THE LEGAL ENVIRONMENT OF BUSINESS The Legal Environment

THE LEGAL ENVIRONMENT OF BUSINESS The Legal Environment of Business A Critical Thinking Approach 5 th Edition Nancy K. Kubasek Bartley A. Brennan M. Neil Browne © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -1

THE LEGAL ENVIRONMENT OF BUSINESS CHAPTER 24 Laws of Debtor - Creditor Relations and Consumer Protection © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -2

THE LEGAL ENVIRONMENT OF BUSINESS Debtor-Creditor Relations Creditors’ rights to collect judgment q Liens: mechanics; artisans q Attachment q Writ of execution q Garnishment q Foreclosure q Suretyship and guarantee contracts © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -3

THE LEGAL ENVIRONMENT OF BUSINESS Debtor-Creditor Relations Debtor’s rights Homestead Exemption Real Property q Established under state law q Varies in amount Personal Property q Furniture q Tools q Vehicles © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -4

THE LEGAL ENVIRONMENT OF BUSINESS Federal Bankruptcy Code and the Incorporation of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Act of 2005) GOALS - To allow debtors a “fresh start” via ‘discharge’ in bankruptcy; to provide orderly process of payment to creditors q Chapter 7: Liquidation q Chapter 13: Wage earner’s plan q Chapter 11: Business Reorganization © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -5

THE LEGAL ENVIRONMENT OF BUSINESS Chapter 7 - Liquidation Process: q Debtor’s assets placed into hands of Trustee q Trustee sells nonexempt assets, liquidates and pays creditors. q Remaining debts are discharged Note: The Act of 2005 restricts debtors’ ability to obtain a Chapter 7. © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -6

THE LEGAL ENVIRONMENT OF BUSINESS Chapter 7 - Liquidation q Tests: in the Act of 2005 q Dollar Means Test q Medium Income Test q Goal of 2005 Act: q Deny Chapter 7 discharge to debtors able to pay some of their unsecured debts q Steer Chapter 7 bankruptcies to chapter 13 q Avoid abuse of Chapter 7 © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -7

THE LEGAL ENVIRONMENT OF BUSINESS Nondischargeable Debts q q q Paternity Alimony Maintenance Child Support Student loans Debt for luxury goods © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -8

THE LEGAL ENVIRONMENT OF BUSINESS Exemptions Categories - (amounts subject to change) q Residence q Life Insurance q Vehicle q Health Aids q Household Goods q Social Security q Jewelry q Alimony/child Benefits q Miscellaneous support © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -9

THE LEGAL ENVIRONMENT OF BUSINESS Chapter 13 – Wage Earner’s Plan q q Debtor’s finances placed under court control Only voluntary petitions can be filed Composition plan: Creditors receive a percentage in exchange for releasing debtor from debt Bankruptcy Court can confirm a plan if q it is in good faith, q passed feasibility test, and q best interest of the creditors. © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -10

THE LEGAL ENVIRONMENT OF BUSINESS Chapter 11 - Reorganization q q q Business continues to operate Under court control Payment schedules established with creditors Voluntary or involuntary Plan of Reorganization Small business bankruptcy © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -11

THE LEGAL ENVIRONMENT OF BUSINESS Consumer Law Traditional View q Freedom of contract q Caveat emptor q Laissez-faire Modern View q Unconscionable q Fundamental breach q Consumer protection © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -12

THE LEGAL ENVIRONMENT OF BUSINESS Consumer-Business Relations Federal Trade Commission q Prohibits “unfair methods of competition” q Used to protect consumers q Methods: Fines, injunction, corrective advertising, rescission, refunds, damages © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -13

THE LEGAL ENVIRONMENT OF BUSINESS Deceptive and Unfair Advertising Wheeler-Lea Act of 1938 Scope: Price; quality and quantity; testimonials Examples: False price comparisons Standard: q Misrepresentation likely to mislead q Consumers are acting reasonably q Misrepresentation is material Additional concerns: Unfair advertising, deceptive advertising, & deceptive labeling and packaging © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -14

THE LEGAL ENVIRONMENT OF BUSINESS Consumer Legislation Franchising: Section 5 of FTC Act Warranties: Magnuson-Moss Warranty Act q Express written warranties must meet guidelines q Full or limited warranties must be clear q Private right of action established © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -15

THE LEGAL ENVIRONMENT OF BUSINESS Telemarketing FTC Regulations in Force 1995 Prohibited Practices: q Calling before 8 am or after 8 pm q False claims of affiliation q False claims regarding credit q Failing to disclose nature of call q Claiming ability to recover goods or money lost © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -16

THE LEGAL ENVIRONMENT OF BUSINESS Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 q Remedies: fines up to $10, 000 q Exemptions: insurers; franchisers; online services; those regulated by SEC; not-for-profit organizations q Enforcement via 50 state attorneys general or FTC © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -17

THE LEGAL ENVIRONMENT OF BUSINESS Telephone Company Protection Act of 1991 q “Do Not Call” Registry q Junk faxes q Spam q State laws also enacted © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -18

THE LEGAL ENVIRONMENT OF BUSINESS Consumer Credit and Debt Collection Laws q q q q Truth in Lending Act of 1969 Electronic Fund Transfer Act Fair Credit Reporting Act of 1970 Fair Credit Billing Act of 1974 Fair and accurate Credit Transaction Act of 2003 Equal Credit Opportunity Act Fair Debt Collection Practices Act of 1977 © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -19

THE LEGAL ENVIRONMENT OF BUSINESS State Consumer Laws Consumer protection division of 50 state attorney generals q Uniform Consumer Credit Code q Baby FTC laws q Arbitration of consumer disputes q © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -20

THE LEGAL ENVIRONMENT OF BUSINESS Global Dimensions Different countries have widely varied acceptance of advertising claims q EU has similar approach to that of FTC Section 5 q Areas of concern – with different approaches q Comparative Advertising q Warnings q Truthfulness in Content q Warranties q Credit Terms q Tobacco and Alcohol Disclosure q Labeling q © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -21

THE LEGAL ENVIRONMENT OF BUSINESS All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall © 2009 Pearson Education, Inc. publishing as Prentice Hall Ch. 24 -22