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
A1. All statutes that serve to protect the interests of consumers are classified as consumer
law.
A2. Federal laws often provide more sweeping and significant protections for the
consumer than state laws.
A3. Vague generalities and obvious exaggerations constitute deceptive advertising.
A4. Ads cannot be unfair.
A5. Bait-and-switch advertising occurs when a salesperson lures a consumer into a store
by advertising a low-priced item in order to switch the consumer to a more expensive
item.
A6. A sanction known as counteradvertising requires a company to advertise the products
of its competitor to counter its own false claims.
A7. Labels must use words that are easily understood by the ordinary marketing
executive.
A8. Food products are not required to bear labels detailing the nutritional content.
A9. Labels on fresh meat must indicate where the food originated.
A10. Buyers of goods sold door to door can cancel their contracts within three business
days.
A11. The key federal statute regulating the credit and credit-card industries is basically a
disclosure law.
A12. Merchants must ship orders within the time promised in their ads.
A13. Credit can be denied solely on the basis of marital status.
A14. A credit-cardholder is liable for all unauthorized charges made before the creditor is
notified that the card has been lost.
A15. Major credit reporting agencies must provide consumers with free copies of their own
credit reports every twelve months.
A16. Creditors attempting to collect debts are generally considered to be debt-collection
agencies.
A17. A collection agency must include a validation notice whenever it initially contacts a
debtor for payment of a debt.
A18. A creditor has the right to garnish a debtor’s wages unless the debt has gone unpaid
for a prolonged period.
A19. Drugs can be marketed to the public before they are ensured to be safe and effective.
A20. Manufacturers are required to report on any products already sold if the products
have proved to be hazardous.
MULTIPLE CHOICE QUESTIONS
A1. Through unfair trade practices, Super Sales Company induces Trey and other
consumers to enter into one-sided deals. 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.
A2. Home Brand Products, Inc., in its ads, makes claims about its products that are
obvious exaggerations and claims that are false but appear to be true. Home Brand
may be subject to sanctions for
a. neither the claims nor the exaggerations.
b. only the claims.
c. only the exaggerations.
d. the claims and the exaggerations.
A3. Quackity Quack Company’s ad states that its product is “the best on the market
today.” Because of this ad, the Federal Trade Commission is most likely to
a. do nothing.
b. draft a formal complaint.
c. issue a cease-and-desist order.
d. require counteradvertising.
A4. Frosty’s Appliance Store advertises freezers at a “Special Low Price of $299.” When
Garth tries to buy one of the freezers, Huey, the salesperson, tells him that they are all
sold and no more are obtainable. Huey adds that Frosty’s has other freezers for
$2,299. This is
a. a legitimate sales technique.
b. bait-and-switch advertising.
c. counteradvertising.
d. puffery.
A5. Va–Va-Voom Products, Inc., engages in deceptive advertising when it markets its
product Weight-No-More as able to help consumers lose weight in their sleep. Va-Va–
Voom is ordered to include in all future advertising of Weight-No-More the statement,
“This product will not cause anyone to lose weight while sleeping.” This is
a. a counteradvertising order.
b. a multiple product order.
c. a “cooling–off” law.
d. a validation notice.
A6. Tonya and many other consumers complain to the Federal Trade Commission (FTC)
that a Whoopie Wonders Company ad is deceptive. The FTC’s first step is to
a. draft a formal complaint.
b. investigate.
c. issue a cease-and-desist order.
d. require counteradvertising.
A7. Penny Stock Company faxes ads to Quality Personnel Corporation and other
businesses without the recipients’ permission. This is
a. illegal.
b. legal and smart because such ads are generally cheap.
c. legal but not smart because such ads are generally ineffective.
d. legal but only potentially smart, depending on the response rate.
A8. To generate sales, Yakkity-Yak, Inc., uses phone solicitation. Under federal law, in
soliciting business, Yakkity-Yak’s telemarketers must
a. disclose all material facts related to a sale.
b. identify the seller’s name (only if asked).
c. refrain from calling consumers who have not requested a call.
d. speak clearly and conspicuously.
A9. Special Roast Coffee, Inc., processes and sells a variety of coffee products. Special
Roast’s product packages must include
a. the company owner’s identity.
b. the contents’ net quantity.
c. the restaurants and stores in which the product is sold.
d. the type of consumer most likely interested in the product.
A10. Sweet Treats, Inc., wants to market a new snack food. On the product’s label,
standard nutrition facts are
a. prohibited.
b. required.
c. strictly voluntary.
d. warranted by the nature of the food.
A11. In the ordinary course of business, Xtra Credit Company sells goods to Yvon and other
consumers on credit under installment sales contracts that typically require at least
one year of monthly payments. Xtra does not disclose all of the credit terms to its
customers. This is most likely to result in
a. a cease-and-desist order.
b. a fine.
c. no sanctions.
d. rescission of the contracts.
A12. Wheels & Deals Corporation is subject to the Truth–in-Lending Act, which is a key
statute regulating the credit and credit-card industries and concerns
a. the credit-worthiness of financial institutions.
b. the disclosure of credit terms.
c. the limits on types of credit.
d. the limits on types of debt.
A13. Kristen receives unsolicited merchandise in the mail. Kristen
a. may keep the merchandise without any obligation to the sender.
b. must return the merchandise within five days to avoid payment.
c. must return the merchandise within fifteen days to avoid payment.
d. must return the merchandise within thirty days to avoid payment.
A14. Shep buys a car from his neighbor, Tyrone, for $8,000 and agrees to make monthly
payments of $800 until the price is paid. This transaction is not subject to federal
credit regulations because
a. the parties are two consumers.
b. the transaction is a sale.
c. the sale involves a car.
d. the parties are neighbors.
A15. Bodie’s application to City Bank for a credit card is denied. Bodie can obtain
information on her credit history in a credit agency’s files under
a. no federal law.
b. the Equal Credit Opportunity Act.
c. the Fair Credit Reporting Act.
d. the Fair Debt Collection Practices Act.
A16. On behalf of RiteNow Collection Agency, Sid poses as a police officer in an attempt to
collect payment from Tylo for a shipment of scuba equipment that she returned to
Undersea Company two months earlier. This violates
a. no federal law.
b. the Fair Credit Reporting Act.
c. the Fair Debt Collection Practices Act.
d. the Truth-in-Lending Act.
A17. Dita takes out a student loan from Everloan Bank. When she fails to make the
scheduled payments for six months, Everloan advises her of further action that it will
take. This violates
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.
A18. Kip opens an account at a Lotsa Goodies Store, and buys a digital music player and
other items, but makes no payments on the account. To collect the debt, Mako, the
manager, contacts Kip’s parents. This violates
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.
A19. Green Grocer Corporation makes and markets a variety of processed food products.
The federal agency responsible for enforcing health regulations concerning food is
a. the Consumer Product Safety Commission.
b. the Federal Reserve Board of Governors.
c. the Federal Trade Commission.
d. the Food and Drug Administration.
A20. Fun-E Products, Inc., makes and sells toys. The government agency that has the
authority to remove a potentially hazardous toy from the market is
a. the Consumer Product Safety Commission.
b. the Federal Reserve Board of Governors.
c. the Federal Trade Commission.
d. the Food and Drug Administration.
ESSAY QUESTIONS
A1. Darren wants to go into the business of direct merchandise sales. What are the legal
problems that Darren might encounter in telemarketing? In selling door-to-door? In
marketing over the Internet? In soliciting sales through the mail?
A2. Milo buys an all-terrain-vehicle (ATV) from No-Limit Toys, Inc., on credit but makes no
payments on the account. Odell, the owner of No-Limit Toys, calls Milo at home on a
Monday morning at three A.M. Odell represents himself as PayNow Collection Agency
and demands payment “or else.” The next day, Odell sends Milo notice that he has
thirty days to request verification of the debt, during which its payment will be
suspended, but that if he does not pay the full amount due within five business days,
Odell will arrange for the “destruction of Milo’s good credit rating.” Which laws has
Odell violated, if any, and in what ways?