Business Law 2 Chapter 45

Unsolicited Merchandise

Anyone who receives unsolicited merchandise may treat the item as a gift. She may keep or dispose of it without any obligation to the sender.

Door-to-Door Sales

In most door-to-door sales, the customer does not have a chance to compare products and services to find the best service for his or her money. In addition, many people find it difficult to escape the sales person in their home. It is much easier to walk out of a store.

Multiple-product orders

A form of cease-and-desist order issued by the FTC that applies not only to a specified product but also to other products produced by the same firm. This is one step beyond cease-and-desist orders

Consent Order

A statement in which the company agrees to stop the disputed behavior but does not admit it broke the law. Should the company violate the consent order, it will usually be forced to pay a fine

Deceptive Advertising

Advertising claims that mislead or could mislead a reasonable consumer (deceptive advertising is prohibited)

Cooling-Off Rule

Because consumers are particularly vulnerable during a door-to-door sale, the government provides the Cooling-Off Rule, whereby consumers have three days to cancel a purchase made during a door-to-door sale Moreover, the salesperson must notify the consumer, both verbally and in writing, that the sales transaction may be cancelled (same language that oral negotiations were conducted). Certain industries can more easily take advantage of consumers than can other industries. Thus, some industries are subject to stricter advertising and labeling regulation so that consumers are protected

Federal Trade Commission

Congress created the Federal Trade Commission (FTC) through the Federal Trade Commission Act (FTCA) in 1914. The purpose of the act was to prevent fraud, deception, and unfair business practices. The FTC has the responsibility for carrying out the act THE FTC is an independent federal agency with five commissioners appointed by the president and confirmed by the senate. Each commissioner serves a seven year term. The president chooses one commissioner to serve as chair of the FTC. The FTC helps protect consumers through two methods: 1.) Consumer Education (about laws that protect them)(educates business to help them comply voluntarily with consumer laws using industry guidelines) 2.) Legal Action (consent order, cease and desist)

cease-and-desist order

If the judge decides that the company has violated the law, the FTC issues a cease-and-desist order, requiring that the company stop the illegal behavior The company may appeal this decision to the five commissioners, if the commissioners uphold the ruling, the company may appeal to the US court of appeals, and finally the supreme court If the company violates the order, the FTC can seek an injection against the company or fine the company up to $10,000 per violation

Fair Credit Reporting Act

If you own a credit card, you also have a credit report. If you apply for a new credit card or a loan, the creditor will check your credit history to make a judgment about your creditworthiness by examining a copy of your credit report. The report contains information about your financial transactions, such as payments on credit, debt collection, and other financial information the creditor needs to know about if entering a business transaction with you. Ensures accurate credit reporting

Industry Guidelines

Interpretations of consumer laws, to encourage businesses to stop unlawful behavior When businesses follow FTC guidelines, they can cut potentially steep costs associated with violation consumer laws

The Flammable Fabrics Act of 1953:

Made it illegal to produce or distribute clothing "so highly flammable as to be dangerous when worn"

Telephone and Mail-Order Sales

Mail order Rule of 1975: Extends protections to consumers who purchase goods over phone lines, including through computers and fax machines The Rule Establishes three key guidelines: 1.) Sellers must ship items within the time promised. If they do not specify a time, the seller is limited to 30 days from receipt of the order. 2.) If the seller cannot ship the items within the promised time, the seller must notify the consumer in writing and offer an opportunity to cancel. 3.) If a customer decided to cancel the order, the seller must refund customer's money within a specified time period

ad substantiation

Requires that advertisers have a reasonable basis for the claims made in advertisements Required Many forms of deceptive advertising are illegal under section 5 of the FTCA. However, puffing, or clear exaggerations and use of generalities, is permissible

The Fair Packaging and Labeling Act of 1966:

Requires that products carry labels that identify the product and provide specific information about the contents, such as the quantity of the contents and the size of a serving if the number of servings is stated Moreover, under this act, food product labels must show the nutritional content of the product.

Nutrition Labeling and Education Act of 1990:

Requires that standard nutritional information (i.e. calories or fat) be provided on food labels. Additionally, this act defines the words "fresh" and "low fat"

The Fur Products Labeling Act of 1951:

Requires the accurate labeling of fur products

The Wool Products Labeling Act of 1939:

Requires the accurate labeling of wool products

Corrective Advertising

Running advertisements in which the company explicitly states that the formerly advertised claims were untrue

Haf-truth

The information presented is true but incomplete-the advertiser is deceiving the consumer

Truth in Lending Act

The purpose of this act is to require that sellers disclose the terms of the credit or loan to help consumers compare a variety of credit lines or loans. More importantly, consumers must be able to understand this disclosure of terms 1.) TILA applies to consumer loans only 2.) TINLA applies to those who lend money or arrange for credit through the ordinary course of business 3.) The credit or loan must be in the amount of $25,000 or less, unless the loan is secured by a mortgage on real estate 4.) The creditor must be making the loan to a natural person, not a legal entity 5.) The credit or loan must be subject to a finance charge or must have repayments of more than four installments All creditors subject to TILA must disclose the finance charge and the annual percentage rate of the loan in a meaningful way

Puffing

The use of generalities and clear exaggerations, is permissible (allowed) The FTC decides whether an advertisement is deceptive on a case-by-case basis. Deceptive claims have three elements: 1.) Material misrepresentation, omission, or practice that is (2) likely to mislead a (3) reasonable consumer

Fair Debt Collection Practices Act

This act applies to debt collectors who regularly attempt to collect debts on behalf of others. Prohibited Behaviors: 1.) Contacting a debtor at work if the debtor's employer objects 2.) Contacting a debtor who has notified the collection agency that he or she wants no contact with the agency 3.) Contacting the debtor before 8 a.m. or after 9p.m. 4.) Contacting third parties about the debt (parents, spouse, financial advisor) 5.) Using obscene or threatening language when communicating with the debtor 6.) Misrepresenting the collection agency as a lawyer of police officer

bait-and-switch advertising

when sellers advertise a low price for an item generally unavailable to the consumer and then push the consumer to buy a more expensive item The low advertised price "baits" the customer, then the salesperson "switches" the customer to a higher priced item. The FTC prohibited bait-and-switch advertising in 1968.