CHAPTER 26 – CONSUMER LAW
TRUE/FALSE
1. The Federal Trade Commission focuses mainly on protection of consumers in the area of antitrust law.
2. The FTC can impose a fine for each violation of a voluntary compliance affidavit, a consent order, an
FTC rule, or a cease and desist order, even one issued against someone else.
3. If the FTC determines a business has violated the law, it will normally try to get the business to
voluntarily stop the activity.
4. The Federal Trade Commission Act considers the terms “deceptive” and “unfair” to be synonymous
when determining what practices should be prohibited.
5. The Truth-in-Lending Act applies to private individuals who loan money.
6. “Bait and switch” tactics are not a violation of FTC rules if the consumer is given a choice of which
product to buy.
7. Prime Products, Inc. was going to be able to ship the comforter Margaret ordered within three weeks
instead of the seven days it had originally promised. Prime must cancel Margaret’s order and notify
her that it can deliver within three weeks if she wants to reorder.
8. Brett applies to his bank for a $30,000 loan to purchase a truck for his family’s use. This loan is
subject to TILA disclosure requirements.
9. Employers must have permission from job applicants to request a credit report.
10. Company policy of PushOne, Inc. is to block the company name and telephone number on potential
customers’ Caller ID systems so they won’t know the call is from a telemarketer. This policy violates
FTC rules.
11. The Equal Credit Opportunity Act makes it illegal for a lender to discriminate against a potential
borrower because of race, national origin, religion, or sex, but it is permissible to treat a borrower
differently if he or she is on welfare.
12. Consumer credit reporting agencies are unregulated governmental agencies.
13. If you lease a car rather than buy one on credit, you have no statutory consumer protection.
14. The FTC may consider an act unfair if it simply violates public policy.
15. The Magnuson-Moss Warranty Act only covers face-to-face sales, not catalog or Internet sales.
MULTIPLE CHOICE
1. Ron’s Furnace Repair advertised it would inspect any homeowner’s furnace for free. Janet had Ron’s
come to inspect her furnace. The servicewoman dismantled the entire furnace then refused to put it
back together unless Janet paid her $250. The FTC considers such a practice to be:
a.
an unfair practice.
b.
a deceptive practice.
c.
an act that violates public policy.
d.
All the above.
2. A company advertised a pain relief ointment called “Aspercreme.” The package stated “the strong
relief of aspirin right where you hurt.” The product did not contain any aspirin. The FTC ruled that:
a.
the advertising was not deceptive since the benefit of the product outweighed any harm
caused by potentially misleading claims.
b.
the advertising was misleading, and the company would have to change the name of the
product or add aspirin to its formula.
c.
the advertising was deceptive, and the FTC required the company to specifically state in
its promotions that the product did not contain aspirin.
d.
None of the above
3. Millie ordered clothes from a mail order catalog. No time was specified as to when the goods would be
shipped. In such a case the FTC requires that the company must ship the goods to Millie:
a.
within 3 business days after receiving the order.
b.
within 10 business days after receiving the order.
c.
within 30 days after receipt of the order.
d.
within a reasonable time and within time lines consistent with industry standards.
4. The issue in the Gray v. American Express Co. case involved:
a.
lost credit cards.
b.
disputed bills.
c.
unfair interest rates.
d.
privacy.
5. In a closed-end credit transaction:
a.
the lender makes a series of loans with a maximum amount set before the first loan is
made.
b.
if the lender is offering a “teaser rate,” this must be clearly disclosed.
c.
the Federal Reserve Board should be consulted before a lender is chosen.
d.
there is only one loan, and the borrower knows the amount and payment schedule in
advance.
6. Mabel is a single 40-year-old who has borrowed money on numerous occasions. Her payment record
has been good, except she has been delinquent in paying a few bills. Which of the following is true
regarding credit information gathered on Mabel?
a.
Since Mabel has been delinquent, she waives her right to see the credit files.
b.
If Mabel is rejected for a loan because of the consumer report, the lender must tell her the
source of the report.
c.
Mabel has a right to have the information regarding her delinquency in paying a few loans
stricken from her credit record because her record has generally been good.
d.
Mabel’s only legal remedy, if there is erroneous information in her credit file, is to report
the problem to the FTC for enforcement.
7. The Fair Debt Collection Practices Act prohibits which of the following practices?
a.
A debt collector falsely representing himself as a lawyer.
b.
A debt collector telephoning the debtor at 8:00 a.m.
c.
Visiting a debtor at work if the employer permits personal visits.
d.
Using neighbors to locate the debtor.
8. Which of the following statements express the purpose of the Truth-in-Lending Act?
a.
To require lenders to charge a “reasonable” rate of interest.
b.
To help small business.
c.
To provide consumers with information necessary to make the best credit decision.
d.
To help lenders limit state laws.
9. “Bait and switch” is:
a.
advertising a product for sale and then giving a rain check.
b.
placing the store brand and the national brand side-by-side in a store.
c.
selling the store brand at a lower price than the national brand.
d.
the act of advertising certain goods and then pressuring the customer to buy different,
more expensive goods.
10. If a consumer cancels a door–to-door sale within the required time, how many days does the seller
have to return the buyer’s money?
a.
Three.
b.
Ten.
c.
Twenty-one.
d.
Thirty.
11. Marla applies for and receives a three-year loan through Sharkey Lenders for $5,000 at 27% APR.If
the loan agreement violates the applicable usury statute, Marla may be able to keep:
a.
the interest that exceeds the usury limit.
b.
all of the interest on the loan.
c.
the interest and the $5,000.
d.
Any of the answer choices are possible, depending on where the loan was made.
12. The Consumer Leasing Act requires a lessor to disclose in writing all EXCEPT:
a.
number of payments.
b.
penalties for late payments.
c.
lease rates of the competition.
d.
penalties for early termination.
13. Grady receives a $12,940 credit card bill in the mail from a company with which he did not open an
account. He fears he is a victim of identity theft. Does he have any recourse?
a.
Yes, under the Fair and Accurate Credit Transactions Act (FACTA), Grady can place an
alert in his credit files using the National Fraud Alert System.
b.
Yes, under the Fair Credit Billing Act he may call the credit card company to complain
about the bill, and the credit card company must investigate and correct any errors.
c.
Yes, under the Truth in Lending Act, Grady is liable only for the first $50 in unauthorized
charges.
d.
No, he should have been more careful with his personal information so no one could have
applied for credit in his name.
14. Don received in the mail merchandise he never ordered. The package was addressed to him, and when
he opened it he saw a brochure stating he could keep the products for only $19.95. If he chose not to
keep the products he was instructed to mail them back within five days. Don:
a.
can keep and use the merchandise without having to pay for it.
b.
can keep the merchandise only if he pays the $19.95.
c.
must send the merchandise back within five days if he does not want it.
d.
None of the above is correct.
15. Under FTC rules, a customer can cancel a door-to-door sales contract within:
a.
three business days of the sale.
b.
five business days of the sale.
c.
one calendar week from the date the sale was made.
d.
a “reasonable time” after the sale was made.
16. The maximum rate of interest for credit transactions is established by:
a.
state law.
b.
federal law.
c.
the Federal Reserve Board.
d.
the FTC.
17. John loans George money and they sign a written agreement whereby George will repay John in
monthly installments. Is this loan subject to the Truth-in-Lending Act?
a.
Yes, if the loan is for more than $1,000.
b.
Yes, if John and George live in different states.
c.
No, if John is not in the business of offering credit.
d.
No, if John and George are related.
18. Victoria has a MasterCard with a credit limit of $9,000. This is:
a.
open-end credit.
b.
closed-end credit.
c.
an installment loan.
d.
a secured debt.
19. Under the TILA, for subprime mortgage loans, a lender:
a.
may charge a prepayment penalty any time the loan is paid off before its due date.
b.
must collect property taxes and homeowner’s insurance for all first mortgages.
c.
may not change the amount of the monthly payment during the period of the loan.
d.
may consider the value of the home in determining the borrower’s ability to repay the
loan.
20. MoneyMaker Toy Company violated the safety standards set forth by the Consumer Product Safety
Commission when it produced a toy gun that caused injury to hundreds of children. Because of
MoneyMaker’s actions:
a.
the CPSC can impose civil penalties on the company.
b.
the CPSC can impose criminal penalties on the company.
c.
users can sue for damages, including attorney’s fees, if MoneyMaker knew it was
violating a consumer product safety rule when it produced the guns.
d.
All of the answers are correct.
21. Under the Fair Debt Collection Practices Act, a collection company is legally permitted to:
a.
call the debtor between 8 a.m. and 9 p.m.
b.
call acquaintances of the debtor to locate the debtor.
c.
contact the debtor at work if not prohibited by the employer.
d.
All of the above are permissible.
22. The type of product that prompted passage of the Consumer Product Safety Act was:
a.
automobiles.
b.
children’s toys.
c.
refrigerators.
d.
food products.
Fact Pattern 40-1
John purchased $600 worth of clothes from Clothing Mart. He paid for the clothes with a credit card.
When he received his statement, he sent the credit card company a check for $600. The credit card
company mistakenly recorded his payment as $60. When John received his next statement, he noticed
the $540 error and contacted the credit card company.
A few days later when he attempted to use his card to buy gasoline, he was told by the cashier that the
card had been canceled and she was instructed to take his card. John was shocked, embarrassed, and
angry. When he contacted the credit card company, it pointed out a provision in his initial contract for
the card that stated the company could revoke his card privileges at any time with or without cause.
23. Such a provision within the credit card contract is:
a.
unconscionable.
b.
an illegal contract of adhesion.
c.
not binding, as a person cannot waive the statutory rights granted to him by federal credit
card legislation.
d.
valid unless state legislation prohibits such clauses.
24. What federal law applies to this particular situation?
a.
Truth in Lending Act.
b.
Fair Credit Billing Act.
c.
Fair Credit Reporting Act.
d.
Equal Credit Opportunity Act.
25. Consumers have a right to:
a.
exclude as obsolete information about a bankruptcy discharge seven years previously.
b.
know the name of anyone to whom credit information has been supplied by a consumer
reporting agency within the last three years.
c.
have their own version of a disputed credit situation included in their credit file.
d.
have their credit rating reviewed at least once a year.
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ESSAY
1. What are the three tests or elements used by the FTC to determine whether a particular act is an unfair
trade practice?
2. Commonground Collections has been hired to collect past-due medical bills for Lakeview Physicians.
List some activities that Commonground may not do pursuant to the FDCPA.
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3. The Trimbles apply to Community Savings & Loan for an installment loan of $20,000 to remodel their
bathroom. Discuss the disclosures Community is required to make.
4. Explain the difference between a debit and a credit card and discuss the potential liability for a lost or
stolen card.
5. Richard received his credit card bill and noticed an error. He wrote to the company the next week,
pointing out the error in his bill. Under the law, what is the credit card’s obligation once it receives
Richard’s letter?
6. Brooke uses her credit card to purchase a lawn mower at the local “big box” hardware store, but when
she tries to use the mower for the first time, she finds it is not self-propelled as advertised. Does she
have any recourse?