Chapter 24: "Consumer Law" Flashcards
bait-and-switch advertising
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.
deceptive advertising
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.
The FTC has issued guidelines to help online businesses comply with existing laws prohibiting deceptive advertising.Footnote These guidelines include three basic requirements:
All ads—both online and offline—must be truthful and not misleading.
The claims made in an ad must be substantiated—that is, advertisers must have evidence to back up their claims.
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.”
Online Deceptive Advertising
Clear and Conspicuous Disclosure
counteradvertising
New advertising that is undertaken pursuant to a Federal Trade Commission order for the purpose of correcting earlier false claims that were made about a product.
In addition, the guidelines call for “clear and conspicuous” disclosure of any qualifying or limiting information. The overall impression of the ad is important in meeting this requirement. The FTC suggests that advertisers should assume that consumers will not read an entire Web page.
Therefore, to satisfy the “clear and conspicuous” requirement, the disclosure should be placed as close as possible to the claim being qualified or be included within the claim itself. If such placement is not feasible, 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 for disclosures that must be repeated in several locations on the Web page.
counteradvertising
New advertising that is undertaken pursuant to a Federal Trade Commission order for the purpose of correcting earlier false claims that were made about a product.
multiple product order
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.
After the FTC files a formal complaint, the advertiser may agree either to settle the complaint or to proceed to:
a hearing conducted by the FTC.
The FTC’s Telemarketing Sales Rule (TSR) 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).
Regulation Z
A set of rules promulgated by the Federal Reserve Board to implement the provisions of the Truth-in-Lending Act.
Z apply to any transaction involving an installment sales contract that calls for payment to be made in more than four installments.
Equal Credit Opportunity
Congress enacted the Equal Credit Opportunity Act (ECOA) as an amendment to the TILA. The ECOA prohibits the denial of credit solely on the basis of race, religion, national origin, color, gender, marital status, or age. The act also prohibits credit discrimination on the basis of whether an individual receives certain forms of income, such as public-assistance benefits.
Credit-Card Rules
The TILA also contains provisions regarding credit cards. 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.
Another provision requires credit-card companies to disclose the balance computation method that is used to determine the outstanding balance and to state when finance charges begin to accrue. Other provisions set forth procedures for resolving billing disputes with the credit-card company. These procedures are used if, for example, a cardholder thinks that an error has occurred in billing or wishes to withhold payment for a faulty product purchased by credit card.
Amendments to Credit-Card Rules
Amendments to the TILA’s credit-card rules that became effective in 2010 added the following protections:
- A company may not retroactively increase the interest rates on existing card balances unless the account is sixty days delinquent.
- A company must provide forty-five days’ advance notice to consumers before changing its credit-card terms.
- Monthly bills must be sent to cardholders twenty-one days before the due date.
- The interest rate charged on a customer’s credit-card balance may not be increased except in specific situations, such as when a promotional rate ends.
- A company may not charge over-limit fees except in specified situations.
- 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).
- 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 for the previous cycle even though they have paid the bill in full).
The Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA) protects consumers against inaccurate credit reporting and requires that lenders and other creditors report correct, relevant, and up-to-date information. The act 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.
The Fair and Accurate Credit Transactions Act
Congress passed the Fair and Accurate Credit Transactions (FACT) Act in an effort to combat identity theft. The act established a national fraud alert system. Consumers who suspect that they have been or may be victimized by identity theft can place an alert on their credit files. When a consumer establishes that identify theft has occurred, the credit reporting agency must stop reporting allegedly fraudulent account information.
The act also 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.
The Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act (FDCPA)Footnote attempts to curb perceived abuses by collection agencies. The act applies only 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 debtors to believe they are collection agencies. A debt collector who fails to comply with the act is liable for actual damages, plus additional damages not to exceed $1,000 and attorneys’ fees.
Under the FDCPA, a collection agency may not do any of the following:
Contact the debtor at the debtor’s place of employment if the debtor’s employer objects.
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 an attorney.
Contact third parties other than the debtor’s parents, spouse, or financial adviser about payment of a debt unless a court authorizes such action.
Harass or intimidate the debtor (by using abusive language or threatening violence, for example) or make false or misleading statements (such as posing as a police officer).
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.
