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Chapter 15 - Consumer Protection
c. Students’ answers will vary. When companies realize that the CROA statutes, mentioned
1. Students’ answers will vary. The court held that the italicized language contradicted or confused
2.
a. Students’ answers will vary. Yes, students are at a risk of manipulation by credit card
b. Students’ answers will vary. This answer will require students to draw upon personal
c. Students’ answers will vary. The Federal Government has enacted many acts such as Fair
3.
a. Students’ answers will vary. The labelling on Four Loko Malt Beverage is misleading in every
b. Students’ answers will vary. By complying with the order, the company managed to retain the
4.
a. Students’ answers will vary. When a mortgage is provided, it is done with the belief that the
b. Students’ answers will vary. There may arise a situation, such as the economic slowdown,
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Chapter 15 - Consumer Protection
5. Students’ answers will vary. Critics protest this move, because many unscrupulous elements of
6. Students’ answers will vary. There are many factors that affect bankruptcy. Some of these are as
follows: political instability—constant wars are a drain on the economy; anti-public policies of the
7. Students’ answers will vary. The assertion that the cup is easier to suck from is backed by an
8. Students’ answers will vary. The court found that it did violate the FDCPA because Citicorp was
9.
a. Students’ answers will vary. The main issue here is, whether or not, under the circumstances
b. Students’ answers will vary. The courts clearly stated that “uneducated customers should be
protected from greedy merchants.” It held that it was the duty of the court to establish if the
10. Students’ answers will vary. No. Essentially, the information in the report simply must be accurate.
11. Students’ answers will vary. Given an opportunity, the government should ensure the safety and
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Chapter 15 - Consumer Protection
12.
a. Students’ answers will vary. The basic argument is that the system is unfair to the poor
b. Students’ answers will vary. Civil fines are ok as deterrents, but should be restricted to a
c. Students’ answers will vary. Students may cite various examples such as the credit or
13. Students’ answers will vary. The court found it was not deceptive, rather that it merely expressed
Supplementary Materials
I. Fraud and Innocent Misrepresentation (p. 647)
Must a realtor disclose what she knows about the “psychological history” of a house? Must the dealer
tell potential buyers about suicides, murders or drug deals at the house? What if the house had been
occupied by an AIDS victim? For the most part, the law does not provide definitive answers to these
questions although, at least in the state of Florida, the state legislature has made it clear that AIDS is
not a material fact in property sales. The National Association of Realtors' model law holds that
psychological factors are not material defects and need not be disclosed.
II. Fraud and Deception (p. 656)
In 1991, the FTC found that Kraft Foods had run misleading ads and ordered it not to do so in the
future. The FTC objected to 1985-86 ads for Kraft Singles cheese slices. Kraft ads touted the cheese
as a source of calcium since each one contained five ounces of milk. However, in fact, each slice did
not contain as much calcium as five ounces of milk. Of course, Kraft never directly made that claim,
but the FTC felt the ads implied as much.
In 1991, the brewer Adolph Coors agreed to discontinue use of its slogan, “it won't slow you down.”
The Bureau of Alcohol, Tobacco and Firearms charged that the slogan was false and misleading since
as the BATF deputy director said, “We all know alcohol will slow you down.”
In November of 1988, the FTC upheld an administrative law judge's ruling that Norelco had engaged
in false advertising where the company claimed that its Clean Water Machine purified water, when the
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Chapter 15 - Consumer Protection
effect of passing water through the device's filter was to add small amounts of a suspected
cancer-causing agent to the water. After learning of the possible problems with the filter, the company
allegedly designed a new filter, but continued to distribute the old filter.
III. The Consumer Product Safety Commission (p. 658)
In 1991 the CPSC issued a “safety alert” warning that infants should not be left on adult water beds.
One study found that 32 infants had died on water beds between 1982 and 1988. Infant water beds
constructed with individual “cells” are generally considered safe.
According to Consumer Product Safety Commission data, 305,281 children aged 1-4 visited
emergency rooms between 1983 and 1987 as a consequence of injuries involving playground
equipment. The CPSC regulates playground equipment, but it does not regulate the placement of that
equipment in the play area, nor does it regulate the playground surfaces. The Centers for Disease
Control argued that construction workers are afforded greater protections than children under four
years of age on the playground. CDC data indicate that 48% of day-care playground equipment is not
installed over surfaces that are designed to cushion children's falls.
Supplementary Cases
I. Lovejoy v. AT&T, 111 Cal. Rptr. 2d 711 (Cal. 2001) (See Fraud and Innocent
Misrepresentation, p. 647)
Syllabus
Lovejoy operated a business with a state-wide 800 phone number, for which he contracted
with Pac Bell. Without his knowledge or consent, AT&T represented to an intermediary entity
that it had written authorization to switch Lovejoy’s 800 service to AT&T. Thereafter, Pac Bell
released the number to AT&T, which started hiding the 800 number charges on Lovejoy’s long
distance bill around February, 1996. In August, 1996, Lovejoy and AT&T had a payment
dispute over his long distance service and AT&T disconnected both his long distance and 800
service. As Lovejoy had no idea AT&T was providing the 800 service, he also had no idea it
was discontinued. In March, 1997, Lovejoy discovered that his old 800 number had been
reassigned to someone in Michigan, who had been getting 6 to 20 calls per day requesting
services from Lovejoy’s business. As a proximate cause of AT&T’s conduct, Lovejoy lost
considerable business, filed for bankruptcy and suffered emotional distress. The trial judge
granted AT&T’s motion for failure to state a cause of action because Lovejoy did not allege
that AT&T intended to drive him out of business and because Lovejoy could not have relied on
AT&T’s false representation as he was totally unaware of it.
II. East Ford v. James E. Taylor, Jr., 826 So. 2d 709 (Miss. 2002) (See
Unconscionable Contracts, p. 651)
Syllabus
Taylor bought a new truck from East Ford, only to find out later that it was not new, but had
previously been titled to someone else. When he confronted East Ford, they at first denied
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Chapter 15 - Consumer Protection
that it was sold as new and then simply amended the bill of sale to reflect that it was used.
Taylor filed suit and East Ford filed a motion to compel arbitration, based on a clause in the
Offer to Purchase or Lease Vehicle, which Taylor had signed at the time of the purchase.
Taylor had not been advised of the arbitration clause at the time and neither he nor the
salesman knew that an arbitration clause was included in the contract. The salesman had
never discussed the clause with any purchaser and had never been given any information on
the clause by East Ford. The clause was not bolded (although other material terms of the
contract were) and was in very fine print. It required all disputes brought by the purchaser to
be arbitrated and prohibited the arbitrator from awarding punitive damages. The only claims
not subject to arbitration are claims raised by East Ford. The Mississippi Supreme Court held
that the clause was procedurally unconscionable and, therefore, unenforceable and thus
found it unnecessary to rule on whether it was also substantively unconscionable.
III. Brower V. Gateway 2000, Inc., 246 A.D. 2d 246 (N.Y. App. Div. 1998) (See
Unconscionable Contracts, p.651)
Syllabus
Appellants purchased computers and software through the mail directly from Gateway 2000.
The products came packed with a document, “Standard Terms and Conditions Agreement.”
The Agreement provided that purchasers had 30 days to return the items, after which the
terms of the agreement would become binding. One of the terms required all disputes to be
settled by binding arbitration, conducted in Chicago, and in accordance with the rules of the
International Chamber of Commerce (ICC).
Appellants commenced an action for damages, alleging misrepresentation about Gateway’s
around-the-clock free technical support and certain on-site services. Gateway moved to
dismiss based on the arbitration clause, which motion was granted and plaintiffs appealed. On
appeal, the court found that the designation of the ICC as the arbitration body was
unconscionable (but not the requirement of arbitration in Chicago). Appellants demonstrated
that getting copies of ICC’s arbitration rules was quite difficult and that a claim of less than
$50,000 required an advance fee payment of $4000 (only $2000 of which was refundable
even if the consumer prevailed at arbitration). The fee was more than the cost of most
Gateway products. The court found that in general the appellants did have a meaningful
alternative (to return the goods), that the arbitration clause was not hidden and that the
chosen site of Chicago was not alone sufficient to be classified as unconscionable. However, it
did find the designation of a financially prohibitive forum effectively barred consumers from any
forum and, therefore, that provision was unenforceable. The case was remanded for the
parties to seek an appropriate substitute arbitrator.
IV. Williams v. Walker-Thomas Furniture Company, 350 F. 2d 445 (C.A.D.C. 1965)
(See Unconscionable Contracts, p. 651)
Syllabus
Suits by a furniture company to recover on contracts under which the balance due on every
item purchased continued until the balance due on all items, whenever purchased, was
liquidated. The Court of General Sessions granted judgment for the furniture company and
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Chapter 15 - Consumer Protection
appeal was taken. The District of Columbia Court of Appeals affirmed and appeal was taken.
The United States Court of Appeals for the District of Columbia Circuit held that where an
element of unconscionability is present at the time a contract is made, the contract should not
be enforced; and that inasmuch as the trial and appellate courts had not recognized that
contracts could be unenforceable on that basis and the record was not sufficient for the Court
of Appeals to decide the issue as a matter of law, the cases must be remanded for further
proceedings.
V. Dieter v. Chrysler corporation, 610 N.W. 2d 832 (Wis. 2000) (See Lemon Laws,
p. 652)
Syllabus
Buyers of a new Chrysler truck sued under Wisconsin’s lemon law for defects in the paint.
Buyers purchased the truck and ordered some accessories installed before delivery. The
dealer damaged the truck in the process of installing the accessories. When buyers returned
to take delivery, they discovered the damage and announced their intention to cancel the sale.
Seller’s representative said they would forfeit their deposit if they cancelled and “assured them
that the damage to the truck’s finish would be repaired.” Plaintiffs agreed to take the truck,
however satisfactory repairs were never accomplished, although work was done on the truck
at least four times. Plaintiffs brought suit under the lemon law. The trial court granted summary
judgment for Chrysler and the court of appeals affirmed. The state supreme court reversed
and remanded finding both that: (1) the lemon law applied to any defect covered by Chrysler’s
express warranty and (2) the lemon law did not require that the buyer be unaware of the
nonconformity before accepting delivery nor that the defect be hidden. Here the court found
Chrysler’s warranty did apply, as the accessories were Chrysler-approved accessories. Thus,
summary judgment was improper.
VI. FTC v. COLGATE-PALMOLIVE CO., 380 U.S. 374 (1964) (See Fraud and
Deception, p. 656)
Syllabus
The FTC charged respondents, an advertiser and an advertising agency, with using
commercials that were deceptive within the meaning of §5 of the Federal Trade Commission
Act. The commercials purported to give viewers visual proof that the advertiser's shaving
cream could soften “sandpaper;” but unknown to the viewers, the substance that appeared to
be sandpaper in the commercials was in fact a simulated prop, or “mock-up,” made of
plexiglass to which sand had been applied. After a hearing, the commission issued a
cease-and-desist order against respondents that could be interpreted to forbid all use of
undisclosed simulations in television commercials. The Court of Appeals set aside the order
as too broad. Five months later, the commission issued a revised order prohibiting
respondents from presenting advertisements depicting a test, experiment or demonstration
represented as actual proof of a product claim, but not in fact constituting actual proof
because of the undisclosed use of a prop or mock-up. From the court's judgment setting aside
that order, the commission petitioned this Court for certiorari.
Held:
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Chapter 15 - Consumer Protection
1. It is a material deceptive practice to convey to television viewers the false impression that they
are seeing an actual test, experiment or demonstration which proves a product claim when they
are not because of the undisclosed use of mockups.
a. The FTC’s judgment as to what constitutes a deceptive practice is to be accorded great
weight by reviewing courts, and this admonition is especially true with respect to allegedly
deceptive advertising since the finding of a §5 violation in this field rests so heavily on
inference and pragmatic judgment.
b. The misrepresentation of any fact, so long as it materially induces a purchaser's deception to
buy, is a deception prohibited by §5.
VII. Green V. Levis Motors, Inc., 179 F. 3d 286 (5th Cir. 1999) (See Truth in
Lending Act (TILA), p. 662)
Syllabus
The Greens brought suit against their car dealer, claiming that its retail installment contract did
not meet the requirements of TILA because it identified a $40 amount to be “Paid to Public
Officials” for a “License Fee” but did not disclose that, in fact, the license fee was less than
$40 and the dealer kept the difference, known in the trade as an “upcharge.” The district court
granted summary judgment for the dealer, even before it reached the issue of whether to
certify the case as a class action. The Fifth Circuit held that this was a violation of TILA, that
the dealer had a choice of expressly identifying the amount actually paid for the licensing fee
or, at a minimum, identifying that some of the $40 charge might be retained by it. Case
remanded for further proceedings.
VIII. Henson V. CSC Credit Services, 29 F. 3d 280 (7th Cir. 1994) (See Consumer
Credit Reports, p. 667)
Syllabus
Two credit reporting agencies reported that a money judgment had been entered against
plaintiff following an earlier lawsuit. That was not in fact the case, but the agencies had
received the incorrect information directly from the court involved. On discovering the error,
plaintiff contacted one of the reporting agencies and attempted to have them correct the
information; but the agency did not do so. The circuit court held that the agencies were not
liable for their original misreporting; however, the agency that was later notified of the error
had a duty to investigate and correct the error in the light of newly discovered information.
Thus, that agency was liable to plaintiff for the harm caused.
IX. U.S. v. National Financial Services, Inc., 98 F. 3d 131 (4th Cir. 1996) (See Debt
Collection Law, p. 671)
Syllabus
The government sued three debt collectors for civil penalties and injunctive relief for violating
the FDCPA, arguing that the questioned practices were “false, deceptive or misleading”
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Chapter 15 - Consumer Protection
because they threatened an action that was not in fact intended to be taken by the
defendants. Defendants handled collection activities for companies selling magazine
subscriptions, processing over 2 million accounts a year that had an average unpaid balance
of about $20. They sent computerized dunning letters to delinquent accounts. Defendants
argued that the letters never expressly said that debtors would be sued for non-payment. The
circuit court stated: “Defendants ask this court to adopt a hyper-literal approach which ignores
the ordinary connotations and implications of language as it is used in the real world. We
decline to do so[. We] conclude that the defendants’ notices threatened to take legal action
which they had no intention of taking[.] No reasonable juror could conclude that those
statements were not meant to make debtors fear that they would be sued.” Thus, the circuit
court affirmed the district court’s grant of summary judgment against defendants.
X. Cheesman and Cheesman v. Tennessee Student Assistance Corporation, 25
F. 3d 356 (6th Cir. 1994) (See Liquidation, p. 675)
Syllabus
Both husband and wife had college student loans outstanding for several years. Both had
made minimal payments on the loans a couple of times over the years. They had two children;
the husband worked at a mental health center; the wife had been unable to find work after
having taken a maternity leave from an intermittent job as a teacher’s aide. Their minimal
monthly living expenses, without the loans, were about $400 over their monthly income. They
sought protection through a Chapter 7 bankruptcy and sought to have their student loans
discharged, arguing that to pay them would cause “undue hardship.” The circuit court found
that discharge should be granted.
Selected Bibliography
Associated Press, “Alabama Judge Halves Verdict in Case Involving Charges for Satellite Dishes,”
The Wall Street Journal, August 30, 1999, p. B7.
Associated Press, “Children's TV Advocates get Partial Victory from FTC,” Waterloo Courier, April 10,
1991, p. A3.
Associated Press, “Everyday Things Prove to Be Most Hazardous,” Waterloo Courier, May 30, 1991,
p. B6.
Associated Press, “FTC to Probe Environmental Claims in Ads,” Richmond Times-Dispatch, March 17,
1990, p. A1
Associated Press, “The Mystery of Credit Ratings Unraveled,” Waterloo Courier, May 22, 1989, p. B5.
Sherry Buchanan, “Fledgling Consumer Groups Mobilize to Upgrade Safety Standards,” International
Herald Tribune, 1995
“Couple Gets $142,000 in Haunted House Case,” The San Antonio Express-News, July 4, 1987, p.
11A.
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Chapter 15 - Consumer Protection
Robert Daniels, “Hertz Corp. Pleads Guilty in Fraud Case--Fine and Restitution Total More Than $20
Million in Car-Repair Scheme,” The Wall Street Journal, August 5, 1988, p. 2.
S. J. Diamond, “Buzzwords are Key to Spotting Deceptive Ads,” Los Angeles Times, August 18, 1989,
p. B1.
Aaron Epstein, “Choking Deaths Linked to Toys Haven't Declined,” Des Moines Register, November
20, 1990, p. 4A.
Alix M. Freedman and Udayan Gupta, “Lawsuits May Pound Diet Sellers,” The Wall Street Journal,
March 23, 1990, p. B1.
Richard Gibson, “Ralston and Alpo Guilty of False Claims in Their Puppy Food Advertisements,” The
Wall Street Journal, August 1, 1989, p. B4.
Greg Hernandez, “Judge Clears Planet Hollywood to Emerge from Bankruptcy,” Los Angeles Times,
January 22, 2000, p. C3.
Bruce Horovitz, “Hot Commodity: Privacy,” USA Today, July 20, 1998, p. 3B.
David Jefferson, “Fighting Titans, Such as Credit Bureaus, Can Be Bruising,” The Wall Street Journal,
April 18, 1990, p. B2.
Cathy Johnson, “New Wine in New Bottles: The Case of the Consumer Product Safety Commission,”
Public Administration Review 50, January-February 1990, p. 74.
Walter Kurth, “Credit Law Works Well to Protect Consumers,” USA Today, June 19, 1990, p. 10A.
Wade Lambert and Amy Dockser Marcus, “Judge Blocks an Excedrin Ad Campaign,” The Wall Street
Journal, December 18, 1990, p. B3.
Anita Manning, “Firm Admits Tobacco Addictive,” USA Today, March 21-23, 1997, p. 1A.
Michael G. Riley, “Sorry, Your Card Is No Good,” Time, April 9, 1990, p. 62.
David Rubenstein, “Ad Campaign Launches Competitor Lawsuit,” Corporate Legal Times, November
2001, p. 58.
Christopher Scanlan, “Warnings about Dangerous Products Often Come Too Late,” Des Moines
Register, April 16, 1990, p. 5A.
John Schwartz, “How Did They Get My Name?,” Newsweek, June 3, 1991, p. 40.
Stuart Silverstein, “Some Shopping Bargains Aren't Really a Buy,” Waterloo Courier, December 9,
1990, p. C3.
Robert Ellis Smith, “They Know an Awful Lot about Us,” USA Today, June 19, 1990, p. 10A.
Guy Stanley, “The Third World Tackles Consumer Protection,” Business and Society Review, No. 62,
Summer 1987, pp. 31-33.
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Chapter 15 - Consumer Protection
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