Chapter 44 Consumer Protection 2007 Prentice Hall Business

Caveat Emptor “Let the buyer beware” – the traditional guideline of sales transactions. ©

Consumer Protection Laws • Federal and state statutes and regulations that promote product safety and prohibit abusive, unfair, and deceptive practices. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 45 - 3

Federal Food, Drug, and Cosmetic Act • Provides the basis for the regulation of much of the testing, manufacture, distribution, and sale of foods, drugs, cosmetics, and medicinal products and devices in the United States. • Administered by the Food and Drug Administration (FDA). • The FDA is empowered to regulate food, food additives, drugs, cosmetics, and medicinal devices. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 45 - 4

Regulation of Food • The FDCA prohibits the shipment, distribution, or sale of adulterated food. • The FDCA prohibits false and misleading labeling of food products. • It mandates affirmative disclosure of information on food labels. • A manufacturer may be held liable for deceptive labeling or packaging. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 45 - 5

Food Labeling • Nutrition Labeling and Education Act – Requires food manufacturers to place labels on foods that discloses nutritional information about the food. • Number of calories • Amount of fat • Dietary fiber • Cholesterol © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 45 - 6

Regulation of Drugs • The FDCA gives the FDA the authority to regulate the testing, manufacture, distribution, and sale of drugs. • The Drug Amendment to the FDCA gives the FDA broad powers to license new drugs in the United States. • The manufacture, distribution, or sale of adulterated or misbranded drugs is prohibited. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 45 - 7

Regulation of Drugs (continued) • The law requires all users of prescription and nonprescription drugs to receive: – Proper directions for use – Including method and duration of use – Adequate warnings about any related side effects © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 45 - 8

Regulation of Cosmetics • The FDA has issued regulations that require cosmetics: – To be labeled – To disclose ingredients – To contain warnings if they are carcinogenic or otherwise dangerous to a person’s health • The manufacture, distribution, or sale of adulterated or misbranded cosmetics is prohibited. • The FDA may remove from commerce cosmetics that contain unsubstantiated claims. – Preserving youth – Growing hair © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 45 - 9

Regulation of Medicinal Devices • The Medicinal Device Amendment to the FDCA gives the FDA authority to regulate medicinal devices and equipment. • The mislabeling of medicinal devices is prohibited. • The FDA is empowered to remove “quack” devices from the market. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 45 - 10

Other Acts Administered by FDA Pesticide Amendment Authorizes the FDA to of 1954 establish tolerances for pesticides used on agricultural products. Food Additives Amendment of 1958 Requires FDA approval of new food ingredi-ents or articles that come in contact with food (e. g. , wrapping and packaging materials) Color Additives Amendment of 1960 Requires FDA approval of color additives used in food, drugs, and cosmetics. Animal Drug Amendment of 1968 Requires FDA approval of any new animal drug or additive to animal food. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 45 - 11

Other Acts Administered by FDA Biologies Act of 1902 Gives the FDA power to regulate biological products. This includes: vaccines, blood components and derivatives, and allergenic products. Section 361 of the Public Health Service Act Gives the FDA power to regulate and set standards for sanitation at food service establishments and on interstate carriers. Section 354 of the Empowers the FDA to Public Health regulate the manufac-ture, Service Act and the distribution, and use of XRadiation for Health ray machines, microwave and Safety Act of ovens, ultrasound © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 1968 equipment, and other 45 - 12

Consumer Product Safety Act • Federal statute that regulates potentially dangerous consumer products. • Created the Consumer Product Safety Commission (CPSC). © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 45 - 13

Consumer Product Safety Commission Independent federal regulatory agency empowered to: 1. 2. 3. Adopt rules and regulations to interpret and enforce the Consumer Product Safety Act. Conduct research on safety. Collect data regarding injuries. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 45 - 14

Lemon Laws • Provide a procedure for consumers to follow to correct recurring problems in vehicles. • Establish an administrative procedure that is less formal than a court proceeding. • Require that an arbitrator decide the dispute between a consumer and car dealer. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 45 - 15

Unfair and Deceptive Practices • Prohibits unfair and deceptive practices including: – – False and deceptive advertising Bait and switch Abusive sales tactics Consumer fraud © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 45 - 16

False and Deceptive Advertising • Section 5 of the FTC Act describes false and deceptive advertising as: – Containing misinformation or omitting information that is likely to mislead a reasonable consumer, or – Makes an unsubstantiated claim. – Proof of actual deception not required. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 45 - 17

Bait and Switch • Seller advertises low-cost item to attract customers. • Seller pressures buyers to upgrade. – Often refuses to show advertised merchandise. – Discourages employees from selling advertised merchandise. – Fails to have adequate quantities on hand. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 45 - 18

Door-to-Door Sales • Many states have enacted statutes that permit consumers to rescind contracts made at home with door-todoor sales representatives within a set period after signing the contract. • Must send required notice of cancellation to seller. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 45 - 19

Truth-in-Lending Act (TILA) Federal Consumer. Debtor Protection Laws Fair Debt Collection Practices Act Consumer Leasing Act Fair Credit & Charge Card Disclosure Act Equal Credit Opportunity Act Fair Credit Reporting Act © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 45 - 20

Federal Consumer Laws Truth-in-Lending Act Requires creditors to make certain disclosures to debtors (TILA) of 1968 (as in consumer transactions that amended) do not exceed $25, 000 and real estate loans of any amount on the debtor’s principal dwelling. Consumer Leasing Act An amendment to the TILA. Extends the TILA’s coverage to lease terms in consumer leases. Amendment to the TILA. Requires disclosure of certain credit card terms on creditand charge-card solicitations and applications. Provides the following protections: (1) Unsolicited credit cards, (2) Faulty purchased © 2007 Prentice Hall, Business Law, sixth edition, products Henry R. Cheeseman with credit cards, (3) Lost or Fair Credit and Charge Card Disclosure Act of 1988 45 - 21

Federal Consumer Laws (continued) Equal Credit Opportunity Act (ECOA) of 1975 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. Fair Credit Reporting Act of 1970 An amendment to the TILA. Protects customers who are subjects of a credit report by setting out guidelines for credit bureaus. Fair Debt Collection Practices Act (FDCPA) of 1977 Protects consumer-debtors from abusive, deceptive, and unfair practices used by debt collectors. Prohibits certain contact by the creditor with third parties and the debtor. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman 45 - 22