Legal and Social Chapter 26 - Consumer Protection

Merchandise Bought by Mail, Telephone, or Online:

- Must be shipped within stated time - If no time stated, within 30 days - Notice must be given if firm cannot ship when promised - By the second notice, the firm must cancel the order unless the buyer still wants it

Qualified Mortgage (QM)

A mortgage that, according to the CFPB, complies with TILA

Home Equity Loans

Both legitimate lenders and scam artists offer home equity loans

Payday loans

Small loans with high interest rates made to people who need money to make it to the next paycheck - These loans violate the usury laws in some states

Applicability

TILA applies only to certain consumer loans

Mortgage Loans

TILA prohibits unfair, abusive, or deceptive home mortgage lending practices

Q2. The Telephone Consumer Protection Act (TCPA) prohibits telemarketers from making autodialed and/or prerecorded calls or texts to cell phones and prerecorded calls to residential land lines unless the consumer unambiguously consents in writing. (T/F)

True

Q3. Ron's Furnace Repair advertised it would inspect any homeowner's furnace for free. Janet had Ron's come to inspect her furnace. The servicewoman dismantled the entire furnace then refused to put it back together unless Janet paid her $250. The FTC considers such a practice to be a. an unfair practice b. a deceptive practice c. an act that violates public policy d. all of these are correct

d. all of these are correct

Under the Consumer Product Safety Act:

- Manufacturers must report all potentially hazardous product defects within 24 hours of discovery - The Commission can impose civil and criminal penalties on those who violate its standards - Individuals have the right to sue for damages, including attorney's fees, from anyone who knowingly violates a consumer product safety rule

Disclosure

A lender must clearly disclose the amount financed, total payments, finance charge, and annual percentage rate (APR)

Credit Score

A number that is supposed to predict your ability to pay your bills

Preauthorized transfer

An electronic fund transfer authorized in advance to recur at regular intervals

Errors in Electronic Fund Transfers

For unauthorized withdrawals, no liability if you notify the bank

Rescission

Under TILA, consumers have the right to rescind a mortgage for up to 3 business days after signing

Deceptive Acts or Practices

Under the FTC Act, an advertisement is deceptive if it contains an important misrepresentation or omission that is likely to mislead a reasonable consumer

Under the Equal Credit Opportunity Act, a seller must disclose:

- The terms of any written warranty in simple, understandable language - Whether the warranty is full or limited - The name and address of the person the consumer should contact to obtain warranty service - The parts that are covered and those that are not - What services the warrantor will provide, at whose expense, and for what period of time - A statement of what the consumer must do and what expenses he must pay

Consumer Reporting Agencies

Businesses that collect and sell personal information on consumers to 3rd parties

Investigative reports

Discuss character, reputation, or lifestyle. They become obsolete in 3 months

Case Study: Broxton-King v. Lasalle Bank, N.A.

Facts: - Broxton was paying monthly for YMCA - On August 31 payed her overdraft and closed out - On September 1, they charged her - On October 1, they charged her again Issue: Did the bank violate the EFTA? Conclusion: - The September 1 charge was valid because she did not notify them within 3 days that she closed the account - The October 1 charge was invalid

Case Study: POM Wonderful, LLC v. FTC

Facts: - The Resnicks, of POM Wonderful, spent $30M on research for the benefits of pomegranate juice - The FTC claimed false statements of the health benefits - The Resnicks had claimed heart health, reducing chance of stroke, along with many other benefits to the juice - These studies required trials in order to prove what POM had claimed Issue: Did the Resnicks and POM violate the FTC Act? Conclusion: - They needed factual evidence for the health claims

Q4. The Truth in Lending Act regulates interest rates or the terms of a loan (T/F)

False

Q7. Electronic payments via a telephone, computer, or wire transfers are not regulated by the government

False

Disputes with Merchants

In the event of a dispute between customer and merchant, the credit card company cannot bill the customer if she makes a good faith effort to resolve the dispute, the dispute is for more than $50, and the merchant is in the same state, or within 100 miles

Q8. Under section 5 of the FTC Act, anyone who receives unordered merchandise in the mail may treat it as a gift (T/F)

True

Puffery

a salesperson's exaggerated claims concerning the quality of goods offered for sale

Bait-And-Switch

A practice whereby sellers advertise products that are not generally available but are being used to draw interested parties in so that they will buy other products

Disputes with Credit Card Companies

If a consumer writes to the credit card company within 60 days of receipt of the bill, the firm must act within two billing cycles

Federal Trade Commission (FTC)

Regulates business activities that affect consumers; FTC sue or impose fine

Consumer Financial Protection Bureau (CFPB)

Regulates consumer financial products and services; consumers may file complaints with the CFPB

Equal Credit Opportunity Act

The ECOA prohibits any creditor from discriminating against a borrower because of race, color, religion, national origin, sex, marital status, age (as long a the borrower is old enough to enter into a legal contract), or because the borrower is receiving welfare

CH3. The agency that oversees the credit practices of banks, mortgage lenders, and credit card companies is called the: a. Consumer Financial Protection Bureau. b. Consumer Investigation Agency. c. Federal Banking Investigation. d. Financial Regulation Bureau.

a. Consumer Financial Protection Bureau.

2. Which of these situations are governed by the Magnuson-Moss Warranty Act? Choose 2 answer choices. a. A fan costs $22. b. A fan is selling for $100, and the manufacturer offers a full warranty. c. A fan is selling for $47, but the manufacturer does not want to offer a warranty. d. A fan is selling for $34, but the manufacturer does not want to offer a full warranty.

b. A fan is selling for $100, and the manufacturer offers a full warranty. d. A fan is selling for $34, but the manufacturer does not want to offer a full warranty.

Q1. Suppose Bill's credit card is stolen and he notified his credit card company of this fact. Which of the following is true regarding the amount of unauthorized charges made before Bill notified his credit card company? a. Bill is not responsible for any of the unathorized charges. b. Bill is responsible for the first $50 of unathorized charges. c. Bill is responsible for the first $100 of unauthorized charges. d. Bill is responsible for half of the unauthorized charges.

b. Bill is responsible for the first $50 of unathorized charges.

CH2. Which of the following consumer credit acts helps potential borrowers understand the cost of a loan? a. Equal Credit Opportunity Act (ECOA) b. Truth-in-Lending Act (TILA) c. Fair Debt Collection Practices Act (FDCPA) d. Fair Credit Reporting Act (FCRA)

b. Truth-in-Lending Act (TILA)

CH10. The role of a state's attorney general in handling complaints about potential violations of consumer protection laws is to: a. implement recalls of defective products. b. ensure a safe and fair marketplace for the citizens of the state. c. represent individual consumers in consumer protection lawsuits. d. set the standards for consumer protection and enforce them.

b. ensure a safe and fair marketplace for the citizens of the state.

CH7. A consumer product is any article, or its component parts, produced or distributed for sale to a consumer: a. for household use and consumption only. b. for the consumer's own use or enjoyment. c. for the consumer's own use or enjoyment, including boats, aircraft, motor vehicles, drugs, tobacco products, and food. d. for the consumer's own use or enjoyment, which may include wholesale and retail uses.

b. for the consumer's own use or enjoyment.

Q5. John loans George money and they sign a written agreement whereby George will repay John in monthly installments. Is this loan subject to the Truth-in-Lending Act? a. Yes, if the loan is for more than $1,000 b. No, if John and George are related c. No, if John is not in the business of offering credit d. Yes, if John and George live in different states

c. No, if John is not in the business of offering credit

CH5. When a product is advertised for sale at a greatly reduced price, but the salesperson tries to get customers to buy a more expensive item instead, this is called: a. sleight of hand. b. substitution deception. c. bait and switch. d. rain check.

c. bait and switch.

Knowledge Check: An advertisement for a car dealership states "Brand new Ferrari, $50,000!" At the bottom of the advertisement in extremely small letters it states, "Only one available." When hundreds of people showed up at the dealership to purchaseFerraris, the salespersons all stated "unfortunately, we are out of that model, but I can show you a comparable car for $250,000." This advertisement is: a. puffery. b. a half-truth. c. bait-and-switch. d. permissible.

c. bait-and-switch.

3. Puffery includes what kinds of activities? a. Ads including half-truths b. Ads appearing to be based on facts, but without factual evidence c. Bait-and-switch advertising d. Ads with exaggerated statements

d. Ads with exaggerated statements

5. Which consumer protection law specifically provides for punitive damages? a. Consumer Protection Safety Act of 1972 b. Fair Debt Collection Practices Act c. Federal Trade Commission Act d. Fair Credit Reporting Act

d. Fair Credit Reporting Act

Q6. Under the TILA, a qualified mortgage (QM) a. allows balloon payments only if the borrower agrees up front. b. limits upfront points and fees to 5 percent. c. must allow for negative amortization. d. limits all of a borrower's debt to 43 percent of his or her income.

d. limits all of a borrower's debt to 43 percent of his or her income.

Door-to-Door Sales

A salesperson must notify the buyer that she has the right to cancel the transaction at any time before midnight of the 3rd business day thereafter

6. What remedies can consumers get from a debt collection agency for illegal treatment? Choose 3 answer choices. a. Damages b. $1,000 per violation c. Court Costs d. Attorney's Fees

a. Damages c. Court Costs d. Attorney's Fees

CH6. Which of the following actions can the Federal Trade Commission (FTC) employ against unfair and deceptive advertising? Choose 2 answers. a. cease and desist order b. bait and switch order c. counteradvertising sanction d. native ad integration

a. cease and desist order c. counteradvertising sanction

4. What is the difference between deceptive advertising and puffery? Choose 2 answer choices. a. Puffery is heavily regulated, while deceptive advertising is prohibited. b. Puffery can include half-truths, but deceptive advertising does not. c. Reasonable people realize puffery is not meant to be taken literally, but they could be fooled by deceptive advertising. d. Deceptive advertising is prohibited; puffery is allowed.

c. Reasonable people realize puffery is not meant to be taken literally, but they could be fooled by deceptive advertising. d. Deceptive advertising is prohibited; puffery is allowed.

CH8. What are two functions of the Consumer Product Safety Commission (CPSC)? Choose 2 answers. a. to ban the manufacture and sale of hazardous products b. to set the safety standards for consumer products c. to sue a manufacturer regarding a state claim d. to enforce violations of false advertising

a. to ban the manufacture and sale of hazardous products b. to set the safety standards for consumer products

CH9. The remedies available to injured consumers under federal and state consumer protection laws may include: (Choose 3 answers.) a. damages for actual injury or harm caused. b. attorney's fees and costs. c. recall of dangerous products. d. punitive damages.

a. damages for actual injury or harm caused. b. attorney's fees and costs. d. punitive damages.

Consumer report

Any communication about a consumer's creditworthiness, character, general reputation, or lifestyle that is considered as a factor in establishing credit

Unordered Merchandise

Anyone who receives unordered merchandise in the mail may treat it as a gift

1. What does the Magnuson-Moss Warranty Act require? Choose 2 answer choices. a. Manufacturers must offer at least limited warranties. b. Manufacturers must offer warranties for products selling for over $25. c. The address of the person to contact for warranty services. d. The name of the person to contact for warranty services.

c. The address of the person to contact for warranty services. d. The name of the person to contact for warranty services.

8. Which of the following behaviors is prohibited under the FDCPA? Choose 2 answer choices. a. Notifying a consumer's neighbor that they are in debt b. Calling a consumer's mother to determine the consumer's address c. Calling a consumer at 3 a.m. d. Telling the consumer if they do not pay their debt that legal action will be initiated

a. Notifying a consumer's neighbor that they are in debt c. Calling a consumer at 3 a.m.

CH4. Which of the following actions are associated with the Consumer Financial Protection Bureau (CFPB)? Choose 2 answers. a. writing and enforcing rules for financial institutions b. preventing and providing remedies for repossessions c. collecting and tracking consumer complaints d. determining and establishing credit limits for credit cards

a. writing and enforcing rules for financial institutions c. collecting and tracking consumer complaints

CH1. Which of the following consumer credit acts examines lenders' practices regarding race, religion, national origin, color, gender, marital status, or age? a. Fair Debt Collection Practices Act (FDCPA) b. Equal Credit Opportunity Act (ECOA) c. Fair Credit Reporting Act (FCRA) d. Truth-in-Lending Act (TILA)

b. Equal Credit Opportunity Act (ECOA)

7. If a credit reporting agency fails to remove known errors in a consumer's credit report after request by the consumer, the agency: a. must pay $1,000,000 in damages to the consumer. b. may be required to pay damages to the consumer. c. must delete the consumer's credit report entirely. d. may be required to shut down its operation.

b. may be required to pay damages to the consumer.