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COPYRIGHT © 2010 South-Western/Cengage Learning.
Federal Trade Commission
• Created in 1915 to regulate business.
• The FTC may enforce the law by:
– Voluntary compliance with regulations.
– Administrative hearings and appeals, which
may lead to a voluntary consent order or a
forced cease and desist order.
• Violations of voluntary consent or cease
and desist orders will lead to penalties.
COPYRIGHT © 2010 South-Western/Cengage Learning.
Sales
• Section 5 of the Federal Trade
Commission Act (FTC Act) prohibits
“unfair and 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.
COPYRIGHT © 2010 South-Western/Cengage Learning.
Sales (cont’d)
• The Commission considers a practice to be
unfair if it meets all of the following three
tests:
– It causes substantial consumer injury.
– The harm of the injury outweighs any
countervailing benefit.
– The consumer could not reasonably avoid the
injury.
• In addition, the FTC may decide that a
practice is unfair simply because it violates
public policy.
COPYRIGHT © 2010 South-Western/Cengage Learning.
Bait and Switch
• FTC rules prohibit bait and switch
advertisements: a merchant may not
advertise a product and then disparage
it to consumers in an effort to sell a
different item.
COPYRIGHT © 2010 South-Western/Cengage Learning.
Mail or Telephone Orders
• Ordered items must be shipped when promised, or
within 30 days. If this is not possible, the customer
must have the opportunity to change his mind.
• The FTC prohibits telemarketers from calling any
telephone number listed on its do-not-call registry.
FTC rules also prohibit telemarketers from blocking
their names and telephone numbers on Caller ID
systems.
• Under §5 of the FTC Act, anyone who receives
unordered merchandise in the mail can treat it as a
gift.
COPYRIGHT © 2010 South-Western/Cengage Learning.
Door-to-Door Sales
• Door-to-door salespersons are required
to notify the buyer of the right to
cancel the transaction prior to midnight
of the third business day after the sale.
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Consumer Credit
• The Truth in Lending Act applies to a
transaction only if all of the following tests
are met:
– It is a consumer loan.
– The loan has a finance charge or will be
repaid in more than four installments.
– The loan is for less than $25,000 or secured
by a mortgage on real estate.
– The loan is made by someone in the business
of offering credit.
COPYRIGHT © 2010 South-Western/Cengage Learning.
Required Disclosure
• In all loans regulated by TILA:
– The disclosure must be clear and in
meaningful sequence
– The lender must disclose the finance
charge.
– The creditor must also disclose the annual
percentage rate (APR).
COPYRIGHT © 2010 South-Western/Cengage Learning.
Required Disclosure:
Open-End Credit
• In any ad or solicitation, the lender must disclose credit
terms, including if the rate is introductory and when the
rate expires.
• In statements, the lender must disclose:
– the amount owed at the beginning of the billing cycle (the previous
balance);
– amounts and dates of all purchases,
– credits and payments;
– finance charges & late fees, plus the date by which a bill must be paid
to avoid charges;
– either the consequences of making the monthly minimum payment or
a toll free number at which to obtain such information
COPYRIGHT © 2010 South-Western/Cengage Learning.
Required Disclosure:
Closed-End Credit
• Before finalizing the loan, the lender must
disclose:
–
–
–
–
–
–
–
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the cash price;
the total down payment,
the amount financed;
an itemized list of all charges;
amounts and dates of all payments;
total amount of payments;
late payment and pre-payment penalties;
and the lender’s security interest in the item
purchased.
COPYRIGHT © 2010 South-Western/Cengage Learning.
Home Equity Loans
• If a home equity loan:
– Has an APR more than 10 points higher than
Treasury securities, OR
– The consumer must pay fees and points higher than
8% of the total loan amount…
• THEN…
– The lender must notify the consumer that he does
not have to go through with the loan, and he could
lose his house if he fails to make payments, AND
– Loans for less than 5 years may not have a balloon
payment.
COPYRIGHT © 2010 South-Western/Cengage Learning.
Other TILA Provisions
• Under TILA, consumers have the right
to rescind a mortgage for up to three
business days after the signing; if the
lender does not comply with TILA, the
consumer has three years to rescind.
• Advertising of financing rates must be
accurate: No bait and switch!
• Enforcement is done by the FTC.
COPYRIGHT © 2010 South-Western/Cengage Learning.
Credit Card Rules - Theft
• Under TILA, you are liable only for the first
$50 in charges a thief makes.
• If a thief steals just your number, and not
your card, you are not liable for any
unauthorized charges.
• With debit cards, you are only liable for
the first $50 if you report the theft within
2 days of discovery; after 2 days, you are
liable for the first $500, after 60 days, all
liability is yours.
COPYRIGHT © 2010 South-Western/Cengage Learning.
Credit Card Rules-Disputes
• In a dispute between a customer and a
merchant, the company cannot bill the
customer if:
– she tries to resolve the dispute,
– the dispute is for more than $50, and
– the merchant is in the same state or is within 100
miles of her house.
COPYRIGHT © 2010 South-Western/Cengage Learning.
Fair Credit Billing Act
• Under the FCBA
– Credit card companies must acknowledge
receipt of a complaint from a cardholder.
– Credit card company must investigate
complaints and report the results.
– If the consumer requests it, the company
must supply documentation of the
transaction in question.
– The company may not try to collect the
amount of the dispute while it is in
investigation.
COPYRIGHT © 2010 South-Western/Cengage Learning.
Fair Credit Reporting Act
• Under the FCRA:
– A consumer report can only be used for legitimate business needs.
– Information must not be obsolete.
– Employers may not seek a report on a current or potential employee
without permission.
– Anyone making an adverse decision against a consumer because of a
report must reveal the name and address of the reporting agency.
– A reporting agency must make a consumer’s report available upon
request.
– A reporting agency must investigate and correct any content reported
to be inaccurate.
COPYRIGHT © 2010 South-Western/Cengage Learning.
Fair and Accurate Credit Transactions
Act
• FACTA provides that consumers are entitled by
law to one free credit report every year from
each of the three major reporting agencies:
Equifax, Experian, and Trans Union.
• Consumer advocates recommend that you do
check your credit reports every year to make
sure they are accurate and also that no one
else has been obtaining credit in your name.
COPYRIGHT © 2010 South-Western/Cengage Learning.
Fair Debt Collection Practices Act
• Under the FDCPA, collectors may not:
– Call or write the debtor who has notified the collector in
writing that he wishes no further contact.
– Call or write a debtor who is represented by an attorney.
– Call a debtor before 8:00 a.m. or after 9:00 p.m.
– Threaten a debtor or use obscene or abusive language.
– Call or visit the debtor at work if the consumer’s employer
prohibits such contact.
COPYRIGHT © 2010 South-Western/Cengage Learning.
FDCPA (Cont’d)
• Under the FDCPA, collectors may not:
– Imply that they are attorneys when they are not.
– Threaten to arrest consumers who do not pay their
debts.
– Make other false or deceptive threats, that is, threats
that would be illegal if carried out.
– Contact acquaintances of the debtor for any reason
other than to locate the debtor (and then only once).
– Tell acquaintances that the consumer is in debt.
COPYRIGHT © 2010 South-Western/Cengage Learning.
Equal Credit Opportunity Act
• The Equal Credit Opportunity act (ECOA)
prohibits any creditor from discriminating
against a borrower because of race, color,
religion, national origin, sex, marital
status, age (as long as the borrower is old
enough to enter into a legal contract), or
because the borrower is receiving welfare.
COPYRIGHT © 2010 South-Western/Cengage Learning.
Consumer Leasing Act
• Before a lease is signed, the lessor must disclose the
following in writing:
– All required payments, including deposit, down payment,
taxes, license fees and balloon payment (due at end of
lease).
– The number and amount of each payment.
– Required insurance payments and available warranties.
– Maintenance requirements.
– Penalties for late payments.
– The consumer’s right to purchase the leased property or
terminate a lease early.
COPYRIGHT © 2010 South-Western/Cengage Learning.
Magnuson-Moss
Warranty Act
• Manufacturers or sellers are not required
to offer a warranty.
• Any supplier that does offer a written
warranty (on a consumer product that
costs more than $15) must disclose the
terms of the warranty in simple
understandable language before the sale.
COPYRIGHT © 2010 South-Western/Cengage Learning.
Consumer Product Safety
Commission
• The Consumer Product Safety
Commission (CPSC) evaluates
consumer products and develops safety
standards.
COPYRIGHT © 2010 South-Western/Cengage Learning.