C H A P T E R 1 7
Consumer Protection
TRUE-FALSE QUESTIONS
1. In general, consumer protection law at the state level is more stringent than federal law.
2. Executive branch regulatory agencies are located in cabinet departments.
3. The U.S. Department of Agriculture inspects facilities engaged in egg production.
4. The U.S. Supreme Court has ruled that compounded drugs are illegal.
5. The labeling of medical devices is under the jurisdiction of the Food and Drug Administration.
6. State laws regulating genetically modified food are typically declared unconstitutional on the basis
that they are preempted by federal law.
7. The Wool Products Labeling Act is an example of a federal law regulating the labeling of clothing.
8. The Federal Commerce Commission has adopted guidelines specifying when manufacturers and
marketers can label their products “Made in USA.”
9. Courts usually consider advertisements to be only an offer to deal.
10. Congress has made it a federal crime to engage in the extortionate extension of credit.
11. If a used car is sold without a warranty, the label must state that the car is being sold “as is.”
12. State may regulate odometer tampering, but there is no federal law that does so.
13. The Truth-in-Lending Act (TILA) is intended to assure a truthful loan application by the consumer.
14. The Fair Credit Reporting Act does not give consumers a right to have corrected copies of their
credit reports sent to creditors.
15. Generic drugs can be approved for use on a showing that they are identical to approved brand-name
drugs.
16. The Fair Debt Collection Practices Act applies only to third-party debt collectors.
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17. Unsolicited merchandise sent by U.S. mail may be kept by the recipient without incurring any
obligation to the sender.
18. Under the Magnuson-Moss Warranty Act, a seller who offers a written warranty on goods must
provide a full warranty.
19. A car loan is an example of a closed-end credit transaction.
20. The Truth-in-Lending Act limits credit card liability to $50 per card for unauthorized charges made
before a card issuer is notified of a lost or stolen card.
MULTIPLE-CHOICE QUESTIONS
1. The Federal Trade Commission has ________commissioners who serve for _______-year terms.
A. seven, four
B. ten, five
C. six, six
D. five, seven
2. Before implementing a mandatory safety standard, the Consumer Product Safety Commission must
find that ________ are inadequate.
A. voluntary standards
B. safety guidelines
C. product designs
D. warnings
3. The Food and Drug Administration shares with the _________ the responsibility for regulating
pesticide residues on food.
A. Department of Agriculture.
B. Department of Insecticide.
C. Federal Trade Commission.
D. Environmental Protection Agency.
4. Caveat emptor means,
A. “let the buyer beware.”
B. “let the buyer prevail.”
C. “let the market decide.”
D. “let the seller beware.”
5. Caveat venditor means,
A. “let the buyer beware.”
B. “le the buyer prevail.”
C. “let the market decide.”
D. “let the seller beware.”
6. In relation to food, which of the following is considered an additive?
A. Pesticide residue
B. Unintended environmental contaminants
C. Substances unavoidably added from packaging
D. Pesticide residue, unintended environmental contaminants, and substances unavoidably added
from packaging
7. Which of the following is true regarding the 2011 Food Safety Modernization Act?
A. It developed an electronic tracking system to follow food from the farm to the dinner table.
B. It is one of several major overhauls of the FDA in the last several years.
C. It recognizes that importers are not required to verify food safety in regard to food from other
countries.
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D. It is one of several major overhauls of the FDA in the last several years, and it recognizes that
importers are not required to verify food safety in regard to food from other countries.
8. Which of the following categories of drugs cannot be approved by the Food and Drug
Administration?
A. Schedule 1
B. Schedule C
C. Schedule 2
D. Schedule D.
9. The _________ has the primary responsibility for regulating the packaging and labeling of
commodities other than food, drugs, medical devices, and cosmetics.
A. Federal Commerce Commission
B. Federal Interstate Regulating Commission
C. Federal Trade Commission
D. Uniform Commodity Commission
10. Which of the following is true regarding bioengineered insects and pathogens?
A. They are outlawed.
B. The Environmental Protection agency issues permits for bioengineered insects but
bioengineered pathogens are outlawed.
C. The Environmental Protection agency issues permits for bioengineered pathogens but
bioengineered insects are outlawed.
D. The Environmental Protection Agency issues permits for the use of bioengineered insects and
pathogens.
11. Which of the following was the result at the U.S. Supreme Court Level in Monsanto Co. v.
Geertson Seed Farms, the case in the text challenging a district courts issuance of an injunction
prohibiting the deregulation and use of Roundup Ready Alfalfa (RRA), an alfalfa plant genetically
engineered to be tolerant of the active ingredient in Roundup?
A. That the plaintiffs lacked standing to sue and that the case was subject to dismissal on that
ground alone.
B. That the district court properly issued a permanent injunction prohibiting the deregulation of
RRA in whole or in part.
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C. That the plaintiffs had standing but that the district court improperly issued an injunction
prohibiting any deregulation whatsoever of RRA.
D. That the plaintiffs lacked standing and that the district court properly issued a permanent
injunction prohibiting the deregulation of RRA in whole or in part.
12. In a _________, the seller offers the buyer a commission, rebate, or discount for furnishing the seller
with a list of additional prospective customers.
A. pyramid sale
B. referral sale
C. commission sale
D. rebate sale
13. Which of the following is true regarding the use of genetically modified foods internationally?
A. The European Parliament refused to approve legislation requiring the labeling of genetically
modified foods.
B. Australia requires the labeling of genetically modified food, but New Zealand does not.
C. New Zealand requires the labeling of genetically modified food, but Australia does not.
D. The European Parliament required the labeling of genetically modified foods, and Australia and
New Zealand also require the labeling of genetically modified foods.
14. The Truth-in-Lending Act provides consumers a right of ________ whenever their home is used as
collateral for credit except for original construction or acquisition.
A. rescission
B. redemption
C. new mortgage
D. refinance
15. The Equal Credit Opportunity Act originally intended to prevent discrimination against ________ in
the advancement of credit.
A. religion
B. age
C. women
D. color
16. The Consumer Credit Protection Act limits the garnishment of wages to the lesser of _____ of the
debtor’s disposable earnings for the week or the amount by which disposable earnings for the week
exceed _____ times the current federal minimum hourly wage.
A. 10%, 30
B. 25%, 30
C. 30%, 25
D. 35%, 40
17. Which of the following is true regarding the use of irradiated foods in the U.S.?
A. Irradiated foods are outlawed.
B. Irradiation is allowed only for fruits and vegetables, and no notice is required.
C. Irradiation is allowed for fresh and frozen red meat, and no notice is required.
D. Irradiation is allowed for fresh and frozen red meat, but notice must be required.
18. Which of the following is true regarding USDA standards for organic food?
A. Neither pesticides, genetic engineering, growth hormones, nor irradiation may be used.
B. Pesticides may be used, but genetic engineering and the use of growth hormones is disallowed.
C. Pesticides and irradiation may not be used, but genetic engineering and the use of growth
hormones is allowed.
D. The USDA has no standards for organic food.
19. Which of the following is true regarding the labeling of food imported into the U.S.?
A. Labeling of food imports is not required on the part of grocery stores or restaurants.
B. All grocery stores must label certain products, including unprocessed beef and pork, with the
country of origin; but restaurants are exempt.
C. Grocery stores and restaurants, with no exceptions, must inform customers of the country of
origin of certain products including beef and pork.
D. Grocery stores must label certain products, including unprocessed beef and pork, with the
country of origin; but restaurants and some retail grocery stores with sales under a certain amount
are exempt.
20. The FTC now requires used car sellers to affix a ________ to the cars that they sell.
A. fixed price
B. buyer’s guide
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C. base price
D. discount price
21. The ________ has primary responsibility for regulating the labeling of food
A. Federal Trade Commission
B. Food and Drug Administration
C. The Consumer Product Safety Commission
D. The Federal Trade Commission
22. The first step in the FDA approval process for new drugs is their classification by the ________
based on currently accepted medical use and potential for abuse.
A. National Institute of Health
B. The Consumer Product Safety Commission
C. Drug Enforcement Administration
D. Congress
23. Which of the following is true regarding the placement of health claims for foods on labels?
A. The FDA permits health food claims on labels without FDA approval as a new drug or the risk of
sanctions for issuing a misbranded product, as long as the claim has been certified by the FDA as
being supported by significant scientific agreement.
B. The FDA disallows health food claims on labels unless the food has been approved by the FDA
as a type of new drug for the health concern involved.
C. The FDA allows health food claims on labels so long as the claim has not been certified by the
FDA as false and misleading.
D. The FDA allows health food claims on labels without prior approval of the FDA only for
organically grown foods.
24. In general, the FDA will require prescription use only when a drug is _______.
A. Toxic, requires a physician’s supervision for safe use, or is addictive.
B. Only if the drug is toxic.
C. Only if the drug is either toxic or requires a physician’s supervision for safe use.
D. Only if the drug is addictive or requires a physician’s supervision for safe use.
25. Which of the following is true regarding FDA approval of drug labels in relation to state law claims
for failure to warn?
A. FDA approval of the label on a brand-name prescription drug does not preempt state failure–to–
warn claims arising out of injuries caused by the drug nor does FDA approval of the label preempt
state failure-to-warn claims related to approved generic drugs bearing the FDA-mandated label.
B. FDA approval of the label on a brand-name prescription drug preempts state failure–to-warn
claims arising out of injuries caused by the drug, and federal law also preempts state failure–to-warn
claims related to approved generic drugs as long as they bear the FDA-mandated label.
C. FDA approval of the label on a brand-name prescription drug preempts state failure–to-warn
claims arising out of injuries caused by the drug, but federal law does not preempt state failure–to–
warn claims related to approved generic drugs bearing the FDA-mandated label.
D. FDA approval of the label on a brand-name prescription drug does not preempt state failure–to–
warn claims arising out of injuries caused by the drug, but federal law preempts state failure-to-warn
claims related to approved generic drugs as long as they bear the FDA-mandated label.
26. Which of the following was the result on appeal in Lavie v. Procter & Gamble Co., the case in the
text involving the plaintiff who claimed that by advertising that Aleve was gentler on the stomach
than aspirin, the defendant implied that Aleve would not cause any stomach upset?
A. The court upheld dismissal of the complaint recognizing that even if an advertisement targets a
disadvantaged or vulnerable group, it is judged by the effect it would have on a reasonable
consumer.
B. The court upheld dismissal of the complaint recognizing that unless an advertisement targets a
disadvantaged or vulnerable group, it is judged by the effect it would have on a reasonable
consumer.
C. The court ruled that the plaintiff was entitled to a jury trial because the advertisement was not
based on what the lease sophisticated consumer would think as it should have been.
D. The court ruled that the plaintiff was entitled to a jury trial because, regardless of the standard
involved, the defendant should have stated that the drug could cause stomach upset.
27. The ________ controls the disclosure of credit terms so that the consumer will be able to compare
more readily the various credit terms available and avoid the uninformed use of credit.
A. Fair Credit Billing Act
B. Equal Credit Opportunity Act
C. Fair Credit Reporting Act
D. Truth–in-Lending Act
28. ________ is the legal procedure by which a creditor may collect a debt by attaching a portion of a
debtor’s weekly wages.
A. Rescission
B. Garnishment
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C. Joinder
D. Attachment
29. Which of the following is true regarding environmental standards in the European Union?
A. America is increasingly replacing the European Union as the leader in environmental
development.
B. European Union policy requires significant producer accountability, placing the burden of
environmental responsibility on the manufacturer.
C. American firms are not required to conform to European Union product rules in order to sell their
products in Europe.
D. The European Union applies the prevention principle by which uncertainty is a reason to forego
environmental protections.
30. Which of the following are protected categories under the Equal Credit Opportunity Act?
A. gender, race, color, religion, and national origin
B. gender, race, color, religion, national origin, and age
C. gender, marital status, race, color, religion, national origin, and age
D. gender, marital status, race, color, religion, national origin, age, and residents of disadvantaged
neighborhoods.
31. Bobby develops a way to clone catfish. He finds that this is a very economical way to run his fish
business. He begins selling the catfish to grocers in the area. Other fish producers, who do not
know how to clone the fish, are very annoyed with Bobby and start to complain. They tell Bobby
that he is violating federal law by not placing a label on his fish notifying consumes that the fish are
cloned. Is Bobby in violation of the law?
A. Bobby is not in violation of federal law, but he should check to see if his state has such a
requirement because labeling legislation has been introduce in some states.
B. Bobby is not in violation of federal law nor have any states made any effort to require
notification of cloned products.
C. Bobby is in violation of federal law by not notifying consumers through labeling of the cloning.
D. Bobby is in violation of federal law by not notifying consumers through labeling of the cloning
only if there is evidence that the nutritional value of the fish is less than that of noncloned fish.
Fact Pattern 17-1 (Questions 32-33 apply)
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Cream X has been approved by the Food and Drug Administration for the treatment of eczema. Dr.
Glover discovers, however, that it is also great for a number of other things including the removal of
wrinkles and cellulite. The cream is applied to the skin, not ingested. He starts prescribing it for
those purposes and has a great increase in patients. Dr. Smith starts to lose a number of patients to
Dr. Glover and becomes grumpy when she hears why Dr. Glover is gaining in popularity. Dr. Smith
decides to complain about the practice but does not know quite what to do about it.
32. Refer to fact pattern 17–1. Which of the following is the appropriate term for Dr. Glover’s
prescribing of Cream X for the elimination of wrinkles and cellulite?
A. Compounding use
B. Non-acknowledged use
C. Derivative use
D. Off-label use
33. Refer to fact pattern 17-1. Which of the following is true regarding the legality of Dr. Glover
prescribing Cream X for the elimination of wrinkles and cellulite?
A. It is legal, and the Food and Drug Administration would take no action against him.
B. It is legal only because the cream is not ingested.
C. It is legal only because Dr. Glover is using it for cosmetic reasons.
D. It is illegal.
Fact pattern 17-2 (Questions 34-35 apply)
Janie is a pharmacist in Small City. At the direction of several physicians in Small City, she begins
mixing up a treatment for indigestion that is prescribed by the physicians. She advertises the
mixture, and she and prescribing physicians see a large increase in business. Other pharmacists who
do not want to bother with mixing begin to complain. Janie takes the position that it is a free
country, and she can do as she pleases since there is no evidence that the mixture is harmful; and it is
particularly helpful for those individuals who have had reactions to other indigestion medication.
34. Refer to fact pattern 17-2. Which of the following is the term that best describes the process Janie
uses in preparing the drug?
A. Combining
B. Compounding
C. Integrating
D. Servicing
35. Refer to fact pattern 17-2. Is it legal for her to advertise the product?
A. No
262 MANAGERS AND THE LEGAL ENVIRONMENT
B. Only if it has been approved by the Food and Drug Administration
C. Only if it is sold for under $50
D. Yes
ESSAY QUESTIONS
1. Set forth the four main provisions of the CAN-SPAM Act.
2. Discuss the purpose of the purpose of the Consumer Product Safety Commission and the process by
which it sets mandatory safety standards. Discuss fully.
3. What is the purpose of the Truth–in-Lending Act? What does it provide regarding the liability of
credit cardholders for unauthorized charges when a card is lost or stolen?
4. Drug Company X has a prescription drug that will make people look younger and lose weight. The
problem is that it causes significant stomach problems. Ann, an executive of Drug Company X,
wants to advertise the drug’s benefits on television and radio but leave out the stomach problems.
Her secretary, Bob, tells her that she could run into problems, and that he is not sure the drug can
even be advertised. Ann disagrees stating that it is up to physicians to warn patients of possible
complications. She tells Bob that she will not provide any information regarding contacting
Company X so that no one at Company X will be annoyed by receiving numerous inquiries about
obtaining the drug’s benefits. What would an FDA representative likely say in regard to Ann’s
plan? Set forth your response in detail.
5. Set forth the definitions used for determining whether an item is a food or a drug for purposes of
FDA categorization.
6. When does an advertiser violate the Federal Trade Commission bait and switch advertising rules?