CHAPTER 6
CONSUMER - CONTRACT LAW
by
Laura Udis, Esq.
First Assistant Attorney General
and
Garth Lucero, Esq.
Deputy Attorney General
INTRODUCTION
Consumer protection law is based on the concept that fairness and honesty in the
marketplace promote the public interest. There is a common misconception that this idea
developed only in recent years to replace the ancient doctrine of caveat emptor (“let the buyer
beware”). In fact, the opposite is true. A fair price for a good product was the rule of the
marketplace in medieval times. The doctrine of caveat emptor evolved during the Industrial
Revolution, when notions of the sanctity of contracts developed to foster that period of fastpaced economic growth. Only since the mid-1960s have we returned to the fundamental doctrine
that the law should prohibit us from taking unfair economic advantage of another.
CONSUMER PROTECTION STATUTES
Most states enacted consumer protection statutes during the mid-1960s through the mid1970s. Such statutes now exist in all fifty states. These statutes are aimed at preventing
consumer deception and market abuse. Most consumer protection statutes prohibit unfair and
deceptive advertising and sales practices. This prohibition was contained originally in a federal
statute regulating interstate business practices, the Federal Trade Commission Act (“FTC” Act).
While many states have adopted the general provisions of the FTC Act, the specific language of
these laws varies from state to state. However, the basic concept and intent of these statutes are
identical. They are intended to protect reasonable consumers from unethical and unscrupulous
business practices. Consumer protection statutes apply to most consumer transactions in which
goods, services, or property are offered for sale or lease.
The primary intent underlying consumer protection statutes is to promote full and fair
disclosure of important facts about a transaction. The idea is to give consumers all necessary
information so that they can make wise shopping decisions. Sellers, therefore, should tell buyers
everything that is important about a sale before the sale is consummated, including any terms and
conditions to which the consumer later may be subject. The consumer protection laws thus tend
to balance the often unequal bargaining position of consumer buyers and merchant sellers. In
other words, better-informed consumers are less likely to be “taken” by a merchant.
Consumer protection statutes generally are broad and flexible so that they can apply to
numerous forms of unfair and deceptive schemes in all types of transactions. As such, they can
provide an all-purpose remedy against abusive business practices regardless of the product or
service or the nature of the advertisement, sale or promise.
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Many additional laws, rules and regulations exist to regulate business practices in certain
industries and specific areas of trade or commerce. These laws generally supplement the
consumer protection statutes. For example, insurance companies and insurance-related practices
are regulated in each state by a governmental agency called the State Insurance Division. These
agencies were created solely to regulate the agents for compliance with the specific laws, rules
and regulations under the insurance code for a state. If they violate provisions of the insurance
code, the agent or company can be sanctioned with fines or by revocation of their license to sell
insurance. Consequently, if an agent intentionally misrepresented the price of an insurance
policy, the consumer would have legal remedies against the agent and the insurance company
under both the Consumer Protection Act and the insurance laws of the state.
Examples of just a few of the many specific consumer protection statutes that apply to
particular industries and to types of transactions include lemon laws (to protect buyers of
defective automobiles), the Truth in Lending Act (to protect those borrowing money for personal
use), the Fair Debt Collection Practices Act (restricts the practices used by collection agencies to
collect bills), and the Uniform Commercial Code (governs contracts for the sale of merchandise).
Since consumer protection statutes are designed to be enforced principally on behalf of
unsophisticated consumers, these laws encourage fair and quick dispute settlements. Most
consumer protection laws allow consumers to collect monetary damages, costs and attorney fees
from the defendant business if the consumer wins his or her case. Many statutes provide
settlement procedures to be used prior to filing a lawsuit. Typical settlement procedures require
demand letters to inform a business of the consumer's claims and to request that the business
offer to resolve the claims before the parties resort to litigation. A business's failure to respond
completely and honestly to a demand letter is one of the factors that may entitle consumers to
larger monetary damages awards from the court.
BUSINESS PROTECTIONS
A number of consumer laws also protect businesses from unfair and deceptive practices
used by other businesses. In other words, most consumer protection laws allow a merchant to
sue a competitor if the competitor's deceptive practices interfere with fair competition and cause
financial injury to other merchants. Businesses should have the right to compete on a “level
playing field.”
COLORADO CONSUMER PROTECTION ACT
The Colorado Consumer Protection Act (“CCPA”) was enacted by the Colorado General
Assembly in 1969 to combat deceptive and fraudulent sales practices. The provisions of the
CCPA are contained in the Colorado Revised Statutes, Title 6, Article 1, §§ 101 through 908.
The CCPA prohibits the use of deception and misrepresentation in connection with
advertising and selling goods, services, and property in Colorado. The statutory remedies
available against violators of the CCPA include court-ordered injunctions, restitution (refunds or
return of property), civil fines up to $10,000 per violation, and costs and attorney fees to the
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prevailing party in court. Since it was first enacted, the CCPA has been amended numerous
times since to add more consumer protections and to address new consumer problems.
The CCPA contains a list of several general advertising and sales practices that are
prohibited. Examples include the following:
1. Passing Off Goods as Those of Another. Carter's Department Store takes locally
manufactured blue jeans and places Levi labels on them.
2. Misrepresenting the Source of Your Merchandise. Brady's Dairy sells cheese called
"Chunky Cheddar—Made in Wisconsin.” It is really made in Last Chance, Colorado.
3. Misrepresenting the Approval or Certification of Your Merchandise. Suncore sells a
solar collector they advertise as "Department of Energy-Approved," when DOE has never heard
of it.
4. Misrepresenting the Benefits of Your Product. GN-P also increases gas mileage by an
average of four miles per gallon according to Petty Q., but it has no such effect.
5. Advertising with Intent Not to Sell as Advertised. Lawrence Toyota advertises
“Celicas at $4,025 base price.” You arrive and cannot find one selling for less than $5,200.
6. Misrepresentations Regarding the Price of Merchandise. “Going Out of Business
Sale,” says Bark Brothers Sports. “All inventory 50% off.” In fact, Bark is simply changing the
name of the company to Aspen Bark Sports.
PROBLEM 1
Provide an example of conduct that you believe would violate each of the sections of
the CCPA mentioned above. Explain why.
The CCPA provisions may be enforced through lawsuits filed by the state attorney
general or local district attorneys on behalf of numerous consumers or by an individual to protect
his/her own rights.
STATE AGENCIES
Various state and federal agencies have the power to enforce consumer protection
statutes. While this is usually done by the state attorney general, the local district attorney or
other state consumer agencies also may enforce consumer laws. State agencies typically enforce
the Consumer Protection Act on behalf of a large group of consumers who are injured by a
business's deceptive practices. For example, if a department store is advertising merchandise as
“on sale” when in fact the prices are marked up, numerous consumers will be injured financially
because they will pay more for a product during the advertised “sale” than they would pay
normally at the same store or at a competing retailer. Rather than expecting each individual
shopper to file a lawsuit against the store, assuming he or she later realizes that shoppers were
deceived, the state would likely intervene on behalf of all shoppers. This would ensure that the
department store discontinues the alleged deceptive practices in the future and, at the same time,
discourages other merchants from similar practices.
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The consumer protection statute's broad coverage of consumer transactions enables
government agencies to intervene on behalf of consumers in a wide range of cases. Most
deceptive business practices, whether engaged in by retailer merchants, insurance companies, car
dealers, apartment rental companies, mortgage lenders, hospitals, employment agencies, health
clubs, hearing aid dealers, telemarketers and so forth, are subject to the consumer protection
laws. Consequently, government agencies such as the state attorney general must carefully
select the cases they pursue. In evaluating potential cases, those offices consider such factors as
the number of victims, the total amount of financial losses, the seriousness of the alleged
unlawful conduct, and the prospects of prevailing in court.
FEDERAL AGENCIES
Several federal consumer protection agencies exist to regulate businesses engaging in
interstate commerce; that is, businesses in which the products are manufactured, shipped,
distributed or sold in more than one state. Similar to the regulatory structure within state
government, each federal agency typically regulates specific areas of trade or commerce. For
example, the Postal Inspector regulates business practices that utilize the U.S. mail. The
Consumer Product Safety Commission conducts laboratory and field tests on numerous
manufactured products to ensure that hazardous or dangerous products are taken off the market.
The Food and Drug Administration (“FDA”) is responsible for approval of prescribed drugs,
over the counter drugs, and for the labeling and sale of food products, drugs and medical devices.
The Office of the Comptroller of the Currency (“OCC”) regulates the business of national banks.
The Federal Communications Commission (“FCC”) regulates telecommunications industry. The
Federal Trade Commission (“FTC”), which is the federal government counterpart to the state
attorneys general, enforces its consumer protection statute (the FTC Act) on a national basis.
The Federal Trade Commission (“FTC”) is the federal government counterpart to the state
attorney general in that it enforces its unfair and deceptive practices statutes, the FTC Act, on a
national basis. Any widespread business fraud that involves activities in more than one state is
subject to the FTC Act. Similar to local or state agency actions under their respective consumer
protection acts, the Federal Trade Commission may file lawsuits in federal court to obtain courtordered injunctions to stop fraudulent practices and to obtain refunds for consumer victims.
PRIVATE REMEDIES
Most consumer protection laws, whether enforceable by government agencies or not,
allow individuals to file their own private lawsuits for damages against a business which violates
any of the law’s provisions. These cases may be filed in federal, state, county or even small
claims court, depending on the particular statute under which the case is brought and the amount
of money at issue. In some circumstances, several consumers may join to file a “class action”
lawsuit to protect numerous persons who are similarly affected by the alleged deceptive business
practices. An example of a class action lawsuit is when a few consumers acting as
representatives of all similarly situated customers sue the telephone company for billing
overcharges collected from all telephone customers.
PROBLEM 2
Provide examples of other actual or potential class action lawsuits regarding business
practices.
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CONSUMER PROTECTION AGENCIES
Numerous government agencies are available to assist persons in Colorado. While some
agencies may provide basic consumer information by telephone, most consumer protection
agencies require consumer complaints to be submitted in writing. Some agencies provide
standard complaint forms on which a person may submit a complaint against a business.
Upon receipt of a consumer complaint, most agencies routinely forward it to the party
complained against for a written response. This allows both sides of the controversy to be heard,
thereby assuring an objective review of the circumstances or transactions in question. This
complaint-handling process often promotes amicable resolutions of the complaints by bringing
together the consumer and merchant to discuss and resolve the problem. This third-party dispute
resolution process is referred to as “mediation.” Most agencies provide significant mediation
services to consumers and businesses alike.
It is important to recognize that most consumers are satisfied by the business once it
understands the problem. Most honest businesses strive to keep their customers satisfied. This
ensures repeat business. Therefore, consumers should attempt to resolve complaints with the
company management before filing a formal written complaint with a consumer protection
agency.
Consumer protection agencies in Colorado include:
1. Colorado Attorney General's Office;
2. 22 local district attorneys;
3. Federal Trade Commission;
4. the U.S. Postal Inspector;
5. Consumer Product Safety Commission;
6. U.S. Food and Drug Administration; and
7. consumer relations departments of all other federal, state, and local government
agencies.
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Addresses of key agencies in Denver follow:
Colorado Attorney General
Consumer Protection Section
1525 Sherman Street, 5th Floor
Denver, CO 80203
(800) 222-4444
(800) 332-2071
Administrator
Collection Agency Board
Office of the Attorney General
1525 Sherman Street, 5th Floor
Denver, CO 80203
(303) 866-5304
Colorado Attorney General
Antitrust Unit
1525 Sherman Street
Denver, CO 80203
(303) 866-3616 or
(800) 332-2071
Administrator
Uniform Consumer Credit Code
Office of the Attorney General
1525 Sherman St., 5th Floor
Denver, CO 80203
(303) 866-4994
Denver District Attorney
Office of Consumer Fraud
303 West Colfax Avenue
Denver, CO 80203
(303) 640-3555
Colorado Department of Regulatory Agencies
(Division of Insurance, Real Estate Commission,
Public Utilities Commission, Division of
Banking, Securities Division, medical and
other occupational/professional licensing
boards)
1560 Broadway, Suite 1550
Denver, Colorado 80202
(303) 894-7855
www.dora.state.co.us
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Trade Associations
In addition to the consumer protection agencies described above, many private trade
associations have dispute resolution mechanisms designed to resolve differences between
consumers and businesses. For example, the Metro Denver Automobile Dealers Association
offers a service known as “Auto Cap,” which enables consumers to resolve differences with
automobile dealers in metropolitan Denver. The Apartment Association of Denver offers a hotline service for tenant problems. Mobile home owners have an association that offers assistance
to owners of homes located in mobile home parks. The Colorado Mortgage Bankers Association
mediates consumer complaints against home mortgage companies. Organizations such as the
Better Business Bureau (“BBB”) attempt to mediate disputes between their business members
and the public. Finally, the local BBB can provide excellent reliability reports and information
about various businesses so consumers can check references before they make a purchasing
decision.
CONTRACTS AND SALES
In Colorado, signing a contract means that you are legally bound to honor its terms.
There is no general three-day or five-day period to cancel a contract. Only in special situations
does the law provide for a cooling-off period in which you may cancel the contract or loan
without giving any reason. To cancel, the consumer must give notice in writing. In these cases,
the seller must inform the consumer in writing of his or her right to cancel or right to rescind the
contract.
Home Solicitations. The consumer has the right to cancel a contract within three
business days if all of the following are true:
1. the purchase contract is signed in the consumer's residence or another person's
residence;
2. the sale was not previously negotiated at a business establishment; and
3. the purchase was made on credit without use of a credit card.
Charitable Organizations. Cash donations to, or purchases from nonprofit organizations
may be cancelled before midnight of the third business day, after you receive written
confirmation of your contribution from the charity. However, donations of used goods (toys,
furniture, clothes, etc.) have a one-day cancellation period.
Security Interests in a Home. Regardless of where the contract or loan is signed, the
consumer has a right to rescind or cancel within three business days, if the creditor takes a
security interest in the consumer's residence (this time period may be extended if the creditor
fails to comply with certain provisions of the Truth in Lending Act). The consumer does not
have the right to cancel the loan by which he/she bought the residence. .
In these cases, unless the consumer has an emergency need for the money or goods and
services, the lender or the seller cannot give the consumer the money or begin to work until the
three-day period ends.
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Buyers Clubs. Buyers Club memberships may be cancelled before the close of business
on the next business day following the signing.
Time Shares. A person has five calendar days after purchasing a timeshare to cancel the
contract. A "time share" is an interest in a piece of real estate, such as a condominium, which is
divided into separate units based on time intervals, such as weekly units.
Dance Clubs. Dance club studio contracts may be cancelled at any time during the term
of the contract. However, you must still pay for 10 percent of the contract plus the lessons you
may have already taken.
Health Clubs. A membership to a health club can be cancelled up to three business days
after the consumer receives a copy of the contract.
Telephone Sales. Under certain telemarketing laws, some telephone solicitation sales
must be cancelled within three business days.
Discount Health Plans. Contracts for memberships in health care provider plans or
networks which provide discounts on medical services and pharmacy products allow thirty days
after entering the agreement to cancel.
Hearing Aids. A hearing aid may be returned within thirty days after receiving it. The
buyer receives a refund of all payments made, with the exception of the actual cost on any
custom ear molds (up to a maximum of 10 percent of the total payment for the hearing aid).
Credit Repair. A contract for services to “clean up” or “erase” bad credit may be
cancelled within five business days after it is signed.
COLORADO UNIFORM CONSUMER CREDIT CODE
The Colorado Uniform Consumer Credit Code (“UCCC” or “Code”), C.R.S, Article 1-9,
Title 5, includes most of the specific Colorado regulations regarding consumer credit. The
UCCC administrator adopts rules and issues a number of formal and informal interpretations of
the Code. The Code only applies to transactions included in its definition, scope and territorial
application sections.
Some consumer credit transactions are not subject to the code or are subject to only some
of its provisions. For example, mortgages by which homes are bought are subject only to the
Code's disclosure provisions. Sometimes federal law "preempts" a contrary provision of
Colorado law. For example, national banks located in other states can ignore the Colorado
interest rate limits and only must comply with the limits of their own states. This is true even if
the consumer is a Colorado resident.
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If the consumer credit transaction is subject to the Code, a number of requirements are
imposed: disclosure of the cost of credit; maximum finance charge rates; limits on delinquency
charges and attorney fees; opportunities to cure some defaults in making payments; restrictions
concerning the sale of insurance in connection with the credit transaction; the right to rescind or
cancel the contract or loan in two limited situations; restriction of some types of collection
attempts; and prohibitions against garnishment, i.e., taking of wages prior to judgment.
A consumer credit is a sale that meets all the following conditions:
1. the credit is extended by a person who does so regularly;
2. the borrower is an individual;
3. the credit is primarily for a personal], family or household purpose, and not for
business;
4. either a finance charge (interest) is made or the debt is payable in five or more
installments besides the down payment; and
5. the amount borrowed does not exceed $75,000 or else the credit is secured by real
estate.
Disclosures
Credit is a service offered by the seller or lender to defer repayment of money and costs
something. The cost is called interest or a finance charge. On some loans or sales the consumer
may end up paying back more in finance charges than was borrowed in the first place.
According to both the federal Truth and Lending Law and the Colorado UCCC, the finance
charge must be stated to the consumer as a dollar amount and as an annual percentage rate (APR)
(example: dollar amount: $1,700; APR-15%). The purpose of these disclosures is to enable the
consumer to shop around for the best deal. These disclosures also include many other items,
such as the number and amount of payments, the amount of credit being financed, and whether
there is a prepayment penalty. On loans or sales subject to the UCCC, the creditor is not
permitted to charge a prepayment penalty. Since these disclosures usually are not given until just
before the credit documents are signed, the consumer should attempt to obtain the information
contained in the disclosures before selecting a seller or lender.
Many creditors offer revolving credit, in which the creditor makes a certain amount of
credit available to be used as needed by the consumer. Credit cards and lines of credit are
examples. This form of credit is very convenient for both consumer and creditor, particularly if
the consumer will need to borrow money on several different occasions. Consumers should be
careful because the creditor may increase the APR or change other contract terms after advance
written notice sent one billing cycle before the change. A billing cycle is usually 20 to 30 days
long. The changes apply even to money borrowed before the change. The consumer also should
ask about annual fees and other charges the creditor will receive.
Maximum Rates
The UCCC limits the amount of finance charge a seller or lender can receive to 21
percent of the amount financed or, on the same loan, the lender can charge several different
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“step” rates: 36 percent on amounts up to $1,000 plus 21 percent on amounts over $1,000 to
$3,000, plus 15 percent on amounts over $3,000. On some credit sales or loans, the APR can
exceed 21 percent because of the step rates. On revolving loan accounts (such as bank credit
cards), a Colorado lender can charge 1¾ percent per month on charges for the purchase of goods
and services.
Remember that these are the highest rates that a creditor can charge in Colorado. Many
creditors charge lower rates than the maximum permitted. Consumers should shop around for the
best deal.
Assignee Liability
When a consumer purchases goods or services on credit, often he/she will receive notice
that payments should be made to a bank or finance company that has taken an assignment of the
promissory note. This finance company, called the “assignee,” has bought the note and has the
right to receive the remaining payments due under the contract. If the item breaks down and is
not repaired or the services bought are not being provided, the consumer has certain rights. The
UCCC provides that if the consumer was able to refuse to pay the seller or merchant by proving
that the seller has failed to live up to the contract, he/she also can refuse to make payments to the
assignee. To exercise this right, the consumer must notify the assignee, not just the seller, in
writing that he/she refuses to make any further payments because the seller has not lived up to
the contract. If the consumer refuses to make payments, he/she may have to prove his/her case
in court if sued by the creditor. The similar Federal Trade Commission Rule on Preservation of
Consumers’ Claims and Defenses, in 16 C.F.R. 433.2, also requires that the seller include in the
contract a statement making an assignee subject to any defense or claim that could be asserted
against the seller.
WARRANTIES
Before making a major purchase, the consumer should read an important part of the
contract called the warranty. The warranty is the manufacturer's or seller's promise to stand
behind a product. Warranties vary in the amount of protection they provide. Just as the
consumer may compare different products before buying, product warranties should be
compared. Warranties are governed generally by the federal Magnussen-Moss Act of 1975,
which requires that warranties be available to read before purchases are made.
Written Warranties. Written warranties come with most major purchases, although they
are not legally required. The protection offered by a written warranty varies greatly, so it is
important to compare warranties before making purchases. Some questions that should be asked
when comparing warranties are: What parts and repair problems are covered? Are any expenses
excluded from coverage? How long does the warranty last? What will you have to do to have
repair done? What will the company do if the product fails? Does the warranty cover
consequential damages, i.e., damages beyond the costs of repairing the product such as loss of
use or the cost of renting or replacement while the product is being fixed? Are there any
conditions or limitations on the warranty?
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Spoken Warranties. Sometimes a salesperson will make an oral promise, such as that
the store will provide replacement parts. However, if this claim is not in writing, the consumer
may not be able to obtain the promised service. The consumer should have the salesperson put
the promise in writing or not count on the service.
Service Contract. When buying a car or a major appliance, the consumer may be offered
a service contract. Although often called “extended warranties,” service contract are not
warranties. Warranties are included in the price of the product. Service contracts come
separately from the product, at an extra cost. To decide whether a service contract is needed,
several factors should be considered:
1. whether the warranty already covers the repairs that would be received under the
service contract;
2. whether the product is likely to need expensive repairs;
3. the duration of the service contract; and
4. the reputation of the company offering the service contract.
Implied Warranties. Although written warranties are not required by law, another type
of warranty is. It is called an implied warranty. Implied warranties are created by state law.
Almost every purchase is covered by an implied warranty. The most common type of implied
warranty is called the “implied warranty of merchantability.” This means that the seller
promises the product will do what it is supposed to do; for example, a car will run and a toaster
will toast.
Another type of implied warranty is the “warranty of fitness for a particular purpose.”
This applies when buying a product on the seller's advice that it is suitable for a particular use;
for example, a seller suggesting that the consumer buy a certain sleeping bag for zero-degree
weather implicitly warrants that the sleeping bag will be suitable at zero degrees.
If a product does not come with a written warranty, it is still covered by an implied
warranty, unless the product is marked “as is” or unless the seller clearly indicates otherwise in
writing that no warranty is given. This is referred to as a “disclaimer” of warranty.
If problems arise that are not covered by the written warranty, consumers should consider
whether they are protected by any of the implied warranties.
FEDERAL ACTS
The Equal Credit Opportunity Act (“ECOA”) prohibits creditors from discriminating
against consumers in any aspect of the credit transaction on the basis of sex, marital status, race,
color, age, national origin, religion, or because they receive public assistance payments or
exercise their rights under the Federal Consumer Protection Laws. The Federal Fair Credit
Reporting Act and the Colorado Consumer Credit Reporting Act protects consumer privacy in
connection with credit reports and safeguards the accuracy of credit bureau reports. Under the
Colorado law, Colorado residents have the right to receive one free copy of their credit report
each year from every consumer reporting agency. Credit reports are used by creditors,
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employers, landlords, and insurance companies in making decisions about whether to offer
credit, employment, insurance, and other services.
The Federal Trade Commission (“FTC”) regulates trade activity and enforces these two
federal laws. Consumer services are available by contacting the FTC online at www.ftc.gov, by
telephone at 1-877-FTC-HELP, or by mail sent to the FTC Consumer Response Center at 600
Pennsylvania Avenue, NW #130, Washington, D.C. 20580.
The federal consumer credit laws include the following:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Truth and Lending Act
Equal Credit Opportunity Act
Fair Credit Billing Act
Fair Credit Reporting Act
Consumer Leasing Act
Real Estate Settlement Procedures Act
Home Mortgage Disclosures Act
Fair Debt Collection Practices Act
Home Ownership and Equity Protection Act
COLLECTIONS/BANKRUPTCY
When a consumer obtains credit, he/she promises to repay the creditor according to the
agreement. If the consumer does not live up to the agreement, the creditor may sue, repossess
any collateral, or contact the debtor or employ a third party to contact him/her to persuade
him/her to pay the debt. If the creditor sues and obtains a judgment, the creditor may garnish
wages and other assets and repossess or foreclose on assets. However, the consumer does have
certain rights.
Right to Cure
If the consumer is late in making a payment on a transaction subject to the Colorado
UCCC, the creditor must send a written notice to the consumer's last known mailing address
advising the consumer of his/her right to “cure” the default within twenty days. If this notice is
not sent, the creditor may not repossess the collateral or accelerate the entire amount of
indebtedness; the creditor would only be able to try to collect any payments that were overdue.
This right exists only if the debtor is late in making a payment and not if he/she is in default for
any other reason, such as failure to keep property insurance on the collateral. This right exists
only once in each one-year period (twice if the debt is secured by a mobile home).
Unconscionable and Unfair Techniques
For transactions subject to the Colorado UCCC, the code prohibits creditors from
engaging in various collection techniques. Professional debt collectors who collect debts for
others are subject to both the federal and Colorado Fair Debt Collection Practices Acts. C.R.S.,
Article 14, Title 12. This Colorado statute requires collection agencies to be licensed and
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regulated by the Colorado Attorney General. The federal and Colorado acts also contain specific
prohibitions on certain collection practices.
Both the Colorado UCCC and the Colorado Fair Debt Collection Practices Act contain
some general prohibitions concerning collection practices. The creditor or collection agency
employed by the creditor cannot harass or abuse the consumer while trying to collect the debt.
The collector cannot repeatedly contact the consumer or contact the consumer at inconvenient
hours. The creditor or agency cannot use any false or misleading representations in trying to
collect the debt, nor contact third parties about the debt except to obtain information about the
consumer's location. The consumer still has the obligation to pay the debt but also has the right
to these and other protections, including the right to notify a collection agency in writing to stop
all contact with him/her or to provide proof of the debt. Of course, the agency or creditor may
sue for the debt.
Bad Checks
If a consumer receives a bank notice that a check has failed to clear, he or she should
immediately contact the person who was given the check and arrange to make payments for the
check. Colorado’s “bad check” law entitles the holder of the check to payment of the amount of
the check plus a return check charge of no more than $20, if the business has posted the charge
or contracted for it. In addition, if the business uses a collection agency to collect the check, the
consumer also may have to pay up to 20 percent of the check amount but no less than $20 as
collection costs. If the consumer fails to pay the check, return check charge and collection costs
after fifteen days notice, the consumer may be liable for three times the amount of the check but
at least $100, plus costs of collection and attorney fees. Colorado's bad check law is contained at
C.R.S. § 13-21-109. Consumers have certain defenses if, for example, checks bounced because
the consumer's paycheck did not clear or if the consumer stopped payment on the check due to
disputes about the quality of goods or services.
Debt Collection
If a debtor fails to pay a bill, a creditor may take the debtor to court to force him/her to
pay the bill. A lawsuit brought against a debtor usually will result in a court judgment against
the debtor for a specific dollar amount (assuming the debtor has not successfully defended
against it). A court judgment is a decision by the court that one party owes the other an amount
of money. Once it is entered, state laws usually provide a variety of means by which a creditor
can take the debtor's money or property without the debtor's consent, in order to satisfy the
judgment.
Some money and property cannot be taken regardless of how much the debtor owes.
Wages from employment can be garnished, but only 25 percent, or the amount by which net
(after taxes) income exceeds $154.50 weekly (thirty times the federal minimum of $5.15 wage),
whichever is less.
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PROBLEM 3
If the debtor nets only $100 weekly, can his/her wages be garnished? If a debtor nets $150
weekly, can his/her wages be taken? If so, in what amount? If a debtor nets $200 weekly, can
his/her wages be taken? If so, in what amount?
The law also protects certain property from creditors. In Colorado, up to $45,000 of home
equity is protected. The debtor's car is exempt up to $3,000 if used for work ($6,000 if the
debtor is elderly and disabled and uses the car for obtaining medical care). Many other types of
property also are protected.
Certain income also cannot be taken by creditors. This includes any governmental
welfare benefits, social security benefits and certain types of retirement benefits.
Bankruptcy
Federal laws provide relief for debtors whose liabilities exceed their assets. Federal
bankruptcy law prohibits creditors from continuing to try to collect debts after a petition in
bankruptcy is filed. The bankruptcy law is administered by the Bankruptcy Division of the U.S.
District Court. The purpose of the bankruptcy system is to bring all creditors into one place in
order to make an orderly distribution of the debtor's remaining available assets and then to
provide the debtor with a “fresh start.” Consumers normally have a choice of proceeding under
Chapter 7 or Chapter 13. Under Chapter 7, the debtor's nonexempt assets are sold and
distributed to the creditors. Under Chapter 13, the debtor proposes a plan by which he/she will
pay back creditors over time. There is no Colorado equivalent of bankruptcy laws, although the
bankruptcy judge often must look to Colorado law for answers on how to distribute assets.
Consumers should carefully consider using bankruptcy to eliminate or “discharge” their debts
because bankruptcy filings appear on credit bureau reports and may harm their credit rating for
years to come.
AUTOMOBILES
Other than buying a home, automobile purchases represent a consumer’s next largest
investment. Therefore, consumers should be thoughtful in their approach to buying a vehicle.
The “ten commandments” for purchasing an automobile are:
1. Determine beforehand what you can afford and what type of vehicle will best suit your
needs. Be concerned not only with the initial cost, but with insurance, maintenance and
operating costs. Shop around.
2. Have any used car thoroughly inspected by a qualified individual before purchase, to
determine any repairs needed now or likely to be needed in the near future.
3. Shop for financing just as you shop for the car itself. Consider the terms of the
financing—number of months, down payment, interest rate, finance charges and total of
the payments, not just the monthly payment. If you apply for your own financing, don't
agree to buy or take delivery of the vehicle until you have your lender's approval.
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4. It’s the bottom line price, after credit for trade-ins that really counts. Getting a huge
trade allowance doesn’t mean much if the price of the car you are buying is inflated due
to trade in allowance or if it would have been discounted anyway. The important figure
is the price you pay after everything has been included.
5. Most used cars are sold “as is” without any guarantee or warranty. If an “as is” car
breaks down after you buy it, you get the pieces; don't expect the dealer to put them back
together. He doesn't have to. The dealer’s only liability is for the equipment required by
state law.
6. If you do get a warranty, know exactly what is and is not covered, how to get repairs
done and what you must do to keep the coverage in effect.
7. Read everything and don't sign until you are sure you understand all the terms of the
purchase documents, including the finance contract. Don’t hesitate to ask questions and
get copies of everything you sign.
8. Have all promises put in writing—an oral contract isn't worth the paper it’s written on.
9. High pressure by itself is not illegal. Don’t be afraid to bargain and don’t be afraid to
say “no” or to walk out.
10. You do not have seventy-two hours or any other time period to change your mind.
Once you sign, you have bought yourself a car.
Any person who tampers with an odometer, operates a vehicle with a disconnected
odometer with intent to defraud, or makes a false mileage disclosure when transferring a vehicle
is liable for civil and criminal penalties. The victim of odometer tampering can sue for triple
damages. The Colorado Attorney General's Office or the District Attorney's office also can
provide assistance.
A person who signs a sales contract is obligating himself or herself to a purchase;
backing out of the deal likely means forfeiting the deposit. The automobile dealer may be able to
sue for additional damages. Most dealer sales contracts contain language providing that if the
consumer fails to complete the purchase, the dealer can keep your deposit and/or trade-ins as
liquidated damages. Colorado law requires that such damages must be reasonable, which may
have to be determined in court. When a dealer is arranging financing, the consumer is hound to a
deal if the dealer has given him/her the final finance terms. In this situation, the dealer cannot
keep the deposit if the buyer decides to back out. Some dealers want consumers to sign a rental
agreement that requires them to pay rental charge fees for use of the car in case the financing
doesn’t go through.
PROBLEM 4
You trade in your old car for a new one that you agreed to purchase. You change your mind
and fail to complete the purchase. The dealer has sold your trade in. What do they owe you?
If the consumer applies for financing, when he or she enters into a sales contract, he or
she must be given a written disclosure of all the terms and conditions of this sale. An installment
sale is one where the purchase is financed by the dealer. Terms and conditions refer to the
disclosures required by the Truth-in-Lending Act, such as down payment, prepayment interest
rate and deferred price. The consumer is entitled to disclosure of all terms in writing. If the
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consumer is getting his or her own financing, it is not an installment sale. It is a cash sale to the
dealer, who doesn’t have to give the buyer any finance disclosures. If not a cash sale, the deal is
usually binding once it is signed. The way to protect oneself is to have the dealer write
“inclusive subject to financing by” and then name specifically the lender before signing the
contract. This means the buyer won't have to buy the car if a lender turns down the buyer on the
loan.
Consumers have many protections by laws pertaining to automobile repairs. Those
protections are largely provided in the Motor Vehicle Repair Act.
Written Estimates A garage must supply the consumer with a written estimate of the
cost of repairs if the repairs exceed $75, except
1. when the consumer waives the right to an estimate by signing an estimate waiver;
2. when a consumer has his/her car towed to the garage; and
3. when the consumer takes the car to the garage before or after their normal business
hours.
The written estimate must include
1. a total cost of repairs to be done;
2. a date when the repairs will be finished;
3. a statement of the consumer's right to have all old parts returned to the consumer,
except body shop parts;
4. storage charges; and
5. the consumer's right to the return of replaced parts if requested when the repairs begin.
Oral Consent When a consumer has not given the garage written consent to do the work
or when a consumer has not signed an estimate waiver, the garage must obtain consent prior to
doing any work. This consent can be obtained orally by the garage. The garage must record the
consent noting:
1. the date;
2. time;
3. manner of consent;
4. name of the person giving the consent;
5. name of the person receiving consent; and
6. any phone numbers called.
Waiver A consumer may waive his/her right to receive a written estimate prior to
receiving repairs by signing his/her name and the date below the following statement, which
should be placed in boldface type: “I do not wish to receive an estimate to which I am entitled by
law before repairs are authorized.”
Increased Cost When a garage discovers the need for more repair work, causing an
increase in the bill, the garage must obtain the consumer's consent before doing the work. The
consent must be recorded in the manner described in “Oral Consent” above.
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Diagnosis When a diagnosis is necessary to determine what is wrong with a car, the
garage must give a written estimate if the diagnosis will cost more than $75. This estimate must
include the cost of any reassembly in case the consumer decides not to okay the repair, and the
cost of parts and labor of items destroyed in a disassembly.
Notice The garage also must notify the consumer of changes in the date the repairs are
expected to be completed; obtain consent before using rebuilt, reconditioned or used parts;
prepare detailed invoices of all repair work done, including parts installed and the names of the
mechanics who did the work; and keep all documents for one year.
Storage Charges A garage may charge storage charges if the consumer does not pick up
his/her car within three days.
Repossession If a consumer stops payment on a check or bounces a check, the garage
may pick up the car that previously had been released to the consumer. The garage must notify
the consumer in person or by certified mail twelve days before the car is picked up and file a lien
in court if the car cannot be picked up without a breach of the peace.
Failure of garages to adhere to the Motor Vehicle Repair Act can result in civil damages
and, in some instances, criminal violations.
Pyramid Schemes Pyramid schemes are illegal money chains promoted typically by
individuals and small groups of people. A typical pyramid scheme involves a few individuals at
the top who recruit participants who, in turn, recruit other participants to pay to join the
organization. Recruits are promised large sums of money if they successfully bring in others to
pay money to join the pyramid. Pyramid schemes focus on the exchange of money and
recruitment, and there is no legitimate product or service being sold to the participants. Pyramid
schemes are illegal in Colorado, and any persons participating in the scheme may be liable for
civil penalties, refunds and, in some cases, criminal penalties.
No-Call Laws In 2001, Colorado passed a no-call law that prohibits businesses from
making commercial telemarketing calls or faxes to residential or wireless telephones whose
numbers are on the official no-call list. Violations of this law can give consumers a $500 award
in small claims court and allow the attorney general to prosecute if a pattern of unsolicited calls
are made. Businesses may still call their existing customers or other persons who have
consented to receive the calls. Consumers may register their telephone numbers on-line at
www.ColoradoNoCall.com or by calling 1 (888) 249-9097.
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