Chapter 45
Consumer Law
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank.
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
B1. Common law judicial decisions that serve to protect the interests of consumers are
not classified as consumer law.
B2. State laws often provide more sweeping and significant protections for the consumer
than federal laws.
B3. Puffery constitutes deceptive advertising.
B4. Bait-and-switch advertising occurs when an ad appears to be based on factual
evidence but in fact is not reasonably supported by evidence.
B5. All ads—both online and offline—must be truthful.
B6. A sanction known as counteradvertising requires a company to focus its marketing on
point-of-sale displays.
B7. Labels must be accurate.
B8. Food labels are not required to provide standard nutrition facts.
B9. Labels on vegetables and fruits are not required to indicate where the food originated.
B10. Credit provisions associated with sales contracts are not regulated by any federal
agency.
B11. A consumer who receives unsolicited merchandise must return it within three
business days.
B12. Merchants must issue a refund within a specified period of time when a consumer
cancels an order.
B13. Credit can be denied solely on the basis of national origin.
B14. A credit-card company is not required to provide advance notice to consumers before
changing credit-card terms.
B15. Creditors are required to provide consumers with copies of records that can help the
consumer prove that an account or transaction is fraudulent.
B16. A debt-collection agency is someone who regularly attempts to collect debts on behalf
of someone else, usually for a percentage of the amount owed.
B17. Debt collectors who use a prohibited debt-collection tactic are exempt from liability if
they can show that the debtor used misrepresentation in assuming the debt.
B18. Due to the increasing number of protections afforded debtors, creditors are without
means of securing payment on debts.
B19. There is no distinction between regulating the information dispensed about a product
and regulating the actual content of the product.
B20. Manufacturers are required to report on any products intended for sale if the
products have proved to be hazardous.
MULTIPLE CHOICE QUESTIONS
B1. Through careless manufacturing practices, Insta-Market Company makes and sells
unsafe products to Jess and other consumers. This may be subject to sanctions under
a. federal and state law.
b. federal law only.
c. no law, according to the principles of freedom to contract.
d. state law only.
B2. Orange Company makes computers. The company’s ad states that “if you aren’t eatin’
an Orange, you aren’t gettin’ any ‘C.’ ” The Federal Trade Commission would consider
this ad
a. false and misleading.
b. impermissibly vague and general.
c. a deceptive half-truth.
d. none of the choices.
B3. Precise GPS Company’s ad states that its product is “the finest that money can buy.”
Because of this ad, the Federal Trade Commission is most likely to issue
a. a cease-and-desist order.
b. a counteradvertising order.
c. a multiple product order.
d. none of the choices.
B4. Cleaners & Solvents, Inc. (CSI), engages in deceptive advertising when it markets its
product Dirt Remover as able to kill germs over long periods of time. In an action
against CSI regarding Dirt Remover, the firm is ordered to stop its false advertising of
Dirt Remover and other products. This is
a. a counteradvertising order.
b. a multiple product order.
c. a “cooling–off” law.
d. a validation notice.
B5. GR8 Fashion, Inc., complains to the Federal Trade Commission (FTC) about an ad
broadcast by Hy-Time Clothes Company, GR8’s competitor. The FTC investigates and
concludes that the ad is deceptive. The FTC’s next step is to
a. conduct negotiations between the competitors.
b. draft a formal complaint.
c. issue a cease-and-desist order.
d. permit GR8 to broadcast similarly deceptive counteradvertising.
B6. Travel Tours Company faxes ads to Samantha and other individual consumers without
the recipients’ permission. This is subject to
a. a cease-and-desist order by the Federal Trade Commission.
b. no sanctions.
c. possible fines by the Federal Communications Commission.
d. rescission on the order of the Federal Reserve Board.
B7. Like other manufacturers and sellers, Real-Built Tools Company packages its products
with labels. Under federal law, such labels must be
a. accurate and use easily understood words.
b. bright and feature eye-catching colors.
c. graphically distinctive and well-designed.
d. interesting and revealing to the average consumer.
B8. Ron signs a contract with Sam, a door-to-door salesperson for Tutors, Inc., to buy a
foreign-language course. To cancel the contract, Ron has up to
a. three days.
b. thirty days.
c. sixty days.
d. ninety days.
B9. Creditworthy Loan Company extends credit in the ordinary course of its business.
Under the Truth-in-Lending Act, which is the key federal statute regulating the credit
and credit-card industries, Creditworthy must inform potential borrowers of
a. credit terms offered by other lenders.
b. comparative prices for goods to be bought with the borrowed funds.
c. Creditworthy’s credit terms.
d. the borrowers’ credit scores.
B10. Brad borrows $20,000 from City Bank to repair his home and to buy a car. Brad buys a
stereo from Discount Store in a transaction financed by the seller. If these parties are
subject to the Truth-in-Lending Act, Regulation Z applies to
a. the car loan only.
b. the home repair loan only.
c. the retail installment sale only.
d. the car loan, the home repair loan, and the retail installment sale.
B11. Owen signs an installment contract with Pixel Video Store to finance the purchase of a
new Quotient-brand 3D HD-TV for $4,999. This transaction is subject to
a. no federal law.
b. the Fair Credit Reporting Act.
c. the Telecommunications Act.
d. the Truth-in-Lending Act.
B12. Eva borrows $10,000 from First National Bank to remodel a room in her home. This
transaction is subject to
a. the Consumer Leasing Act.
b. the Magnuson-Moss Warranty Act.
c. the Truth-in-Lending Act.
d. the Uniform Commercial Code.
B13. Consumer Finance Corporation (CFC) extends credit to consumers. CFC is subject to
the Equal Credit Opportunity Act, which prohibits credit discrimination based on
a. disability.
b. education.
c. income.
d. race.
B14. Kirk receives an unsolicited credit card in the mail and tosses it on his desk. Without
Kirk’s permission, his roommate Leif uses the card to buy a new personal computer
for $1,000. Kirk is
a. liable for $1,000.
b. liable for $500.
c. liable for $50.
d. not liable for any amount.
B15. In the ordinary course of business, EZ Funds Corporation offers credit to Fay and other
consumers and reports on the loans to credit agencies. To save time and money, EZ
generally does not correct or update its reported information. This is most likely to
result in
a. a levy of a nominal fine.
b. an assessment of damages.
c. an order of rescission of the loan contracts.
d. no sanctions.
B16. Quik Collection Agency calls Pat several times a day, and sometimes in the middle of
the night, about an overdue bill that Regal Sporting Goods turned over to Quik for
collection. This is a violation of
a. no federal law.
b. the Fair and Accurate Credit Transactions Act.
c. the Fair Debt Collection Practices Act.
d. the Truth-in-Lending Act.
B17. Furniture Depot sells Gail a bedroom suite on credit. Gail fails to make the scheduled
payments for six months. Furniture Depot sends her a letter, asking for immediate
payment. This is a violation of
a. no federal law.
b. the Fair and Accurate Credit Transactions Act.
c. the Fair Debt Collection Practices Act.
d. the Truth-in-Lending Act.
B18. The credit department of Mega-Mart calls Nora at work about an overdue bill. Nora’s
employer objects. Mega-Mart continues to call Nora at work. This is a violation of
a. no federal law.
b. the Fair and Accurate Credit Transactions Act.
c. the Fair Debt Collection Practices Act.
d. the Truth-in-Lending Act.
B19. Corner Market sells groceries. Delite Food & Drug Store sells groceries and fills
prescriptions. The party with the chief responsibility to prevent unsafe food and drugs
from being sold is
a. Corner Market and Delite Food & Drug Store.
b. Delite Food & Drug Store only.
c. the Federal Trade Commission.
d. the Food and Drug Administration.
B20. Dog ‘n Cat Company makes and sells pet supplies, including toys and chew items. One
of the chew items is believed to be hazardous. The appropriate government agency
may require Dog ‘n Cat to
a. export the item and sell it only abroad.
b. increase the price to cover the cost of any injuries or damage.
c. reduce the price to indicate the hazard to consumers.
d. remove the item from the market.
ESSAY QUESTIONS
B1. Power Up Corporation makes batteries for motor vehicles. The Federal Trade
Commission (FTC) learns that Quantum Automotive Stores, a retail company that sells
Power Up’s batteries, engages in deceptive advertising practices. What actions can
the FTC take against Quantum?
B2. Mouth-Waterin’ Eats Company wants to sell its candy in a normal-sized package la-
beled “Gigantic Size.” NuFabrics, Inc., wants to advertise its sweaters as having “That
Wool Feel,” but does not want to specify on labels that the sweaters are 100 percent
polyester. What stops these firms from marketing their products as they would like?