Chapter 24 - Consumer Law

Question 1

bait-and-switch advertising

Answer 1

• advertising a product at a very attractive price (the bait) and then informing the consumer, once he or she is in the store, that the advertised product is either not available or is of poor quality; the customer is then urged to purchase (switched to) a more expensive item
• under the FTC guidelines, bait-and-switch advertising occurs if the seller refuses to show the advertised item, fails to have a reasonable quantity of the item in stock, fails to promise to deliver the advertised item within a reasonable time, or discourages employees from selling the item

Question 2

cease-and-desist order

Answer 2

• if the FTC succeeds in proving that an advertisement is unfair or deceptive, it usually issues a cease-and-desist order requiring the company to stop the challenged advertising

Question 3

consumer law

Answer 3

• the body of statutes, agency rules, and judicial decisions protecting consumers of goods and services from dangerous manufacturing techniques, mislabeling, unfair credit practices, deceptive advertising, and so on
• consumer laws provide remedies and protections that are not ordinarily available to merchants or to businesses

Question 4

“cooling-off” laws

Answer 4

• a set of federal and state laws designed to protect purchasers and lessees of goods or property
• for example, the Federal Trade Commission’s cooling-off period is three business days for purchases of goods or services from door-to-door salespersons
• cooling off periods vary for loans, mortgages, leases, etc.

Question 5

counteradvertising

Answer 5

• new advertising that is undertaken pursuant to a Federal Trade Commission order for the purpose of correcting earlier tasks claims that were made about a product

Question 6

deceptive advertising

Answer 6

• advertising that misleads consumers, either by making unjustified claims concerning a product’s performance or by omitting a material fact concerning the product’s composition or performance
• vague generalities and obvious exaggerations are permissible and are known as puffery
• when a claim takes on the appearance of literal authenticity, however, it may create problems
• advertising that appears to be based on factual evidence but in fact is not reasonably supported by some evidence will be deemed deceptive
• some advertisements contain “half-truths,” meaning that the presented information is true but incomplete and therefore leads consumers to a false conclusion
• advertising that contains an endorsement by a celebrity may be deemed deceptive if the celebrity does not actually use the product

Question 7

multiple product order

Answer 7

• an order issued by the Federal Trade Commission to a firm that has engaged in deceptive advertising by which the firm is required to cease and desist from false advertising not only in regard to the product that was the subject of the action but also in regard to all the firm’s other products

Question 8

Regulation Z

Answer 8

• a set of rules promulgation by the Federal Reserve Board to implement the provisions of the Truth-in-Lending Act
• if the contracting parties are subject to the Truth-in-Lending Act, the requirements of Regulation Z apply to any transaction involving an installment sales contract that calls for payment to be made in more than four installments
• transactions typically include : installment loans, retail and installment sales, car loans, home-improvement loans, and certain real estate loans if the amount of financing is less than $25,000

Question 9

validation notice

Answer 9

• an initial notice to a debtor from a collection agency informing the debtor that he or she has thirty days to challenge the debt and request verification

Question 10

SAMPLE TEST QUESTIONS

1. Through careless manufacturing practices, Metalworks Company makes and distributes unsafe products that are sold to Nabi and other consumers. This may be subject to sanctions under :
   a. federal and state law
   b. federal law only
   c. no law, according to the principles of freedom to contract
   d. state law only

Answer 10

ANSWER :
(A)
CORRECT :
(A) federal and state law

Question 11

SAMPLE TEST QUESTIONS

2. Slow-Brew Coffee Company sells coffee and related beverages. The company’s ad contends that ambitious business persons “Drink Up & Rise Up in the World!” The Federal Trade Commission would consider this ad to be :
   a. false and misleading
   b. impermissibly vague and general
   c. a deceptive half-truth
   d. none of the choices

Answer 11

ANSWER :
(B)
CORRECT :
(D) none of the choices

Question 12

SAMPLE TEST QUESTIONS

3. SmartPhone Company’s ad states that its product is “The Best that Money Can Buy.” Because of this ad, the Federal Trade Commission is most likely to issue :
   a. a cease-and-desist order
   b. a counteradvertising order
   c. a multiple product order
   d. none of the choices

Answer 12

ANSWER :
(B)
CORRECT :
(D) none of the choices

Question 13

SAMPLE TEST QUESTIONS

4. Mouth & Gums, Inc. (CSI), engages in deceptive advertising when it markets its product Oral Rinse as able to kill germs over long periods of time. In an action against Mouth & Gums, the firm is ordered to stop its false advertising of Oral Rinse and other products. This is :
   a. a counteradvertising order
   b. a multiple product order
   c. a “cooling-off” law
   d. a validation notice

Answer 13

ANSWER :
(B)
CORRECT :
(B) a multiple product order

Question 14

SAMPLE TEST QUESTIONS

5. Spicy Salsa, Inc., complains to the Federal Trade Commission (FTC) about an ad broadcast by Tangy Taco Sauce Company, Spicy Salsa’s competitor. The FTC investigates and concludes that the ad is deceptive. The FTC’s next step is to :
   a. conduct negotiations between the competitors
   b. draft a formal complaint
   c. issue a cease-and-desist order
   d. permit Spicy Salsa to broadcast similarly deceptive counteradvertising

Answer 14

ANSWER :
(C)
CORRECT :
(B) draft a formal complaint

Question 15

SAMPLE TEST QUESTIONS

6. Medi-Insurance Company faxes ads to Nancy and other individual consumers without the recipients’ permission. This is subject to :
   a. a cease-and-desist order by the Federal Trade Commission
   b. no sanctions
   c. possible fines by the Federal Communications Commission
   d. rescission on the order of the Federal Reserve Board

Answer 15

ANSWER :
(C)
CORRECT :
(C) possible fines by the Federal Communications Commission

Question 16

SAMPLE TEST QUESTIONS

7. Sweet Treats, Inc., wants to market a new snack food. On the product’s label, standard nutrition facts are :
   a. prohibited
   b. required
   c. strictly voluntary
   d. warranted by the nature of the food

Answer 16

ANSWER :
(B)
CORRECT :
(B) required

Question 17

SAMPLE TEST QUESTIONS

8. Under federal law, the calorie content of the food on a menu must be posted by Organic Mix, LLC, if Organic Mix is :
   a. a restaurant chain with twenty or more locations
   b. a food distributor with twenty or more customers
   c. a food processor with twenty or more products
   d. a food producer with twenty or more acres

Answer 17

ANSWER :
(A)
CORRECT :
(A) a restaurant chain with twenty or more locations

Question 18

SAMPLE TEST QUESTIONS

9. Nature’s Food Market sells groceries. Metro Snacks & Drug Store sells groceries and fills prescriptions. The party with the chief responsibility to prevent unsafe food and drugs from being sold is :
   a. Nature’s Food Mart and Metro Snacks & Drug Store
   b. Metro Snacks & Drug Store only
   c. the Federal Trade Commission
   d. the Food and Drug Administration

Answer 18

ANSWER :
(D)
CORRECT :
(D) the Food and Drug Administration

Question 19

SAMPLE TEST QUESTIONS

10. Grid Tool Company makes and sells tools. One of the tools is believed to be hazardous. The appropriate government agency may require Grid to :
    a. export the tool and sell it only abroad
    b. increase the price to cover the cost of any injuries or damage
    c. reduce the price to indicate the hazard to customers
    d. remove the tool from the market

Answer 19

ANSWER :
(D)
CORRECT :
(D) remove the tool from the market

Question 20

SAMPLE TEST QUESTIONS

11. Grover signs an installment contract with Home Appliance Store to finance the purchase of new kitchen appliances - stove, refrigerator, dishwasher, microwave, and toaster oven - for $3,999. This transaction is subject to :
    a. no federal law
    b. the Fair Credit Reporting Act
    c. the Telecommunications Act
    d. the Truth-in-Lending Act

Answer 20

ANSWER :
(D)
CORRECT :
(D) the Truth-in-Lending Act

Question 21

SAMPLE TEST QUESTIONS

12. Tory borrows $10,000 from USA National Bank to remodel a room in her home. This transaction is subject to :
    a. no federal law
    b. the Consumer Leasing Act
    c. the Consumer Product Safety Act
    d. the Truth-in-Lending Act

Answer 21

ANSWER :
(D)
ANSWER :
(D) the Truth-in-Lending Act

Question 22

SAMPLE TEST QUESTIONS

13. Celia borrows $20,000 from Debit & Credit Union to repair her home and to buy a car. She buys a laptop from eStuf Store in a transaction financed by the seller. If these parties are subject to the Truth-in-Lending Act, Regulation Z applies to :
    a. the car loan only
    b. the home repair loan only
    c. the retail installment sale only
    d. the car loan, the home repair loans, and the retail installment sale

Answer 22

ANSWER :
(D)
CORRECT :
(D) the car loan, the home repair loans, and the retail installment sale

Question 23

SAMPLE TEST QUESTIONS

14. In the ordinary course of business, Loan2Buy offers credit to Mai and other consumers and reports on the loans to credit agencies. To save time and money, Loan2Buy generally does not correct or update its reported information. This is most likely to result in :
    a. a levy of a nominal fine
    b. an assessment of damages
    c. an order of rescission of the loan contracts
    d. no sanctions

Answer 23

ANSWER :
(C)
CORRECT :
(B) an assessment of damages

Question 24

SAMPLE TEST QUESTIONS

15. QuikPay, Inc., extends its credit to consumers. QuikPay is subject to the Equal Credit Opportunity Act, which prohibits credit discrimination based on :
    a. intelligence
    b. education
    c. income
    d. race

Answer 24

ANSWER :
(D)
CORRECT :
(D) race

Question 25

SAMPLE TEST QUESTIONS

16. Jasmine receives an unsolicited credit card in the mail and tosses it on her desk. Without Jasmine’s permission, her roommate Ilene uses the card to buy a new tablet for $500. Jasmine is :
    a. liable for $500
    b. liable for $250
    c. liable for $50
    d. not liable for any amount

Answer 25

ANSWER :
(D)
CORRECT :
(D) not liable for any amount

Question 26

SAMPLE TEST QUESTIONS

17. Debt & Loan Company Agency calls Ethel several times a day, and sometimes in the middle of the night, about an overdue bill that a Furniture4U turned over to Debt & Loan for collection. This is a violation of :
    a. no federal law
    b. the Fair and Accurate Credit Transactions Act
    c. the Fair Debt Collection Practices Act
    d. the Truth-in-Lending Act

Answer 26

ANSWER :
(C)
CORRECT :
(C) the Fair Debt Collection Practices Act

Question 27

SAMPLE TEST QUESTIONS

18. Lucy takes out a student loan from Midtown Bank. When she fails to make the scheduled payments for six months, Midtown advises her of further action that it will take. This violates :
    a. no federal law
    b. the Fair and Accurate Credit Transactions Act
    c. the Fair Debt Collection Practices Act
    d. the Truth-in-Lending Act

Answer 27

ANSWER :
(A)
CORRECT :
(A) no federal law

Question 28

SAMPLE TEST QUESTIONS

19. Kip opens an account at a Lotsa Goodies Store, and buys a digital music player and other items, but makes no payments on the account. To collect the debt, Mako, the manager, contacts Kip’s parents. This violates :
    a. no federal law
    b. the Fair and Accurate Credit Transactions Act
    c. the Fair Debt Collection Practices Act
    d. the Truth-in-Lending Act

Answer 28

ANSWER :
(A)
CORRECT :
(A) no federal law

Question 29

SAMPLE TEST QUESTIONS

20. The direct department of Discount Retail Stores, Inc., calls Emmett at work about an overdue bill. Emmett’s employer objects. Discount Retail’s credit department continues to call Emmett at work. This is a violation of :
    a. no federal law
    b. the Fair and Accurate Credit Transactions Act
    c. the Fair Debt Collection Practices Act
    d. the Truth-in-Lending Act

Answer 29

ANSWER :
(C)
CORRECT :
(C) the Fair Debt Collection Practices Act

Question 30

Selected areas of Consumer Law Regulated by Statutes

Answer 30

• Advertising : example : The Federal Trade Commission Act
• Labeling and Packaging : example : The Fair Packaging and Labeling Act
• Sales : example : The FTC Mail-Order Rule
• Credit Protection : example : The Consumer Credit Protection Act
• Product Safety : example : The Consumer Product Safety Act
• Food and Drugs : example : The Federal Food, Drug, and Cosmetic Act

Question 31

Federal Trade Commission Act

Answer 31

• created the Federal Trade Commission (FTC) to carry out the broadly stated goals of preventing unfair and deceptive trade practices, including deceptive advertising

Question 32

Online Deceptive Advertising

Answer 32

• the FTC actively monitors online advertising and has identified hundreds of Web sites that have made false or deceptive claims for products ranging from medical treatments for various diseases to exercise equipment and weight-loss aids
• guidelines call for “clear and conspicuous” disclosure of any qualifying or limiting information
• FTC suggests that advertisers should assume that consumers will not read an entire web page so the disclosure should be placed as close as possible to the claim being qualified or be included within the claim itself ; the next best location is on a section of the page to which a consumer can easily scroll, generally, hyperlinks to a disclosure are recommended only for lengthy disclosures or if disclosure must be repeated on a web page
• Congress passed the federal CAN-SPAM act to combat the problems associated with unsolicited commercial emails, commonly referred to as spam
• many states have also passed consumer protection laws that regulate deceptive online advertising

Question 33

FTC three basic requirements to help online businesses comply with existing laws prohibiting deceptive advertising

Answer 33

1. All ads - both online and offline - must be truthful and not misleading
2. The claims made in an ad must be substantiated - that is, advertisers must have evidence to back up their claims
3. Ads cannot be unfair, which the FTC defines as “likely to cause substantial consumer injury that consumers could not reasonably avoid and that is not outweighed by the benefit to consumers or competition”

Question 34

Federal Trade Commission actions

Answer 34

• Formal Complaint: if the FTC concludes that a given advertisement is unfair or deceptive, it drafts a formal complaint, which is sent to the alleged offender; the company may agree to settle the complaint without further proceedings, if not the FTC can conduct a hearing in which the company can present its defense
• FTC Orders : cease-and-desist, counteradvertising, multiple product order
• Restitution possible

Question 35

Telephone Consumer Protection Act (TCPA)

Answer 35

• prohibits telephone solicitation using an automatic telephone dialing system or a prerecorded voice
• in addition, most states have statutes regulating telephone solicitation
• the TCPA also makes it illegal to transmit ads via fax without first obtaining the recipient’s permission
• the Federal Communications Commission (FCC) imposes substantial fines on companies that violate the junk fax provisions of the act
• TCPA also gives consumers a right to sue for either $500 for each violation of the act or for the actual monetary losses resulting from a violation, whichever is greater
• if a court finds that a defendant willingly or knowingly violated the act, the court has the discretion to treble (triple) the amount of damages awarded

Question 36

Telemarketing and Consumer Fraud Act

Answer 36

• directed the FTC to establish rules governing telemarketing and to bring actions against fraudulent telemarketers

Question 37

Telemarketing Sales Rule (TSR)

Answer 37

• the FTC’s Telemarketing Sales Rule requires a telemarketer to identify the seller’s name, describe the product being sold, and disclose all material facts related to the sale (such as the total cost of the goods being sold)
• TSR makes it illegal for telemarketers to misrepresent information or facts about their goods or services
• a telemarketer must also remove a consumer’s name from its list of potential contacts if the customer so requests
• an amendment to the TSR established the national Do Not Call Registry and must refrain from calling consumers on the list
• TSR helps to protect consumers from illegal cross-border telemarketing operations.

Question 38

Energy Policy and Conservation Act of 1975

Answer 38

• requires automakers to attach an information label to every new car
• the label must include the Environmental Protection Agency’s fuel economy estimate for the vehicle

Question 39

Fair Packaging and Labeling Act

Answer 39

• requires that food product labels identify :
  1. the product
  2. the net quantity of the contents (and, if the number of servings is stated, the size of a serving)
  3. the manufacturer
  4. the packager or distributed
• the act also includes additional requirements concerning descriptions on packages, savings claims, components of nonfood products, and standards for the partial filling of packages

Question 40

Nutrition Labeling and Education Act

Answer 40

• food products must bear labels detailing the nutritional content, including the number of calories and the amounts of various nutrients that the food contains
• requires standard nutrition facts (including the amount and type of fat that the food contains) to be listed on food labels and regulates the use of such terms as “fresh” and “low fat”
• the U.S. Food and Drug Administration (FDA) and the U.S. Department of Agriculture (USDA) are the primary agencies that issue regulations on food labeling
• these rules are published in the Federal Register and updated annually

Question 41

Health-care Reforms enacted by Congress in 2010

Answer 41

• include provisions aimed at combating obesity in the United States
• all restaurant chains with twenty or more locations are required to post caloric content of the foods on their menus so that customers will know how many calories they are eating
• foods offered through vending machines must also be labeled so that their caloric content is visible to would-be purchasers
• in addition, restaurants must post guidelines on the the number of calories that an average person requires daily so that customers can determine what portion a day’s calories a particular food will provide
• the federal law on menu labeling supersedes all state and local laws already in existence

Question 42

Federal Reserve Board of Governors

Answer 42

• has issued a regulation that governs credit provisions associated with sales contracts

Question 43

FTC Mail or Telephone Order Merchandise Rule

Answer 43

• amended the FTC Mail-Order Rule
• the rule provides specific protections for consumers who purchase goods over the phone, through the mail, by fax, or via the Internet (whether by smartphone, tablet device, or personal computer)
• merchants must ship orders within the time promised in their advertisements and notify consumers when orders cannot be shipped on time
• also requires merchants to issue a refund within a specified period of time when a consumer cancels an order

Question 44

Postal Reorganization Act

Answer 44

• a consumer who receives unsolicited merchandise sent by the U.S. mail can keep it, throw it away, or dispose of it in any manner that he or she sees fit
• the recipient will not be obligated to the sender

Question 45

Federal Food, Drug, and Cosmetic Act

Answer 45

• regulates food and drugs and protects consumers against adulterated (contaminated) and misbranded food and drugs
• establishes food standards, specified safe levels of potentially hazardous food additives, and provides classification of foods and food advertising and are mostly monitored and enforced by the FDA
• FDA has the responsibility of ensuring that drugs are safe and effective before that are marketed to the public
• because the FDA must ensure the safety of new medications, there is always a delay before drugs are available to the public and this sometimes leads to controversy

Question 46

Food Safety Modernization Act (FSMA)

Answer 46

• provides greater government control over the U.S. Food safety system
• gives the FDA the authority to directly recall any food products that it suspects are tainted (rather than relying on producers to recall items)
• requires any person who manufactures, processes, packs, distributes, receives, holds, or imports food to pay a fee and register with the U.S. Department of Health and Human Services (there are some exceptions for small farmers)
• requires owners and operators of facilities to analyze and identify food safety hazards, implement preventive controls, monitor effectiveness, and take corrective actions
• also places more restrictions on importers of food and requires them to verify that imported foods meets U.S. Safety standards.

Question 47

Consumer Product Safety Act

Answer 47

• created the first comprehensive scheme of regulation over masters of consumer safety
• also established the Consumer Product Safety Commission which conducts research on the safety of individual consumer products and maintains a clearinghouse on the risks associated with various products; is authorized to :
  
  • set safety standards for consumer products
  • ban the manufacture and sale of any product that the commission believes poses an “unreasonable risk “ to consumers (products banned have included various types of fireworks, cribs, and toys, as well as many products containing asbestos or vinyl chloride)
  • remove from the market any products it believes to be imminently hazardous. The CPSC frequently works in conjunction with manufacturers to voluntarily recall defective products from stores
  • require manufacturers to report on any products already sold or intended for sale if the products have proved to be hazardous
  • administer other product-safety legislation, including the Child Protection and Toy Safety Act of 1969 and the Federal Hazardous Substances Act of 1960
• the Consumer Product Safety Act requires the distributors of consumer products to notify the CPSC immediately if they receive information that a product “contains a defect which … creates a substantial risk to the public” or “an unreasonable risk of serious injury or death”

Question 48

Health-Care Reforms

Answer 48

• by 2014, new rights and benefits prohibited certain insurance company practices, such as denying coverage for preexisting conditions
• expanded access to health care by enabling more children to obtain health insurance coverage
• reforms allow young adults (under age twenty-six) to remain on their parents’ health insurance
• also ended lifetime and most annual limits on care, and gave patients access to recommended preventative services (such as cancer screening, vaccinations, and well-baby checks) without cost
• Medicare recipients now receive a 50 percent discount on name-brand drugs, and the gap in Medicare’s prescription drug coverage will be eliminated by 2020
• in an attempt to control the rising costs of health insurance, the law places restrictions on insurance companies; insurance companies must spend at least 85 percent of all premium dollars collected from large employers on benefits and quality improvement
• if insurance companies do not meet these goals, they must provide rebates to consumers
• states can require insurance companies to justify their premium increases to be eligible to participate in the new health insurance exchanges

Question 49

Truth-in-Lending Act

Answer 49

• name commonly given to Title I of the Consumer Credit Protection Act and is basically a disclosure law and administered by the Federal Reserve Board and requires sellers and lenders to disclose credit terms or loan terms so that individuals can shop around for the best financing agreements
• does not extend to other legal entities
• requirements apply only to persons who, in the ordinary course of business, lend funds, sell on credit, or arrange for the extension of credit
• sales or loans made between two consumers do not come under the protection of the act
• protects only debtors who are the natural persons (as opposed to the artificial “person” of a corporation)
• under the provisions of the TILA, all of the terms of a credit instrument must be clearly and conspicuously disclosed
• a lender must disclose the annual percentage rate (APR), finance charge, amount financed, and total payments (the sum of the amount loaned, plus any fees, finance charges, and interest at the end of the loan)
• TILA provides for contract rescission (cancellation) if a creditor fails to follow the exact procedures required by the act
• contains provisions regarding credit cards and one provision limits the liability of a cardholder to $50 per card for unauthorized charges made before the creditor is notified that the card has been lost
• if a consumer receives an unsolicited credit card in the mail that is later stolen, the company that issued the card cannot charge the consumer for any unauthorized charges
• protections were added in 2010 :
  1. A company may not retroactively increase the interest rates on existing card balances unless the account is sixty days delinquent
  2. A company must provide forty-five days’ advance notice to consumers before changing its credit-card terms
  3. Monthly bills must be sent to a cardholders twenty-one days before it’s due date
  4. The interest rate charged on a customers’ credit-card balance ,as not be increased except in specific situations, such as when a promotional rate ends
  5. A company may not charge over-limit fees except in specified situations
  6. When the customer has balances at different interest rates, payments in excess of the minimum amount due must be applied first to the balance with the highest rate (for instance, a higher interest rate is commonly charged for cash advances)
  7. A company may not compute finance charges based on the previous billing cycle (a practice known as double-cycle billing, which hurts consumers because they are charged interest do the previous cycle even though they have paid the bill in full

Question 50

Equal Credit Opportunity Act (ECOA)

Answer 50

• enacted by Congress as an amendment to the TILA
• prohibits the denial of credit solely on the basis of religion, national origin, color, gender, marital status, or age
• prohibits credit discrimination on the basis of whether an individual receives certain forms of income, such as public-assistance benefits
• a creditor may not require a cosigner on a credit instrument if the applicant qualifies under the creditors’ standards for creditworthiness for the amount and terms if the credit request

Question 51

Fair Credit Reporting Act (FCRA)

Answer 51

• protects consumers against inaccurate credit reporting and requires that lenders and other creditors report correct, relevant, and up-to-date information
• provides that consumer credit reporting agencies may issue credit reports to users only for specified purposes (legitimate purposes include the extension of credit, the issuance of insurance policies, and in response to the consumer’s request)
• any time a consumer is denied credit or insurance on the basis of his or her credit report, the consumer must be notified of that fact
• the notice that must include the name and address of the credit reporting agency that issued the report and must be sent to consumers who are charged more than others ordinarily would be for credit or insurance because of their credit reports
• consumers may request the source of any information used by the credit agency, as well as the identity of anyone who has received an agency’s report
• consumers are also permitted to access the information about them contained in a credit reporting agency’s files
• if a consumer discovers that an agency’s files contain inaccurate information, he or she should report the problem to the agency
• a credit reporting agency that fails to comply with the act is liable for actual damages, plus additional damages not to exceed $1,000 and attorney’s fees
• creditors and other companies that use information from credit reporting agencies may also be liable for violations of the FCRA

Question 52

Fair and Accurate Credit Transactions (FACT)

Answer 52

• passed by Congress in an effort to combat identity theft
• established a national fraud alert system
• consumers who suspect that they have been victimized by identity theft can place an alert on their credit files
• requires the major credit reporting agencies to provide consumers with free copies of their own credit reports every twelve months
• another provision requires account numbers on credit card receipts to be truncated (shortened)
• merchants, employees, or others who may have access to the receipts no longer have the consumers’ names and full credit card numbers
• financial institutions must work with the FTC to identify “red flag” indicators of identity theft and to develop rules for the disposal of sensitive credit information

Question 53

Fair Debt Collection Practices Act (FDCPA)

Answer 53

• attempts to curb perceive abuses by collection agencies
• only applies to specialized debt collection agencies and attorneys who regularly attempt to collect debts on behalf of someone else, usually for a percentage of the amount owed
• creditors attempting to collect debts are not covered by the act unless, by misrepresenting themselves, they cause debtor’s to believe they are collection agencies
• a collection agency may not do any of the following :
  1. Contact the debtor at the debtor’s place of employment if the debtor’s employee objects
  2. Contact the debtor at inconvenient or unusual times (for example, at three o’ clock in the morning) or at any time, if the debtor is being represented by a attorney
  3. Contact third parties other than the debtor’s parents, spouse, or financial adviser about payment of a debt unless a court authorizes such action
  4. Harass or intimidate the debtor (by using abusive or threatening violence, for example) or make false or misleading statements (such as posing as a police officer
  5. Communicate with the debtor at any time after receiving notice that the debtor is refusing to pay the debt, except to advise the debtor of further action to be taken by the collection agency
• debt collectors who violate the act are exempt from liability if they can show that the violation was not intentional and “resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error”