Consumer Protection

Consumer Protection

An essential law that compensates for the imbalance in power where consumer have less information and less bargaining power than businesses

Protect consumers from: dangerous products, false advertising, and unfair practices

Regulatory Framework

Several laws, governmental agencies, and other bodies designed to protect buyers

• Federal Trade Commission Act

• Federal Food, Drug, and Cosmetic Act

• Consumer Product Safety

Powers of the regulatory agencies

• Enact regulations: set standards and require licenses

• Enforce regulations: Investigate, require periodic reporting, issue fines, and require recalls

• Adjudicate: hold administrative hearings

Federal Trade Commission

Prevents fraud, unfair, and deceptive practices in the marketplace

Federal Trade Commission Act

The act that created the FTC

• Protects Fair Competition practices (no monopolies)

• Protects consumers (bans companies from lying to costumers)

Unfair (3)

1. Causes or is likely to cause substantial injury

2. Consumers cannot reasonably avoid it

3. Not outweighed by benefits to consumers or competition

Deceptive (2)

1. A reasonable consumer would be misled by the advertising

2. the misleading representation is material (matters to the buying decision)

• “our show lasts 30% longer than the leading competitor”

Puffing/Puffery

Opinionated statements, not testable or measurable

*reasonable person would not believe the claims

• “Best pizza in town!”

Food and Drug Administration

Protects consumers against: food, drugs, medical devices, medical products, and cosmetics that are adulterated or misbranded

• regulates testing, manufacturing, labeling, packaging, shipping, and sales

Federal Food, Drug and Cosmetic Act

gives the FDA the power to oversee the safety, purity, and labeling of food, medications, medical devices, and cosmetics

Adulterated Food

• Foods that contain harmful substances

• prepared, packed, or stored in unsanitary conditions

• unsafe additives

Misbranded or Mislabeled

products packaging, label, or advertising is false, misleading, or missing legally required information

Consumer Product Safety Commission

a U.S. government watchdog agency that protects the public from dangerous or defective everyday household items

Consumer Product Safety Act

Conducts research on safety of consumer products

• sets safety standards

• ban on hazardous products

• requires reporting

• risks of injury or death

• orders mandatory recalls

Warranties

A promise about the quality/condition of a product

Express Warranties (3 types)

explicit claim that is part of the basis of the bargain and made by the seller:

1. A promise or statement of facts about the goods (“This watch is waterproof to 100 meters”)

2. A description of the goods (“100% organic cotton”)

3. A sample or model (“The product will match this sample”)

Implied Warranties

Not stated at all —> arise automatically by the operation of law:

• Merchantability: when the seller is a merchant and must make sure that goods are fit for the ordinary purpose they are sold for, have an average acceptable quantity, and are properly packaged and labeled

• Fitness for a particular purpose: when the seller knows the buyer’s specific purpose and the buyer relies on the seller’s judgement to pick something suitable

Warranties of Merchantability

When the seller is a merchant and must make sure that goods are fit for the ordinary purpose they are sold for, have an average acceptable quantity, and are properly packaged and labeled

Warranty of fitness for a particular purpose

When the seller knows the buyer’s specific purpose and the buyer relies on the seller’s judgement to pick something suitable