Consumer Law
Everyone lives by selling something.”
Robert Louis Stevenson,
Author of Treasure Island and Kidnapped
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Created in 1915 to regulate business.
The FTC may enforce the law by:
◦ Voluntary compliance
◦ Administrative hearings and appeals
◦ Penalties
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Consumer Financial Protection Bureau –
◦ Created in to regulate consumer financial products
and services
 Including mortgages, credit cards, and private student
loans
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Section 5 of the Federal Trade Commission
Act (FTC Act) prohibits “unfair and deceptive
acts or practices”
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
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Unfair practices
◦ 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
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In addition, the FTC may decide that a
practice is unfair simply because it violates
public policy, even if it does not meet these
three tests
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Bait-and-switch: A practice where sellers
advertise products that are not generally
available but are being used to draw
interested parties in so that they will buy
other products
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
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Merchandise bought by mail, telephone, or
online
◦ The FTC had established the following rules
 Ordered items must be shipped when promised, or
within 30 days
 If a company cannot ship the product promised, it
must send the customer a notice with the new
shipping date and an opportunity to cancel
 If the company cannot ship by the second shipment
date it must send the customer another notice
 This time, the company must cancel the order unless the
customer returns the notice, indicating that he still wants
the item
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Telemarketing – FTC rules prohibit
telemarketers from calling any telephone
number listed on its do-not-call registry
Unordered merchandise
◦ Under §5 of the FTC Act, anyone who receives
unordered merchandise in the mail can treat it as a
gift
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Door-to-door sales – A salesperson is
required to notify the buyer that she has the
right to cancel the transaction prior to
midnight of the third business day thereafter
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Penalty for violating usury statutes varies
among states
Depending upon the jurisdiction, the member
may forfeit:
◦ Interest above the usury limit
◦ All of the interest
◦ All of the loan and the interest
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Application – TILA 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 $51,800 or secured by a
mortgage on real estate, or is a private educational
loan
◦ The loan is made by someone in the business of
offering credit
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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)
◦ 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 other charges
The number, amount, and dates of all payments
Total amount of payments
Late payment and pre-payment penalties
The lender’s security interest in the item purchased
◦ Enforcement – FTC generally has the right to
enforce TILA
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Mortgage loans - TILA prohibits unfair,
abusive, or deceptive home mortgage lending
practices
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TILA:
◦ Requires lenders to make good-faith effort to
determine whether a borrower can afford to repay
the loan
◦ Prohibits lenders from coercing or bribing an
appraiser into misstating a home’s value
◦ Bans prepayment penalties on adjustable rate
mortgages
◦ Subprime loan: A loan that has an above-market
interest rate because the borrower is high-risk
 Regulated by the TILA
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If a home equity loans:
◦ Has an APR that is more than 10 percentage higher
than Treasury securities, or
◦ The consumer must pay fees and points higher than
8% of the total loan amount
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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 five years may not have a
balloon payment
◦ Rescission - Under TILA, consumers have the right
to rescind a mortgage for up to three business days
after the signing
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Disclosure
◦ TILA establishes disclosure rules for credit cards
 Called open-end credit
◦ In any advertisement or solicitation, the lender
must disclose:
 Credit terms
 That the rate is introductory
◦ Before establishing an open-end credit account, the
lender must disclose to the consumer:
 When a finance charge will be imposed
 How the finance charge with be calculated
◦ In each monthly statement, the lender must
disclose:
 The amount owed at the beginning of the billing cycle
 Amounts and dates of all purchases, credits, and
payments
 Finance charges and late fees
 The date by which a bill must be paid to avoid these
charges
 Either the consequences of making the monthly
minimum payment or a toll-free number that can be
used to obtain such information
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Regulation of credit card debt
◦ Many consumers struggled to pay their credit card
bills during the economic crisis in 2008
◦ In response, Congress increased oversight of credit
card companies by passing the Credit Card Act of
2009
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Liability
◦ Stolen cards – Under the TILA, you are liable only
for the first $50 in charges the thief makes before
you notify the credit card company
◦ Disputes with merchants - In the event of a dispute
between a customer and a merchant, the credit card
company cannot bill the customer if:
 She makes a good faith effort to resolve the dispute
 The dispute is for more than $50
 The merchant is in the same state where she lives or is
within 100 miles of her house
◦ Disputes with the credit card company – The Fair
Credit Billing Act (FCBA) provides additional
protection for credit card holders
 And for holders of revolving charge accounts
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Under the FCBA:
◦ Credit card companies must acknowledge receipt of
a complaint from a cardholder
◦ Credit card company must investigate complaints
and respond:
 In case of error, by correcting the mistake and
notifying the consumer
 If there is no error, by writing to the consumer with an
explanation
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If the consumer requests it, the company
must supply documentation of the
transaction in question
The company may not try to collect the
disputed debt while it is in investigation
The company cannot report to credit agencies
that the consumer has an unpaid bill until 10
days after the response
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Liability
◦ Liability from a stolen debit card is much greater
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Fees
◦ Traditionally, banks would charge a flat fee of $20
to $30 each time cardholders overdrew their bank
account
◦ Under new rules, banks are not allowed to overdraw
an account and charge the fee unless the consumer
signs up for an overdraft plan
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Accuracy of credit reports
◦ Consumer reporting agencies: Businesses that
supply consumer reports to third parties
◦ Consumer report: Any communication about a
consumer’s creditworthiness, character, general
reputation, or lifestyle that is considered as a factor
in:
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Establishing credit
Obtaining insurance
Securing a job
Acquiring a government license
Any other legitimate business need
◦ Under the FCRA:
 A consumer reporting agency cannot report obsolete
information
 An investigative cannot be ordered without first
informing the consumer
 Investigative report: Discusses character, reputation, or
lifestyle and becomes obsolete in three months
◦ A consumer reporting agency cannot report medical
information without the consumer’s permission
◦ An employer cannot request a consumer report on
any current or potential employee without
employee’s permission
◦ Anyone who makes an adverse decision against a
consumer because of a credit 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 forward
the data to the information provider any content
reported to be inaccurate
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Access to credit reports and credit scores
◦ Under Fair and Accurate Credit Transactions Act
(FACTA), consumers are entitled by law to one free
credit report every year from each of the three
major reporting agencies:
 Equifax
 Experian
 Trans Union
◦ Consumer advocates recommend that you do check
your credit reports every year to make sure:
 They are accurate
 No one else has been obtaining credit in your name
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Identity theft – A fraudster steals the victim’s
personal information
◦ Such as social security number, credit card
information, etc.
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FACTA created National Fraud Alert System
◦ Permits consumers who feel they may be the victim
of identity theft to place an alert in their credit files
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Under Fair Debt Collection Practices Act
(FDCPA), collectors may not:
◦ Call or write a 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
◦ Imply that they are attorneys or government
representatives when they are not
◦ Threaten to arrest consumers who do not pay their
debts
◦ Make other false or deceptive 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
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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)
◦ Because the borrower is receiving welfare
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Before a lease is signed, the lessor must
disclose the following in writing:
◦ All required payments, including deposit, down
payment, taxes, license fees
◦ The number and amount of each payment and how
the payments are calculated
◦ Balloon payments
◦ Required insurance payments
◦ Annual mileage allowance
◦ The total amount the consumer will have paid by
the end of the lease
◦ Available warranties
◦ Maintenance requirements and a description of the
lessor’s wear and use standards
◦ Penalties for late payments
◦ The consumer’s right to purchase the leased
property, and at what price
◦ The consumer’s right to terminate a lease early
◦ Any penalties for early termination
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Does not require:
◦ Manufacturers or sellers to provide a warranty on
their products
◦ Any supplier that offers a written warranty on a
consumer product that costs more than $15 to
disclose the terms of the warranty in simple
understandable language before the sale
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Consumer Product Safety Act – Prevents
injuries in the first place
◦ Created the Consumer Product Safety Commission
(CPSC) that
 Evaluates consumer products and develops safety
standards
“Virtually no one will go through life
without reading an advertisement,
ordering from a catalog, borrowing
money, needing a credit report, or using a
consumer product. It is important to know
your rights.”