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CHAPTER 40

CHAPTER 40. Consumer Law. Federal Trade Commission. Created in 1915 to regulate business. The FTC may enforce the law by: Voluntary compliance with regulations. Administrative hearings and appeals, which may lead to a voluntary consent order or a forced cease and desist order.

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CHAPTER 40

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  1. CHAPTER 40 Consumer Law

  2. Federal Trade Commission • Created in 1915 to regulate business. • The FTC may enforce the law by: • Voluntary compliance with regulations. • Administrative hearings and appeals, which may lead to a voluntary consent order or a forced cease and desist order. • Violations of voluntary consent or cease and desist orders will lead to penalties.

  3. Sales • Section 5 of the Federal Trade Commission Act (FTC Act) prohibits “unfair and deceptive acts or practices.” • Under the FTC Act, an advertisement is deceptive if it contains an important misrepresentation or omission that is likely to mislead a reasonable consumer.

  4. Sales (cont’d) • The Commission considers a practice to be unfair if it meets all of the following three tests: • It causes substantial consumer injury. • The harm of the injury outweighs any countervailing benefit. • The consumer could not reasonably avoid the injury. • In addition, the FTC may decide that a practice is unfair simply because it violates public policy.

  5. Bait and Switch • FTC rules prohibit bait and switch advertisements: a merchant may not advertise a product and then disparage it to consumers in an effort to sell a different item.

  6. Mail or Telephone Orders • Ordered items must be shipped when promised, or within 30 days. If this is not possible, the customer must have the opportunity to change his mind. • The FTC prohibits telemarketers from calling any telephone number listed on its do-not-call registry. FTC rules also prohibit telemarketers from blocking their names and telephone numbers on Caller ID systems. • Under §5 of the FTC Act, anyone who receives unordered merchandise in the mail can treat it as a gift.

  7. Door-to-Door Sales • Door-to-door salespersons are required to notify the buyer of the right to cancel the transaction prior to midnight of the third business day after the sale.

  8. Consumer Credit • The Truth in Lending Act applies to a transaction only if all of the following tests are met: • It is a consumer loan. • The loan has a finance charge or will be repaid in more than four installments. • The loan is for less than $25,000 or secured by a mortgage on real estate. • The loan is made by someone in the business of offering credit.

  9. Required Disclosure • In all loans regulated by TILA: • The disclosure must be clear and in meaningful sequence • The lender must disclose the finance charge. • The creditor must also disclose the annual percentage rate (APR).

  10. Required Disclosure: Open-End Credit • In any ad or solicitation, the lender must disclose credit terms, including if the rate is introductory and when the rate expires. • In statements, the lender must disclose: • the amount owed at the beginning of the billing cycle (the previous balance); • amounts and dates of all purchases, • credits and payments; • finance charges & late fees, plus the date by which a bill must be paid to avoid charges; • either the consequences of making the monthly minimum payment or a toll free number at which to obtain such information

  11. Required Disclosure: Closed-End Credit • Before finalizing the loan, the lender must disclose: • the cash price; • the total down payment, • the amount financed; • an itemized list of all charges; • amounts and dates of all payments; • total amount of payments; • late payment and pre-payment penalties; • and the lender’s security interest in the item purchased.

  12. Home Equity Loans • If a home equity loan: • Has an APR more than 10 points higher than Treasury securities, OR • The consumer must pay fees and points higher than 8% of the total loan amount… • THEN… • The lender must notify the consumer that he does not have to go through with the loan, and he could lose his house if he fails to make payments, AND • Loans for less than 5 years may not have a balloon payment.

  13. Other TILA Provisions • Under TILA, consumers have the right to rescind a mortgage for up to three business days after the signing; if the lender does not comply with TILA, the consumer has three years to rescind. • Advertising of financing rates must be accurate: No bait and switch! • Enforcement is done by the FTC.

  14. Credit Card Rules - Theft • Under TILA, you are liable only for the first $50 in charges a thief makes. • If a thief steals just your number, and not your card, you are not liable for any unauthorized charges. • With debit cards, you are only liable for the first $50 if you report the theft within 2 days of discovery; after 2 days, you are liable for the first $500, after 60 days, all liability is yours.

  15. Credit Card Rules-Disputes • In a dispute between a customer and a merchant, the company cannot bill the customer if: • she tries to resolve the dispute, • the dispute is for more than $50, and • the merchant is in the same state or is within 100 miles of her house.

  16. Fair Credit Billing Act • Under the FCBA • Credit card companies must acknowledge receipt of a complaint from a cardholder. • Credit card company must investigate complaints and report the results. • If the consumer requests it, the company must supply documentation of the transaction in question. • The company may not try to collect the amount of the dispute while it is in investigation.

  17. Fair Credit Reporting Act • Under the FCRA: • A consumer report can only be used for legitimate business needs. • Information must not be obsolete. • Employers may not seek a report on a current or potential employee without permission. • Anyone making an adverse decision against a consumer because of a report must reveal the name and address of the reporting agency. • A reporting agency must make a consumer’s report available upon request. • A reporting agency must investigate and correct any content reported to be inaccurate.

  18. Fair and Accurate Credit Transactions Act • FACTA provides that consumers are entitled by law to one free credit report every year from each of the three major reporting agencies: Equifax, Experian, and Trans Union. • Consumer advocates recommend that you do check your credit reports every year to make sure they are accurate and also that no one else has been obtaining credit in your name.

  19. Fair Debt Collection Practices Act • Under the FDCPA, collectors may not: • Call or write the debtor who has notified the collector in writing that he wishes no further contact. • Call or write a debtor who is represented by an attorney. • Call a debtor before 8:00 a.m. or after 9:00 p.m. • Threaten a debtor or use obscene or abusive language. • Call or visit the debtor at work if the consumer’s employer prohibits such contact.

  20. FDCPA (Cont’d) • Under the FDCPA, collectors may not: • Imply that they are attorneys when they are not. • Threaten to arrest consumers who do not pay their debts. • Make other false or deceptive threats, that is, threats that would be illegal if carried out. • Contact acquaintances of the debtor for any reason other than to locate the debtor (and then only once). • Tell acquaintances that the consumer is in debt.

  21. Equal Credit Opportunity Act • The Equal Credit Opportunity act (ECOA) prohibits any creditor from discriminating against a borrower because of race, color, religion, national origin, sex, marital status, age (as long as the borrower is old enough to enter into a legal contract), or because the borrower is receiving welfare.

  22. Consumer Leasing Act • Before a lease is signed, the lessor must disclose the following in writing: • All required payments, including deposit, down payment, taxes, license fees and balloon payment (due at end of lease). • The number and amount of each payment. • Required insurance payments and available warranties. • Maintenance requirements. • Penalties for late payments. • The consumer’s right to purchase the leased property or terminate a lease early.

  23. Magnuson-Moss Warranty Act • Manufacturers or sellers are not required to offer a warranty. • Any supplier that does offer a written warranty (on a consumer product that costs more than $15) must disclose the terms of the warranty in simple understandable language before the sale.

  24. Consumer Product Safety Commission • The Consumer Product Safety Commission (CPSC) evaluates consumer products and develops safety standards.

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