party information:

Example 11: A buyer wants to buy a house from the seller. The seller tells the buyer in writing that the house has 2,500 square feet, according to a measurement by appraisal district of this county that the seller is relying upon. If the buyer discovers after the sale that the house is actually only 2,200 square feet and brings a DTPA claim against the seller, the seller may have a defense.

If the defendant gives notice to the consumer __________________________ at the time of the transaction that the __________________________ is relying on third-party information to make statements about the goods or services, then that can be a defense to a later DTPA claim if the information was incorrect.

This defense does not apply if the defendant knew that the information was incorrect at the time of the transaction.

b. Rejection of full payment settlement offer:

At least 60 days preceding a suit brought under the DTPA, a consumer must provide written notice to the defendant of the intent to sue.

If the defendant offers to pay the consumer all of his claimed damages and attorney’s fees within 30 days of receiving notice of the consumer’s DTPA claim, and the consumer rejects that offer, the defendant will have no liability under the DTPA.

D. Other Defenses to DTPA Claims

1. “Mere Breach of Contract” Doctrine

o This doctrine distinguishes between actionable misrepresentations of fact under the DTPA and mere broken promises (i.e., failures to perform).

o A mere breach of contract is NOT a DTPA violation. o If the defendant simply breaks a promise to perform, his assurance that he would perform

those obligations is a mere breach of contract.

Example 12: A lawyer hires a partnership to water the plants in his office on a weekly basis. If, as discussed in Example 5, the partnership breaches an express warranty by disrupting the office while they work, the lawyer will have a valid DTPA claim against them. If t they simply never show up to water the plants, they have committed a mere breach of contract by failing to do the promised work, and the lawyer would not have a valid DTPA claim against them.

o This doctrine applies when there is no actual misrepresentation of fact regarding the goods or services, only a failure to perform.


2. “As is” Contractual Language

o In some situations, the parties may agree that there are no __________________________ or _______________________________________ relied upon by the consumer in entering the transaction.

If this agreement is effective, the causal chain between any DTPA violation and the consumer’s damage is broken.

o Requirements: For an “as is” clause in a contract to be sufficient to bar a DTPA claim, the “as is” clause must be:

_____________ negotiated; Between similarly _______________________________________ parties; Part of the _____________ of the __________________________; and In an _______________________________________ transaction.

Editor's Note 6: Even if these requirements are met, an “as is” clause will not bar a DTPA claim if the clause was procured by fraud or fraudulent inducement, the seller impaired the buyer’s ability to inspect the goods, or the clause is merely boilerplate in a contract of adhesion.

E. Limitations

• The DTPA has a _____________-year statute of limitations. • The statute begins to run from when the DTPA violation __________________________ or from

when the consumer _______________________________________ or reasonably should have _______________________________________ the wrongfully caused injury.

o Fraudulent concealment exception: If the defendant engages in conduct specifically designed to keep the consumer from learning of the injury or cause of action, the limitations date may be extended up to _____________ days.

F. Notice and Settlement Offers

• As noted briefly above, a consumer must provide pre-suit notice to a DTPA defendant least 60 days before the suit is brought under the DTPA.

• To promote settlement out of court, the DTPA provides that the defendant may then offer a full or partial settlement to the consumer.

o If an offer is rejected and the consumer is awarded damages at trial, the court may limit damages based on the reasonableness of the original offer.

Editor's Note 7: These rules on notice and settlement offers are discussed in more detail at Section I.K. of your full Consumer Rights outline.


CHAPTER 6: CHAPTER 541, CHAPTER 542, AND INSURANCE COMPANY COMMON LAW DUTIES

A. Insurance Company Common Law Duties

• Duty of good faith and fair dealing: Under Texas common law, an insurance company owes a duty of good faith and fair dealing to its _______________________________________.

o Standard: The insurance company has a duty to attempt in __________________________ to effectuate a prompt, fair, and equitable settlement of a claim on which the insurer’s liability has become _______________________________________.

The insurance company cannot delay or use other tactics to keep from paying the claim promptly and fairly.

This cause of action is called "__________________________."

o To whom owed: The duty of good faith and fair dealing is owed to the policyholder or the insured under the policyholder.

It does not extend to __________________________ claimants.

Example 13: A driver insured by Allstate was in a car accident with a third party. The court held that Allstate did not owe a duty of good faith and fair dealing to the third party, only to the insured driver.

• Stowers Doctrine: Under Stowers, an insurer has a common-law duty to exercise reasonable care in handling third-party liability claims against its insured.

o If an insurance company provides liability coverage to an insured party sued by a third party, the insurance company may step in and defend the insured party.

The insurance company may have a motive to reject, delay, or avoid paying a settlement.

If the insured party’s policy has an indemnification limit, the company may also have less of a motive to vigorously defend the insured party because the company will not be liable for any damages exceeding that limit.

o The insurance company has a duty to act _______________________________________ in accepting settlement offers within policy limits.

Editor's Note 8: If the insurance company fails to meet this duty by unreasonably rejecting a settlement offer, and the insured is found liable for damages in excess of policy limits, then the insured can recover his additional liability beyond the policy limits from the company as damages.

B. Insurance Code Chapter 541

• Purpose and construction: Texas Insurance Code Chapter 541 is liberally construed to further protect consumers against _____________ methods of competition and _____________ or _______________________________________ acts or practices within the insurance industry.


• Close relationship to DTPA: This chapter was enacted concurrently with the DTPA, and many of the provisions regarding the private cause of action granted, the pre-suit notice requirement, and the potential settlement offer defenses are essentially the same as the DTPA.

• Standing for plaintiff: The private cause of action in Chapter 541 is only available to a _______________________________________.

o Definition: “Person” is broadly defined to include a natural individual, corporation, an insurance company, or any entity engaged in the insurance business of insurance.

o The statute does not create a cause of action for __________________________ claims.

Exam Tip 5: In an insurance misrepresentation case, the plaintiff will almost always qualify as both a “consumer” under the DTPA and as a “person” under Chapter 541.

• Elements: The elements of the private cause of action under Chapter 541 are:

1) The plaintiff must be a __________________________.

2) The defendant must be a __________________________.

3) Actionable conduct—the defendant committed either:

a) A violation of Chapter 541, Subchapter B; or

b) A violation of the __________________________ laundry list.

4) The defendant’s violation was a producing cause of the plaintiff’s damages.

5) The plaintiff suffered __________________________ damages.

• Prohibited practices: Chapter 541 defines several unfair methods of __________________________ and unfair or deceptive acts or practices in the insurance industry. The following acts are by far the most commonly seen:

o _______________________________________ of an insurance policy o False _______________________________________ regarding the business of insurance o Failing to attempt in good faith to effectuate a ____________________, fair, and equitable

settlement once liability has become _______________________________________ o Refusal to pay a claim without conducting a reasonable __________________________ o Misrepresenting a material fact or policy provision relating to the coverage at issue to a

claimant

• Remedies:

o __________________________ damages are broader than the “economic damages” available under the DTPA.

May include common law damages such as personal injury mental anguish damages, as well as economic damages


o Additional discretionary damages: These are dependent upon a finding that the defendant's conduct was committed _______________________________________ or _______________________________________.

In addition to actual damages, the plaintiff may recover up to _____________ times the actual damages as additional discretionary damages.

Like the DTPA, the additional discretionary damages are not automatic.

o Attorney’s fees: There is a mandatory provision for the recovery of __________________________ and __________________________ attorney’s fees incurred by a prevailing plaintiff.

o Equitable remedies: Under Chapter 541, like the DTPA, the court has the ability to order broad relief such as an injunction or rescission.

• Limitations: Like the DTPA, a _____________-year statute of limitations applies to all actions brought under the Insurance Code.

o The statute begins running on the date that the violation occurred, or the plaintiff discovered or should have discovered the violation.

o May be extended up to 180-days if the defendant knowingly caused a delay in the filing of the suit.

• Notice and settlement:

o The plaintiff must provide notice to the defendant detailing his complaint, damages, and expenses, including attorney’s fees, no later than the 61st day before filing the complaint.

Editor's Note 9: Although the deadline for filing pre-suit notice under the Insurance Code uses slightly different language than the DTPA, Texas courts interpret both statutes as requiring 60 days’ notice before filing a claim.

o A defendant may offer a settlement to the consumer within the 60-day notice period, and if the offer is rejected and the plaintiff is awarded damages at trial, the court may limit damages based on the reasonableness of the original offer.

C. Insurance Code Chapter 542, Subchapter B: Prompt Payment of Claims

• Chapter 542 provides a disincentive for insurance companies to delay payment of claims by giving a consumer a cause of action against the insurance company for a failure to pay a claim promptly.

o This cause of action is not dependent on any misrepresentation or any unfair or deceptive practice—it arises from an unreasonable delay.

• An insurer generally has to perform the following three duties within 15 days of receiving a claim:

o The insurer must _______________________________________ receipt of the claim; o The insurer must begin an _______________________________________ of the claim; and


o The insurer must request any _______________________________________ it deems necessary to make a decision about paying the claim.

Editor's Note 10: Note that this 15-day deadline applies to all three of these statutory duties.

• Deadline for decision: Within _____________ business days of receipt of all necessary information and documentation, the insurer must decide to pay or reject the claim and notify the claimant of this decision in writing.

o If the claim is denied, the insurance company must state the reasons for the rejection in the written notice to the claimant.

• Deadline for payment: Payment must be made within _____________ business days after deciding to accept the claim.

Editor's Note 11: If the insurer never sends notice of a decision to accept or reject the claim, failure to make a payment within 60 days of the receipt of the claim will subject the insurer to a private cause of action to recover an interest penalty and attorney’s fees

• Private cause of action: Failure to comply with these deadlines will subject the insurer to a private cause of action for the following:

o An interest penalty on the amount due under the policy, calculated at the rate of _____________% per year

o Recovery of reasonable and necessary _______________________________________ incurred in prosecuting the claim

• Cumulative remedy: The penalty under Chapter 542 is in addition to any policy benefits payable under traditional contract principles and any recovery for violations of Chapter 541 or of the DTPA.

CHAPTER 7: FEDERAL FAIR DEBT COLLECTION PRACTICES ACT AND TEXAS DEBT COLLECTION ACT

A. Federal Fair Debt Collection Practices Act (FDCPA)

1. Purpose and Preemption

o Purposes: Enacted to promote fair debt collection practices, to provide a private remedy against debt collectors engaged in abusive debt collection practices, and to promote state law remedies consistent with these purposes.

o Preemption: The FDCPA __________________________ preempt state law remedies unless there is a _______________________________________ with the federal act.

In that case, there is only preemption if the state law provides lesser a lesser remedy or lesser protection to the consumer.


2. Private Cause of Action: Standing and Coverage

o The FDCPA provides redress to a consumer against any debt collector who violates the FDCPA’s standards of conduct for debt collection activities related to a “debt.”

o A “consumer” is any _______________________________________ obligated to pay a “_____________.”

o A “debt” is any obligation of a consumer to pay money arising out of a __________________________________ which is primarily for _______________________, family, or household purposes.

Exam Tip 6: Remember that business debts are NOT subject to the FDCPA.

o A “debt collector” is any person who __________________________ collects or attempts to collect debts due or asserted to be owed to _______________________ (or someone who is in business for the principal purpose of collecting debts).

A creditor seeking payment of his own owed debt is NOT included as a debt collector.

o Attorneys as debt collectors: An attorney can be a debt collector if the attorney __________________________ collects or attempts to collect debts on behalf of their clients.

o “Debt collector” does not include the following:

Legal __________________________ servers A nonprofit debt _______________________________________ service An official of the government acting in an __________________________ capacity

3. Prohibited Practices and Mandatory Requirements

There are four broad areas covered by the FDCPA:

a. Third-party communications

A debt collector is generally prohibited from contacting third parties for the purposes of collecting a debt without the __________________________ of the consumer.

The debt collector may contact third parties in order to locate the consumer. In doing so, the debt collector:

• Must properly identify himself (and if expressly requested, identify his employer), but may not state that he is a debt collector, that he is seeking to collect a debt, or that the consumer owes a debt

• May not communicate by __________________________ • Once the debt collector knows that the consumer is represented by an attorney, the

debt collector may not communicate with anyone other than the attorney.


b. Mandatory disclosures

A debt collector is required by the FDCPA to provide two notices in communications with the consumer:

Validation notice: Within _____________ days of the initial communication with the consumer, a debt collector must tell the consumer ______________________________ each of the following:

• The amount owed • The name of the __________________________ • Notice that

i) If the consumer disputes the validity of the debt (within 30 days of receipt of the notice), the debt collector will stop the collection process and get verification of that debt; and

ii) If the consumer does not dispute the debt, the debt collector will assume that the debt is valid.

Notice of attempt to collect debt (mini-Miranda warning):

• In the initial communication with the consumer, whether written or oral, the debt collector must inform the consumer:

o He is a _______________________________________ attempting to collect a debt; and

o Any information collected will be used for the purpose of debt collection.

• In all subsequent communications, the debt collector must remind the consumer that they are acting as a debt collector attempting to collect a debt.

Editor's Note 12: The lecturer slightly misstates the requirements for subsequent communications. In subsequent communications, the debt collector is not required to remind the consumer that any information collected will be used for the purpose of debt collection.

c. Strictly prohibited acts

The FDCPA prohibits the following acts regardless of whether they are deceptive or misleading:

Restrictions on time and place: A debt collector should not contact a consumer at any _______________________________________ time or place.

• Contact made before _____________A.M. or after _____________P.M. is per se inconvenient unless the consumer has consented.

No communications are permitted with a consumer represented by attorney, unless the _______________________________________ consents.


The debt collector may not call to the consumer’s place of employment if he knows or has reason to know that the consumer’s employer prohibits the consumer from receiving such communication.

Editor's Note 13: The lecture slightly misstates this rule. Note that it is the employer’s consent, not the consumer’s, which would permit the debt collector to call the consumer’s place of employment.

Harassment or abuse: The communication may not amount to harassment or abuse, including, but not limited to, threatening or using __________________________, using __________________________, publishing the consumer’s debts as a list to others, or causing the telephone to ring continuously calling a person.

d. Prohibited false or misleading communications

A debt collector may not use any false, deceptive, or misleading representations or means in connection with the collection of any debt, such as:

Representing that they are a member or acting with governmental authority; Implying that the failure to pay the debt is a crime or that the debtor could be sent to

jail; Misrepresenting the __________________________________or character or nature of

any debt; or Falsely implying the debt collector is an attorney.

4. Bona Fide Error Defense

It is an affirmative defense to a claim under the FDCPA if the debt collector can show that:

o The violation was not _______________________________________; and o _______________________________________ had been adopted by the debt collector to

ensure the violation would not happen, but it happened despite the procedures.

5. Remedies

o The FDCPA provides redress for violations through public enforcement and by private parties suing in federal district court.

o Remedies under the private cause of action include recovery of:

__________________________ damages; A civil penalty of up to __________________________ per case; and Reasonable and necessary attorney’s fees.

Editor's Note 14: There is no criminal liability under the FDCPA. However, the FTC is empowered to investigate and bring a public enforcement action against defendants within one year from the date of the alleged violation.


B. Texas Debt Collection Act

• Remedies: A person can bring a private cause of action for:

o Actual damages; o Attorney’s fees for a successful claim; o In some cases, an injunction; and o For certain violations only, a civil penalty of at least _____________ per violation.

• Standing and coverage: The TDCA prohibits conduct by both “debt collectors” and “third-party debt collectors.”

o Under the TDCA, a “debt collector” means any person who, directly or indirectly, engaged in debt collection.

Can include a creditor seeking to collect debt owed to themselves Broader coverage than the FDCPA

o Under the TDCA, a “third-party debt collector” is generally the same as a debt collector under the FDCPA.

o Attorneys: Under the TDCA, attorneys who are representing clients are __________________________ from the definition of third-party debt collectors.

• Prohibited practices and restrictions: Similar to the FDCPA, the TDCA prohibits a range of conduct in the collection of debts:

o _____________ of coercion, violence, or criminal prosecution against any person o Harassing telephone calls or other types of abuse o Unfair or _______________________________________ means (such as charging or

collecting __________________________, _____________, or incidental expenses unless it is specifically authorized by the contract made the basis of the debt)

o _______________________________________ misrepresentations and deception

• Mandatory disclosures: Failure to make certain disclosures under the TDCA is a fraudulent or deceptive misrepresentation.

o In the initial communication, the debt collector must state that they are a debt collector attempting to collect a debt and any information will be used for that purpose.

o In subsequent communications, the debt collector must state that the communication is from a debt collector.

Editor's Note 15: Note that the TDCA rule regarding mandatory disclosures in initial and subsequent communications is identical to the FDCPA.

• Five differences from the FDCPA:

1) The TDCA applies to both “debt collectors” and “__________________________ debt collectors.”


2) The TDCA has provisions relating to _______________________________________; the FDCPA does not.

3) The TDCA requires that third-party debt collectors and credit bureaus obtain and file with the Secretary of State a _______________________________________ surety bond before doing business in Texas.

4) The TDCA's prohibitions and prescriptions in its list are exclusive (if it is not in the list, it is not a prohibited act) while the FDCPA’s list is not exclusive.

Editor's Note 16: ’The lecturer accidentally inverts this distinction; note that the TDCA contains an exclusive list of prohibited conduct while the FDCPA is non-exclusive.

5) The TDCA provides for criminal liability in addition to civil liability; criminal liability is not available under the FDCPA.

• The bona fide error defense under the TDCA is basically the same as the FDCPA. • Tie-In statute: A violation of the TDCA is actionable under the DTPA as a tie-in statute violation.

The combination of the two may allow a consumer to recover additional discretionary damages not otherwise recoverable under the TDCA.

[END OF HANDOUT]

Documents

TX.h.Tekell.ConsRights W17 blanks 10.10s3.amazonaws.com/mythm-vids-prod/TX.Tekell.ConsumerRights.pdf · CONSUMER RIGHTS PROFESSOR DAVID G ... • At common law, ... If the actionable