Chapter 14: Consumer Protection

Consumerism's Achievements

-consumers today are better informed about the goods and services they purchase, are more aware of their rights when something goes wrong, and are better protected against inflated advertising claims, hazardous or ineffective products, and unfair pricing consumers organizations serve as watchdogs of buyers interests and a network of government regulatory agencies act for the consuming public Business have responded to consumer message by assigning high priority to consumer expectations: high quality goods and services, reliable and effective products, safety in purchased products, fair prices, marketing practices that don't threaten human and social values

Reasons for the Consumer Movement

-consumers want to be treated fairly and honestly in the marketplace -consumers may be harmed by abuses e.g. unfair prices, unreliable/unsafe products, excessive/deceptive advertising claims, violations of privacy, sales of harmful products -complex products have complicated the choices consumers need to make when they shop-increased dependence on product quality -services and products have become specialized and difficult to judge -advertising claims may be inflated or appeal to emotions -technology has permitted businesses to learn more than ever about customers, potentially violation their privacy e.g. neuromarketing -businesses may ignore product safety

major consumer protections specified by consumer laws

-information protections mandates labeling and disclosure -direct hazard protections protects safety and health -pricing protections regulate unfair pricing and monopolies -liability protections allow injured consumers to seek legal redress -privacy protections limit collection of online info

product liability reform

-unfairly burdens businesses with excess costs including liability insurance rates and costs of defending against lawsuits and paying settlements -unfair to hold businesses financially responsible in situations where they weren't negligent -concerns about liability exposure can slow research and innovation -Class Action Fairness Act: first significant reform

Four Methods of protecting consumer rights

1. Consumerism 2. government regulation 3. law/courts 4. industry self-regulation

Alternative dispute resolution

ADR; an approach to settling disagreements between companies and consumers, other than going to court -mediation: voluntary process to settle disputes using a neutral third party -arbitration: the use of an impartial individual to hear and decide a case outside of the judicial system -faster and less expensive way to resolve disputes and doesn't tie up judicial system with minor issues -controversial: the use of mandatory arbitration clauses which in the purchase agreement require customers to agree to take any future disputes to arbitration rather than court -favored by companies as they enable them to avoid expensive lawsuits and charge customers less -consumer rights orgs have tried to restrict it on the grounds that it limits consumers' rights to file suit when harmed -provisions have been upheld in courts

Consumers International

CI; international NGO (nongovernmental org) representing consumer groups; growth parallels globalization; adopted strategy calling for partnering with member orgs to deliver coordinated, multinational campaigns to address common problems faced by consumers in the global marketplace

Consumer Reports

CR; conducts extensive tests on selected consumer products and services and publishes the results of its tests online

Consumer Federation of America

U.S. org brings together nonprofit groups to espouse the consumer viewpoint Other U.S. consumer advocacy orgs include: public citizen national consumers league public interest research group PIRG American association for retired people AARP

behavioral advertising

advertising that is targeted to particular customers based on their observed online behavior advantages: buyer is more likely to receive messages that are relevant and seller is more likely to reach prospective client

Consumerism

aka consumer movement; organized, collective efforts by consumers to safeguard their own rights an attempt to promote the interests of consumers by balancing the amount of market power held by sellers and buyers

right to be heard

assured consumer interests will receive full and sympathetic consideration in the formulation of government policy and fair and expeditious treatment in the courts

right to privacy

assured that information disclosed in the course of a commercial transaction is not shared unless authorized

Voluntary industry codes of conduct

businesses in some industries band together and spell out how they will treat their customers; this action may be taken to forestall even stricter regulation by the government

Consumer Affairs department

consumer affairs officer: manages a complex network of contact with customers contact infrastructure includes a website with a self service component; many sites are interactive allowing customers to post comments or questions that are answered electronically by customer relations staff most companies host a call center may use sophisticated software that pulls customer feedback from multiple channels including surveys, social media, and unsolicited feedback to analyze and respond to issues in real time *consumer complaints and concerns can be handled more quickly at lower cost and with less risk of losing goodwill by a consumer affairs department than if customers take a legal route or complaints receive publicity

strict liability

courts have held that manufacturers are responsible for injuries resulting from use of their products, whether or not the manufacturers were negligent or breached a warranty, i.e. they may be found liable whether or not they knowingly did anything wrong consumers can prevail in court even if they were partly at fault for their injuries; may receive large settlements but it's rare

Right to be informed

protected against fraudulent, deceitful, or misleading information, advertising, and labeling, and to be given the facts to make an informed purchasing decision

right to safety

protected against the marketing of goods that are hazardous to health or life

Quality management

refers to all the measures an organization takes to assure quality quality: a composite of all the characteristics, including performance, of an item, product, or service that bear on its ability to satisfy stated or implied needs Benefits to ensuring consistently high quality in all stage of the production process -an attempt by businesses to address its customers' needs; companies try to anticipate and respond to emerging stakeholder expectations

Consumer protection laws

safeguards reflecting the goals of government policymakers and regulators in the context of the five rights of consumers assure consumers are treated fairly, receive adequate information, protected against potential hazards, have free choices in the market, and have legal recourse when problems develop consumer protection laws and agencies substitute government-mandated standards and the decisions of government officials for decision making by private buyers and sellers

Consumer privacy issue

technologies have increasingly enabled businesses to collect, buy, sell, and use vast amount of personal data about their customers and potential customers; this information may be used fraudulently and its collection represents a violation of privacy and might lead to unanticipated harms

product liability

the legal responsibility of a firm for injuries caused by something it made or sold consumers have the right to sue and to collect damages if harmed by an unsafe product; necessary to compensate injured victims and to deter irresponsible behavior by companies in the first place; businesses argue that courts and juries unfairly favor plaintiffs and want reform

right to choose

to be assured access to a variety of products and services at competitive prices; and when gov regulation, assured satisfactory quality and services at fair prices

product recall

when a company either voluntarily or under an agreement with a government agency takes back all items found to be dangerously defective; may be anywhere in chain of distribution or use -manufacturer tries to notify consumers or potential users about the defect -public may not be aware of them so dangerous products continue to be used; orgs advocate a system that'd require manufacturers to identify and contact users with purchaser identification cards included with products responsible government agencies include FDA, national highway traffic safety admin, EPA, consumer product safety commission

Major Federal Consumer Protection Agencies & Responsibilities

1. Federal trade commission: competitive pricing, deceptive trade practices, packaging and labeling, consumer credit disclosure and reporting, online privacy 2. food and drug administration: safety, effectiveness, and labeling of drugs, foods, food additives, cosmetics and medical devices; standards for radiation exposure; toxic chemicals research 3. consumer product safety commission: safety standards for consumer products; flammable fabrics, hazardous substances, poison packaging 4. national highway traffic safety administration: motor vehicle safety standards, automobile fuel economy standards, national uniform speed limit, consumer safeguards for altered odometers 5. department of justice: fair competition, consumer civil rights 6. national transportation safety board: airline safety 7. consumer financial protection bureau: fairness and transparency in consumer financial products and services 8. department of agriculture: safety of meat and poultry *All are authorized by law to intervene directly into the center of free market activities if that is considered necessary to protect consumers i.e. consumer protection laws and agencies substitute government-mandated standards and the decisions of government officials for decision making by private buyers and sellers

Three solutions proposed to protect consumer privacy

1. consumer self-help: users employ technologies that enable them to protect their own privacy, but many are unaware of these mechanisms or of the need for them 2. industry self regulation: companies do the best job of defining technical standards, but may be inevitably too weak 3. privacy legislation: government regulations recommended by FTC

Class Action Fairness Act

1. most large class action lawsuits were moved from state to federal courts 2. attorneys in some kinds of cases were paid based on how much plaintiffs actually received or on how much time the attorney spent on the case opposition from consumers' organizations and lawyers association

Goals of Consumer Laws

1. provide consumers with better information when making purchases -deceptive advertising: illegal in most countries; manufacturers may not make false or misleading claims about their own product or a competitor's product, withhold relevant information, or create unreasonable expectations; regulated by FTC 2. protect consumers against possible hazards 3. promote competitive pricing -federal and state antitrust laws 4. promote consumer choice 5. protect privacy

five core rights of consumers in relationship with businesses

1. right to be informed 2. right to safety 3. right to choose 4. right to be heard 5. right to privacy