CHAPTER 24 Laws of Debtor--Creditor Relations and Consumer Protection THE LEGAL ENVIRONMENT OF BUSINESS CHAPTER 24 Laws of Debtor--Creditor Relations and Consumer Protection © 2006 Prentice Hall Ch. 24-2

Debtor-Creditor Relations Creditors’ rights to collect judgment Liens: mechanics; artisans Attachment Writ of execution Garnishment Foreclosure

Debtors’ Rights Homestead Exemption Real Property Established under state law Varies in amount Personal Property Furniture Tools Vehicles

Bankruptcy GOALS To allow debtors a “fresh start” via ‘discharge’ in bankruptcy; to provide orderly process of payment to creditors Chapter 7: Liquidation Chapter 13: Wage Earner’s Plan Chapter 11: Business Reorganization

Chapter 7 Liquidation Debtor’s assets placed into hands of Trustee Trustee liquidates and pays creditors according to statutory priorities Usually, creditors receive only a fraction of amount owed

Nondischargeable Debts Chapter 7 Nondischargeable Debts Paternity Alimony Maintenance Child Support

(amounts subject to change) Chapter 7 Exemptions Categories (amounts subject to change) Residence Vehicle Household Goods Jewelry Tools Life Insurance Health Aids Social Security Benefits Miscellaneous

Chapter 13 Wage Earner Plan Debtor’s assets not liquidated Debtor’s finances placed under court control Creditors are paid in full, but over a longer period

Chapter 11 Reorganization Business continues to operate Under court control Payment schedules established with creditors Voluntary or involuntary

Consumer Law Traditional View Modern View Freedom of contract Caveat emptor Laissez-faire Modern View Unconscionable Fundamental breach Consumer protection

Consumer-Business Relations Federal Trade Commission Prohibits “unfair methods of competition” Used to protect consumers Methods: Fines, injunction, corrective advertising, rescission, refunds, damages

Deceptive and Unfair Advertising Wheeler-Lea Act of 1938 Scope: Price; quality and quantity; testimonials Standard: Misrepresentation likely to mislead Consumers are acting reasonably Misrepresentation is material

Consumer Legislation Franchising: Section 5 of FTC Act Warranties: Magnuson-Moss Warranty Act Express written warranties must meet guidelines Full or limited warranties must be clear Private right of action established

Telemarketing FTC Regulations in Force 1995 Prohibited Practices Calling before 8 am or after 8 pm False claims of affiliation False claims regarding credit Failing to disclose nature of call Claiming ability to recover goods or money lost

Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 Remedies: fines up to $10,000 Exemptions: insurers; franchisers; online services; those regulated by SEC; not-for-profit organizations Enforcement via 50 state attorneys general or FTC

Telephone Company Protection Act of 1991 “Do Not Call” Registry Junk faxes Spam State laws also enacted

Consumer Credit and Debt Collection Laws Truth in Lending Act of 1969 Electronic Fund Transfer Act Fair Credit Reporting Act of 1970 Fair Credit Billing Act of 1974 Equal Credit Opportunity Act Fair Debt Collection Practices Act of 1977 Consumer Leasing Act of 1976

State Consumer Laws Consumer protection division of 50 state attorneys general Uniform Consumer Credit Code Baby FTC laws Arbitration of consumer disputes

Global Dimensions Different countries have widely varied acceptance of advertising claims EU has similar approach to that of FTC Section 5 Areas of concern – with different approaches Comparative Advertising Truthfulness in Content Tobacco and Alcohol Labeling Warnings Warranties Credit Terms Disclosure