Business Law II – Week 4 Lecture 2

Consumer Protection

In the past, society generally followed the principle of caveat emptor, “let the buyer beware.” The more recent trend, however, is to increase protections of consumers through the passage of a variety of statues.

Deceptive advertising is one way that the government protects consumers. Deceptive advertising is deceptive if a reasonable consumer would be misled by it. For example, the Federal Trade Commission (FTC) has rules defining and prohibiting bait-and-switch advertising, which involves refusing to show an advertised item or keeping a reasonable quantity of an item. In recent years, these statutes have been expanded to cover online ads. One critical distinction is between puffery and deceptive advertising. Puffery is exaggerated claims to sell a product. Typically, this is not actionable because a reasonable consumer would not be misled by it.

Telemarking and electronic advertising are also subject to increasing regulation. The Telephone Consumer Protection Act prohibits phone solicitation using an automatic dialing system. Additionally, disclosure requirements have been strengthened, and the FTC has set up the national Do Not Call Registry. Online spam has been regulated under the CAN-SPAM Act of 2003.

Some of the more significant laws in this area relate to labeling and packaging requirements. There are a number of statutes in this area, including 1) the Fur Products Labeling Act of 1951 and the Flammable Fabrics Act of 1953. Ordinarily, these require sellers to design labels and packages that provide accurate information about products and warn about potential dangers.

The field of consumer sales has been regulated in various ways. States have enacted cooling-off legislation, allowing buyers to rescind door-to-door purchases within a certain period of time. For example, the FTC provides consumers with a three-day cooling off period. Regulations in this area can be very complicated as numerous state and federal bodies may have jurisdiction.

The Consumer Protection Bureau has been established to oversee the practices of banks, mortgage lenders, and credit card companies. The Truth in Lending Act, for example, requires sellers and lenders to disclose credit or loan terms to debtors to allow debtors to shop around for better financing terms. The Equal Credit Opportunity Act prohibits denial of credit based on religion, national origin, color, sex, marital status or age. And the Fair Credit Reporting Act requires credit reporting agencies to only issue credit reports for certain purposes. Additionally, consumers must be notified when information is being given out by a credit agency about their credit standing.

Many of these statutes are specifically focused around protecting the health and safety of consumers. The Pure Food and Drug Act as amended sets forth food and drug standards, safe levels of potentially hazardous additives, and classifications of advertising. The Consumer Product Safety Act gives the Consumer Product Safety Commission to set standards for consumer products, banning the manufacture or the sale of products that are potentially hazardous to consumers, and removes products from the market that are imminently hazardous among other responsibilities.

And this is just a high-level overview of the many regulations governing the consumer safety space. There are innumerable federal, state and local statues governing these issues. Additionally, these different governmental levels may have several agencies empowered to pass regulations toward these ends.