An introduction to the fundamentals of dynamic business law and business ethics chap025

Gregory assigned the Juan Ramirez account to Shady Way, the collection agency “focused its wrath” on Juan.. violated the Fair Debt Collection Practices Act?. Has not Juan violated his le

Chapter 25

Consumer Law

Chapter 25 Case Hypothetical and Ethical Dilemma

Last year, Juan Ramirez purchased a washer-dryer combination from I I Gregory Appliances, Inc

Juan satisfied the monthly obligations on his I I Gregory credit card until he lost his job at D Funk

Steel Industries, Inc He is now four (4) months behind on his I I Gregory credit card payments

I I Gregory has turned the matter over to a collection agency, Shady Way Collections, Inc Since

Shady Way only gets paid if it recovers on delinquent accounts, the company is particularly

aggressive in terms contacting debtors and collecting overdue sums When I I Gregory assigned

the Juan Ramirez account to Shady Way, the collection agency “focused its wrath” on Juan

A representative of Shady Way has called Juan as early as 3:30 a.m., and as late as 11:45 p.m.,

often using foul language to impress upon Juan his debt repayment obligations Despite Juan’s

repeated proclamations that he will only deal with I I Gregory, the company he bought the

washer-dryer combination from and whose credit card he holds, Shady Way continues to contact him The

collection agency has even called Juan’s brother and sister, telling them how dishonorable their

sibling is, how they should be ashamed of him, and that they need to impress upon Juan that “real

men” pay their debts

In its communications with Juan Ramirez and his family, has Shady Way Collections, Inc violated the Fair Debt Collection Practices Act? If so, why should the law protect Juan? Has not Juan violated his legal and ethical obligations in terms of not repaying his credit card debt?

Chapter 25 Case Hypothetical and Ethical Dilemma

Tancredo’s Television and Appliance is preparing for its annual Labor Day sale The store’s sales

manager, Chase Randleman, has arranged for an advertisement to run in Sunday’s edition of the

local newspaper, the Glenwood News and Record The full-page advertisement centers around a 42” Sanyoshiba plasma television with an advertised price of $495.00 The average competitor price for

a Sanyoshiba television with like dimensions and features is $1,299.00

By 5:00 a.m on Labor Day, three hundred eager customers wind around the store like a coiled snake ready to strike There is a mad rush to the door when the store opens at 8:00 a.m., and Bailey

Simmons is the third customer through the door Bailey’s principle goal is to head to the television

section and purchase the Sanyoshiba, but he does stop for a few minutes to examine the

washer-dryer combinations

At 8:15 a.m., Bailey informs a sales representative, Mike Petty, that he would like to purchase the

$495 Sanyoshiba television, but Petty informs him that he does not have another one like that to sell because the store had “sold through” the five they had in stock, and that the store has made a

marketing decision to discontinue carrying the Sanyoshiba brand Petty does inform Bailey, however, that he has an outstanding Toshamaha of the same size and options for $995.00, two hundred dollars less than its manufacturer’s suggested retail price

Is Tancredo’s Television and Appliance legally and/or obligated to either find and sell Bailey the

featured television for the advertised price, or sell him a competitor’s brand of like dimensions and

Consumer Law

Definition: A statute or administrative

rule serving to protect consumer

interests

Federal Trade Commission (FTC)

• Created by Congress through Federal Trade

Commission Act (FTCA) of 1914

• Purpose of FTCA: Prevent fraud, deception, and

unfair business practices

• Purpose of FTC: Enforce provisions of FTCA

• FTC methods to protect consumers:

-Consumer Education

-Legal Action

How The FTC Brings An Action:

• FTC conducts an investigation

• FTC sends a complaint to the violator

• FTC and violator settle complaint through “consent

order”

• If company refuses to enter consent agreement, FTC

may issue formal administrative complaint, which

leads to administrative hearing

• If company has violated the law, FTC issues a

“cease-and-desist” order

Remedies For Violation of

“Cease-And-Desist” Order

FTC can:

• Seek injunction against company; and/or

• Fine company up to $10,000 per

violation

Elements of Deceptive Advertising

• Material misrepresentation, omission, or

practice that is…

• Likely to mislead a…

• Reasonable consumer

Ad Substantiation

Definition: FTC requirement that

advertisers have reasonable basis for

claims made in advertisements

“Bait-And-Switch” Advertising

A form of deceptive advertising; advertising

low price to “bait” consumer into store, only so

that salesperson can “switch” consumer to a

higher-priced item

FTC Actions Against Deceptive

Advertising

• “Cease-and-Desist” Actions: Court orders requiring

that firms stop their current advertising behavior

• Multiple-Product Orders: Court orders requiring that

firms stop current advertisements on numerous

products (as opposed to one specified product)

• Corrective Advertising: Advertisements in which

company explicitly states that formerly advertised

claims were untrue

Telemarketing And Electronic Advertising

• 1991 Telephone Consumer Protection Act: Telemarketers cannot use

an automatic telephone dialing or pre-recorded voice system

• Telemarketing and Consumer Fraud and Abuse Prevention Act of

1994: Congress asked FTC to define “deceptive and abusive”

telemarketing practices, and requested that FTC create and enforce

rules governing telemarketing that would prohibit such practices

According to FTC-created Telemarketing Sales Rule of 1995,

telemarketers must:

-Identify call as sales call

-Identify product name and seller

-Tell total cost of goods being sold

-Notify listener/reader whether sale non-refundable

-Remove consumer’s name from contact list if consumer so

requests

• Federal “Do Not Call” Registry: Telemarketers cannot call consumers

who have voluntarily placed their phone numbers on the federal “do

Regulation of Tobacco Adv ertising

• Public Health Cigarette Smoking Act of 1970:

Prohibits radio and television cigarette

advertisements

• Smokeless Tobacco Health Education Act of 1986:

Also prohibits radio and television advertisements for

smokeless tobacco

Labeling and Packaging Laws

Federal and state governments have passed laws requiring

that manufacturers provide accurate, understandable labeling

information; if product is potentially harmful, manufacturer

must make consumer aware of harm

• “Door-to-Door” Sales: The “cooling-off” rule gives

consumers 3 days to cancel purchases they make from

salespeople who come to their homes

• Telephone and Mail-Order Sales: The Mail or Telephone

Order Merchandise Rule of 1993 extends protections to

those who purchase over the phone or by fax

• Unsolicited Merchandise: In accordance with the Postal

Reorganization Act of 1970, consumer allowed to treat any

unsolicited merchandise as a gift; consumer free to

keep/return unsolicited merchandise as he/she wishes

FTC Regulation of Specific Industries

• Used-Car Sales

• Funeral Home Sales

• Real Estate Sales

• Online Sales

Credit Protection Legislation

• Truth-In-Lending Act: Requires that sellers disclose

terms of credit/loan to facilitate consumer’s

comparison of a variety of credit lines/loans

• Fair Credit Reporting Act: Ensures accurate credit

reporting

• Fair Debt Collection Practices Act: Regulates

actions of debt collectors that regularly attempt to

collect debts on behalf of others

Credit Protection Legislation

(Continued)

• Credit Card Fraud Act: Closes “loopholes” in federal

laws to further punish people who commit credit card

fraud

• Fair Credit Billing Act: Seeks to remedy problems

and abuses associated with billing errors

• Fair and Accurate Credit Transactions Act: Takes

affirmative actions to control and prosecute identity

theft

Collection Practices Expressly Prohibited By

The FDCPA

• Contacting debtor at work (if debtor’s employer objects)

• Contacting debtor who has notified collection agency that he/she

wants no contact with agency

• Contacting debtor before 8 a.m or after 9 p.m.

• Contacting third parties about the debt (Exceptions: contacting

debtor’s parents, spouse, or financial adviser)

• Using obscene/threatening language when communicating with

debtor

• Misrepresenting collection agency as a lawyer/police officer

Consumer Health and Safety

• Federal Food, Drug, and Cosmetic Act: Protects

consumers against misbranded or adulterated food,

drugs, medical devices, or cosmetics

• Consumer Product Safety Act: Created the

Consumer Product Safety Commission (CPSC) to

“protect the public against unreasonable risks of

injuries and deaths associated with consumer

products”