Chapter Objectives

1. Summarize the major consumer protection laws.

2. Indicate some specific ways in which consumers are
protected against deceptive advertising and sales
practices.
3. Explain how the government protects consumers who
are involved in credit transactions.
4. List and describe the major statutes that protect
consumer health and safety.
5. Identify state consumer protection laws.

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Deceptive Advertising
One of the earliest—and still one of the most
important—federal consumer protection laws was
the Federal Trade Commission Act of 1914.
The act created the Federal Trade Commission
(FTC) to carry out the broadly stated goal of
preventing unfair and deceptive trade practices,
including deceptive advertising.

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Deceptive Advertising Defined
Generally, an advertising claim will be deemed
deceptive if it would mislead a reasonable consumer.

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Bait-and-Switch Advertising
Advertising a lower-priced product (the “bait”) when
the intention is not to sell the advertised product but
to lure consumers into the store and convince them
to buy a higher-priced product (the “switch”) is
prohibited by the FTC.

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FTC Actions Against
Deceptive Advertising
Cease-and-desist orders
Require the advertiser to stop the challenged
advertising.
Counter advertising
Require the advertiser to advertise to correct the earlier
misinformation.

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Case 20.1 FTC v. Pantron
Pantron I claimed that its Helsinki Formula reduced
hair loss and promoted hair growth. The FTC filed a
suit claiming that this constituted a deceptive trade
practice.
The court concluded the product had a “placebo effect”
and allowed Pantron to continue with some claims.
The FTC appealed this order.
What other government agencies might have taken
action against Pantron and the Helsinki Formula, which
is classified as a drug and sold through the mail?

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Telemarketing and
Electronic Advertising
The Telephone Consumer Protection Act of
1991 prohibits telephone solicitation using an
automatic telephone dialing system or a
prerecorded voice, as well as the transmission
of advertising materials via fax without first
obtaining the recipient’s permission to do so.

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Labeling and Packaging Laws
Manufacturers must comply with labeling or
packaging requirements for their specific products.
In general, all labels must be accurate and not
misleading.

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Sales
Many of the laws that protect consumers concern
the disclosure of certain terms in sales
transactions and provide rules governing the
various forms of sales, such as:
door-to-door sales
mail-order sales
referral sales
unsolicited receipt of merchandise

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Door-to-Door Sales
The FTC requires all door-to-door sellers to
give consumers three days (a “cooling-off”
period) to cancel any sale.
States also provide for similar protection.

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Telephone and
Mail-Order Sales
Federal and state statutes and regulations govern
certain practices of sellers who solicit over the
telephone or through the mails and prohibit the use
of the mails to defraud individuals.

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FTC Regulation on
Specific Industries
The FTC has regulations that apply to specific
industries, such as the used-car business and funeral
homes.

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Real Estate Sales
Various federal and state laws apply to consumer
transactions involving real estate.

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Credit Protection
Because of the extensive use of credit by American
consumers, credit protection has become an
especially important area regulated by consumer
protection legislation.

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The Truth-in-Lending Act
A disclosure law that requires sellers and lenders to
disclose credit terms or loan terms in certain
transactions, including:
retail and installment sales and loans
car loans
home improvement loans
certain real estate loans

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The Truth-in-Lending Act
The TILA provides for the following:
 Equal credit opportunity—Creditors are prohibited from
discriminating on the basis of race, religion, marital status, gender,
and so on.
 Credit-card protection—Credit-card users may withhold payment
for a faulty product sold, or for an error in billing, until the dispute
is resolved; liability of cardholders for unauthorized charges is
limited to $50, providing notice requirements are met; consumers
are not liable for unauthorized charges made on unsolicited credit
cards.
 Consumer leases—The CLA of 1988 protects consumers who lease
automobiles and other goods priced at $25,000 or less if the lease
term exceeds four months.

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Case 20.2 Purtle v.
Eldridge Auto Sales, Inc.

Purtle purchased a Blazer from Eldridge and misrepresented

her employment status.
In the credit contract, Eldridge did not fulfill the TILA and
its regulations.
When Purtle defaulted and Eldridge repossessed the car,
Purtle sued alleging violations of TILA. Court awarded
Purtle damages and Eldridge appealed.
Do you think that the greatest number of consumers are
protected by strict enforcement of consumer laws?

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Consumer Abuse of TILA
In essence, the TILA is a “strict liability” statute (this is
generally true of most consumer protection statutes).
Intention normally is irrelevant in determining
whether a consumer protection statute has been
violated.
In your opinion, should the court give more weight to
the circumstances surrounding a transaction and the
intent factor in deciding cases involving alleged TILA
violations? Why or why not?

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Case 20.3 Federal Deposit
Insurance Corp. v. Medmark, Inc.
Merchants Bank asked Bruce Shalbert to sign a
guaranty of repayment for a loan to his company, Medmark,
Inc. Later, for another loan, the bank required his wife Mary,
who had nothing to do with Medmark, to sign the guaranty.
When the bank failed, FDIC filed a suit to recover the amount
of the loans.
Shalberg filed a motion for summary judgment contending that
the bank had violated the ECOA.
 Why does the ECOA prohibit lenders from requiring a spouse’s
signature on a credit application if the applicant independently
qualifies for the credit?

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Fair Credit Reporting Act
Entitles consumers to request verification of
the accuracy of a credit report and to have
unverified information removed from their
files.

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The Growing Problem of Identity Theft
 Common forms of ID theft
 Credit card fraud—54%
 Fraudulent communication services—28%
 Bank fraud—17%
 To obtain false documents—1%
 The FTC established the Identity Theft Data Clearinghouse to
receive and process consumer complaints. The FTC also
established an ID theft hotline and website. Congress is currently
considering a bill designed to prevent ID theft.
 “ID theft is a natural consequence of living in an electronic age and
there is little that government can do to effectively control it.”
Analyze this statement.

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Case 20.4 Guimond v. Trans Union Credit
Information Co.
Guimond notified Trans Union of inaccuracies in her
credit file and was assured they would be corrected.
When it was not corrected for a year, Guimond filed a
suit to recover damages.
Trans Union countered that Guimond had no claim
because she had not been denied credit before the
information was corrected. The court agreed and
Guimond appealed.
How do the policies underlying the FCRA support the
court’s interpretation of the statute in Guimond’s case?

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Fair Debt Collection
Practices Act
Prohibits debt collectors from using unfair debt-
collection practices, such as contacting the debtor
at his or her place of employment if the employer
objects or at unreasonable times, contacting third
parties about the debt, harassing the debtor, and
so on.

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 Case 20.5 Snow v. Jesse
L. Riddle, P.C.
 Alan Snow paid for merchandise with a check with insufficient
funds at a Circle-K store. The store sent the returned check to
its attorney, Jesse L. Riddle, P.C., for collection. Riddle sent a
letter to Snow informing him that he must pay the check
amount and the $15 service fee within 15 days or a suit will be
filed. Snow paid the check and filed a suit against Riddle
alleging the letter violated the FDCPA. Riddle filed for a
motion to dismiss and the court granted it.
 Should those who write bad checks to pay for consumer goods or
services be protected by the FDCPA?

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Consumer Health and Safety
Laws discussed earlier regarding the labeling and
packaging of products go a long way toward
promoting consumer health and safety.
Laws include:
Federal Food, Drug and Cosmetic Act
Consumer Product Safety Act

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Federal Food, Drug
and Cosmetic Act
The FFDCA of 1938, as amended, protects
consumers against adulterated and misbranded
foods and drugs.
The act establishes food standards, specifies safe
levels of potentially hazardous food additives, and
sets classifications of food and food advertising.

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Consumer Product Safety Act
The Consumer Product Safety Act of 1972 seeks to
protect consumers from risk of injury from
hazardous products.
The Consumer Product Safety Commission has
the power to remove products that are deemed
imminently hazardous from the market and to
ban the manufacture and sale of hazardous
products.

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State Consumer
Protection Laws
State laws often provide for greater consumer
protection against deceptive trade practices than do
federal laws.
In addition, the warranty and unconscionability
provisions of the Uniform Commercial Code protect
consumers against sellers’ deceptive practices.
The Uniform Consumer Credit Code, which has not
been widely adopted by the states, also provides
credit protection for consumers.

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For Review
1. When will advertising be deemed deceptive?
2. How does the Federal Food, Drug and Cosmetic
Act protect consumers?
3. What are the major federal statutes providing for
consumer protection in credit transactions?
4. How does the Consumer Product Safety Act
protect consumers?
5. What are the major state statutes that protect
consumers?

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