Consumer Protection and Product Liability Mr. Sherpinsky Council Rock School District

Consumer ProtectionConsumer Protectionandand

Product LiabilityProduct Liability

Mr. SherpinskyCouncil Rock School District

What You’ll Learn• How to explain the main

differences between state and federal consumer protection law (p. 316)

• How to describe two unfair and deceptive practices (p. 317)

• How to recognize bait and switch How to recognize bait and switch advertising (p. 321)advertising (p. 321)

• How to identify four Federal Trade How to identify four Federal Trade Commission rules that protect Commission rules that protect consumers (p. 321)consumers (p. 321)

Why It’s Important

Knowledge of consumer protection laws will

prevent you from falling victim to fraud and

deception.

Legal Terms• caveat emptorcaveat emptor (p. 316) (p. 316)• caveat venditorcaveat venditor (p. 316) (p. 316)• consumer (p. 316)consumer (p. 316)• unfair and deceptive practice (p. unfair and deceptive practice (p.

317)317)• fraudulent misrepresentation (p. fraudulent misrepresentation (p.

318)318)• cease and desist orders (p. 320)cease and desist orders (p. 320)• bait and switch (p. 321)bait and switch (p. 321)• cooling-off rule (p. 322)cooling-off rule (p. 322)• telemarketers (p. 323)telemarketers (p. 323)• product liability (p. 327)product liability (p. 327)• strict liability (p. 327)strict liability (p. 327)• adulterated (p. 329)adulterated (p. 329)• intrastate sales (p. 330)intrastate sales (p. 330)

Pre-Learning QuestionPre-Learning Question

How did consumer protection laws

develop?

A pair of Chinese made flip-flops on sale in the USA

Advanced reaction to the highly toxic material used to make the flip-flops

CPSC has ordered recalls of millions of baby cribs, including cribs with detachable drop sides that can

possibly trap and suffocate a child. New federal crib safety standards were adopted in June 2011

Fat substitute: Lay’s Light Chips, Pringles Light chips.

Olestra is Procter & Gamble’s synthetic fat that is not absorbed as it passes through the digestive system, so it has no calories. Procter &

Gamble suggests that replacing regular fat with olestra will help people lose weight and lower the risk of heart disease.

Olestra can cause diarrhea and loose stools, abdominal cramps, flatulence, and other adverse effects. Those symptoms are

sometimes severe.

The Development of The Development of Consumer Protection LawConsumer Protection Law

Years ago, Years ago, caveat emptorcaveat emptor,, which means which means “let the buyer beware,” reflected “let the buyer beware,” reflected society’s attitude toward consumers.society’s attitude toward consumers.

There were few ways to seek compensation There were few ways to seek compensation for damages and those injured had no for damages and those injured had no recourserecourse due to not being in due to not being in privity of privity of contract.contract.

There was no course of action that could be There was no course of action that could be taken if customer was injured by products taken if customer was injured by products purchased.purchased.

Today, however, society demands that Today, however, society demands that manufacturers be held responsible for manufacturers be held responsible for foreseeable injuries to people who use foreseeable injuries to people who use their products.their products.

The Development of The Development of Consumer Protection LawConsumer Protection Law

Caveat venditorCaveat venditor,, which which means means “let the seller “let the seller beware,” beware,” now guides now guides consumer transactions.consumer transactions.

Today, however, society Today, however, society demands that demands that manufacturers be manufacturers be held held responsible responsible for foreseeable for foreseeable injuries to people who use injuries to people who use their products.their products.


To whom do consumer protection laws apply?

Consumer protection laws apply to transactions between consumers and people conducting business

Federal and State Federal and State Consumer Protection LawsConsumer Protection Laws

• Consumer protection laws apply to transactions between consumers and people conducting business

• A consumer is someone who buys or leases goods, real estate, or services for personal, family, or household purposes.

Federal and State Federal and State Consumer Protection LawsConsumer Protection Laws

Consumer protection laws do not Consumer protection laws do not protect you if: protect you if:

you acquire a product you acquire a product from another from another consumerconsumeryou buy a product to you buy a product to use in a use in a businessbusiness

What is the difference between caveat emptorcaveat emptor and caveat caveat

venditorvenditor?

Caveat emptor is Latin for “let the buyer beware” and means the buyer is the responsible party.

Caveat venditor is Latin for ”let the seller beware” and means that the seller is responsible.

State Consumer State Consumer ProtectionProtection

• State consumer protection offices State consumer protection offices provide information and help enforce provide information and help enforce statestate consumer protection laws. consumer protection laws.

• Offices may assist consumers with Offices may assist consumers with individual problems.individual problems.

Federal Consumer Federal Consumer ProtectionProtection

Federal consumer protection law applies Federal consumer protection law applies to businesses that sell real estate, to businesses that sell real estate, goods, or services in interstate goods, or services in interstate commerce, or business activity that commerce, or business activity that touches more than one state.touches more than one state.

The The Federal Trade Commission (FTC) Federal Trade Commission (FTC) is the U.S. government agency that is the U.S. government agency that promotes free and fair trade promotes free and fair trade competition in the American economy. competition in the American economy. The Bureau of Consumer Protection The Bureau of Consumer Protection safeguards consumers against safeguards consumers against unfair, deceptive, or fraudulent unfair, deceptive, or fraudulent practices.practices.

Both organizations investigate violations Both organizations investigate violations of federal consumer protection law.of federal consumer protection law.

Classwork

• Complete Chapter 15 Packet• Complete Chapter 15 Vocabulary

Handout


What do you think are unfair and deceptive practices?

Unfair and Deceptive Unfair and Deceptive PracticesPractices

An An unfair and deceptive practiceunfair and deceptive practice is an act that misleads is an act that misleads consumers. Most states have consumers. Most states have enacted some kind of unfair and enacted some kind of unfair and deceptive trade practice law.deceptive trade practice law.

• Examples includeExamples include– work-at-home schemeswork-at-home schemes– unordered merchandiseunordered merchandise– false advertisingfalse advertising

Unfair and Deceptive Unfair and Deceptive PracticesPractices

• If you feel you are the If you feel you are the victim of an unfair or victim of an unfair or deceptive practice:deceptive practice:1.1. Speak to the business Speak to the business

owner or manager owner or manager about the problemabout the problem

2.2. Write a complaint Write a complaint letter to the company.letter to the company.

Elements of a Complaint Elements of a Complaint LetterLetter

• description of purchasedescription of purchase• product name and serial and product name and serial and

model number or servicemodel number or service• statement and history of problemstatement and history of problem• ask for specific action, state ask for specific action, state

reasonable time for actionreasonable time for action• copies of documentscopies of documents• your address and work and home your address and work and home

phone numbersphone numbers

Fraudulent Fraudulent MisrepresentationMisrepresentation

• A A fraudulent fraudulent misrepresentationmisrepresentation is any is any statement that statement that deceivesdeceives the buyer.the buyer.

• A fraudulent A fraudulent misrepresentation usually misrepresentation usually occurs when a occurs when a seller seller misstates the factsmisstates the facts about about something that is something that is importantimportant to consumer. to consumer.

Fradualent Misrepresentations

• Making false statements about the construction, durability, reliability, safety, strength, condition, or life expectancy of a product is another deceptive practice.

Work-at-Home SchemesWork-at-Home Schemes

• Home employment … Home employment … Work at Home schemes Work at Home schemes are among the oldest are among the oldest kind of advertising fraudkind of advertising fraud..– Often these offers Often these offers

sound sound attractiveattractive• They often promise big They often promise big

incomes without incomes without explaining the costsexplaining the costs..

• Work many hours Work many hours without without paypay

Unordered MerchandiseUnordered Merchandise

• Under state and Under state and federal laws, federal laws, – Unordered Unordered

merchandise may be merchandise may be considered a considered a giftgift, ,

– You can keep it You can keep it without without payingpaying for for it. it.

• It is illegal for It is illegal for anyone who sends anyone who sends free samples to:free samples to:– Include a bill.Include a bill.

Unordered MerchandiseUnordered Merchandise

• OnlyOnly two kinds of two kinds of goods can be sent goods can be sent legally through the legally through the mail mail without the without the consumer’s consentconsumer’s consent::1.1. Manufacturers’ Manufacturers’

free samplesfree samples2.2. Merchandise Merchandise

mailed by mailed by charitiescharities

What does FTC stand for and what does it do?

The Federal Trade Commission is the agency of the U.S. government that promotes free

and fair trade competition in the U.S economy.

Write a Letter of Complaint!

• Think back to a problem you had with a specific company of product.

• Research the name, address, and issue thoroughly on the Internet– Write a letter of complaint to the

business• description of purchase• product name and serial and model number or service• statement and history of problem• ask for specific action, state reasonable time for action• copies of documents• your address and work and home phone numbers

Letter Re-Writes

• Try this approach:– I was disappointed– I am a regular customer– I intend to continue to be a regular customer

• All I want is:– To get what I wanted– Meet my expectations– Refund or credit for my purchase – By or Before my next visit


What is an example of false advertising?

False AdvertisingFalse Advertising

• TheThe FTCFTC regulates false regulates false advertising on the national level advertising on the national level and has the power to issue and has the power to issue cease cease and desist ordersand desist orders.. – These orders are These orders are legally binding legally binding

orders to stop a practice orders to stop a practice that would that would mislead the public.mislead the public.

Bait and SwitchBait and Switch

• One example of false One example of false advertising is advertising is bait and bait and switchswitch advertising. advertising. – This happens when a This happens when a

store store advertises advertises bargains that do not bargains that do not really exist really exist to lure to lure customers in hopes customers in hopes that they will buy that they will buy more expensive more expensive merchandisemerchandise..

Bait and SwitchBait and Switch

Signs of such practices:Refusing to show, demonstrate, or sell advertised product.Criticizing advertised product to discourage purchases.Claiming advertised product is out of stockRefusing to promise delivery within a reasonable time.Demonstrating products that are more expensive that the advertised items


What are some FTC trade regulation rules?

The FTC has established trade regulation rules for interstate The FTC has established trade regulation rules for interstate commerce to correct wrongdoing in the marketplace.commerce to correct wrongdoing in the marketplace.

They Include:They Include:• the negative option rulethe negative option rule• the cooling-off rulethe cooling-off rule• the telemarketing sales rulethe telemarketing sales rule• 900-telephone-number rules900-telephone-number rules• rules for shopping by mail, telephone, fax rules for shopping by mail, telephone, fax

or Internetor Internet

Negative Option RuleNegative Option Rule

• When you subscribe to When you subscribe to magazines magazines or CD or CD club or other plan that sends products club or other plan that sends products regularlyregularly, the , the negative option rule applies. applies. – Under such plans, the seller sends you Under such plans, the seller sends you

announcements announcements describingdescribing the current the current selection.selection.

– If you want the selection, If you want the selection, you do nothing; you do nothing; the seller will ship it automatically. the seller will ship it automatically.

– If you do not want it, If you do not want it, you must tell the seller you must tell the seller not to send itnot to send it, and there is a deadline for , and there is a deadline for notification.notification.

Negative Option RuleNegative Option Rule

Under Under Negative Option RuleNegative Option Rule, Sellers , Sellers MUST tell you:MUST tell you:

How many How many selections you must buyselections you must buy How and when you How and when you can cancel membershipcan cancel membership How to How to notify the seller notify the seller when you do not want when you do not want

selectionselection When to return “negative option” to cancel When to return “negative option” to cancel

shipmentshipment When you’ll get When you’ll get credit for return of selecticredit for return of selectionon How How postage and handling costs are chargedpostage and handling costs are charged How often you will receive announcements How often you will receive announcements and and

formsforms

The Cooling-Off RuleThe Cooling-Off Rule

• TheThe cooling-off rulecooling-off rule gives gives you three days to cancel you three days to cancel contracts for most contracts for most purchases made away purchases made away from the seller’s regular from the seller’s regular place of business.place of business.– The rule applies to The rule applies to

purchases of $25 or morepurchases of $25 or more made at the buyer’s home, made at the buyer’s home, workplace, or dormitory. workplace, or dormitory.

– It does not apply for It does not apply for contracts ofcontracts of real estate, real estate, insurance, securities, or insurance, securities, or emergency home repairs.emergency home repairs.

Telemarketing Sales Telemarketing Sales RuleRule

The The Telemarketing Sales Rule Telemarketing Sales Rule protects you from abusive protects you from abusive telemarketerstelemarketers,, the people who try the people who try to sell you products by telephoneto sell you products by telephone

Illegal for them to call… If you have askedasked them not to contact you again…. (No Call List) Unless it is between 8A.M. and 9P.M. 8A.M. and 9P.M. Unless they identify the company that they representthat they represent If they make false statements Unless they tell you the total cost of the products offered and any restrictions that apply (Odds of winning, no purchase necessary) If they withdraw money from your checking account without permission If they make you pay for credit repair, recovery room, or advance-fee loans

Telemarketing Sales Telemarketing Sales RuleRule

900-Telephone-Number Rules900-Telephone-Number RulesUnlike 800 telephone numbers, Unlike 800 telephone numbers, if you dial a 900-if you dial a 900-

area-code telephone number, area-code telephone number, you are charged you are charged for the callfor the call. . Sometimes consumers are Sometimes consumers are charged excessively for 900-number callscharged excessively for 900-number calls..

900 area code calls are free When encouraged to call 900 numbers you must be… Warned of the cost of the call Given a chance to hang up before being charged Able to block the number with telephone company

Protect Yourself Against Protect Yourself Against 900-Number Scams900-Number Scams

• Deal only with reputable companies.Deal only with reputable companies.• Think twice before calling a 900 Think twice before calling a 900

number for a “free gift.”number for a “free gift.”• Know precisely what the 900 call will Know precisely what the 900 call will

cost—before you make the call.cost—before you make the call.• Don’t confuse 900 numbers with toll-Don’t confuse 900 numbers with toll-

free 800 numbers.free 800 numbers.

Shopping by Mail, Shopping by Mail, Telephone, Fax, or InternetTelephone, Fax, or Internet• The FTC has established rules to The FTC has established rules to

protect you when ordering goods protect you when ordering goods by mail, telephone, fax, and the by mail, telephone, fax, and the Internet.Internet.

Shopping by Mail, Shopping by Mail, Telephone, Fax, or InternetTelephone, Fax, or Internet

• Sellers must ship goods Sellers must ship goods within the time they within the time they promisepromise in the advertising. in the advertising.

• If shipping time is not If shipping time is not stated, they must ship within stated, they must ship within 30 days after receiving 30 days after receiving an order.an order.

• You have the right to You have the right to cancelcancel and get your money back if and get your money back if time limits are not met.time limits are not met.

• Sellers must notify you of Sellers must notify you of any delay in shipment.any delay in shipment.

Work packets

• Time to complete work packets….

• NO COMPUTERS!

Product Liability

• How to:– Differentiate between product liability

and strict liability (p. 327)– Describe the purpose of the Consumer

Product Safety Act (p. 329)– Identify the prohibitions contained in

the Food, Drug, and Cosmetic Act (p. 329)

– Determine where to get consumer protection assistance (p. 330)

What You’ll Learn

Product Liability

What do you thinkproduct liability is?

Discussion QuestionDiscussion Question

Product Liability

What Is Product Liability?What Is Product Liability? Under Under product liabilityproduct liability law, law,

someone who is injured from a someone who is injured from a product’s unsafe or defective product’s unsafe or defective condition may recover damagescondition may recover damages

Often times the products are Often times the products are recalled at recalled at NO COST NO COST to to consumersconsumers

Manufacturers, sellers, and Manufacturers, sellers, and suppliers of goods can suppliers of goods can allall be held be held responsible.responsible.

Product Liability

What Is What Is Strict LiabilityStrict Liability ? ? – You do not have to prove a You do not have to prove a

negligentnegligent act on the part of the act on the part of the manufacturer or seller if you manufacturer or seller if you are hurt using a defective are hurt using a defective product.product.

• Strict liabilityStrict liability makes makes manufacturers or suppliers manufacturers or suppliers responsible for selling goods responsible for selling goods that are that are unreasonably unreasonably dangerousdangerous..

Product LiabilityStrict LiabilityStrict Liability People who are injured or who suffer People who are injured or who suffer

property damage from a defective property damage from a defective product may recover from the product may recover from the manufacturer or seller if they can prove manufacturer or seller if they can prove that certain factors must be that certain factors must be present:present:1.1. The manufacturer or seller was engaged in the The manufacturer or seller was engaged in the

business of selling the product.business of selling the product.2.2. The product was unreasonably dangerous to the The product was unreasonably dangerous to the

user or consumer.user or consumer.3.3. The defective condition was the cause of the The defective condition was the cause of the

injury or damage.injury or damage.4.4. The defective condition existed when the product The defective condition existed when the product

left the hands of the manufacturer or seller.left the hands of the manufacturer or seller.5.5. The consumer suffered physical harm or property The consumer suffered physical harm or property

damage as a result of using the product.damage as a result of using the product.Inadequate warning of danger and improper Inadequate warning of danger and improper

instructions for the product’s use are also instructions for the product’s use are also considered considered defectsdefects

Product Liability

What are some federal and state consumer protection laws?


Federal and State Consumer Protection Laws

• Both the federal and state governments pass laws to protect consumers in the marketplace.

• Laws can only apply to items produced and purchased within that stateTwo federal laws are the:Two federal laws are the: Consumer Product Safety ActConsumer Product Safety Act Food, Drug, and Cosmetic ActFood, Drug, and Cosmetic Act

Consumer Product Safety Act

• This Act protects you from unreasonable risk of injury while using consumer products that are sold in interstate commerce.

Defects in products are divided Defects in products are divided into three categories:into three categories:1.1. ManufacturingManufacturing defectsdefects2.2. PoorPoor designdesign3.3. InadequateInadequate instructions and instructions and

warnings warnings about the safe use about the safe use of the productof the product

Consumer Product Safety Act

Manufacturers must test the quality and reliability (fitness) of all products

Must prove they are safeThey can recall the product if need be

Food, Drug, and Cosmetic Act

• This law prohibits the manufacture and shipment of faulty products in interstate commerce.

• Faulty products include any: food, drug, cosmetic, or health-related device that is injurious, adulterated, or misbranded.

• A food or drug is said to be A food or drug is said to be injurious injurious if it contains any substance that may make it harmful to health.


• An adulterated food or drug is one that contains any substance that will reduce its quality or strength below minimum standards.

• A food or drug is misbranded if its labeling or packaging is false or misleading.


Drugs must:•Bear name and address of the manufacturer•Statement of the quantity or weight of contents

Non Prescription Drugs must:•Give the common name of drug•Detail directions for use•Have caution for any unsafe use•Indicate if the drug is addictive


The government uses The government uses removalremoval and other and other methods to discourage the sale of goods methods to discourage the sale of goods considered harmful to the public health. They considered harmful to the public health. They include:include:

unusually high unusually high taxestaxeslabeling and labeling and packagingpackagingoutright outright prohibitionprohibition

Warning Labels

Pop Quiz Review

True or False: A food or drug is said to be injurious if it contains any substance that may make it harmful.

Product Liability

State and Local LawsState and Local Laws– If goods are manufactured If goods are manufactured

and sold only within the and sold only within the boundaries of a boundaries of a statestate, the , the federal government has no federal government has no control over the goods. control over the goods.

– For this reason, many states For this reason, many states have enacted their own have enacted their own product liability laws.product liability laws.

– These laws apply to intrastate These laws apply to intrastate sales (sales within a state). sales (sales within a state).

– Nearly all states and localities Nearly all states and localities license and regulate license and regulate establishments that sell food.establishments that sell food.

Pop Quiz Review

True or False: The federal government applies unusually high taxes on harmful products in order to raise enough money to warn consumers of its dangers.

Product Liability

Where can you go to get consumer protection assistance?


Consumer ProtectionAssistance

• Many state and local Many state and local governments have offices of governments have offices of consumer affairs to educate consumer affairs to educate the the consumersconsumers and help and help protect them against fraud.protect them against fraud.

• The federal Consumer Product The federal Consumer Product Safety Commission establishes Safety Commission establishes safety standards safety standards for consumer for consumer products. products.

• Has the power to Has the power to recall unsafe recall unsafe products products and to impose and to impose fines fines on violatorson violators

Consumer ProtectionAssistance

Better Business BureauBetter Business Bureau The Better Business Bureau The Better Business Bureau

(BBB)(BBB) is an example of a is an example of a nongovernmentnongovernment agency that agency that hears consumer complaints at hears consumer complaints at the local and state levels. the local and state levels.

Its mission is to promote high Its mission is to promote high ethical relationships between ethical relationships between businesses and the publicbusinesses and the public

while steering the public to while steering the public to reputablereputable businesses. businesses.

EXAM NEXT CLASS

• Chapter 15 Exam Next ClassChapter 15 Exam Next Class– 45 Questions

•True/False•Drop Down•Multiple Choice•Essay

Documents

Consumer Protection and Product Liability Mr. Sherpinsky Council Rock School District