Chapter 18 – Regulations Protecting Consumer Purchases, Privacy, and Financial Activities
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Chapter 18
Regulations Protecting Consumer
Purchases, Privacy, and Financial Activities
Learning Objectives
The objectives of this chapter include understanding what a consumer is and how consumer
protection fits into the property-based legal system. Students should understand that at the
federal level the principal consumer protection comes from the Federal Trade Commission, but
that politics influenced this mission. Students should also grasp the provisions of various
consumer and financial protection laws concerning lending, credit reporting protection and debt
collection.
References
Marsh, Gene A., Consumer Protection in a Nutshell, West Publishing Company, (1999).
Vulkowich, William T., Consumer Protection in the 21st Century: A Global Perspective,
Transnational Publishers (2002).
Teaching Outline
I. Introduction
A. Emphasize
Most consumer protection laws give consumers a type of private property regarding
how goods and services are transferred by sellers through contract law.
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boundaries between persons.
Bureau.
A. The FTC and Trade Practice Regulation (LO 18-1)
Emphasize:
That the FTC engages in trade practice regulation, which prevents those who would
deceive consumers from diverting trade those who compete honestly.
The FTC pursues cases brought against specific businesses and also issues rules like the
one establishing the national do not call list. These rules establish what constitutes
unfair or deceptive trade practices.
That as with other regulatory agencies the Commission issues both consent orders and
cease and desist orders.
Table 18.1—“Consumer Protection Laws the FTC Administers”
B. FTC Penalties and Remedies
Civil Fines
Emphasize:
The basic penalty for trade practice violations under the FTC Act is a civil fine of not
more than $16,000 per violation.
That fines may be assessed in three distinct situations: for a violation of a consent or
cease and desist order, for a violation of a trade regulation rule, and for a knowing
violation of prior FTC orders against others.
Other Remedies
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Emphasize:
The various remedies of the FTC other than fines and corrective advertising.
Sidebar 18.1—“Keeping Promises”
C. Politics, Economics, and the Law: The FTC Today
Emphasize:
How discretionary is the statutory enforcement by regulatory agencies.
D. False Advertising (LO 18-2)
Emphasize:
The reasons for advertising being the most important area of consumer protection.
The role of the FTC in regulating false advertising.
The nature of false advertising and the implications it has on a “reasonable customer.”
Sidebar 18.2—“Comparison of Common Law Fraud and False Advertising Elements”
Sidebar 18.3—“Typical FTC Deception Cases”
III. Consumer Privacy (LO 18-3)
Emphasize:
Consumers’ expectation of maintaining basic control over their private information.
How firms can make advertising more relevant, personalize web searches, and help
connect social and work groups.
A. Limitations on Government Intrusions
Explain:
The limitations of the privacy clause mentioned in the constitution.
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How one of the chief threats to individual privacy comes from the government.
The Privacy Act of 1974 and the Right to Financial Privacy Act of 1978.
B. Traditional Business Privacy
Emphasize:
That the there are two basic common-law privacy torts that arise in consumer
transactions.
How the Health Insurance Portability and Accountability Act (HIPAA) of 1996
provides for privacy of medical records.
C. Electronic and Online Privacy Protection
Explain:
The need to have additional protection from unwanted intrusions.
Figure 3.1—“Legal analysis of private–party capture of electronic communication”
D. International Privacy Protection
Discuss:
How in 1995, the European Parliament passed the Data Protection Directive, which
mandates that companies may collect personal information only with consent, keep it
Sidebar 18.4—“The Right to Be Forgotten”
IV. Federal Credit Regulations
Emphasize:
That in addition to the FTC act, the FTC administers other consumer protection statutes as
well.
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such an important economic reality of our consumer society.
A. Equal Credit Opportunity Act (LO 18-4)
Emphasize:
The ECOA’s purpose is to prevent discrimination in credit extension.
ECOA Prohibitions
Explain:
That this act prohibits discrimination based on sex, marital status, race, color, age,
religion, national origin, or receipt of welfare in any aspect of a consumer credit
transaction. It is administered by the FTC.
That the ECOA applies to all businesses which regularly extend credit, including
financial institutions, retail stores, credit card issuers, automobile dealers, real estate
brokers, and others.
Responsibilities of the Credit Extender
Explain:
That basically, the credit extender must consider all sources of regular income in
determining whether it is likely that someone applying for credit can repay a debt.
Information on accounts used by both spouses must be reported to third parties, such
as credit reporting agencies, in the names of both spouses.
How, to date, much of the litigation surrounding the ECOA concerns the
requirements that specific reasons be given a consumer who is denied credit.
ECOA Remedies and Penalties
enforcement by such agencies as the Federal Trade Commission the Department of
Justice, the Department of Housing and Urban Development, and the Consumer
Financial Protection Bureau.
B. The Fair Credit Reporting Act
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Emphasize:
That every year in the United States twice as many credit reports are issued as there are
people in the country.
That the act covers agencies preparing reports concerning consumers seeking credit,
persons in relation obtaining insurance.
Consumer Rights under FCRA
Emphasize:
Why, on any report covered by the act, consumers have the right to be told the name
of the agency making the report, to require the agency to reveal the information
given in the report, and to correct the information or at least give consumers’ version
of the facts in dispute.
That an investigative consumer report concerns not only credit but a consumer’s
character, general reputation, and mode of living obtained by personal interviews.
That no one may obtain such a report unless at least three days’ advance notice is
given the consumer that such a report will be sought.
Observing Reasonable Procedures
Emphasize:
That credit reporting agencies are liable for failing to follow reasonable procedures in
preparing credit reports. The act is enforced by the FTC and by private remedies.
FCRA Penalties and Remedies
Discuss:
How The Federal Trade Commission can enforce the FCRA. In addition, anyone
who violates the provisions of the act is civilly liable to an injured consumer.
Cases where the consumer may recover actual damages, attorney’s fees, and in some
instances punitive damages.
Case 18.2—“Safeco Insurance Company v. Burr”
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Fair and Accurate Credit Transactions Act Amendments
report to notify creditors of identity theft.
In addition, the FACT Act allows consumer to obtain a free credit report from
national consumer reporting agencies (Experian, Trans Union, and Equifax) each
year.
C. The Truth-in-Lending Act
Bureau. The FTC enforces these regulations.
Truth-in-Lending Coverage
Discuss:
That the act covers all transactions in which a business extends credit to a natural
person and a credit charge may be imposed on a loan obtained primarily for personal,
Finance Charge and Annual Percentage Rate
Explain:
That the Truth-in-Lending philosophy of full disclosure is accomplished through two
concepts, namely, the finance charge and the annual percentage rate (APR).
That the finance charge is the sum of all charges payable directly or indirectly by the
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Financing Statement
result from a late payment, description of any property used as security, the total
amount to be financed, including a separation of the original debt from finance
charges.
Penalties and Remedies under Truth-in-Lending
Emphasize:
That the Truth-in–Lending Act gives debtors the right to rescind or cancel certain
transactions for a period of three business days from the date of the transactions or
from the date they are given the notice of their right to rescind, whichever is later.
Sidebar 18.5—“Truth–in–Landing and the Subprime Mortgage Mess”
Truth-in-Lending Trends
Simplification Act requires the government to issue model disclosure forms.
V. Debt Collection and Consumer Protection
Emphasize:
In a consumer-credit-oriented economy, the collection of bad debts is very important.
That annually creditors turn over bills totaling many billions of dollars for collection.