CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)1 CHAPTER 14: CONSUMER PROTECTION Chapter 14 explains: Why and how the law focuses on the protection of consumers, and discusses trade practices prohibited by consumer law. Implied and express warranties, full and limited warranties Ralph Nader Clark Howard

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)2 CHAPTER 14: CONSUMER PROTECTION Hot Debate (Page 244): Edison buys a lawnmower from a department store. Because of a defect in design, a protective plastic flap binds the lawnmower whenever the lawnmower is pulled backwards. For efficiencys sake Edison removes the flap. Later, as he is pulling the mower backwards, he trips and falls backwards. Due to the lack of protective flap, his foot shoots upwards into the mower blade. Edison, who was only wearing tennis shoes, loses half his foot. Later, he brings suit against the manufacturer.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)3 CHAPTER 14: CONSUMER PROTECTION Hot Debate (Page 244): What are some legal reasons supporting Edisons suit? What are some legal reasons supporting the manufacturer? If the defect had not been present, the protective shield would have been in place and the injury would not have been sustained. The plaintiffs action in removing the safety feature released the manufacturer from liability.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)4 CHAPTER 14: CONSUMER PROTECTION Why Does The Law Protect Consumers? Some Terms… Consumer-an individual who acquires goods that are primarily intended for personal, family, or household use. Caveat emptor-Let the buyer beware– this leaves the buyer responsible to judge a products safety and utility. Large corporations are not always responsive to consumer complaints. Technology can make it difficult for the consumer to judge.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)5 CHAPTER 14: CONSUMER PROTECTION Why Does The Law Protect Consumers? Local, state, and federal governments have passed legislation to help restore a balance of power between sellers and buyers in the marketplace. Consumers have several courses of action that can be taken if they have been deceived while contracting: Individual court action (costly and time consuming). Class actions (allows one or several persons to sue on behalf of others similarly wronged)initiated by consumer or administrative govt agency.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)6 CHAPTER 14: CONSUMER PROTECTION Why Does The Law Protect Consumers? When a government agency acts on behalf of the injured consumer, there are several possible remedies: Issue a cease-and-desist order requiring the company to stop the specified conduct. Issue a consent order, a voluntary court-enforceable agreement to stop an illegal or questionable practice. Order restitution, the return to customers of money wrongfully obtained.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)7 CHAPTER 14: CONSUMER PROTECTION Why Does The Law Protect Consumers? There are additional avenues of recourse for the wronged consumer: The State Attorney Generals Office (Thurbert E. Baker: ( ). The local Better Business Bureau (503 Oak Place, Suite 590 Atlanta, GA 30349/( ) Customer Service Dept. of the corporation involved.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)8 CHAPTER 14: CONSUMER PROTECTION Why Does The Law Protect Consumers? The overall purpose of consumer laws: Help protect against the production and sale of substandard or dangerous consumer goods. Prohibit improper trade practices. Provide remedies for persons injured.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)9 CHAPTER 14: CONSUMER PROTECTION Why Does The Law Protect Consumers? Whats Your Verdict? (Page 245) Simmons wanted his car painted. He saw a newspaper advertisement for car painting, $99.99 complete. He went to the place of business, contracted for the service, and selected a dark blue metallic finish. However, when the paint job was completed, and Simmons examined the car, the color was obviously light blue. Simmons complained, but the manager claimed the color was close enough to the color Simmons had selected and refused to make any correction.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)10 CHAPTER 14: CONSUMER PROTECTION Why Does The Law Protect Consumers? Whats Your Verdict? (Page 245) What should Simmons do? Simmons might contact the State Attorney Generals Office, the local BBB, or the companys customer service department. As a last resort, he can take his problem to small claims court.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)11 CHAPTER 14: CONSUMER PROTECTION Protection Against Substandard Goods Although the ultimate responsibility for protection against substandard goods rests with the consumer, the law provides help. Safety Standards Food and Drug Administration (FDA) The National Bureau of Standards

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)12 CHAPTER 14: CONSUMER PROTECTION Protection Against Substandard Goods Safety Standards The Consumer Product Safety Act was passed in 1972; it created the Consumer Product Safety Commission (CPSC) which issues and enforces safety standards. The CPSC receives reports from the nations hospitals on product caused injuries. The CPSC requires manufacturers and distributors of unsafe products report to the commission.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)13 CHAPTER 14: CONSUMER PROTECTION Protection Against Substandard Goods Food and Drug Administration (FDA) The FDA requires that the production facilities for cosmetics, food, and drugs be clean and that the products be prepared from ingredients fit for human consumption. New drugs cannot be marketed in this country without approval. The U.S. Department of Agriculture also inspects canners, packers, and processors of poultry and meat entering interstate commerce.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)14 CHAPTER 14: CONSUMER PROTECTION Protection Against Substandard Goods The National Bureau of Standards The U.S. Constitutions gives Congress the right to set standards for weights and measures through the National Bureau of Standards. This means uniformity for a gallon of gasoline, pound of bananas, or a foot of rope. Violations are punishable by fine, imprisonment, or both; goods may be confiscated.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)15 CHAPTER 14: CONSUMER PROTECTION Protection Against Unfair Trade Practices An unfair trade practice is any method of business that is dishonest or fraudulent or that illegally limits free competition. Unfair trade practices include: Agreements to control or fix prices False and misleading advertising Illegal lotteries and confidence games Unfair pricing and service Mislabeled goods Used articles sold as new

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)16 CHAPTER 14: CONSUMER PROTECTION Protection Against Unfair Trade Practices Agreements to control or fix prices: Any agreement that controls or fixes prices and thereby eliminates competition, is illegal and unenforceable.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)17 CHAPTER 14: CONSUMER PROTECTION Protection Against Unfair Trade Practices False and misleading advertising: This is advertising that intentionally deceives, makes untrue claims of quality or effectiveness, or fails to reveal critically important facts. Bait and switch is when a store advertises an understocked, low-priced come-on item to lure customers into a store. The Federal Trade Commission (FTC) has the main responsibility for preventing false and misleading advertising. The FTC may order corrective advertising.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)18 CHAPTER 14: CONSUMER PROTECTION Protection Against Unfair Trade Practices Illegal lotteries and confidence games: To be a lottery there must be three elements: A required payment of money to participate Winners determined by chance A prize to be won. Many states allow some religious groups to run bingo and other games to generate revenue; some states generate revenue for education through lotteries.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)19 CHAPTER 14: CONSUMER PROTECTION Protection Against Unfair Trade Practices Unfair pricing and service: Intentionally stating that goods are being sold at a considerable discount Stating that goods are being sold at wholesale prices The estimated price of a repair is significantly less than the actual price. Being charged for repairs that were not authorized

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)20 CHAPTER 14: CONSUMER PROTECTION Protection Against Unfair Trade Practices Mislabeled goods: Mislabeling a good to make it more marketable is prohibited by law. The shape or size of a good must not mislead the consumer into thinking the package contains more than it does. The law requires that certain products carry warning labels (poisons, cigarette packaging, etc.)

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)21 CHAPTER 14: CONSUMER PROTECTION Protection Against Unfair Trade Practices Used articles sold as new: It is illegal to sell a used item as new. It is illegal to represent an item as being in a better condition than it really is.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)22 CHAPTER 14: CONSUMER PROTECTION Protection Against Unfair Trade Practices Other Unfair Trade Practices: Confusing brand name or trademark Sending unordered merchandise and demanding payment Commercial bribery (industrial espionage; paying push money for a retail salesperson promoting a manufacturers product) Fraudulent telemarketing and Internet schemes

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)23 CHAPTER 14: CONSUMER PROTECTION Protection Against Unfair Trade Practices FTC Guidelines: Creditors must explain to borrowers the methods of figuring finance charges. Sellers and manufacturers must provide written warranties. Commercial bribery (industrial espionage; paying push money for a retail salesperson promoting a manufacturers product) Businesses selling door-to-door must give purchasers 3 days to cancel contracts for purchases of $25 or more.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)24 CHAPTER 14: CONSUMER PROTECTION State and Local Government Protection Whats Your Verdict? (Page 250) As Wilson and Perquot were driving past the Downtown Electronics Warehouse, Perquot noticed their going-out-of- business sale. They had a sale like this last year and I bought a C.D. player. I thought I as getting a great deal because they were getting rid of all their merchandise. Hey stayed in business though, and I paid more than the regular price for the same C.D. player at other stores.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)25 CHAPTER 14: CONSUMER PROTECTION State and Local Government Protection Whats Your Verdict? (Page 250) Are such sales by the Downtown Electronics Warehouse legal? States regulate special sales by retailers by requiring a special license. Such sales include bankruptcy and going- out-of-business. If the business does not shut down, they would be guilty of fraud. What Downtown Electronics Warehouse did was illegal.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)26 CHAPTER 14: CONSUMER PROTECTION State and Local Government Protection Licensing Laws: Suppliers of consumer goods and services often have to be licensed: Health services (doctors, nurses, lab techs, pharmacists) Teachers Lawyers Realtors Insurance agents Beauticians

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)27 CHAPTER 14: CONSUMER PROTECTION State and Local Government Protection Licensing Laws: Other businesses and institutions require inspections and operating licenses: Hospitals Rest homes Private schools Check-cashing services Insurance companies Auto repair shops

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)28 CHAPTER 14: CONSUMER PROTECTION State and Local Government Protection Remedies Available to Injured Consumers: Many states have given consumers rights against those who take unfair advantage or cause injury. Victims may sue for damages and get a court order preventing future violation (this includes class action suits)

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)29 CHAPTER 14: CONSUMER PROTECTION State and Local Government Protection Sanitation and Food Adulteration Laws: States and localities provide for the inspection of businesses where food is handled. Meat markets Bakeries Restaurants Hotels

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)30 CHAPTER 14: CONSUMER PROTECTION State and Local Government Protection Safety Laws: There are laws that deal with buildings where the general public gathers. Type of construction Location Accessibility Occupancy rate

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)31 CHAPTER 14: CONSUMER PROTECTION State and Local Government Protection Safety Laws: Safety regulations for the public apply to Fire escapes Elevators Parking Sprinkler systems Exit location and marking Sanitary facilities

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)32 CHAPTER 14: CONSUMER PROTECTION What is Product Liability? Whats Your Verdict? (Page 251) Tackett removed a safety guard from his power radial saw. This was contrary to a warning prominently printed on the guard. Because of a manufacturing defect, a saw blade broke. The safety guard was not in place, so the blade hit and seriously injured Tackett.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)33 CHAPTER 14: CONSUMER PROTECTION What is Product Liability? Whats Your Verdict? (Page 251) Can Tackett recover for the injury caused by the defective product? Tacketts removal of the fully adequate safety guard bars his recovery. Legally, the injury was the result of Tacketts action, not the defect in the saw.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)34 CHAPTER 14: CONSUMER PROTECTION What is Product Liability? Some Terms… Under common law, Privity of Contract is the relationship that exists between or among the contracting parties as a result of their legally binding agreement. An injured consumer could sue the retailer, but not the wholesaler or the manufacturer. The UCC now provides for all injured persons who are the buyers family, household, or guests to sue. Most states even allow a nonuser, to sue retailers, intermediate sellers, and manufacturers.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)35 CHAPTER 14: CONSUMER PROTECTION What is Product Liability? Recovering Damages: A product liability suit may be based on Breach of warranty Torts (fraud, negligence, or strict liability)

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)36 CHAPTER 14: CONSUMER PROTECTION What is Product Liability? Recovering Damages: Injured consumers may have difficulty recovering damages: No warranty The warranty is not applicable The warranty has expired Fraud requires proof of intent, which is difficult to prove. The best bet is to rely on strict liability. Most states hold the manufacturer, wholesaler, and retailer strictly liable if someone is injured due to a defect.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)37 CHAPTER 14: CONSUMER PROTECTION What is Product Liability? Recovering Damages: There is NO liability if: Injury was suffered while using product for a purpose other than intended. Product is used for a purpose which could not reasonably be foreseen. Injured person is found guilty of improper conduct that causes the accident. One is hurt while improperly using a product that may be dangerous when misused.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)38 CHAPTER 14: CONSUMER PROTECTION Warranties Express and Implied Warranties: Some Terms… Warranty-a statement about the products qualities or performance that the seller assures the buyer is true. Express Warranty-An assurance of quality or promise of performance explicitly made by the seller; it may be oral or written.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)39 CHAPTER 14: CONSUMER PROTECTION Warranties Express and Implied Warranties: Magnuson-Moss Warranty Act (FTC) The FTC has established minimum standards that must be met by sellers who give written warranties on consumer products that cost more than $15, and that normally are used for personal, family, or household purposes.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)40 CHAPTER 14: CONSUMER PROTECTION Warranties Express and Implied Warranties: Magnuson-Moss Warranty Act (FTC) Certain information must be included in the written warranty: To whom the warranty is extended Product description When warranty begins Procedure to obtain performance of warranty

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)41 CHAPTER 14: CONSUMER PROTECTION Warranties Express and Implied Warranties: Some Terms… Full warranty-An express warranty that obligates the seller to repair or replace a defective product without cost to the buyer and within a reasonable time Limited warranty-any warranty that provides less protection than a full warranty. Puffing-exaggerated sales talk (e.g., the best on the marketmerely personal opinions)

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)42 CHAPTER 14: CONSUMER PROTECTION Warranties Implied Warranties: An implied warranty is an implicit warranty obligation imposed by all sellers, in order to ensure minimal standards of contractual performance. Warranty of Title-implicit in the act of selling, the seller warrants that he or she has title to the goods and the right to transfer them. Warranty Against Encumbrances-implicit warranty that goods are free from claims of third party ties (unpaid balances)

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)43 CHAPTER 14: CONSUMER PROTECTION Warranties Implied Warranties: Warranty of Fitness for a Particular Purpose-the seller makes an implied warranty that the goods delivered to the buyer are reasonably fit for the stated purpose This warranty does not apply when the buyer personally selects the goods and does not rely on the sellers judgment.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)44 CHAPTER 14: CONSUMER PROTECTION Warranties Additional Information About Warranties: Warranty Implied by Law for Merchants-the seller Merchants are typically held to higher standards in their dealings with consumers than are casual sellers. Warranty Against Infringement Warranty of Merchantability

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)45 CHAPTER 14: CONSUMER PROTECTION Warranties Additional Information About Warranties: Warranty Against Infringement A merchant makes an implied warranty that the goods in which she or he normally deals shall be delivered to a buyer free of any third partys claims for patent, copyright, or trademark infringement. Warranty of Merchantability Every merchant who customarily deals in goods of a particular kind makes an implied warranty of merchantability to all buyers of the goods (fit for ordinary purposes)

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)46 CHAPTER 14: CONSUMER PROTECTION Warranties Express Warranties Made by All Sellers: In addition to warranties implied by law, sellers may make express warranties. Warranty of Conformity to Sellers Statement or Promise Warranty of Conformity to Description, Sample, or Model

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)47 CHAPTER 14: CONSUMER PROTECTION Warranties Express Warranties Made by All Sellers: Warranty of Conformity to Sellers Statement or Promise Every seller is bound by any express statement of fact or promise that is part of the bargain. It is desirable to have such statements in writing. Warranty of Conformity to Description, Sample, or Model When these are made a part of the contractual agreement, there is an express warranty that all the goods shall conform to the description, sample, or model used. This is true even if the words warranty or guarantee do not appear in the contract.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)48 CHAPTER 14: CONSUMER PROTECTION Warranties Exclusion of Warranties: A seller may offer to sell goods without any warranties: Use a disclaimer: there are no warranties of merchantability or fitness that extend beyond the description on the label. Exclusion of implied warranties is achieved by such expressions as with all faults, or as is.

CHAPTER 14: CONSUMER PROTECTION August 9, 2002BUSINESS LAW (Ms. Hawkins)49 CHAPTER 14: CONSUMER PROTECTION