Most consumer credit cannot exist within the usury law limits; therefore, the pattern has been to enact laws that permit special higher finance rates for vendor credit to consumers.. The
Trang 1Private Claims Against Governments; Recogni-tion of States; and Treaties
The society meets annually
CONSULS Governmental representatives stationed in foreign countries who oversee economic and other interests
of their home country and its citizens in those countries
Consuls are not generally considered diplo-matic agents, they therefore do not enjoy (unless
a treat states otherwise) diplomatic immunities and privileges However, their consular immuni-ties exempt them from local laws and jurisdic-tions as they exercise their official funcjurisdic-tions
CROSS REFERENCE Ambassadors and Consuls.
CONSUMER
An individual who purchases and uses products and services in contradistinction to manufacturers who produce the goods or services and wholesalers
or retailers who distribute and sell them A member of the general category of persons who are protected by state and federal laws regulating price policies, financing practices, quality of goods and services, credit reporting, debt collection, and other trade practices of U.S commerce A purchaser of a product or service who has a legal right to enforce any implied or express warranties pertaining to the item against the manufacturer who has introduced the goods or services into the marketplace or the seller who has made them a term of the sale
CONSUMER CREDIT Consumer credit refers to the short-term loans made to enable people to purchase goods or services primarily for personal, family, or house-hold purposes
Consumer credit transactions fall into several different classes:
Installment credit involves credit that is repaid by the borrower in several periodic payments; loans repaid in one lump sum are classified as noninstallment credit Installment credit has expanded in popularity, with an increasing number of consumers buying goods
on credit in order to spread repayment of the purchase price and the interest owed on the principal borrowed over an extended time
Originator and Holder
The originator of credit is the person or company who originally extended the credit, whereas the holder is the individual or business who obtained the debt at a discounted price in order to collect payments at a subsequent time Auto dealers are credit originators at the time
a consumer purchases an auto on credit, but many loans are subsequently assigned by them
to banks or sales finance companies, which become credit holders
Commercial banks buy many consumer installment loans from car dealers and depart-ment stores and also participate in all aspects of consumer credit transactions both as origina-tors and holders The portion of the consumer credit market attributable to banks has greatly increased due in large part to widespread use of bank credit cards
In addition, two types of finance companies are active in the consumer credit industry The first type is the small loan company, which has contact with consumers as originators and makes loans to them directly The other type
is the sales finance company, which does not deal directly with consumers; it purchases and holds consumer installment debts related to the sale of durable goods on time The distinction between the two decreases in importance as consumer finance companies diversify and engage in business on both levels
Vendor and Lender
The law might regard credit differently, depend-ing on whether it is offered by a vendor (seller) When an appliance store gives credit to customers who buy such items as washing machines and refrigerators and pay for them over a certain period of time, this action is known as vendor credit When a consumer borrows funds from a finance company to pay for appliances, this action is known as lender credit, since the finance company lends but does not sell
Some states exempt vendor credit transac-tions from the provisions of state USURY laws
A vendor or a lender can charge the consumer interest (a fee for the use over time of borrowed money) In the past, usury statutes restricting the legal interest rate have ordinarily been applied only to lender credit The difference in the treatment of lender credit and vendor credit
is based upon the assumption made by law that
Trang 2vendors are able to adjust their prices to allow
for the period during which they await
payment If, for example, the vendor’s time
price was excessive in that it allowed for a high
interest rate, then the consumer could opt for
payment of the cash price Courts believe that
competitive pricing will prevent vendors from
charging too much interest when they extend
credit It is the seller’s right to determine how to
reduce the time price to encourage consumers
to pay cash for goods
Some courts have found since 1970,
how-ever, that these principles have no application
to REVOLVING CHARGE accounts because
depart-ment stores do not charge consumers less for
paying for items in cash There is one uniform
purchase price, regardless of whether the sale is
a credit or cash transaction Both finance
charges and tax are computed on the basis of
the cash price
In cases where courts have indicated that
state usury laws must necessarily be applied in
the vendor credit extended through revolving
charge account customers, state legislatures
have enacted statutes to increase the legal rate
of interest that may be charged on such
accounts Most consumer credit cannot exist
within the usury law limits; therefore, the
pattern has been to enact laws that permit
special higher finance rates for vendor credit to
consumers
Licensing Creditors
Banks, savings and loan associations, and
finance companies ordinarily must be licensed
under state or federal statute Credit companies
that purchase retail installment debts from
sellers are also subject to governmental licensing
regulations
When the licensing requirement is primarily
a revenue-raising device, potential licensees
often need only file the appropriate forms and
pay the required fee to obtain a license
However, when the licensing provisions require
the applicant to be reputable and reliable, the
public is protected only if the licensing agency
has the energy and resources to investigate the
applicant’s qualifications
Credit Reports
When a consumer makes an application for
credit, the creditor must decide whether the
applicant is a good risk Most creditors regularly
order a credit report on an applicant rather than undertake a costly investigation on their own
Files are retained by two types of credit agencies
Credit Bureaus Credit bureaus publish reports that are primarily used by merchants who are attempting to decide whether to allow con-sumers to purchase merchandise financed by credit that will be repaid on time Such reports ordinarily disclose financial information, such
as the location and size of an individual’s bank accounts, charge accounts, and other debts and the person’s bill-paying habits, income, occupa-tion, marital status, and lawsuits
Credit bureaus supply such information to a group of subscribers who, in exchange, provide them with information for their files All the information obtained is filed in case it is requested by someone in the future Nonsub-scribers can ordinarily obtain information through the payment of a fee
A majority of credit bureaus are members of the Associated Credit Bureaus of America, which regulates public information for them
It keeps members apprised of financial transac-tions that might cause people to be unable to meet their obligations
Credit Reporting Bureaus Credit reporting bureaus formulate financial reports on indivi-duals for purposes not directly related to the extension of credit Such reports are used by employers to evaluate job applicants, by insur-ance companies to assess the risk in relation to a prospective policy buyer, and by landlords to avoid renting to tenants likely to cause damage
to the property or disturb other tenants
Bureaus of this type compile data and provide
it upon request to interested parties
These reports contain personal information about the subjects and their families that is obtained from interviews with neighbors, associates, and co-workers Information is kept for possible future investigation requests
Problems In the late 1960s, Congress investi-gated abuses in the collection and dissemination
of information by credit bureaus and deter-mined that such bureaus compiled files on more than 50 percent of the people in the United States These information files, however, fre-quently contain inaccurate, misleading, or irrelevant facts and were not kept confidential
The most frequent error was to confuse two individuals having the same name or similar
CONSUMER CREDIT 149
Trang 3names The possibility of committing this error increased as the area covered by the bureau became larger
Supervision Many states have enacted statutes
to regulate the business practices of credit bureaus However, the need for national unifor-mity led to the enactment of federal laws dealing with consumer credit information
TheFAIR CREDIT REPORTING ACT, which is Title
VI of the CONSUMER CREDIT PROTECTION ACT (15 U.S.C.A § 1601 et seq.), was enacted in 1970
This congressional enactment affects and reg-ulates businesses that regularly obtain consumer credit information for other businesses, either for payment or in a cooperative exchange
The law covers any report by an agency if
it is related to a consumer’s credit worthiness, credit standing or capacity, character, general reputation, personal characteristics, or mode of living Further, the law applies to any such report when employed or expected to be used for evaluating a consumer for one of four purposes: credit or insurance for personal, family, or household use; employment; licenses
to operate particular businesses or practice a profession; and any other legitimate business need
The requirements of the Fair Credit Report-ing Act affect (1) the CREDIT BUREAU; (2) the businesses that use the credit reports compiled
by credit bureaus; (3) the rights of consumers who are the subjects of such reports; and (4) how the consumer can enforce his or her rights when errors are discovered in such reports
Credit bureaus are required to have standard procedures for determining and updating the accuracy of the information in their files There
is a seven-year limit on the information on file, except where the file discloses that the party was bankrupt within a period of ten years Data relating to an individual’s character, reputation,
or lifestyle that are obtained through personal interviews with neighbors and friends cannot remain in a file unless it is verified every three months
While the Fair Credit Reporting Act does not prohibit the collection and compilation of information unrelated to finance—such as appearance, political tenets, and sexual orienta-tion—such information must be accurate and not obsolete The law does, however, restrict credit bureaus to furnishing reports for reasons
of credit, insurance, employment, obtaining a government license or other benefit, or other legitimate business needs related to business transactions with the consumer Credit bureaus are required to investigate new clients to ascertain that they are using reports solely for one of these five permitted purposes In addition, prospective clients are required to file
a statement with bureaus certifying the purpose for which the reports will be used and agreeing not to use them for any other purposes Consumers are legally entitled to ascertain that no inaccurate or obsolete information
is kept in files on them and to be notified when a creditor relies upon a report issued by
a credit bureau, so the consumer can see the type of information kept on file and correct all mistakes in it
A consumer, however, has no right to examine the actual file kept on him or her by
a credit reporting agency Anyone who has been refused credit on the basis of a report can discover the nature and substance of all but medical information contained therein, as well
as the source of the information, except investigations based on comment from neigh-bors and associates The consumer can also find out the identity of anyone who has received the report for employment purposes during the last two years or any other purpose during the last six months
A consumer who discovers inaccurate or misleading information in his or her file can request that the agency reinvestigate his or her credit background and submit a brief statement that either explains or corrects the information The agency must include such information
in the consumer’s file and notify recent users of the changes in the consumer’s file upon the consumer’s request
Federal agencies, such as the FEDERAL TRADE COMMISSION (FTC), can issue orders for the enforcement of this law Officers and employees
of the credit bureau who willfully or inten-tionally violate this law are subject to criminal prosecution Both a fine and imprisonment for each violation can be imposed upon conviction
A credit bureau that fails to treat a consumer in the manner required by this law can be sued by the consumer who must prove that the credit bureau or the business that used the report did not properly maintain reasonable procedures to ensure compliance with the law
Trang 4The consumer must also show that such failure
to maintain was negligent or careless and that
he or she incurred personal or financial injury
from this failure
If a business uses a consumer’s credit report
but fails to notify the consumer, then the
consumer may be able to recover damages The
consumer is entitled to actual damages when
the business is negligent in failing to provide
notice However, if the business has willfully or
recklessly failed to provide notice, the consumer
may recover actual, statutory, and PUNITIVE
DAMAGES The Supreme Court, however, has
held that when a business uses a consumer’s
credit score without notice but does not take an
adverse action, the consumer may not recover
damages under the act (Safeco Insurance Co of
America v Burr, 551 U.S 47, 127 S Ct 2201,
167 L Ed 2d 1045[2007])
Credit Discrimination
Discriminatory practices in the granting of
credit led to the enactment of legislation to
ensure that all qualified applicants have the
same opportunity to receive credit
Sex In the past, women were systematically
denied credit regardless of whether they would
be able to repay their loans It was not
uncommon for bankers to refuse to consider a
married woman’s income when a couple
applied for a loan or a mortgage Banks made
the assumption that a woman of childbearing
age was an automatic credit risk
Single women had greater difficulty than
single men in obtaining credit, particularly
home mortgages Creditors were also reluctant
to extend credit to married women in their own
names and refused to count a woman’s income
when calculating the creditworthiness of a
married couple Women also had a difficult
time reestablishing credit upon DIVORCE or
widowhood
In 1974 Congress enacted the Federal Equal
Credit Opportunity Act (15 U.S.C.A § 1691
et seq.), which prohibits credit discrimination
based not only upon sex and marital status,
but also upon race, RELIGION, and national
origin It has, however, very detailed
prohibi-tions against discrimination based upon sex and
marital status Creditors are not permitted to
(1) assign a value to sex or marital status in
calculating an applicant’s creditworthiness;
(2) assign a value to having a telephone in the
name of the applicant; (3) question a married couple’s childbearing plan; (4) alter the terms of credit or require a reapplication when there is a change in an individual’s marital status; (5) re-fuse to consider the total income of the couple who are making the application; (6) delay action on an application or refuse to consider it; or (7) discourage an individual from making
an application for credit
Federal agencies such as the FTC can guard against violations of this law through the issuance of restraining orders In addition, consumers can commence an action against creditors who have denied them an equal opportunity to acquire credit Where credit discrimination is prohibited by a state law also, the consumer can choose whether to pursue the state or the federal remedy
Other Types of Discrimination Subsequent amendments to the Equal Credit Opportunity Act were concerned with race and age discrimi-nation The act provides that a creditor can take
an applicant’s age into consideration only in a situation where older people are given a preference or where a specific type of credit is allowed someone because that person is elderly
The law also requires that public assistance benefits be counted by creditors as a portion of
an applicant’s income The race of an applicant cannot be used as a ground for the denial of credit
Disclosure of Terms Until the late 1960s, there was considerable variety as to the information given consumers about their credit arrangements The greatest lack of uniformity was in the statement of the rate of interest charged Some creditors did not disclose the rate of interest, telling consumers only the number and amount of monthly payments
Those creditors that did state the rate of interest stated it in a variety of ways
In response, Congress enacted theTRUTH IN LENDING ACT as Title I of the Consumer Credit Protection Act of 1968 The law is essentially a disclosure statute, offering little substantive protection to consumers A creditor is free to impose any charges for credit permitted by state law In addition, the statute does not restrict or confine the terms and conditions of the extension of credit All that the Truth-in-Lending Act requires is that the consumer be informed of the terms and conditions of the credit transaction
CONSUMER CREDIT 151
Trang 5Under the statute and FTC regulations, the creditor must describe the credit terms clearly and conspicuously in a disclosure statement At the time of disclosure, the creditor must furnish the customer with a copy of the statement The disclosure requirements of the act are detailed and complex, because they deal with many types
of credit transactions In general, the creditor must disclose the amount financed, theANNUAL PERCENTAGE RATE, and any finance charges associated with the extension of credit to the consumer Any charges payable in the event of late payment must also be disclosed
FURTHER READINGS Bangert, Sharon J., Robert A Cook, and Joseph D Looney.
2002 “Unfair and Deceptive Advertising of Consumer Credit ” The Maryland Bar Journal 35 (March–April):
8 –13.
Hammond, Bob 1996 Life after Debt: How to Repair Your Credit and Get Out of Debt Once and For All Franklin Lakes, N.J.: Career.
Hynes, Richard, and Eric A Posner 2002 “The Law and Economics of Consumer Finance ” American Law and Economics Review 4 (spring): 168–207.
Leonard, Robin, and Deanne Loonin 2002 Credit Repair, edited by Kathleen Michon, 6th ed Berkeley, Calif.:
Nolo.
Medoff, James C 1996 Indebted Society: Anatomy of an Ongoing Disaster New York: Little, Brown.
National Consumer Law Center 2002 Fair Credit Reporting.
Boston: National Consumer Law Center.
Paris, James L 1995 Living Financially Free Eugene, Ore.:
Harvest House.
Suit, Christopher 2001 How to Stop Telemarketers, Junk Mail, and Fix Your Credit Vancouver, Wash.:
Streetlight.
CROSS REFERENCES Damages; Restraining Order; Truth in Lending Act
CONSUMER CREDIT PROTECTION ACT
The Consumer Credit Protection Act (15 U.S.C.A
§ 1601 et seq.[1972]) is a federal statute designed
to protect borrowers of money by mandating complete disclosure of the terms and conditions
of finance charges in transactions; by limiting the
GARNISHMENTof wages; and by regulating the use of charge accounts
TheCONSUMER CREDITProtection Act was the first general federal consumer-protection legis-lation Title I of this law, known as the Truth-in-Lending Act (15 U.S.C.A § 1601 et seq
[1968]), requires that the terms in consumer credit transactions be fully explained to the prospective debtors Title VI of the Consumer
Credit Protection Act, known as theFAIR CREDIT REPORTING ACT (15 U.S.C.A § 1601 et seq [1978]), applies to businesses that regularly obtain consumer credit information for other businesses Its purpose is to ensure that consumer reporting activities are conducted in
a manner that is fair and equitable to the affected consumer
Whereas the Consumer Credit Protection Act is a federal law, states have also passed many statutes regulating consumer credit For exam-ple, theUNIFORM CONSUMER CREDIT CODE(UCCC)
is an initiative that was drafted by the National Conference of Commissioners on Uniform State Laws in 1968 to help provide consistency among the variety of consumer credit laws that exist throughout state jurisdictions The pur-pose of the UCCC is threefold: to protect consumers who are obtaining credit to finance transactions; to ensure that adequate credit is provided; and to govern the credit industry generally As of 2009, the UCCC had been adopted in only five states and Guam Many states, however, continue to enact legislation that would provide consumer debtors with similar protections contained in the provisions
of the UCCC
CONSUMER FRAUD Deceptive practices that result in financial or other losses for consumers in the course of seemingly legitimate business transactions
Many think that consumer fraud only affects unwitting people who are all too willing
to be duped In truth, even the savviest customer can fall victim toFRAUD It may be as simple and seemingly innocuous as getting stuck paying a higher rate for a magazine subscription, or it may be as devastating as having one’s identity stolen
According to the FEDERAL TRADE COMMISSION
(FTC), consumers reported $1.2 billion in losses from fraud in 2007 In addition to those who are unwittingly defrauded, there are a number
of consumers who share at least a degree of culpability in their losses People who try to save money on their income taxes by purchasing a new SOCIAL SECURITYnumber or wage statement may become victims of fraud, but chances are that they understood that their actions were illegal, which makes them guilty of fraud as well Consumer fraud can take place in person,
by telephone or mail, or over the INTERNET
Trang 6As technology has continued to improve,
INTERNET FRAUDhas risen faster than other types
With or without technology, however,
consu-mers can protect themselves against fraud by
following a few simple, common-sense
mea-sures such as not revealing personal information
to strangers
The following are some of the most common
types of consumer fraud
Identity Theft
IDENTITY THEFT accounts for more than 30
percent of all fraud complaints reported to the
FTC All identity theft is serious, but even in its
mildest form it can involve, for instance, the
theft of a consumer’s long-distance access code
The thief sells the code to individuals who
use the code to charge long-distance calls all
over the world In its most serious form, a thief
gains access to the victim’s Social Security
number With this number, and some other
basic information, a thief can create a double of
the victim The victim’s information can be
used to make purchases, to rent an apartment,
or to take out bank loans Often, victims of
identity theft first find out their misfortune
when they receive credit card bills totaling
thousands of dollars, even though they did not
open the accounts or make the purchases
Identity thieves can gain access to their
victim’s information by copying it off forms (for
example, if they work in an office where such
information is kept), by stealing a wallet or
personal papers, or by otherwise exploiting a
careless individual (Fraud experts warn people
never to give their Social Security or bank
account numbers to someone who has phoned
them, even from a seemingly legitimate
busi-ness.) Often identity thieves work in large rings
that span several states, which makes it difficult
to track them down Thus, even when a theft
ring is cracked, others quickly crop up to take
its place
Telephone and Mail Solicitations
To most people, junk mail and telemarketer
calls are merely a nuisance, but unscrupulous
companies can use both the mail and the
telephone to part innocent (and not merely
gullible) people from their money Applications
for credit cards or personal loans promise easy
credit, but the fine print promises exorbitant
interest rates Sweepstakes promising millions
in winnings await the lucky recipient, who often
feels compelled to send an order for several magazines along with the prize receipt Charities use telemarketing and mass mailings to ask for donations; while some of those charities are established and legitimate, others are dubious
Many phony charities assume names that sound like better-known organizations in the hope of fooling consumers
Every day, people are contacted by tele-phone and mail with phony offers Despite warnings from consumer-advocacy groups, people continue to provide credit card num-bers, bank information, and even Social Security numbers to those whom they do not know The elderly are a common target, in part because once they find that they have been defrauded they are likely not to report the crime because they are embarrassed Groups such as the Federal Trade Commission, the National Con-sumers League (NCL), and ConCon-sumers Union provide information to the general public in an effort to curtail fraud
In 2002 several states initiated“do-not-call”
programs that allow people to store their telephone numbers in a centralized database that telemarketers are prohibited from calling
A telemarketer who calls a prohibited number faces stiff fines
Consumer Fraud Complaints, by Consumer Age, in 2007 a
Percent
19 and under 20–29 30–39 40–49 50–59 60–69
70 and over
2%
16%
21% 23% 20%
9%
9%
a Percentages are based on the total number of fraud complaints where consumers reported their age (126,659) 23% of consumers reported their age.
SOURCE: Federal Trade Commission, Consumer Fraud and Identity Theft
Complaint Data, January–December 2007, February 13, 2008.
ILLUSTRATION BY GGS CREATIVE RESOURCES REPRODUCED BY PERMISSION OF GALE,
A PART OF CENGAGE LEARNING.
CONSUMER FRAUD 153
Trang 7Internet Fraud
The growth of the Internet as a communication tool has also meant its growth as an instrument
of fraud Internet fraud grew so rapidly through the 1990s and early 2000s that the FEDERAL BUREAU OF INVESTIGATION (FBI) and the National White Collar Crime Center (NW3C) launched the Internet Fraud Complaint Center, now known as IC3, which compiles data and offers tips on ways to avoid being defrauded Accord-ing to the IC3 Annual Report for 2008, complaints of Internet fraud accounted for
$265 million in losses, a 33.1 percent increase over the previous year The average individual loss was $931 per victim
One of the most common types of fraud, accounting for over 25 percent, is Internet-auction fraud Although there are a number of legitimate online auction houses, many are simply scams Consumers who purchase items
on these sites find that the goods they bid for never existed or that the goods are stolen or that the seller has added numerous hidden charges
The seller might even act as a shill by placing false bids (Some consumers jump on the fraud bandwagon, as well, by using aliases to place multiple phony high bids in order to deter low
or moderate bidders.) The Internet is also home to credit card scams, investment scams, and home-improvement scams These may appear on Websites, or they may be sent in the form of unsolicited commer-cial email (UCE), better known as “spam.” One well-known spam message is the “Nigerian Letter,” in which a person who claims to be a former high official, usually from the Nigerian government, seeks help in converting millions
of dollars in funds The consumer is asked to provide bank account information so that the funds can be transferred to that account The perpetrators then empty the bank account and disappear before the consumer knows what has happened Because the perpetrators are usually located in a foreign country and are practically impossible to locate, the victim loses all of the funds that were in the account
Income Tax Fraud
The INTERNAL REVENUE SERVICE (IRS) warns taxpayers to be on guard against tax scams that can result in loss of funds and, in some cases, legal difficulties Some con artists make money
at their victims’ expense by claiming that they
can help to secure tax refunds for their clients Invariably, the clients must pay a fee upfront One example of this is a company that claims it can help taxpayers find legal loopholes that will allow them to stop paying taxes Another is
a company that offers to help people submit claims for nonexistent credits (Some African Americans have been targeted by a
“reparations” scam in which they are told they can apply for a slavery-reparations credit simply
by paying a fee No such credit exists.)
If the taxpayer knowingly engages in a scheme that is illegal (for example, signing up for a new Social Security number), he or she may face fines or imprisonment
Combating Fraud
Education is essential for combating consumer fraud The FTC, FBI, NCL, Consumers Union, and Direct Marketing Association, all work to educate the public and to identify fraudulent businesses The Better Business Bureau is also a useful tool for consumers who wish to get information about specific companies
FURTHER READINGS Bertrand, Marsha 1999 Fraud! How to Protect Yourself from Schemes, Scams, and Swindles New York: AMACOM Stark, Debra Pogrund 2008 “Does Fraud Pay? An Empiricle Analysis of Attorney ’s Feeds Provisions in Consumer Fraud Statutes.” Cleveland State Law Review 56 U.S Federal Trade Commission 1997 Fighting Consumer Fraud: The Challenge and the Campaign Washington, D.C.: U.S Federal Trade Commission.
CROSS REFERENCES False Advertising; Federal Trade Commission; Internet.
CONSUMER PRICE INDEX
A computation made and issued monthly by the Bureau of Labor Statistics of the federal Labor Department that attempts to track the price level
of designated goods and services purchased by the average consumer
The consumer price index (CPI) is an indicator of the rate of inflation in the economy because it measures changes in the cost of maintaining a particular standard of living
CONSUMER PRODUCT SAFETY COMMISSION
The CPSC was established to protect the public against unreasonable risks of injury from consumer products; to assist consumers in
Trang 8evaluating the comparative safety of consumer
products; to develop uniform safety standards
for consumer products and minimize
conflict-ing state and local regulations; and to promote
research and investigation into the causes and
prevention of product-related deaths, illnesses,
and injuries The commission is an independent
federal regulatory agency, established by the Act
of October 27, 1972 (86 Stat 1207) It makes
information available to the public through its
Web site, http://www.cpsc.gov
The Consumer Product Safety Commission
(CPSC) has primary responsibility for
establish-ing mandatory product safety standards in
order to reduce the unreasonable risk of injury
to consumers from consumer products It also
has the authority to ban hazardous consumer
products The Consumer Product Safety Act (15
U.S.C 2051 et seq.[1972]) authorizes the CPSC
to conduct extensive research on consumer
product standards; to engage in broad
con-sumer, industry information, and education
programs; and to establish a comprehensive
injury-information clearinghouse
The CPSC has the authority to regulate the
sale and manufacture of more than 15,000
different consumer products, from cribs to
all-terrain vehicles, and from barbecue grills to
swimming pools Products not under
jurisdic-tion of the CPSC include those specifically
named by law as under the jurisdiction of other
federal agencies; for example, automobiles are
regulated by the National Highway Traffic
Safety Administration (NHTSA); guns are
regulated by the BUREAU OF ALCOHOL, TOBACCO,
FIREARMS,AND EXPLOSIVES (ATFE); and drugs are
regulated by theFOOD AND DRUG ADMINISTRATION
(FDA) Recently, the CPSC has taken action
against suppliers of chemicals that could be
used to manufacture fireworks
In addition to the authority created by the
act, the CPSC assumes responsibility for the
Flammable Fabrics Act (67 Stat 111; 15 U.S.C
1191), the Poison Prevention Packaging Act (84
Stat 1670), the Hazardous Substances Act (74
Stat 372; 15 U.S.C 1261), and the Act of
August 2, 1956 (70 Stat 953; 15 U.S.C 1211),
which prohibits the transportation of
refrigera-tors without door-safety devices The act also
provides for petitioning of the CPSC by
any interested person, including consumers or
consumer organizations, to commence
proceed-ings for the issuance, amendment, or revocation
of a consumer product safety rule
In 1999 the CPSC introduced a new interactive section for children on its Web site
Geared toward children between the ages of eight and twelve, it features games and puzzles that are designed to test children’s knowledge of safety and to teach them safety facts
On May 5, 2009, President BARACK OBAMA
announced that he would nominate Inez Tenenbaum to head the CPSC
CROSS REFERENCE Consumer Protection.
CONSUMER PROTECTION Consumer protection laws are federal and state statutes governing sales and credit practices involving consumer goods Such statutes prohibit and regulate deceptive or unconscionable advertis-ing and sales practices, product quality, credit financing and reporting, debt collection, leases, and other aspects of consumer transactions
The goal of CONSUMER PROTECTIONlaws is to place consumers, who are average individuals engaging in business deals such as buying goods
or borrowing money, on a par with companies
or citizens who regularly engage in business
Historically, consumer transactions—purchases
of goods or services for personal, family, or household use—were presumed fair because it was assumed that buyers and sellers bargained from equal positions Starting in the 1960s, legislatures began to respond to complaints by consumer advocates that consumers were in-herently disadvantaged, particularly when bar-gaining with large corporations and industries
Several types of agencies and statutes, both state and federal, now work to protect consumers
Consumer Product Safety Commission
In 1972 Congress established the CONSUMER PRODUCT SAFETY COMMISSION (CPSC) The CPSC aims to protect consumers from faulty or dangerous products by enacting mandatory safety standards for those products The CPSC has the authority to ban products from the marketplace
or to recall products (when a product is recalled,
it is removed from the shelves or sales lots, and consumers may be able to return it to the manufacturer or place of purchase for repair, replacement, or a refund) Still, the agency has trouble protecting consumers from hazardous products of which it is unaware It has also faced increased challenges with respect to the growing
CONSUMER PROTECTION 155
Trang 9number of imports in the United States, particularly from toy manufacturers It has attempted to address this difficulty by imple-menting the Import Safety Initiative in 2008, but there remain significant impediments to the CPSC achieving its mission of protecting con-sumers from all faulty or dangerous products
In the 1990s and early 2000s, the CPSC has fallen victim toFEDERAL BUDGETcuts Reductions
in the agency’s legal staff have prompted the CPSC to rely more and more on manufacturers
to voluntarily recall their defective or hazardous products When manufacturers do not cooper-ate, the CPSC must commence a legal action that may take years to resolve
Unfair or Deceptive Trade Practices
TheFEDERAL TRADE COMMISSION(FTC), the largest federal agency that handles consumer com-plaints, regulates unfair or deceptive trade practices Even local trade practices deemed unfair or deceptive may fall within the JURISDIC-TION of FTC laws and regulations when they have an adverse effect on interstate commerce
In addition, every state has enacted con-sumer protection statutes, which are modeled after the Federal Trade Commission Act (15 U.S.C.A § 45[a] [1]) These acts allow state attorneys, along with general and private consumers, to commence lawsuits over false
or deceptive advertisements, or other unfair and injurious consumer practices Many state sta-tutes explicitly provide that courts turn to the federal act and interpretations of the FTC for guidance in construing state laws
The FTC standard for unfair consumer acts
or practices has changed with time In 1964 the agency instituted criteria for determining un-fairness when it enacted its cigarette advertising and labeling rule A practice was deemed unfair when it (1) offended public policy as defined by statutes, COMMON LAW, or otherwise; (2) was immoral, unethical, oppressive, or unscrupu-lous; and (3) substantially injured consumers The FTC changed the standard in 1980 Now, substantial injury of consumers is the most heavily weighed element, and it alone may constitute an unfair practice Such an unfair practice is illegal pursuant to the Federal Trade Commission Act unless the consumer injury is outweighed by benefits to consumers or com-petition, or consumers could not reasonably have avoided such injury The FTC may still consider the public policy criterion, but only in determining whether substantial injury exists Finally, the FTC no longer considers whether conduct was immoral, unethical, oppressive, or unscrupulous
The FTC has also developed, over time, its definition of deceptive acts or practices Histor-ically, an act was deceptive if it had the tendency
or capacity to deceive, and the FTC considered the act’s effect on the ignorant or credulous consumer A formal policy statement made by the FTC in 1988 changed this definition
A practice is deceptive if it will likely mislead
a consumer, acting reasonably under the circumstances, to that consumer’s detriment False advertising is often the cause of consumer complaints At common law, a consumer had the right to bring an action against a false advertiser for FRAUD, upon proving that the advertiser made false sentations about the product, that these repre-sentations were made with the advertiser’s knowledge of or negligent failure to discover the falsehoods, and that the consumer relied on the false advertisement and was harmed as a result In 1911 the advertising trade journal Printer’s Ink proposed model legislation crimi-nalizing false advertisements Forty-four states enacted statutes based on this model statute However, because of the difficulty in proving beyond REASONABLE DOUBT an advertiser’s dis-honesty, prosecutors seldom use these criminal laws More frequently, the state attorneys general or the FTC regulates false advertising For example, the FTC can issue a cease-and-desist order, forcing a manufacturer to stop
In 2003 the Federal
Trade Commission’s
Bureau of Consumer
Protection introduced
the National Do Not
Call Registry, which
allows consumers to
opt out of receiving
phone calls from
telemarketers.
MARK WILSON/
GETTY IMAGES
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corrections or disclosures informing the public
of the misrepresentations
Truth in Lending Act
Consumer credit—home mortgages, student
financial aid, and credit cards, for example—is
an area fraught with complicated finance terms,
and Congress has designed laws requiring
lenders to fully disclose and explain those terms
to potential borrowers The CONSUMER CREDIT
PROTECTION ACT of 1968 (15 U.S.C.A § 1601
et seq.), also known as theTRUTH IN LENDING ACT,
prohibits lenders from advertising loan terms
that are only available to preferred borrowers
In addition, advertisements forCONSUMER CREDIT
transactions cannot disclose partial terms; either
all the terms of the transaction or none of them
must be spelled out Finally, when the terms of
credit provide for repayment in more than four
installments, the agreement must conspicuously
state that“the cost of credit is included in the
price quoted for the goods and services.”
The Truth in Lending Act is designed to
protect society as a whole and, therefore, does
not provide the individual consumer with a
personalCAUSE OF ACTIONwhen a lender violates
the law Nor are publishers of advertising, such
as radio, newspapers, and television, generally
held liable for lenders’ advertisements that
violate the act Finally, the act does not consider
statements made by salespeople in the course
of selling products or services to be
advertise-ments; therefore, the law does not apply to
those statements
Fair Debt Collection Practices Act
The Consumer Protection Act was amended
in 1996 to include the Fair Debt Collection
Practices Act (PUBLIC LAW 104-208, 110 Stat
3009 [1996]) Congress passed the law to
address the abusive, deceptive, and unfair debt
collection practices used by many debt
collec-tors Personal, family, and household debts are
covered under the act, which includes money
owed for the purchase of an automobile, for
medical care, or for charge accounts A collector
may contact a person by mail, telephone,
telegram, or fax However, a debt collector
may not contact a debtor at an inconvenient
time, such as before 8 a.m or after 9 p.m.,
unless the debtor agrees A debt collector also
may not contact a debtor at an inappropriate
place For example, a collector may not contact
a debtor at his place of work if the collector knows that the debtor’s employer disapproves
of such contacts
Collectors may not contact debtors if the debtors send the collectors a letter asking them
to stop Collectors may not threaten or abuse debtors or make false statements Despite these restrictions, the FTC’s annual report to Con-gress in 2009 reflected that it received nearly 79,000 complaints about third-party debt col-lectors in 2008 Persons may sue colcol-lectors for violating the law and can collect up to $1,000 and attorneys’ fees for a violation A group
of people may also sue a debt collector and recover money for damages up to $500,000, or
1 percent of the collector’s net worth, whichever
is less
Warranties
Warranties are promises by a manufacturer made to the consumer purchasing the manu-facturer’s product that the product will serve the purpose for which it was designed TheUNIFORM COMMERCIAL CODEis a law, adopted in some form
in all states, that regulates sales transactions and specifically the three most common types of consumer warranties: express, merchantability, and fitness
Express warranties are promises included in the written or oral terms of a sales agreement that assure the quality, description, or perfor-mance of the product Express warranties are usually included in the sales contract or are written in a separate pamphlet and packaged with the merchandise sold to the consumer
These warranties may be less obvious than are product advertisements A consumer who relies
on a written description of a product in a catalog or on a sample of a product may have a cause of action if the actual product differs
Express warranties can also be verbal, such as promises made by salespeople However, be-cause oral warranties are extremely difficult to prove, they are rarely litigated
Merchantability and fitness warranties are both implied warranties, which are promises that arise by OPERATION OF LAW A warranty of merchantability concerns the basic understand-ing that the product is fit to be purchased and used in the ordinary way—for instance, a lamp will provide light, a radio will pick up broadcast stations, and a refrigerator will keep food cold
A warranty of fitness concerns the consumer’s
CONSUMER PROTECTION 157