Chapter 21: Consumer Protection

A credit-reporting agency that fails to comply with the Fair Credit Reporting Act is liable for actual damages, plus additional damages not to exceed ___ and attorney's fees.

$1,000

The Telephone Consumer Protection Act gives consumers a right to sue for either ________ for each violation of the act or the actual monetary losses resulting from a violation, whichever is greater.

$500

Subsequent to health reforms enacted in 2010, all restaurant chains with ___ or more locations are required to post the caloric content of the foods on their menus.

20

Ace Products manufactures and markets a product called Grow Tall. Ace claims in its advertising that Grow Tall will make its users grow a minimum of six inches taller than their current height. The Federal Trade Commission (FTC) will likely find that the ad is: A. deceptive, and the FTC may issue a cease-and-desist order. B. deceptive, and the FTC may declare that it is bait-and-switch advertising. C. not deceptive, and the FTC may therefore issue a counteradvertising order. D. not deceptive, because buyers are obligated to be aware that some advertising claims are untrue and should avoid purchasing products that make impossible claims.

A. deceptive, and the FTC may issue a cease-and-desist order.

After it determines that an advertisement is deceptive or unfair, the Federal Trade Commission's first step is to: A. draft a formal complaint B. require the advertiser to counter-advertise C. issue a cease-and-desist order

A. draft a formal complaint

According to the FTC, any of the following practices constitute bait-and-switch advertising except: A. the seller fails to state an unambiguous price in advertising. B. the seller fails to have a reasonable quantity of the item in stock. C. the seller discourages employees from selling the item. D. the seller refuses to show the advertised item. E. the seller fails to promise to deliver the advertised item within a reasonable time.

A. the seller fails to state an unambiguous price in advertising.

Frank's Lending Co. provides short-term loans, generally less than $1,000, to individuals with low credit scores at an interest rate of 10%. Frank's is required by TILA to disclose: A. the terms of the credit instrument. B. his profits. C. only the interest rate. D. nothing.

A. the terms of the credit instrument.

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 consumer 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.

Advertising that ___ to be based on factual evidence, but is not reasonably supported by some evidence, will be deemed deceptive.

Appears

Suppose that the defendant did not cite any medical studies, but rather stated that its pomegranate-based products were generally beneficial for health and might prevent or reduce the risk of a large number of diseases. Would the appellate court have ruled the same? A. Probably, because it is well known that few, if any, fruit-based products can improve one's health in any manner. B. Given that the hypothetical claims that the defendant might have made were general and no worse than seller's "puffery," the court probably would not have ruled in favor of the injunctive order. C. Probably, because any reference to health benefits from any food product must be substantiated by randomized, controlled, human clinical trials.

B. Given that the hypothetical claims that the defendant might have made were general and no worse than seller's "puffery," the court probably would not have ruled in favor of the injunctive order.

Will the FDA's regulation of POM's purported deceptive advertising have an overall impact for consumers buying other brands? A. No, because FTC injunctive orders are typically thrown out once the case gets to the United States Supreme Court. B. Probably not. Given the hundreds of thousands (if not more) similar claims that can be found on the Internet, the FTC's injunctive order against POM may have little impact for consumers buying similar products. C. Yes, because once the word is out that unsubstantiated health-benefit claims for consumer products cannot be made, other sellers of similar products will no longer make such claims.

B. Probably not. Given the hundreds of thousands (if not more) similar claims that can be found on the Internet, the FTC's injunctive order against POM may have little impact for consumers buying similar products.

Which of the below is not a power of the Consumer Product Safety Commission (CPSC)? A. Set safety standards for consumer products B. Remove from the market any products not operating as advertised C. Work with manufacturers to voluntarily recall defective products from stores D. Ban a product it believes poses an "unreasonable risk" to consumers

B. Remove from the market any products not operating as advertised

After the FTC files a formal complaint, the advertiser may agree either to settle the complaint or to proceed to: A. arbitration. B. a hearing conducted by the FTC. C. a state court. D. federal district court.

B. a hearing conducted by the FTC.

How much time do distributors of consumer products have to notify the Consumer Product Safety Commission when they learn of a product defect that creates a substantial risk to the public? A. 3 days B. immediate action is required C. 20 days D. 10 days

B. immediate action is required

The Consumer Product Safety Commission (CPSC) determines that a Barbie Jeep, a toy Jeep in which children ride, is unsafe. The CPSC has the power to: A. redesign all of the Jeeps. B. remove the Jeeps from the market. C. require parents to ship all such Jeeps in their possession to the CPSC. D. destroy all of the Jeeps.

B. remove the Jeeps from the market.

Why might a company like POM Wonderful, LLC, not engage in randomized, controlled, human clinical trials? A. Because clinical trials only make sense for new antibiotics. B. Because such trials can never prove anything because of their random nature. C. Because such clinical trials are expensive and lengthy.

C. Because such clinical trials are expensive and lengthy.

Redcap Dairies sells to consumers yogurt that it knows to be contaminated by a harmful mold. Redcap Dairies would be held responsible under the: A. Fair Packaging and Labeling Act. B. Federal Safety and Food Adulteration Act. C. Federal Food, Drug, and Cosmetic Act. D. Federal Trade Commission's 'cooling-off laws.'

C. Federal Food, Drug, and Cosmetic Act.

Western Fitness advertised a new Omnibike that was specially designed to help users lose weight faster. It cited the example of Julie, who lost weight faster on the Omnibike than with other exercise products. What Western Fitness did not disclose is that in their study of thirty users of the Omnibike, Julie was the only one who lost weight faster than with other exercise products. Western Fitness's claims are: A. half-truths, which would be legal because the statement about Julie is accurate. B. wholly true, because Western Fitness's statement about Julie is accurate. C. half-truths, which would likely constitute deceptive advertising. D. wholly false, because most users of the OmniBike did not lose weight faster.

C. half-truths, which would likely constitute deceptive advertising.

Veronica's corn cakes are packaged with labels that say "Veronica's delicious popped corn cakes. 20 popped corn cakes. Net weight: 5.3oz. Manufactured in Plano, Texas." Regarding the Fair Packaging and Labeling Act, the label is missing: A. information about the history of the company. B. information about the corn farming practices. C. information about the packager or distributor. D. information about the members of the company's board of directors.

C. information about the packager or distributor.

As a general rule, product labels must: A. comply with Regulation Z. B. list the phone number of the Better Business Bureau. C. use words that are easily understood by the ordinary consumer. D. be as technically detailed as possible.

C. use words that are easily understood by the ordinary consumer.

The Fair Debt Collection Practices Act requires a collection agency to include a(n) ____________ whenever it initially contacts a debtor for payment of a debt or within five days of that initial contact. A. adjudication notice B. cease-and-desist notice C. validation notice D. invalidation notice

C. validation notice

The Consumer Product Safety Commission (CPSC) was established by the:

Consumer Product Safety Act

State and federal laws relating to the ability to cancel sales contracts from door-to-door salespersons are called ___.

Cooling off laws

Which agency monitors and enforces the statutory requirements of the FDCA? A. FDC B. EPA C. FTC D. FDA

D. FDA

A company produced pacemakers that have been widely distributed throughout the United States over the last two years. The pacemakers have just been discovered to have been mislabeled. Which of the below is true about the power of the Food and Drug Administration (FDA) in regard to the pacemakers? A. The FDA can require new labeling only if the error could cause significant harm. B. The FDA cannot regulate the pacemakers already in the market. C. The FDA must contact all consumers who received the pacemaker it approved within the last two years. D. The FDA can withdraw from the market all the mislabeled pacemakers.

D. The FDA can withdraw from the market all the mislabeled pacemakers.

A penalty that can be imposed on an agency that does not exactly follow the provisions of the Fair Credit Reporting Act (FCRA) is: A. criminal charges. B. termination. C. novation. D. actual damages.

D. actual damages.

Penny Stock Company faxes ads to Quality Personnel Corporation and other businesses without the recipients' permission. This is: A. legal but only potentially smart, depending on the response rate. B. legal and smart because such ads are generally cheap. C. legal but not smart because such ads are generally ineffective. D. illegal.

D. illegal.

Melon Lawn Co. advertises its new XJ200 lawn mower. Salespersons describing the XJ200 on behalf of Melon Lawn describe it as a "fabulous new mower" that will "take landscaping by storm." Melon Lawn's salespersons are engaging in: A. ineffective advertising. B. deceptive advertising. C. insignificant advertising. D. puffery.

D. puffery.

Cowland, Inc., manufactures a low-cost generic cheese alternative. It adds a filler to the meat that it does not list on its label. Cowland's actions violate federal requirements relating to the labeling of food products. These requirements are enforced by: A. the CPSC's rules against deceptive advertising. B. Regulation Z. C. the Fair Labeling Authority within the Department of Commerce. D. the U.S. Food and Drug Administration and the U.S. Department of Agriculture.

D. the U.S. Food and Drug Administration and the U.S. Department of Agriculture.

The Equal Credit Opportunity Act prohibits the denial of credit based solely on several characteristics. Which of the following IS NOT one of these characteristics?

Disability

Counteradvertising:

New advertising undertaken to correct earlier false claims about a product.

Some advertisements contain "half-truths," meaning that the ___ information is true yet incomplete and, therefore, leads consumers to a false conclusion.

Presented

Vague generalities and obvious exaggerations are permissible and are known as ___.

Puffery

Unwanted and unsolicited advertising sent via a fax machine may violate the

Telephone Consumer Protection Act

A drug manufacturer is preparing to seek Food and Drug Administration (FDA) approval to sell a newly developed drug. What must the manufacturer show to gain FDA approval?

That the drug is effective and safe

Consumer Law:

The body of statues, agency rules, and judicial decisions protecting consumers of good and services from dangerous manufacturing techniques, mislabeling, unfair credit practices, deceptive advertising, and so on.

In an online ad, any disclosures should be placed as close as possible to the claim being qualified or be included within the claim itself.

True

Package labels must use words that the ordinary consumer understands.

True

The Truth-in-Lending Act (TILA) requires sellers and lenders to disclose credit terms or loan terms so that individuals can shop around for the best financing arrangements.

True

Did the U.S. Court of Appeals for the District of Columbia support the FTC's decision with respect to POM Wonderful, LLC?

Yes