Dealing with government regulation in business is an integral part of a manager's responsibilities. Recognizing what actions might violate particular consumer protection regulations is crucial to protecting the company and to insuring its profitable operation. Government regulation is found every day in the operation of businesses large and small, and once understood, it allows managers to make good decisions regarding business practices. When you have completed this topic, you will be able to: •list the common types of regulations designed to protect consumers, •identify types of illegal consumer credit practices,
•describe the warranty protection provided to consumers, and •describe the purpose and role of the Federal Trade Commission (FTC) in consumer protection.
Read Chapter 40, "Consumer Law"
Read the following chapter in Business Law and the Legal Environment: •chapter 40 ("Consumer Law")
Then respond to the following points in your notebook:
•What is the role of the FTC?
•Describe prohibited sales activities under the FTC Act.
•How is consumer credit regulated?
•What is the Magnuson-Moss Warranty Act?
•What government regulations apply to consumer product safety?
Consumer Law-statutes that protect consumers from the unscrupulous.
Federal Trade Commission (FTC)=Created by congress in 1915 to regulate business. Most important agency enforcing consumer law. Prohibits unfair deceptive practices.
FTC options for enforcing the law:
1. Voluntary Compliance
When the FTC determines that a business has violated the law, it first asks the offender to sign a voluntary compliance affidavit promising to stop
2. Administrative hearing and appeals
If the company refuses to stop voluntarily, the FTC takes the case to an administrative law judge (ALJ) within the agency. The violator may settle the case at this point by signing a consent order.
FTC can impose a fine for each violation of a voluntary compliance affidavit, a consent order, a cease and desist order, and an FTC rule.
Section 5 of FTC Act-
Prohibits unfair or deceptive sales practices.
deceptive sales practices=An advertisement is deceptive if it contains an important misrepresentation or omission that is likely to mislead a reasonable consumer.
Unfair acts or practices
must meet 3 tests to considered unfair acts or practices:
1. It causes a substantial consumer injury
2. Harm of injury outweighs any benefit
3. The consumer could not reasonably avoid the injury
FTC can find unfair if violates public policy w/o meeting tests
Bait and switch advertisement=
Merchant may not advertise a product and say bad things about it in order to sell a different item.
prohibits telemarketers from calling anyone on the do-not-call registry. And they cannot block their names and telephone number.
Do not call registry=
prohibits telemarketers from calling telephone numbers listed on the Do not call registry
Mail or Telephone Order Merchandise has the following guidelines: Must ship an item within the time stated or within 30 days after the receipt of order; if it can't ship by that time, they must send the customer a new ship date or the right to cancel order.
*unordered merchandise received in the mail
Consumers may keep as a gift
Door to Door Rules-
Salesperson is required to notify the buyer that the she has the right to cancel the transaction prior to midnight of the third business day thereafter
Consumer Credit Regulations
TILA Truth in Lending Act-
requires lenders to disclose the terms of a loan in an understandable and complete manner. disclosures must be clear and meaningful.. Must disclose the finance charge and APR. TILA applies when:
1. It's a consumer loan
2. The loan has a finance charge and will be repaid in more than four installments 3. The loan is less than $25,000 or secured by a mortgage
4. The loan is...
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