1. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17 Slide 1 Consumer Protection 17-1 17-1Federal Protection 17-2 17-2State and Local Protection and Product Liability 17-3 17-3Warranties CHAPTER 17 Lessons

2. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17 Slide 2 Federal Protection Explain why and how the law focuses on the protection of consumers Discuss the trade practices that are prohibited by consumer law LESSON 17-1 GOALS

3. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 3 Hot Debate Edison buys a lawnmower from dept. store Design defect – protective plastic flap binds the mower whenever it is pulled backwards Edison removes flap Pulling mower backwards – he trips and falls backward Foot shoots upwards into the mower blade Wearing tennis shoes – loses half his foot

4. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 4 brings suit against the manufacturer Reasons for supporting Edison’s suit

5. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 5 If the flap had not been defective in the first place, Edison would not have removed it and no injury would have occurred. Legal reason for supporting the manufacturer

6. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 6 Edison’s act of removing the safety feature released the manufacturer from liability

7. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 7 Why does the law protect consumers? Consumer – individual who acquires goods that are primarily intended for personal, family, or household use Caveat emptor – “let the buyer beware” Caveat venditor – “let the seller beware”  no longer holds true

8. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 8 WHY DOES THE LAW PROTECT CONSUMERS? The complexity and sheer abundance of products make it difficult for the consumer to properly judge the quality of advantages and disadvantages of a product.

9. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 9 Advertising – most effective way of creating consumer attitudes toward products

10. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 10 Class actions Product problem – court action is time consuming and costly Class actions Alternative – Class actions allow one or several persons to sue not only on behalf of themselves, but also on behalf of many other similarly wronged

11. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 11 Class actions Government acting through administrative agencies Cease-and-Desist Order – court order requiring the company to stop the specified conduct. Heavy civil penalties for violation Consent Order – voluntary agreement to stop illegal/questionable practice

12. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 12 Class actions An agency may also order restitution Restitution – the return to customers of money wrongfully obtained

13. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 13 Remedies for consumers State Attorney General’s Office Better Business Bureau Customer Service Department of company Small claims court

14. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 14 What’s Your Verdict Simmons saw an ad “car painting, $99.99 complete” Contracted for service and selected a dark blue metallic finish When car was finished, it was painted light blue Simmons complained Manager claimed it was “close enough” to the color he selected and refused to make a correction

15. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 15 What’s Your Verdict What should Simmons do? He can use any of the previously mentioned options

16. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 16 Consumer laws 1 - help protect against the production and sale of substandard or dangerous consumer goods 2 - prohibit improper trade practices 3 - require licenses and inspections to help ensure compliance with the law 4 - provide remedies for persons injured

17. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 17 Vonage Complaints – Nov. 09 Today’s settlement addresses consumer complaints that Vonage, a Delaware-based corporation with offices in Holmdel, made it difficult or impossible to cancel their Vonage service. Vonage formerly paid incentives to customer service representatives for retaining or “saving” customers when they called to cancel. Today’s agreement puts strict limitations on attempts to dissuade consumers from canceling, and requires recording and verification of consumer cancellation calls.

18. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 18 Top 10 consumer complaint categories in New Jersey 2008 Photography studios Debt Collection Home Improvement Repairs Health Clubs Used Motor Vehicles Telecommunications Internet Sales/Goods Telemarketing/Phone Solicitation Home Furnishings/Furniture Banking/Financial Institutions The closure of wedding photography company Celebration Studios in January, 2008 led to over 1,800 consumers filing complaints with the Division. The #2 category, debt collection, generated 729 consumer complaints.

19. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 19 PROTECTION AGAINST SUBSTANDARD GOODS Safety standards Drugs, food, and cosmetics Standards for weights and measures

20. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 20 Safety Standards 1972 – Consumer Product Safety Act CPSC Law created the Consumer Product Safety Commission (CPSC) - requires companies with defective products to report them to the CPSC - hospitals must report product-caused injuries - orders notification to purchasers and recalls

21. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 21 CPSC Can order company to repair, replace, or refund purchase price Levy fines and imprisonment for non- compliance Can ban products from the marketplace

22. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 22 Drugs, Food, and Cosmetics The federal Food and Drug Administration (FDA) FDAFDA Ensures products (cosmetics, food, and drugs) are manufactured in clean environments and ingredients are fit for human use or consumption Products not meeting the standards -- adulterated

23. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 23 FDA Adulterated products may be confiscated by the government. US Dept. of Agriculture inspects: Canners Packers Processors of poultry & meat Disease free & sanitary conditions

24. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 24 FDA - Labeling name, address of manufacturer quantity nutrition Fat Sodium Carbohydrate protein

25. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 25 FDA - Drugs Drugs are regulated for safety, effectiveness, and purpose sold. New drugs need approval to be marketed Over-the-counter – decided by FDA Criticized by many as being “overly cautious”

26. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 26 Weights and Measures U.S. Constitution  Congress National Bureau of Standards State & Local Governments

27. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 27 Weights and Measures Violators punished by fine, imprisonment, or both Scalesgasoline pumps Scannerslumberyard scales -- commercial sales -- unit pricing

28. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 28 Unfair Trade Practices Unfair Trade Practice – method of business that is dishonest or fraudulent or that illegally limits free competition. Federal Laws: Antitrust laws Anti-Trust LawAnti-Trust Law Federal Trade Commission Act FTCFTC Concerned mainly with unfair practices in interstate commerce

29. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 29 Unfair Trade Practices Competition best serves consumers Drives business to create new and better products and services Drives inefficient businesses out Price fixing attempts to ensure a company’s survival - illegal

30. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 30 Unfair Trade Practices False and Misleading Advertising intentionally deceives makes untrue claims of quality or effectiveness fails to reveal critically important facts

31. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 31 Unfair Trade Practices Advertise low price to entice customers into the store Once in the store customer finds the advertised product is sold out and is redirected to a better, higher priced item Called  bait and switch not deceptive is limited quantity is stated Rain checks provided by “good” merchants

32. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 32 Unfair Trade Practices FTC has main responsibility for preventing false and misleading advertising Corrective advertising – advertiser admits wrongdoing and state truth in a specified number of future advertisements

33. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 33 Unfair Trade Practices Illegal Lotteries 1)A required payment of money or something else of value to participate 2)Winner/winners to be determined by change rather than by skill 3)A prize to be won Participants subject to fine and imprisonment

34. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 34 Unfair Trade Practices Illegal Lotteries exempt – religious and benevolent groups Bingo No lottery by businesses allowed to promote sales

35. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 35 Unfair Trade Practices Confidence Games - persuaded to trust swindler with money in hopes of a quick gain -Pyramid schemes -Chain letters - participating is a felony in most states

36. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 36 Unfair Trade Practices Misrepresenting the price of goods as “discounted” or being “wholesale” Getting “free” goods when another good is sold at an inflated price (to cover the cost of the “free” item) Repair Service – giving a low estimate and then charging substantially more after work is done

37. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 37 Unfair Trade Practices Repair Service – continued Most states require written estimates before the work is done.

38. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 38 Unfair Trade Practices Mislabeled Goods – mislabeling a good to make it more marketable is illegal. Shape or size of container should not lead consumer to think he/she is getting more than is actually in the package.

39. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 39 Law requires certain products carry warning labels: Insecticides – “danger” Cigarettes & advertisements – dangers Unfair Trade Practices

40. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 40 Unfair Trade Practices Selling items that are used or second- hand as new or better condition than they actually are. i.e. used cars – (turning odometer back to obtain higher price)

41. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 41 Unfair Trade Practices Confusing Brand Name or Trademark – using a brand name or trademark that is so similar to the original that it confuses the consumer.

42. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 42 Unfair Trade Practices Unordered Merchandise no obligation to pay for unordered merchandise deliberately sent.

43. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 43 Unfair Trade Practices Commercial Bribery -- competitor giving a company’s purchasing agent money (under the table) to get business -- manufacturer paying a retail salesperson money to “push” their product -- spy employed to steal company secrets

44. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 44 Unfair Trade Practices Telemarketing and Internet -- get rich quick -- real estate -- precious metals -- free gifts -- free travel

45. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 45 UNFAIR TRADE PRACTICES 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 Confusing brand name or trademark Unordered merchandise and commercial bribery Fraudulent telemarketing and Internet schemes

46. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 46 FTC GUIDELINES The FTC has adopted many guidelines and regulations that are intended to correct abusive trade practices by requiring businesses to act certain ways. Credit cards – must explain finance charges Written warranties for certain sellers, manufacturers Door-to-door sales – 3 days to cancel (Cooling Off Rule)

47. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17 Slide 47 State and Local Protection and Product Liability Discuss the contribution of local and state governments to consumer protection Define product liability Explain how strict liability law can protect consumers injured by defective products LESSON 17-2 GOALS

48. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 48 Federal to State and Local Laws Caveat Venditor Caveat Venditor – let the seller beware

49. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 49 Licensing Laws Suppliers of consumer and goods must be licensed: Doctors● Lawyers Nurses● Teachers Laboratory Technicians●Accountants Pharmacists●Beauticians Pass inspections before operating: Hospitals, private schools, insurance companies, rest homes, check-cashing services, etc.

50. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 50 What’s Your Verdict? Wilson and Pequot drive past Downtown Electronics Warehouse Pequot notices their going-out-of-business sign Discusses how he bought a CD player b/c he thought he was getting a good deal since they were getting rid of all the merchandise They never closed and Pequot discovered he could have bought the CD cheaper elsewhere

51. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 51 What’s Your Verdict? Are such sales legal? They were guilty of fraud.

52. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 52 Remedies - Injured States have given consumers rights to act against those who have taken unfair advantage when an agency has failed to act.

53. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 53 Sanitation Restaurants, bakeries, hotels and (where food is handled) are “rated” for cleanliness.

54. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 54 Safety Laws Laws regulate type of construction, location, accessibility, and type of buildings for public gatherings. Fire escapes Elevators Parking Sprinkler systems Signs / restrooms

55. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 55 STATE AND LOCAL GOVERNMENT PROTECTION Licensing laws Remedies available to injured consumers Sanitation and food adulteration laws Safety laws

56. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 56 WHAT IS PRODUCT LIABILITY? Privity of contract Recovering damages

57. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 57 Privity of Contract Relationship between or among the contracting parties as a result of their legally binding agreement Under common law – only immediate contracting buyers could sue the seller (not wholesaler or manufacturer) UCC modification – all injured persons (family, guests, etc.) may sue beyond immediate seller

58. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 58 Recovering Damages Product Liability based on: Breach of warranty Torts of fraud Negligence Strict liability Even with these alternative, injured parties may find it difficult to recover: no warranty warranty not applicable warranty expired fraud requires proof of intent

59. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 59 Recovering Damages Often the best alternative is suing under strict liability Obstacles – if product was used for an unintended purpose used for a purpose which could be reasonably foreseen modifying or altering a product improper conduct that causes accident improperly using products that may be dangerous when misused (knives, guns)

60. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 60 Lemon Laws - New Vehicles WHAT IS NOT COVERED: The Lemon Law does not cover vehicles registered for commercial use. The Lemon Law does not cover the living quarters of motor homes. The Lemon Law does not cover the defects caused by accident, vandalism, abuse or neglect. The Lemon Law does not cover defects caused by attempts to repair or to modify the vehicle by a person other than the manufacturer, its agent or an authorized dealer

61. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 61 WHAT YOU MUST DO Before you can file a claim under the Lemon Law in the Division of Consumer Affairs, you must give the manufacturer one final chance to repair the defect. A letter to the manufacturer (not the dealer) must be sent by certified mail, return receipt requested, stating that you may have a claim and that you are giving the manufacturer one last chance to repair the defect. The letter may be sent only after two repair attempts for the same defect have failed to fix the problem, or after the vehicle has been out of service for a cumulative total of 20 days.

62. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 62 WHAT YOU MUST DO In the case of a serious safety defect, the letter can be sent after a single repair attempt fails to fix the problem. The manufacturer should be allowed 10 days following the date on the certified mail return receipt to repair the vehicle. Your “final-chance” letter must be mailed to the manufacturer’s regional office. Contact the Division ofConsumer Affairs’ Lemon Law Unit to get the address for the regional office of your car’s manufacturer.

63. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 63 Your Letter Your letter must be sent by certified mail- return receipt requested. It must be received by the manufacturer before the odometer hits 24,000 miles or two (2) years from the original date of delivery, whichever occurs first. Send the letter to the manufacturer using only the address provided by the Lemon Law Unit. Be sure to include your name, address and telephone number.

64. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 64 Used Vehicle - WHAT IS COVERED BY THE LAW? a motor vehicle has 24,000 miles or less on its odometer, the dealer must provide the customerwith a warranty for 90 days or 3,000 miles, whichever comes first. a motor vehicle has more than 24,000 miles but less than 60,000 miles on its odometer, the dealer must provide the customer with a warranty lasting 60 days or 2,000 miles, whichever comes first.

65. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 65 a motor vehicle that has between 60,000 and 100,000 miles on its odometer, the dealer must provide the customer with a warranty for 30 days or 1,000 miles, whichever comes first.

66. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 66 WHAT IS NOT COVERED BY THE LAW? Motor vehicles sold for less than $3,000 Motor vehicles which are more than seven (7) model years old Motor vehicles that have been declared a total loss by an insurance company Motor vehicles that have odometer readings of more than 100,000 miles Motor vehicles that were not purchased from a dealer The consumer must pay a $50 deductible for each repair of each covered item.

67. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 67 To avoid problems: ■ Look for leaks ■ Taking the car on a test drive ■ Getting an independent evaluation

68. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17 Slide 68 Warranties Distinguish between implied and express warranties and explain the protection they provide Explain the warranty of merchantability and how it may be limited or excluded Differentiate between a full and a limited warranty LESSON 17-3 GOALS

69. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 69 EXPRESS AND IMPLIED WARRANTIES In sales, a warranty is a statement about the product’s qualities or performance that the seller assures the buyer is true. An assurance of quality or promise of performance explicitly made by the seller is an express warranty. Warranty obligation implicitly imposed by law on all sellers is an implied warranty.

70. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 70 SELLERS’ CLAIMS A positive statement about the value of goods or a statement that is just the seller’s opinion does not create a warranty.

71. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 71 IMPLIED WARRANTIES Warranty of title Warranty against encumbrances Warranty of fitness for a particular purpose

72. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 17Slide 72 ADDITIONAL INFORMATION ABOUT WARRANTIES Warranties implied by law for merchants Warranty against infringement Warranty of merchantability Express warranties made by all sellers Warranty of conformity to seller’s statement or promise Warranty of conformity to description, sample, or model Exclusion of warranties