Chapter
16
Consumer Protection

Pressures to Promote Consumer Interests
 How Government Protects Consumers
 Consumer Privacy in the Internet Age
 Product Liability: A Special Problem
 Positive Business Responses to Consumerism
 Consumerism’s Achievements
The anatomy of consumerism
In 1960, President John F. Kennedy told Congress that consumers
were entitled to four kinds of protections:
1.
2.
3.
4.
The right to safety: to be protected against the marketing of goods that are
hazardous to health or life.
The right to be informed: to be protected against fraudulent, deceitful, or
grossly misleading information, advertising, labeling, or other practices, and
to be given the facts to make an informed choice.
The right to choose: to be assured, wherever possible, access to a variety of
products and services at competitive prices.
The right to be heard: to be assured that consumer interests will receive full
and sympathetic consideration in the formulation of government policy, and
fair and expeditious treatment in its administrative tribunals.
Reasons for consumer movement




Complex products have enormously complicated the choices
consumers need to make when they go shopping.
Services, as well as products, have become more specialized and
difficult to judge.
When business tries to sell both products and services through
advertising, claims may be inflated or they may appeal to
emotions having little to do with how the product is expected to
perform.
Product safety has often been ignored.
Goals of consumer laws




To provide consumers with better information when making
purchases.
To protect consumers against possible hazards from products they
may purchase.
To promote competitive pricing and consumer choice.
To protect privacy.
Figure 16.1a
Major consumer protections specified
by consumer laws
Information protections
 Hazardous home appliances must carry a warning label.
 Home products must carry a label detailing contents.
 Autos must carry a label showing detailed breakdown of price and
all related costs.
 Tobacco advertisements and products must carry a health warning label.
 Alcoholic beverages must carry a health warning label.
 All costs related to real estate transactions must be disclosed.
 Warranties must specify the terms of the guarantee and the buyer’s rights.
 False and deceptive advertising can be prohibited.
 Food and beverage labels must show complete information.
 Food advertising must not make false claims about nutrition.
Figure 16.1b
Major consumer protections specified
by consumer laws
Direct hazard protections




Hazardous toys and games for children are banned from sale.
Safety standards for motor vehicles required.
National and state speed limits are specified.
Hazardous, defective, and ineffective products can be recalled.
under pressure from EPA, CPSC, NHTSA, and FDA.
 Pesticide residue in food is allowed only if it poses a negligible risk.
Pricing protections
 Unfair pricing, monopolistic practices, and noncompetitive acts are regulated
by the FTC and Justice Department and by states.
Liability protections
 When injured by a product, consumers can seek legal redress.
Privacy protections
 Limited collection of information online and about children is allowed.
Other protections
 No discrimination in the extension of credit is allowed.
Figure 16.2a
Major federal consumer protection agencies
and their main responsibilities
Federal Trade
Commission
Food and Drug
Administration
Consumer Product
Safety Commission
 Competitive pricing
 Deceptive trade
practices
 Packaging
and labeling
 Consumer credit
disclosure and
reporting
 Online privacy
Safety, effectiveness,
and labeling of drugs,
foods, food additives,
cosmetics, and
medical devices
Standards for
radiation exposure
Toxic chemicals
 Safety standards for
research
consumer products
 Flammable fabrics,
hazardous substances,
poison prevention
packaging
Figure 16.2b
Major federal consumer protection agencies
and their main responsibilities
National Highway
Traffic Safety
Administration
Department of
Justice
National
Transportation
Safety Board
Motor vehicle safety
standards
Automobile fuel
economy standards
National uniform
speed limit
Consumer safeguards
for altered odometers
 Fair competition
 Consumer civil
rights
 Airline safety
Protecting consumer privacy online
Consumer self-help
Internet users should use technologies that enable them to protect their
own privacy.
Industry self-regulation
Businesses should adopt voluntary policies and technical standards that
protect the privacy of individuals’ information.
Privacy legislation
The government should pass laws that establish minimum privacy
standards for collecting information online.
Strict liability
Strict liability
Manufacturers responsible for injuries resulting from use of their
products, whether or not they were negligent or breached a
warranty.
Product liability reform proposals
1) Set up uniform federal standards for determining liability.
2) Shift the burden of proving liability to consumers.
3) Eliminate some bases for liability claims.
4) Require the loser to pay the legal costs of the winner.
5) Limit punitive damages.
Business responses to consumerism
Quality management
This approach emphasizes achieving high quality and customer satisfaction through
teamwork and continuous improvement of a company’s product or service.
Voluntary industry codes of conduct
In some cases, businesses in an industry have banded together to agree on voluntary
codes of conduct, spelling out how they will treat their customers.
Consumer affairs departments
These centralized departments normally handle consumer inquiries and
complaints about a company’s products and services.
Product recalls
Occurs when a company, either voluntarily or under an agreement with a
government agency, takes back all items found to be dangerously defective.