45 - 1 consumer protection. 45 - 2 caveat emptor “let the buyer beware” – the traditional...

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Page 1: 45 - 1 Consumer Protection. 45 - 2 Caveat Emptor “Let the buyer beware” – the traditional guideline of sales transactions

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Consumer Protection

Page 2: 45 - 1 Consumer Protection. 45 - 2 Caveat Emptor “Let the buyer beware” – the traditional guideline of sales transactions

45 - 2

Caveat Emptor

“Let the buyer beware” – the traditional guideline of sales transactions.

Page 3: 45 - 1 Consumer Protection. 45 - 2 Caveat Emptor “Let the buyer beware” – the traditional guideline of sales transactions

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Consumer Protection Laws• Federal and state statutes

and regulations that

promote product safety

and prohibit abusive,

unfair, and deceptive

practices.

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Federal Food, Drug, and Cosmetic Act

• Provides the basis for the regulation of much of the testing, manufacture, distribution, and sale of foods, drugs, cosmetics, and medicinal products and devices in the United States.

• Administered by the Food and Drug Administration (FDA).

• The FDA is empowered to regulate food, food additives, drugs, cosmetics, and medicinal devices.

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Regulation of Food• The FDCA prohibits the shipment,

distribution, or sale of adulterated food.

• The FDCA prohibits false and misleading labeling of food products.

• It mandates affirmative disclosure of information on food labels.

• A manufacturer may be held liable for deceptive labeling or packaging.

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Food Labeling• Nutrition Labeling and Education

Act– Requires food manufacturers

to place labels on foods that discloses nutritional information about the food.• Number of calories• Amount of fat• Dietary fiber• Cholesterol

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Regulation of Drugs• The FDCA gives the FDA the

authority to regulate the testing, manufacture, distribution, and sale of drugs.

• The Drug Amendment to the FDCA gives the FDA broad powers to license new drugs in the United States.

• The manufacture, distribution, or sale of adulterated or misbranded drugs is prohibited.

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Regulation of Drugs (continued)

• The law requires all users of prescription and nonprescription drugs to receive:– Proper directions for use– Including method and

duration of use– Adequate warnings about any

related side effects

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Regulation of Cosmetics• The FDA has issued regulations

that require cosmetics:– To be labeled– To disclose ingredients– To contain warnings if they are

carcinogenic or otherwise dangerous to a person’s health

• The manufacture, distribution, or sale of adulterated or misbranded cosmetics is prohibited.

• The FDA may remove from commerce cosmetics that contain unsubstantiated claims.– Preserving youth– Growing hair

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Regulation of Medicinal Devices

• The Medicinal Device Amendment to the FDCA gives the FDA authority to regulate medicinal devices and equipment.

• The mislabeling of medicinal devices is prohibited.

• The FDA is empowered to remove “quack” devices from the market.

Page 11: 45 - 1 Consumer Protection. 45 - 2 Caveat Emptor “Let the buyer beware” – the traditional guideline of sales transactions

45 - 11© 2007 Prentice Hall, Business Law, sixth edition, Henry R.

Cheeseman

Other Acts Administered by FDA

Pesticide Amendment of 1954

Authorizes the FDA to establish tolerances for pesticides used on agricultural products.

Food Additives Amendment of 1958

Requires FDA approval of new food ingredi-ents or articles that come in contact with food (e.g., wrapping and packaging materials)

Color Additives Amendment of 1960

Requires FDA approval of color additives used in food, drugs, and cosmetics.

Animal Drug Amendment of 1968

Requires FDA approval of any new animal drug or additive to animal food.

Page 12: 45 - 1 Consumer Protection. 45 - 2 Caveat Emptor “Let the buyer beware” – the traditional guideline of sales transactions

45 - 12© 2007 Prentice Hall, Business Law, sixth edition, Henry R.

Cheeseman

Other Acts Administered by FDABiologies Act of 1902 Gives the FDA power to regulate

biological products. This includes: vaccines, blood, blood components and derivatives, and allergenic products.

Section 361 of the Public Health Service Act

Gives the FDA power to regulate and set standards for sanitation at food service establishments and on interstate carriers.

Section 354 of the Public Health Service Act and the Radiation for Health and Safety Act of 1968

Empowers the FDA to regulate the manufac-ture, distribution, and use of X-ray machines, microwave ovens, ultrasound equipment, and other products that are capable of emitting radiation.

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Consumer Product Safety Act

• Federal statute that regulates potentially dangerous consumer products.

• Created the Consumer Product Safety Commission (CPSC).

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Consumer Product Safety Commission

Independent federal regulatory agency empowered to:

1. Adopt rules and regulations to interpret and enforce the Consumer Product Safety Act.

2. Conduct research on safety.3. Collect data regarding injuries.

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Lemon Laws• Provide a procedure for

consumers to follow to correct recurring problems in vehicles.

• Establish an administrative procedure that is less formal than a court proceeding.

• Require that an arbitrator decide the dispute between a consumer and car dealer.

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Unfair and Deceptive Practices

• Prohibits unfair and deceptive practices including:– False and deceptive

advertising– Bait and switch– Abusive sales tactics– Consumer fraud

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False and Deceptive Advertising

• Section 5 of the FTC Act describes false and deceptive advertising as:– Containing misinformation or

omitting information that is likely to mislead a reasonable consumer, or

– Makes an unsubstantiated claim.

– Proof of actual deception not required.

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Bait and Switch• Seller advertises low-cost

item to attract customers.• Seller pressures buyers to

upgrade.– Often refuses to show

advertised merchandise.– Discourages employees from

selling advertised merchandise.

– Fails to have adequate quantities on hand.

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Door-to-Door Sales• Many states have enacted

statutes that permit consumers

to rescind contracts made at

home with door-to-door sales

representatives within a set

period after signing the contract.

• Must send required notice of

cancellation to seller.

Page 20: 45 - 1 Consumer Protection. 45 - 2 Caveat Emptor “Let the buyer beware” – the traditional guideline of sales transactions

45 - 20© 2007 Prentice Hall, Business Law, sixth edition, Henry R.

Cheeseman

Federal Federal Consumer-Consumer-

Debtor Debtor Protection Protection

LawsLaws

Truth-in-Lending Act Truth-in-Lending Act (TILA)(TILA)

Consumer Leasing Consumer Leasing ActAct

Fair Credit & Charge Fair Credit & Charge Card Disclosure ActCard Disclosure Act

Equal Credit Equal Credit Opportunity ActOpportunity Act

Fair Debt Collection Fair Debt Collection Practices ActPractices Act

Fair Credit Fair Credit Reporting ActReporting Act

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45 - 21© 2007 Prentice Hall, Business Law, sixth edition, Henry R.

Cheeseman

Federal Consumer LawsTruth-in-Lending Act (TILA) of 1968 (as amended)

Requires creditors to make certain disclosures to debtors in consumer transactions that do not exceed $25,000 and real estate loans of any amount on the debtor’s principal dwelling.

Consumer Leasing Act An amendment to the TILA. Extends the TILA’s coverage to lease terms in consumer leases.

Fair Credit and Charge Card Disclosure Act of 1988

Amendment to the TILA. Requires disclosure of certain credit card terms on credit- and charge-card solicitations and applications. Provides the following protections: (1) Un-solicited credit cards, (2) Faulty products purchased with credit cards, (3) Lost or stolen credit cards.

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45 - 22© 2007 Prentice Hall, Business Law, sixth edition, Henry R.

Cheeseman

Federal Consumer Laws (continued)

Equal Credit Opportunity Act (ECOA) of 1975

Prohibits discrimination in the extension of credit based on: sex, marital status, race, color, national origin, religion, age, or receipt of income from public assistance programs.

Fair Credit Reporting Act of 1970

An amendment to the TILA. Protects customers who are subjects of a credit report by setting out guidelines for credit bureaus.

Fair Debt Collection Practices Act (FDCPA) of 1977

Protects consumer-debtors from abusive, deceptive, and unfair practices used by debt collectors. Prohibits certain contact by the creditor with third parties and the debtor.