Consumer Protection
Chapter 19
FDA: Food and Drug Regulation
• Food Safety
• Food Quality Protection
– Food Drug and Cosmetic Act
– Food Additives Amendment
(FDCA) 1938
(Delaney Clause) added to
FDCA in 1958 more authority
– Safety in commercial food,
(very strict) on additives
drink, drugs and cosmetics
– Replaced by flexible Food
– Expanded FDA reach to false
Quality Protection Act of
advertising of drugs
1996
– Expanded enforcement and
– “Reasonable certainty of no
inspection and set safe levels
harm”
of additives in foods
• Enforcement
• FDA and USDA Standards
– FDA can force existing
– Dept. of Agriculture deals with
products--food, cosmetics,
meat, poultry & eggs
medical devices--removed
– Centers for Disease Control
from the market, i.e. silicone
(CDC) and EPA on food safety
breast implants
issues
Nutrition Labeling and
Education Act 1990
• Required new regulations
• Standards for
in 1994
– apply to more than 250,000 health claims
products
– prevent misleading product
claims
– help consumers make
informed decisions
• Nutrients by serving size
– labels must show certain
components in foods by
realistic serving size
– over 100 categories of food
– words must have
certain meanings
• fresh--can’t have
been processed,
frozen or preserved
• low fat – 3 or fewer
grams of fat per 100
grams of food
• low calorie--fewer
than 40 calories per
100 grams
Drug Safety – Food, Drug and
Cosmetic Act of 1938
•
•
•
•
•
•
•
•
•
Prohibits sale of drug until FDA approves manufacturer’s application
Drug must be safe for its intended use
Designation of Prescription Drugs by FDA
– Some drugs sold by pharmacies only with a physician’s permission
Drug Effectiveness
– Kefauver Amendment of 1962 requires FDA to approve drugs based on
their proven effectiveness, not just their safety.
FDA has strict regulations concerning testing and adoption of new drugs.
FDA has responsibility for oversight of medical devices, surgical
equipment, power wheelchairs, artificial hearts, pacemakers, etc.
FDA approval is evidence of safety, not a shield against tort liability.
If claims are misleading or safety is an issue, FDA can force removal of
product from the market
R&D very costly for drug companies
Wyeth v. Levine
•
•
•
•
•
•
•
•
•
•
•
•
•
Phenergan was approved by FDA in 1955; so was label.
One form of Phenergan is used to treat nausea.
Administered either by “IV-push” method (drug injected
intravenously) or “IV-drip” (drip feed & saline solution).
Diane Levine had Phenergan by IV-push to treat nausea.
Needle penetrated an artery; she developed gangrene (known from
IV-push injections); forearm and hand were amputated.
Levine sued Wyeth in state court for failure to warn. Requested
damages for medical expenses and loss of livelihood.
Contended drug label defective .
Label warned of gangrene risk from IV-push but did not instruct that
IV-drop method should be used if possible.
Wyeth had duty to instruct on different methods.
Wyeth argued claims pre-empted by federal law.
Trial court reject the argument; found for Levine.
Affirmed by Vermont Supreme Court
Wyeth appealed, saying approval of drug use label by FDA prevents
the claim under state law.
(Continued)
Wyeth v. Levine, cont.
•
•
•
•
•
•
•
•
•
•
Judgment of Vermont Supreme Court affirmed.
Issue: Does FDA’s drug labeling “preempt state law product liability claims?”
Wyeth said impossible to comply to both sate law standards and FDA labeling
duties.
Court noted that Wyeth can change a drug label after FDA approves a
supplemental application
Can make “changes being effected” (CBE) if label change adds or strengthens
a warning, precaution, contraindication or adverse reaction, dosage,
administration – anything that will increase safe use of product
Wyeth can do this without FDA approval
Risk information accrues over time – FDA allows for changes when info. is
discovered.
FDA does not bear responsibility for drug labeling – Wyeth does.
FDA can reject labeling and review supplemental application .
Stronger state law warning does not pre-empt Congress’s authority – state
laws are complementary to FDA regulation.
Federal Trade Commission
(FTC)
• To enforce antitrust laws
• But also devotes
resources to the Bureau
of Consumer Protection
– protect against “unfair
and deceptive acts or
practices in or
affecting commerce”
• Enforcement of
Magnuson-Moss Warranty
Act
Unfair and Deceptive
Acts and Practices
• FTC has considerable leeway
• Deception:
– 1) misrepresentation or omission of information
– 2) likely to mislead reasonable consumer
– 3) deception is material
• Clarifying the elements:
– 1) not all omissions are deceptive
– 2) look at entire content
– 3) reasonable consumer is ordinary person
• ads for very young or sick have a tougher standard
– 4) must be likely to affect consumer’s product
choice
– 5) no proof of injury to consumer is needed
Unfairness
• Usually tagged onto deceptive
charge
– 1) causes substantial harm to
consumers
– 2) consumers cannot
reasonably avoid injury
– 3) injury is harmful in its net
effect
• Costs and benefits are
compared
• Examples of Deception
– Telemarketing Fraud
– Oil-and-Gas-Well
“Investments”
– Work-at-Home Opportunities
– Invention-Promotion Scams
Regulating Advertising Claims
•
•
•
•
Advertising substantiation program
– Advertisement must be truthful and non-deceptive;
– Advertisers must have evidence to back claims; AND
– Advertisements cannot be unfair.
Must have reasonable basis for claims
FTC considers following in what is reasonable basis:
– product
– type of claim
– consequences of false claim; benefits of truthful claim
– cost of developing substantiation
– amount of substantiation experts believe is reasonable
Note regarding telemarketers
– Subject to the Telephone Consumer Protection Act and
Telemarketing and Consumer Fraud and Abuse Prevention Act
– The result is the FTC’s Telemarketing Sales Rule
– Consumers can sue telemarketers for damages if they violate
consumers’ instructions to be removed from call lists.
False Advertising and the
Lanham Act
• Private parties can bring civil actions
under the Lanham Act
• Usually similar to FTC cases, but can also
get damages
• States play similar roles as FTC, bringing
suit against those involved in scams and
dubious business practices.
• Example: Time Warner Cable won suit
against DirecTV for stating views could not
get “the best picture out of some fancy big
screen” without satellite television service
– no basis for such a claim
Trade Regulation Rules
(Setting Boundaries for Practices)
• R-Value rule
– standardize measures and terminology re:
home insulation
• Mail-order rule
– reasonable basis for expecting to ship
products w/in time they say
• i.e. “allow 5 weeks for shipping” or must
ship within 30 days
• Used car rule
– dealers must give clear information on who
pays for repairs after sale
– Buyer’s Guide must be put in the car window
State Deceptive Practices
Laws
• All states give attorneys general powers similar to FTC
• Can bring suit against those involved in scams/dubious business
practices
• Most states have business code/consumer projection act
• Restrict deceptive trade practices
EXAMPLE: Texas Business & Commerce Code:
Consumer may maintain action where any of following constitute
producing if there was cause of economic damage or damages
for mental anguish
1. use or employment by any person of false, misleading or
deceptive act or practice;
2. breach of express or implied warranty;
3. any unconscionable action or course of action by any person;
4. violation of the Insurance Code
Consumer Credit Protection
Act (CCPA) Major Elements
• Truth-in-Lending Act
– Consumer Leasing Act
– Fair Credit Billing Act
•
•
•
•
•
Restrictions on Garnishments
Fair Credit Reporting Act
Equal Credit Opportunity Act
Fair Debt Collection Practices Act
Electronic Funds Transfer Act
Consumer Credit Protection
Requirements for Creditors
• Disclose all relevant terms
• Provide procedures for correcting inaccurate
bill and charges
• Provide accurate information in consumer
reports
• Not use race or sex in determining
creditworthiness
• Abusive debt collection techniques prohibited
• See Exhibit 19.1
Truth-in-Lending
Act (TILA)
• Encourage consumers to shop around for credit
• Standardize loan forms and terms to help consumers
understand finance charges
• Must disclose cost of credit in dollars and interest rate
• If loan has these things, they must be listed:
– service, activity, carrying and transaction charges
– loan fees and points
– charges for credit life and credit accident and health
insurance
– fees for credit reports in non-real estate
• Have civil and criminal penalties for violations
Consumer
Leasing Act
• Does for leases what
• Must disclose:
TILA does for
– number, amount and
consumer credit
period of payments and
total payments
• Applies to personal
– express warranties
transactions, not for
– ID party responsible for
business use
maintaining the property
– if consumer has option to
• Lease must be longer
buy and at what terms
than 4 months and
– penalties for terminating
less than $25,000
lease early
• See Exhibit 19.2 Credit Sale
Disclosure Form
Fair Credit Billing Act
• Protect consumers from
inaccurate charges
• FCBA provides:
– procedure to dispute
billing errors
– prohibits mailing of
unsolicited credit cards
– procedures to report
lost/stolen credit cards
• Can also sue for civil
penalties
Consumer Credit
Card Act
• Credit Card Accountability Responsibility and Disclosure Act – 2009 –
Usually called Consumer Credit Card Act
• Federal Reserve Board has primary duties of regulating
– May not raise interest rates on exiting balance & promotional rates
must last six months
– When companies raise rates, give 45 days notice
– Restriction placed on late fees
– Cards not issued to consumers under age 21 (unless co-signed)
– Finance charges can’t be imposed on current and previous balance
(double-cycle billing)
– Payments on credit care must be applied to higher interest rate of
debt portion
– Statements must be sent at least 21 days before due date
– Gift cards may not expire for at least 5 years
Fair Credit Reporting Act
• Regulates credit bureaus
• Consumers can see credit reports that result in
credit being denied
• Credit bureaus must:
– respond to consumer complaints w/in 30 days
– give consumers their credit history
– provide toll free service number
– get permission before giving report to
employer or that contains medical info
• FTC’s Disposal Rule applies to all business and
persons that use consumer reports
– must be properly destroyed
– must be pulverized, shredded, or erased so
info cannot be reconstructed or read
– applies to paper and electronic documents
Fair and Accurate Credit
Transactions Act (FACT Act)
• FACT Act amended Fair Credit Reporting Act in 2003
• Requires major credit services (Experian, TransUnion and Equifax)
to allow consumers to see their credit reports annually for free
• Allows consumers to correct bad information
• Helps to deal with identity theft
• Has numerous requirements
• Red Flag Rule (Implemented in 2011)
–
–
–
–
–
–
All creditors must have pro-active protections in place
Includes physicians, other service providers, etc.
Alerts, notifications, or warnings from consumer reporting agency
Suspicious documents related to credit accounts
Dubious ID information, such as a peculiar address
Unusual use of (activity on) particular account
• Also notices from customers, victims of ID theft, law enforcement
authorities, & others re: possible ID thefts on accounts
Equal Credit Opportunity Act
(ECOA)
• Prohibits discrimination against applicants for
credit on basis of race, sex, color, religion,
national origin, marital status, receipt of public
benefits, good-faith exercise of applicant’s rights
under CCPA or age (prohibited bases)
• Can’t discourage person applying for credit
• Can’t use info that applicant may have children
or likely to have reduced or irregular income
• Credit history must be at applicant’s request
• Creditor cannot request info re: spouse or
former spouse unless
– spouse will use account
– applicant is relying on spouse’s
income/alimony/child support
– applicant lives in community property state
Fair Debt Collection
Practices Act
• Eliminate unfair, deceptive, and
abusive collection techniques,
but permit reasonable collection
practices
• Restrictions Imposed
– applied to debt collectors, not
creditors collecting own debt
– prohibits threats, obscene
language, publication of a list
of delinquent consumers,
harassing phone calls
Chuway v. National Action
Financial Services, Inc.
• Debt collector National Action sent Chuway a letter that
identified the credit card company she owed money to.
• Balance on debt was $367.52
• Letter said the creditor
– “has assigned your delinquent account to our agency for
collection. Please remit the balance listed above in the return
envelope provided. To obtain your most current balance
information, please call 1-800-916-9006. Our friendly and
experienced representatives will be glad to assist you and answer
any questions you have.”
• Chuway sued National Action for violating FDCPA – that
communication was not proper
• District court granted summary judgment for National
Action, holding the letter stated “the amount of the debt”
and no FDCPA violation. Chuway appealed.
(continued)
Chuway v. National Action
Financial Services, Inc., cont.
• HELD: Reversed and remanded. Chuway wins.
• Letter stated balance owed was $367.42. If letter had stopped after
“Please remit” sentence, National would be okay.
• But it went on how to obtain “your most current balance information”
– dunning for something more. Credit card company (not debt
collector) may charge interest until the debt is finally paid.
• Communications must be clear to the creditor.
• For debt collector to collect running interest or other charges, must
use language:
– “As of the date of this letter you owe $xxxx (exact amount).”
– Then may indicate that “other charges may vary from day to day,”
and that due to other charges that may vary, the amount due on
the day debtor pays may be greater than indicated.
– Then speak about an adjustment that may be necessary after
collector receives the debtor’s check, indicating information will
be sent before depositing check for collection.
– THEN give 1-800 number and address where collecting agency
can be reached for further information.
Electronic Fund Transfer Act
• Limits liability from stolen ATM card if
consumer reports loss of card
– No more than $50 if financial institution is
notified within 2 days
– Maximum liability is $500 if consumer
notifies financial institution within 60 days
• Financial institutions liable to consumers for
damages from failure to make electronic
transfers of funds
• Consumers have 60 days to report errors;
financial institutions must investigate and
resolve within 45 days
The Consumer Financial
Protection Bureau
• 2010 Dodd-Frank Act
• Established new agency: Consumer Financial Protection Bureau
(CFPB) within the Federal Reserve
• Still “getting up to speed”
• Attorneys-general have authority to enforce Bureau rules
• Instructions from Congress to the CFPB
– Crack down on financial scams/gimmicks aimed at ordinary
consumers and debtors
– Ensure terms of financial documents are transparent & can be
understood by a reasonable consumer
– Focus on practice of non-bank institutes, i.e. payday lenders, that
seem unfair
– Look at existing rules i.e. those of the Equal Credit Opportunity Act,
and make sure rules are not in conflict with each other