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Chapter 23

The traditional guideline of sales transactions
 Caveat emptor – “Let the buyer beware”

Consumer protection laws: Federal and state
statutes and regulations that:
 Promote product safety and prohibit abusive, unfair, and
deceptive business practices
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
U.S. Department of Agriculture: A federal
administrative agency that is responsible for:
 Regulating the safety of meat, poultry, and other food
products

The USDA
 Conducts inspections of food processing and storage
facilities
 Can initiate legal proceedings against violators
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
Food, Drug, and Cosmetic Act (FDCA or FDC
Act): A federal statute that provides:
 The basis for the regulation of much of the testing,
manufacture, distribution, and sale of foods, drugs,
cosmetics, and medicinal products

Food and Drug Administration (FDA): The federal
administrative agency that:
 Administers and enforces the federal Food, Drug, and
Cosmetic Act and other federal consumer protection laws
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FDCA prohibits shipment, distribution, or sale of
adulterated food
 Food labeling

 FDCA prohibits false and misleading labeling of food
products
 Nutrition Labeling and Education Act (NLEA): A federal
statute that requires food manufacturers to disclose on food
labels nutritional information about the food
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
A United Nations–sponsored protocol
 Requires signatory countries to place the label “May
contain living modified organisms” on all genetically
engineered foods
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
Drug Amendment to the FDCA: A federal law that
gives the FDA broad powers to license new drugs in
the United States
 Gives the FDA broad powers to license new drugs in the
United States
 Requires all users of prescription and nonprescription drugs
to receive proper directions for use and adequate warnings
about any related side effects
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
The FDA’s definition of cosmetics includes
 Substances and preparations for cleansing, altering the
appearance of, and promoting the attractiveness of a person

The FDA has issued regulations requiring cosmetics
 To be labeled
 To disclose ingredients
 To contain warnings if they are carcinogenicor otherwise
dangerous to a person’s health
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
Medicinal Device Amendment to the FDCA
 Enacted by Congress
 Gives the FDA authority to regulate medicinal devices, such
as heart pacemakers, kidney dialysis machines,
defibrillators, surgical equipment, and other diagnostic,
therapeutic, and health devices
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
Consumer Product Safety Act (CPSA): A federal
statute
 Regulates potentially dangerous consumer products and that
created the Consumer Product Safety Commission

Consumer Product Safety Commission (CPSC)
 A federal administrative agency empowered to
▪ Adopt rules and regulations to interpret and enforce the CPSA
▪ Conduct research on the safety of consumer products
▪ Collect data regarding injuries caused by consumer products
 It issues product safety standards for consumer products
that pose unreasonable risk of injury
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Many employees and their dependents are covered by
health insurance that is provided by their employers
 Health Care Reform Act: A 2010 federal statute
that:

 Increases the number of persons who have health care
insurance in the United States
 Provides new protections for insured persons from abusive
practices of insurance companies
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
Federal Trade Commission (FTC): A federal
administrative agency empowered to:
 Enforce the Federal Trade Commission Act and other
federal consumer protection statutes

Section 5 of the FTC Act: A provision in the FTC
Act that prohibits unfair and deceptive practices
 Gives the FTC the authority to bring an administrative
proceeding to attack a deceptive or unfair practice
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
Under Section 5 of the FTC Act, advertisements that
 Contain misinformation or omits important information that
is likely to mislead a “reasonable consumer”
 Make an unsubstantiated claim

Bait and switch – A type of deceptive advertising
under Section 5 of the FTC Act
 Occurs when a seller advertises the availability of a low-
cost discounted item to attract customers to its store
▪ Once inside the store, the seller pressures the customer into buying
more expensive merchandise
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
To protect consumers from ill-advised decisions
 Many states have enacted laws that give the consumer a
certain number of days to rescind a door-to-door sales
contract

Do-Not-Call Registry
 A registry created by federal law on which consumers can
place their names and free themselves from most
unsolicited commercial telephone calls
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
To protect consumer-debtors
 The federal government has enacted a comprehensive
scheme of consumer financial protection laws concerning
the extension and collection of credit

Dodd-Frank Wall Street Reform and Consumer
Protection Act: A federal statute that:
 Regulates the financial industry and provides protection to
consumers regarding financial products and services
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
A federal administrative agency
 Responsible for enforcing federal consumer financial
protection statutes

Consumer Financial Protection Act of 2010: A
federal statute
 Requires increased disclosure of credit information and
terms to consumers
 Regulates consumer credit providers and others
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
A federal statute that:
 Eliminates many abusive mortgage loan practices and
mandates new duties and disclosure requirements on
mortgage lenders and others

The act
 Is particularly designed to regulate the subprime mortgage
market
 Puts the burden on lenders to verify that a borrower can
afford to repay the loan for which they have applied
 Provides civil remedies for borrowers
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
A federal statute that:
 Requires creditors to make certain disclosures to debtors in
consumer transactions and real estate loans on the debtor’s
principal dwelling

The TILA covers only creditors that regularly
 Extend credit for goods or services to consumers
 Arrange such credit in the ordinary course of their business

Regulation Z: A regulation that sets forth detailed
rules for compliance with the Truthin-Lending Act
(TILA)
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A federal statute that extends the coverage of the
Truth-in-Lending Act (TILA) to lease terms in
consumer leases
 Fair Credit Billing Act (FCBA): A federal statute
which requires that creditors to

 Acknowledge in writing consumer billing complaints
 Investigate billing errors
 Afford consumer-debtors other protection during billing
disputes
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
A federal statute that protects a consumer who is the
subject of a credit report by:
 Setting rules for credit bureaus to follow
 Permitting consumer to obtain information from credit
reporting businesses
 Credit report: Information about a person’s credit history
that can be secured from a credit bureau reporting company
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
A consumer may request the following information at
any time
 The nature and substance of all the information in his or her
credit file
 The sources of this information
 The names of recipients of his or her credit report

Fair and Accurate Credit Transactions Act of 2003
 Gives consumers the right to obtain one free credit report
each year from the credit reporting agencies
 Permits consumers to place fraud alerts in their credit files
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
A federal act that:
 Protects consumer-debtors from abusive, deceptive, and
unfair practices used by debt collectors

Expressly prohibits
 Harassing, abusive, or intimidating tactics
 False or misleading misrepresentations
 Unfair or unconscionable practices

The FDCPA limits the contact that a debt collector
may have with third persons other than the debtor’s
spouse or parents
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
A federal statute that prohibits:
 Discrimination in the extension of credit based on sex,
marital status, race, color, national origin, religion, age, or
receipt of income from public assistance programs
Applies to all creditors that extend or arrange credit
in the ordinary course of their business
 Violation of ECOA

 The consumer may bring a civil action against the creditor
and recover actual damages
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
An amendment to the Truth-in-Lending Act (TILA)
 Requires disclosure of certain credit terms on credit card
and charge card solicitations and applications

Direct written solicitation to a consumer must display
 The APR
 Any annual membership fee
 Any minimum or fixed finance charge
 Any transaction charge for use of the card for purchases
 A statement that charges are due when the periodic
statement is received by the debtor
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
A federal statute that
 Requires disclosures to consumers concerning credit card
terms
 Adds transparency to the creditor–debtor relationship
 Eliminates many of the abusive practices of credit card
issuers
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