Consumer Protection
and
Product Liability
Mr. Sherpinsky
Council 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
advertising (p. 321)
• How to identify four Federal Trade
Commission rules that protect
consumers (p. 321)
Why It’s Important
Knowledge of consumer
protection laws will prevent
you from falling victim to
fraud and deception.
Legal Terms
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caveat emptor (p. 316)
caveat venditor (p. 316)
consumer (p. 316)
unfair and deceptive practice (p. 317)
fraudulent misrepresentation (p. 318)
cease and desist orders (p. 320)
bait and switch (p. 321)
cooling-off rule (p. 322)
telemarketers (p. 323)
product liability (p. 327)
strict liability (p. 327)
adulterated (p. 329)
intrastate sales (p. 330)
Pre-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 Consumer
Protection Law
Years ago, caveat emptor, which means
“let the buyer beware,” reflected
society’s attitude toward consumers.
There were few ways to seek compensation
for damages and those injured had no
recourse due to not being in privity of
contract.
There was no course of action that could be
taken if customer was injured by products
purchased.
Today, however, society demands that
manufacturers be held responsible for
foreseeable injuries to people who use
their products.
The Development of Consumer
Protection Law
Caveat venditor, which
means “let the seller
beware,” now guides
consumer transactions.
Today, however, society
demands that manufacturers
be held responsible for
foreseeable injuries to people
who use their products.
Pre-Learning Question
To whom do consumer
protection laws apply?
Consumer protection laws apply to
transactions between consumers and
people conducting business
Federal and State Consumer
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 Consumer
Protection Laws
Consumer protection laws do not
protect you if:
you acquire a product
from another consumer
you buy a product to
use in a business
What is the difference between caveat
emptor and caveat venditor?
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 Protection
• State consumer protection offices provide
information and help enforce state
consumer protection laws.
• Offices may assist consumers with
individual problems.
Federal Consumer
Protection
Federal consumer protection law applies to
businesses that sell real estate, goods, or
services in interstate commerce, or
business activity that touches more than
one state.
The Federal Trade Commission (FTC) is
the U.S. government agency that
promotes free and fair trade competition
in the American economy.
The Bureau of Consumer Protection
safeguards consumers against
unfair, deceptive, or fraudulent
practices.
Both organizations investigate violations of
federal consumer protection law.
Classwork
• Complete Chapter 15 Packet
• Complete Chapter 15 Vocabulary Handout
Pre-Learning Question
What do you think are unfair and
deceptive practices?
Unfair and Deceptive Practices
An unfair and deceptive practice is
an act that misleads consumers.
Most states have enacted some kind
of unfair and deceptive trade
practice law.
• Examples include
– work-at-home schemes
– unordered merchandise
– false advertising
Unfair and Deceptive Practices
• If you feel you are the
victim of an unfair or
deceptive practice:
1. Speak to the business
owner or manager about
the problem
2. Write a complaint letter to
the company.
Elements of a Complaint Letter
• 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
Fraudulent
Misrepresentation
• A fraudulent
misrepresentation is any
statement that deceives the
buyer.
• A fraudulent misrepresentation
usually occurs when a seller
misstates the facts about
something that is important 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 Schemes
• Home employment …
Work at Home schemes
are among the oldest kind
of advertising fraud.
– Often these offers
sound attractive
• They often promise big
incomes without
explaining the costs.
• Work many hours
without pay
Unordered Merchandise
• Under state and
federal laws,
– Unordered
merchandise may be
considered a gift,
– You can keep it
without paying for it.
• It is illegal for anyone
who sends free
samples to:
– Include a bill.
Unordered Merchandise
• Only two kinds of goods
can be sent legally
through the mail
without the consumer’s
consent:
1. Manufacturers’ free
samples
2. Merchandise mailed
by charities
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
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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
Pre-Learning Question
What is an example of false
advertising?
False Advertising
• The FTC regulates false advertising
on the national level and has the
power to issue cease and desist
orders.
– These orders are legally binding orders
to stop a practice that would mislead
the public.
Bait and Switch
• One example of false
advertising is bait and
switch advertising.
– This happens when a store
advertises bargains that
do not really exist to
lure customers in hopes
that they will buy more
expensive merchandise.
Bait 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 stock
 Refusing to promise delivery
within a reasonable time.
 Demonstrating products that are
more expensive that the
advertised items
Pre-Learning Question
What are some FTC trade regulation
rules?
The FTC has established trade regulation rules for interstate
commerce to correct wrongdoing in the marketplace.
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They Include:
the negative option rule
the cooling-off rule
the telemarketing sales rule
900-telephone-number rules
rules for shopping by mail, telephone, fax
or Internet
Negative Option Rule
• When you subscribe to magazines or CD
club or other plan that sends products
regularly, the negative option rule applies.
– Under such plans, the seller sends you
announcements describing the current
selection.
– If you want the selection, you do nothing; the
seller will ship it automatically.
– If you do not want it, you must tell the seller
not to send it, and there is a deadline for
notification.
Negative Option Rule
Under Negative Option Rule, Sellers
MUST tell you:
 How many selections you must buy
 How and when you can cancel membership
 How to notify the seller when you do not
want selection
 When to return “negative option” to cancel
shipment
 When you’ll get credit for return of selection
 How postage and handling costs are charged
 How often you will receive announcements
and forms
The Cooling-Off Rule
• The cooling-off rule gives
you three days to cancel
contracts for most
purchases made away from
the seller’s regular place of
business.
– The rule applies to purchases
of $25 or more made at the
buyer’s home, workplace, or
dormitory.
– It does not apply for
contracts of real estate,
insurance, securities, or
emergency home repairs.
Telemarketing Sales Rule
The Telemarketing Sales Rule protects you
from abusive telemarketers, the people
who try to sell you products by telephone
Illegal for them to call…
If you have asked them not to contact you again…. (No Call List)
Unless it is between 8A.M. and 9P.M.
Unless they identify the company that 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
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Telemarketing Sales Rule
900-Telephone-Number Rules
Unlike 800 telephone numbers, if you dial a 900area-code telephone number, you are charged
for the call. Sometimes consumers are
charged excessively for 900-number calls.
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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
900-Number Scams
• Deal only with reputable companies.
• Think twice before calling a 900 number
for a “free gift.”
• Know precisely what the 900 call will
cost—before you make the call.
• Don’t confuse 900 numbers with toll-free
800 numbers.
Shopping by Mail, Telephone,
Fax, or Internet
• The FTC has established rules to protect
you when ordering goods by mail,
telephone, fax, and the Internet.
Shopping by Mail, Telephone,
Fax, or Internet
• Sellers must ship goods within
the time they promise in the
advertising.
• If shipping time is not stated,
they must ship within 30 days
after receiving an order.
• You have the right to cancel
and get your money back if time
limits are not met.
• Sellers must notify you of any
delay in shipment.
Work packets
• Time to complete
work packets….
• NO COMPUTERS!
Product Liability
What You’ll Learn
• 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)
Product Liability
Discussion Question
What do you think
product liability is?
Product Liability
What Is Product Liability?
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Under product liability law,
someone who is injured from a
product’s unsafe or defective
condition may recover damages
Often times the products are recalled
at NO COST to consumers
Manufacturers, sellers, and suppliers
of goods can all be held responsible.
Product Liability
What Is Strict Liability ?
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You do not have to prove a
negligent act on the part of
the manufacturer or seller if
you are hurt using a defective
product.
Strict liability makes
manufacturers or suppliers
responsible for selling goods
that are unreasonably
dangerous.
Product Liability
Strict Liability
People who are injured or who suffer
property damage from a defective
product may recover from the
manufacturer or seller if they can prove
that certain factors must be present:
1.
2.
3.
4.
5.
The manufacturer or seller was engaged in the
business of selling the product.
The product was unreasonably dangerous to the
user or consumer.
The defective condition was the cause of the injury
or damage.
The defective condition existed when the product
left the hands of the manufacturer or seller.
The consumer suffered physical harm or property
damage as a result of using the product.
Inadequate warning of danger and improper
instructions for the product’s use are also
considered defects
Product Liability
Pre-Learning Question
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
Two
federal laws are the:
that state
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Consumer Product Safety Act
Food, 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
into three categories:
1.
2.
3.
Manufacturing defects
Poor design
Inadequate instructions and
warnings about the safe use
of the product
Consumer Product Safety Act
Manufacturers must test the
quality and reliability (fitness)
of all products
Must prove they are safe
They 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 healthrelated device that is injurious,
adulterated, or misbranded.
• A food or drug is said to be
injurious if it contains any
substance that may make it
harmful to health.
Food, Drug, and Cosmetic Act
• 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.
Food, Drug, and Cosmetic Act
Drugs must:
• Bear name and address of the
manufacturer
• Statement of the quantity or weight
of contents
Non Prescription Drugs must:
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Give the common name of drug
Detail directions for use
Have caution for any unsafe use
Indicate if the drug is addictive
Food, Drug, and Cosmetic Act
The government uses removal and other
methods to discourage the sale of goods
considered harmful to the public health. They
include:
unusually
high taxes
labeling and packaging
outright prohibition
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 Laws
– If goods are manufactured and
sold only within the boundaries
of a state, the federal
government has no control over
the goods.
– For this reason, many states
have enacted their own product
liability laws.
– These laws apply to intrastate
sales (sales within a state).
– Nearly all states and localities
license and regulate
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
Pre-Learning Question
Where can you go to get consumer
protection assistance?
Consumer Protection
Assistance
• Many state and local
governments have offices of
consumer affairs to educate the
consumers and help protect
them against fraud.
• The federal Consumer Product
Safety Commission establishes
safety standards for consumer
products.
• Has the power to recall unsafe
products and to impose fines on
Consumer Protection
Assistance
Better Business Bureau
 The Better Business Bureau
(BBB) is an example of a
nongovernment agency that
hears consumer complaints at
the local and state levels.
 Its mission is to promote high
ethical relationships between
businesses and the public
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while steering the public to
reputable businesses.
EXAM NEXT CLASS
• Chapter 15 Exam Next Class
– 45 Questions
• True/False
• Drop Down
• Multiple Choice
• Essay