When will advertising be deemed deceptive? When will advertising be deemed deceptive? What special rules apply to telephone solicitation? What special

• When will advertising be deemed When will advertising be deemed deceptive?deceptive?• What special rules apply to telephone What special rules apply to telephone

solicitation?solicitation?• What is Regulation Z, and to what type What is Regulation Z, and to what type

of transactions does it apply? of transactions does it apply?

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 2

• How does the Federal Food, Drug, and How does the Federal Food, Drug, and Cosmetic Act protect consumers?Cosmetic Act protect consumers?• What are the major federal statutes What are the major federal statutes

providing for consumer protection in providing for consumer protection in credit transactions?credit transactions?



• Occurs if a reasonable consumer would Occurs if a reasonable consumer would be misled by the advertising claim. be misled by the advertising claim.

• Puffery: Puffery: Vague generalities and obvious Vague generalities and obvious exaggerations are permissible and not exaggerations are permissible and not considered deceptive.considered deceptive.

• CASE 40.1 CASE 40.1 FTC v. QT, Inc.FTC v. QT, Inc. (2008). (2008). The The court characterized QT’s claims as “blather”. court characterized QT’s claims as “blather”. What do you think?What do you think?


• Bait and SwitchBait and Switch: : advertising of a advertising of a product at an attractively low price to product at an attractively low price to lure customers in to buy more expensive lure customers in to buy more expensive items.items.• Online Deceptive AdvertisingOnline Deceptive Advertising: : FTC FTC

monitors websites for deceptive claims monitors websites for deceptive claims involving everything from medical involving everything from medical treatments, to exercise equipment. treatments, to exercise equipment.


• Online Deceptive AdvertisingOnline Deceptive Advertising (cont’d).(cont’d).–1. All ads—both online and offline—

must be truthful and not misleading. –2. The claims made in an ad must be

substantiated; that is, advertisers must have evidence to back up their claims.


• Online Deceptive AdvertisingOnline Deceptive Advertising (continued).(continued).–3. Ads cannot be unfair, which the FTC

defines as “likely to cause substantial consumer injury that ads must: be truthful, substantiated, and fair.


• FTC Actions.FTC Actions.–The FTC is charged with enforcing

federal laws against deceptive advertising, can:–Issue Complaint Orders. –Issue Cease and Desist Orders.• Counteradvertising.• Multiple Product Order.


• Telephone Consumer Protection ActTelephone Consumer Protection Act. . Prohibits telephone solicitations using Prohibits telephone solicitations using automated dialing systems or a pre-recorded automated dialing systems or a pre-recorded voice or unsolicited faxes. voice or unsolicited faxes. • Telemarketing and Consumer Fraud Telemarketing and Consumer Fraud

and Abuse Prevention Act 1994and Abuse Prevention Act 1994. . Requires telemarketers to identify Requires telemarketers to identify themselves and not misrepresent facts. themselves and not misrepresent facts.


• Labeling must be accurate, and must Labeling must be accurate, and must use words that are easily understood use words that are easily understood by the ordinary consumer.by the ordinary consumer.• Federal StatutesFederal Statutes. . Product labeling and Product labeling and

packaging are regulated by:packaging are regulated by:– Wool Products Labeling Act of 1939. – Fur Products Labeling Act of 1951.


• Federal StatutesFederal Statutes (cont’d). (cont’d).–Flammable Fabrics Act of 1953.–Fair Packaging and Labeling Act of

1966.–Smokeless Tobacco Health Education

Act of 1986.–Nutrition Labeling and Education Act

of 1990.© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 12

• Door-to-Door SalesDoor-to-Door Sales..–The FTC and many states require that,

for door-to-door sales, consumers have a post-sale “cooling-off” period during which they can cancel their purchase without obligation.

• Telephone and Mail Order SalesTelephone and Mail Order Sales. . • Online SalesOnline Sales. .


• Telephone and Mail Order SalesTelephone and Mail Order Sales..–FTC Rules require mail and telephone

merchants to ship orders within the time promised in their catalogues and advertisements, to notify consumers when orders cannot be shipped on time, and to issue timely refunds when orders cannot be shipped.


• Online Sales.Online Sales.–FTC and other federal agencies have

brought a number of enforcement actions against deceptive online sales.–Some states are now requiring explicit

refund and return policies.


• Food and Drugs.Food and Drugs.–The Federal Food, Drug, and Cosmetic

Act is statute protects consumers against adulterated and misbranded foods and drugs.–Also charges the FDA to ensure drugs

are safe and effective before marketed to the public.


• Consumer Product SafetyConsumer Product Safety..–Consumer Product Safety Act created the

Consumer Product Safety Commission which has broad regulatory authority over the safety of consumer products.–CPSC’s Authority:• 1. Setting safety standards for consumer

products.


• Consumer Product SafetyConsumer Product Safety (cont’d). (cont’d).–CPSC’s Authority (cont’d).• 2. Ban the manufacture and sale of any

product that the commission believes poses an “unreasonable risk” to consumers.• 3. Remove from the market any products

it believes to be imminently hazardous and issue recalls.


• Consumer Product SafetyConsumer Product Safety (cont’d). (cont’d).–CPSC’s Authority (cont’d).• 4. Require manufacturers to report on

any products already sold or intended for sale if the products have proved to be hazardous.• 5. Administer other product-safety

legislation, such as the Child Protection and Toy Safety Act.


• Notification RequirementsNotification Requirements..–Manufacturers have a duty to notify the

CPSC immediately if they receive information about a defective product which creates a substantial risk of serious injury or death.


• Truth-in-Lending Act. Truth-in-Lending Act. • Fair Credit Reporting Act. Fair Credit Reporting Act. • Fair Debt Collection Practices Act.Fair Debt Collection Practices Act.• Wage Garnishment.Wage Garnishment.


• Truth in Lending ActTruth in Lending Act..–TILA is essentially a disclosure law. Only

applies to people who, in the ordinary course of business, lend funds, sell on credit, or arrange an extension of credit. –Equal Credit Opportunity: requires credit

be extended without regard to race, sex, color, national origin, age, or marital status.


• Truth in Lending ActTruth in Lending Act (cont’d). (cont’d).–Credit Card Rules. Limits consumer liability

for credit card debt in cases of stolen cards to $50.–2010 Credit Card Protections.• 1. A company may not retroactively

increase the interest rates on existing card balances, unless the account is sixty days delinquent.


• Truth in Lending ActTruth in Lending Act (cont’d). (cont’d).–2010 Credit Card Protections.• 2. A company must provide forty-five days’

advance notice to consumers before changing the credit card terms. • 3. Monthly bills must be sent to

cardholders twenty-one days before the due date.


• Truth in Lending ActTruth in Lending Act (cont’d). (cont’d).–2010 Credit Card Protections.• 4. The interest rate charged on a

customer’s credit-card balance may not be increased except in specific situations, such as when a promotional rate ends. • 5. A company may not charge over limit

fees except in specified situations.


• Truth in Lending ActTruth in Lending Act (cont’d). (cont’d).–2010 Credit Card Protections.– 6. If a customer has balances at different

interest rates, payments in excess of the minimum amount due must be applied first to the balance with the highest rate.

– 7. A company may not compute finance charges based on the previous billing cycle (known as double-cycle billing).

• Consumer Leases.© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 26

• Fair Credit Reporting Act.Fair Credit Reporting Act.–Protects consumers against inaccurate

credit reporting and requires lenders and creditors to correct errors. –Consumer Notification and Inaccurate

Information. If denied credit, consumer has right to source of information.–Remedies for Violations.


• Fair and Accurate Credit Transactions Fair and Accurate Credit Transactions Act: Act: Purpose is to combat identity Purpose is to combat identity theft.theft.–FACT allows consumers can place an

alert on national fraud alert system.–FACT requires major credit companies

provide free credit report.–FACT allows consumers victimized by

identity theft to rebuild their credit.© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 28

• Fair Debt Collection Practices Act:Fair Debt Collection Practices Act: prohibits the following:prohibits the following:–1. Contacting the debtor at the

debtor’s place of employment, if the debtor’s employer objects.–2. Contacting the debtor during

inconvenient or unusual times or at any time if the debtor is being represented by an attorney.


• Fair Debt Collection Practices Act:Fair Debt Collection Practices Act: prohibits the following:prohibits the following:–3. Contact third parties other than the

debtor’s parents, spouse, or financial adviser about payment of a debt unless a court authorizes such action.–4. Harass or intimidate the debtor or

make false or misleading statements.


• Fair Debt Collection Practices Act:Fair Debt Collection Practices Act: prohibits the following:prohibits the following:• 5. Communicate with the debtor at any time

after receiving notice that the debtor is refusing to pay the debt, except to advise the debtor of further action to be taken by the collection agency.


• Fair Debt Collection Practices Act.Fair Debt Collection Practices Act.–Enforcement of the Act (FTC).• Requires collection agency to include a

validation notice to debtor.• Is a bona fide error a defense against

violations? CASE 40.2 40.2 Jerman v. Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, Carlisle, McNellie, Rini, Kramer & Ulrich, LPALPA (2010). What is the status of this defense after this case?


Documents

When will advertising be deemed deceptive? When will advertising be deemed deceptive? What special rules apply to telephone solicitation? What special