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Chapter 3: Consumer Protection
Chapter 3. 1: Consumer Rights and Responsibilities
Consumer Bill Of Rights • As an America Consumer…. • • You expect the product you purchase to work properly You expect to be treated fair and honestly by a merchant You expect products you buy to be reliable and safe If there is a problem, you expect to be able to exchange or return the item and get a refund • A set of consumer rights and responsibilities was established to protect consumers. • President John F. Kennedy established 4 of them in 1962, 3 more were added later.
Rights & Responsibility Right To Safety • Products must not endanger consumers’ lives or health. Responsibility to Use Products Safely • Consumers are responsible for following the manufacturers’ instructions for proper use and maintenance of the products.
Rights & Responsibility Right To Be Informed Responsibility To Use Information • Businesses must provide accurate information in advertising, labeling, and sales practices. • Consumers are responsible for using the information to evaluate product choices.
Rights & Responsibility Right To Choose Responsibility To Choose Carefully • Consumers should have a wide variety of goods and services from which to choose. • Consumers should take advantage of product variety by considering many options and making rational choices.
Rights & Responsibility Right To Be Heard • The government must consider consumers interests when creating laws. Responsibility to Express Satisfaction or Dissatisfaction • Consumers should tell their elected officials their opinions on consumer issues and inform them of improper business practices.
Rights & Responsibility Right To Redress • Consumers should be able to obtain fair remedies to consumer problems Responsibility To Seek Redress • Consumers should inform businesses of product defects and unfair practices. Consumers should pursue remedies.
Rights & Responsibility Right To Consumer Education Responsibility to Be an Educated Consumer • Sufficient information should be available for consumers to make rational decisions. • Consumers should take advantage of opportunities to gather information and learn how to make rational buying decisions.
Rights & Responsibility Right To A Healthy Environment • Businesses should avoid polluting the environment and should contribute to the welfare of the community in which they operate. Responsibility To Contribute To a Healthy Environment • Consumers should support businesses that operate responsible and report environmental abuses to authorities.
Competition • Contest among sellers to win customers. • Competitors know that if their prices are too high, you will buy from someone else. • Competition encourages manufacturers to keep improving their products. • Competition among businesses is ENCOURAGED in our economy. • Firms that attempt to take advantages of consumers can be fined or in extreme cases broken up into smaller businesses.
Monopoly • A situation in which a single company or group owns all or nearly all of the market for a given type of product or service. • Most believe that, with few exceptions, the system just doesn't work when there is only one provider of a good or service because there is no incentive to improve the product to meet the demands of consumers. • Legal Monopoly: A business or group that owns a patent on a particular product or service • License that gives the holder exclusive rights to a process, design or new invention for a designated period of time. (~20 years) • This time frame is often used for research and development • United States Postal Service • Federal law prohibits anyone but the Postal Service from delivering firstclass letters. Epipen Monopoly
Right To Redress • Remedy to a problem • Refund or other compensation • You should seek redress when you are dissatisfied • Most companies want to fix a problem- protect their reputation • If you cant work out a solution, you have the right to sue • You have been physically harmed by the product or service • Last resort • Lawyer is usually necessary
Consumer Report Assignment • Pick a product in your consumer report magazine and get familiar with how products are tested/rated. • Scenario: You are an investigative journalist, and you are currently researching various consumer products. Many people will be buying gifts for the holidays, and they will need your advice to help guide their purchases. You will choose a product and write a review persuading someone to buy the brand that you chose.
CHAPTER 3. 2: GOVERNMENT & CONSUMER PROTECTION
Consumer Movement • A. K. A. Consumerism • Seeks to protect and inform consumers by requiring such practices as honest advertising, product warranties, and improved safety standards. • Grew out of consumers’ desire for government intervention on their behalf.
Federal Trade Commission • Created in 1914 • Most important Federal Consumer Protection Agency • Responsible for protecting consumers from unfair or deceptive business practices, such as misleading information in advertising or on product labels.
Cease-and-desist order • Issued by the FTC if it has discovered a company is using deceptive advertising • This order requires the company to stop using the advertisement. • Continued use of the ad would result in a stiff fine.
IN-N-OUT Burger Cease and desist • Cease and Desist- In N Out VS Underbelly
IN-N-OUT Cease and Desist • Since In-N-Out has trademarked the “double” name, Shepherd quickly complied, but not without poking fun at the incident. To commemorate the event, he renamed his offering the Cease and Desist Burger. By all accounts, the offending burger boasts two patties accompanied by two slices of cheese, lettuce, tomatoes and pickles. Perhaps the only difference between In-N-Out’s version, aside from the sauce? Underbelly’s meat is butchered on-site at the restaurant and the vegetables are locally grown.
Cease-and-desist case • Terry Wilson from New Jersey created a protective sleeve for her notebook computer out of spandex pants. • She began trying to sell her product online and came up with the name “Tightpod. ” • Apple owns trademark for Ipod • Apple also owns trademark for “pod” in EUROPEAN countries with pending applications in the United States • Apples’ argument is that Terry is selling her product to used with Apples’ products. • The case is still in the works. • "Tight Pod"
Tebow vs. Cubby Tee The "NY" is replaced with "MY" and the "JETS" is replaced with "JESUS. " In addition, what's normally a football at the bottom of the logo is the "sign of the fish, " often used to express faith. • T-shirt Made by “Cubby Tee” Company. • Tebow’s attorney sent cease and desist letter to Cubby Tee Company • "The Merchandise makes it appear as if Mr. Tebow actually endorses Cubby Tees and its products. "
Tebow Vs. Cubby Tee • Cubby Tee thought Tebow would have liked the shirt since he endorsed this jersey. • Cubby Tee are not backing down and responded to Tebow’s attorney by saying the design"shares nothing with Mr. Tebow except for promotion of a common Lord and Savior. "
Environmental Protection Agency (EPA) • Created in 1970 • Enforces laws that protect our environment. • Makes sure businesses safely discard hazardous waste produced during manufacturing. • Also sets standards for air quality • Example: • BP Oil Spill- Well blew out • In response to the BP oil spill, EPA monitored air, water, sediment, and waste generated by the cleanup operations.
Consumer Product Safety Commission (CPSC) • Created in 1972 to protect consumers from dangerous products. • Has power over ALL consumer products. • They can set safety standards for any consumer product and ban those that it considers to be hazardous. • CPSC Web Site • Names products that have been recalled • Lists hazardous products based on data collected from emergency rooms • Yoga Pants • Recalls- News Story • Product Recalls
Warranties • Company’s promise that the product will meet specific standards over a given time period, or the company will repair it, replace it, or give you a refund.
3 Types of Warranties • Full • Limited • Implied
Full Warranty • Specific written guarantee. • Must repair or replace the product during the specified warrant period. (Usually 60 -90 days; sometimes it can be the life of the product. ) • It must be done in a reasonable amount of time and must be convenient for consumers to get item to and from where it needs to be repaired. • Does not cover normal wear and tear. • Shoes that are ripping because of over use
Limited Warranty • Has specified limitations. (explained in warranty) • Usually the warranty is limited to just the specified parts, certain types of defects, or other conditions. • This can mean a lot of different things, so the retailer decides. • Sometimes it includes just the parts, but not the labor to actually fix the product. • Sometimes the limited warranty may also include the stipulation that the manufacturer and the consumer split the cost of repairs for a given time period.
Implied Warranty • Unwritten guarantee that the product is of sufficient quality to fulfill the purpose for which it was designed. • Example: • If you buy a hammer, you expect that it wont break when you hammer a nail into wood. • If it does break, you have the right to return it, even if the hammer came with no written warranty.
Chapter 3. 3: Deception & Fraud
Trading Up • Pressuring consumers to buy a more expensive product than they intended. • Example: You see an advertisement for a very low priced DVD player. So you go to Wal-Mart to buy the DVD player and when you get there the sales associate tells you the product isn't really that good and tries to convince you to buy a more expensive model.
Loss Leader • Item priced below cost to attract you to the store. • Sometimes a retailer’s goal is to simply get you into the store. They will price an items below manufacturers price. • If you only buy that item, the retailer will lose money on that one item, but if you buy more… they gain! • How many times have you gone to the store for that one item and left with 12 items? I know I have!
Fraud • Deliberate deception designed to secure unfair or unlawful gain • Cheating the consumer • A statement is fraudulent if it meets these two conditions: • 1. The person who made the statement must know it is false. • 2. The purpose of the statement must be to cause others to give up property that has values, such as money, without fair compensation.
Bait & Switch • A sales practice in which a retailer advertises a product at a bargain price and does not intend to sell a customer that item but to persuade the customer to buy another item at a higher price. • Example: You go into Best Buy to buy an advertised DVD player. You are told by the sales associate that the item is out of stock or sold out. Then, the sales person leads you over to a much better, more expensive, available DVD player.
Pyramid Scheme • Type of financial fraud in which people pay to join an organization in exchange for the right to sell memberships to others. • People at the top of the pyramid convince new people to send money to join. • Those people then have to recruit others and are promised large sums of money. • At the end the pyramid falls apart and the only people who get the big payoff are the people at the top.
Internet & Telephone Fraud • Contact is NOT done in person, so it becomes hard to tell if the people behind the scam are legit or not. • Clues to watch out for when an offer is made to you online or over the telephone: • The deal offered seems too good to be true • You are asked for your credit card or SS# to verify your identity • You must buy something to get something else of greater value for free • You are not offered a written contract or sales agreement before you buy • You are told you must act immediately or the offer will expire • NO method is provided to contact the organization • NO information about the organization’s business record is available from independent sources
Internet Fraud… • Job Scams 2
PROTECT YOURSELF! • • • 1. RECOGNIZE IT! 2. Check out unfamiliar companies before buying 3. Ask questions about offers that seem too good to be true 4. Understand the product or service you were buying 5. Make decisions with your head, not your emotions 6. Use the Decision Making Process to evaluate options!!! • Press Your Luck Scam
Chapter 3. 4: Resolve Consumer Complaints
Better Business Bureau • Organizations that help consumers resolve problems • Nonprofit organization • The BBB helps consumers in the following ways: • Helps resolve disputes between consumer and sellers • Keeps a file of complaints against local businesses and supplies this information to consumers who ask for it • Educates consumers • Promotes honest advertising and selling practices
Arbitration • An impartial third-party will hear both sides of a dispute and will make a decision • When consumers sign binding mandatory arbitration (BMA) agreements, they give up their right to sue if they have a dispute with the firm. They must accept the decision of the arbitration board no matter what it is.
Cooling Off Period • Specified period of time within which a consumer can back out of an agreement to buy something. • Usually 3 days from the day the purchase was made • The FTC made a rule that consumers cancel contracts they have signed within 3 days of signing. • Protects consumer from • High pressure situations and door to door salespeople
Small Claims Court • A court that handles suits for small dollar amounts without the service of a lawyer • In most states, the range is from $1, 000 to $10, 000 • Advantages • You don’t need a lawyer (they are actually not allowed) • Court costs are low, usually under $250 • Most cases resolved quickly
Purpose of Complaint • Resolve the problem, NOT to demonstrate anger • Being rude and disrespectful will not get you anywhere! • How you will be successful and most likely get a resolution: • Have your facts straight • Have documentation (sales receipts, warranty) • Write down facts about the problem • Have a resolution in mind
List of Facts • 1. Date and location of transaction • 2. Description of what you bought, including model number, color, size, and so on. • 3. Product’s price and your method of payment: credit card, check, cash… • 4. A specific explanation of what is wrong with the product • 5. A statement of how you want the problem resolved. • Repaired, replaced, refund? • It should be fair to both parties
Complaint Process • 1. Return to the store • Explain the problem to a sales person in the appropriate department or customer service department • 2. If that doesn’t work, ask to speak to a manager • 3. If that doesn’t work, write to the manufacturer • Describe problem clearly and honestly • 4. Next step would be to contact a consumer group or professional organization such as the BBB • 5. If all else fails… lawsuit
A Successful Complaint Letter • 4 Components • Salutation/Greeting • Opening • Body • Closure
Begin a Lawsuit Take all info to courthouse Clerk will tell you how to proceed Be sure to exhaust all options before deciding to sue If you don’t win, you may be required to pay defendant’s cost Even if the court rules in your favor, you may still have problems getting the defendant to pay. • In this case, you may need to hire a lawyer and take case to a high court • If loss is small, it could cost you more than you might win • • • Think about if it is worth it!
Complaint Letter Activity • Think of a purchase you were unhappy with. . List the following: • 1. Date and location of transaction • 2. Description of what you bought, including model number, color, size, and so on. • 3. Product’s price and your method of payment: credit card, check, cash… • 4. A specific explanation of what is wrong with the product • 5. A statement of how you want the problem resolved.
Government Agency Review Questions • You are concerned that your stock broker did not disclose all the facts in a sale’s transaction in which you purchased securities from another state? • FTC- Fair Transactions • You are certain the jacket you purchased labeled “Made in the USA” was really constructed in a third world country? • FTC- Product Labels • You have questions about the grading of meats? • USDA- Inspects meat • The place where you work is not following safe practices to prevent the spread of disease and you suspect it is causing a hazardous situation? • EPA/DOL- Hazardous materials/ Working Conditions • You have a consumer complaint and you are not sure which agency can help you? • BBB- Accepts Consumer Complaints
Consumer Right Protects you if… • The teddy bear that you bought your little sister has an arm that pulls off easily. • Right to Safety • One company has a monopoly on cable and so they can set any price they want for the service. • Right to Choose • You bought a used car and the dealer did not reveal numerous flaws on the vehicle. You have been dealing with that problem for eight months. • Right to be Informed
It is your Consumer Responsibility to: • When you know that something should be recalled because you see a dangerous safety issue. • Responsibility to Use Products Safely • When you are going to purchase a major appliance. • Responsibility to Choose Carefully • When someone has contracted with you to provide a service and they have fallen far short of what was agreed to in your contract. • Responsibility to Seek Redress
Retailer Lawsuits • Sports Store Sued • Kohls Lawsuit • Subway Sandwiches Sued • HH Gregg Sued
CHAPTER 3 BINGO!! • • • Pyramid Scheme Fraud Better Business Bureau Consumer Product Safety Commission Federal Trade Commission Arbitration Consumer Movement Warranty Limited Warranty Full Warranty Implied Warranty Cooling Off Period • • • • Monopoly Competition Small Claims Court Lawsuit Bait and Switch Trading Up Consumer Reports Loss Leader Environmental Protection Agency Redress Consumer Bill Of Rights Consumer Responsibilities Cease and desist order