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whole or in part.
2 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
2. Claims Based on Half-Truths
B. BAIT-AND-SWITCH ADVERTISING
Federal Trade Commission (FTC) rules define and prohibit bait-and-switch advertising (refusing to show
an advertised item, failing to have in stock a reasonable quantity of the item, failing to promise to deliver
the advertised item within a reasonable time, or discouraging employees from selling the item).
• Claims must be substantiated.
• Ads must not be unfair (causing a substantial injury that a consumer cannot avoid and that is not
outweighed by a benefit to consumers or competition.
1. Clear and Conspicuous Disclosure
Many state consumer protection laws regulate deceptive online advertising.
CASE SYNOPSIS—
Case 24.1: Hypertouch, Inc. v. ValueClick, Inc.
Hypertouch, Inc., provides e-mail service. ValueClick, Inc., provides online marketing services. ValueClick
contracts with advertisers to send commercial e-mail. Hypertouch filed a complaint against ValueClick and
others for violating a California statute that prohibits e-mail ads containing deceptive content and header
information. The court held that the federal CAN-SPAM Act preempts the California statute and granted a
summary judgment in favor of ValueClick. Hypertouch appealed.
The California Court of Appeal reversed and remanded, holding that California’s statute is not preempted
by the CAN-SPAM Act. The CAN-SPAM Act expressly exempts from preemption state laws that prohibit
“falsity or deception” in commercial e-mail. The California statute imposes strict liability on anyone who
advertises in a commercial e-mail that contains false, deceptive, or misleading information, whether or not the
advertiser has knowledge of the violation. ValueClick included in over 45,000 e-mails received by Hypertouch
customers deceptive “header information.”
..................................................................................................................................................
CHAPTER 24: CONSUMER LAW 3
Notes and Questions
Isn’t false header information so transparent that there is no need for a government agency or
court to intervene? Doesn’t the marketplace effectively weed out such deception? False header
information and e-mail ad claims may seem transparent to most of us, but many persons fall victim to such
claims, no matter how false. Undoubtedly, products that do not do what is claimed on their behalf would
eventually disappear from the marketplace, but without some form of policing, others would quickly take their
place, and the truth would be more difficult to distinguish from the noisy barrage of lies.
4 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
• Transamerica Corp. v. Moniker Online Services, LLC, 672 F.Supp.2d 1353 (S.D.Fla. 2009) (service mark
owner's allegations—that defendants used well-known service mark to lead consumers to Web sites offering
services similar to those offered by mark owner, and that consumers believed they were accessing mark
owner's services when they were not—fell under false and misleading ad statutes).
• Smith v. William Wrigley Jr. Co., 663 F.Supp.2d 1336 (S.D.Fla. 2009) (consumer's allegations that
chewing gum company advertised brand of gum as “scientifically proven to help kill the germs that cause bad
breath,” that there was no scientific proof to substantiate the ad, that consumer bought the gum in reliance on
the ad, and that the company charged a premium based on the ad, adequately stated a claim for unfair and
deceptive trade practices).
• Brewer v. Indymac Bank, 609 F.Supp.2d 1104 (E.D.Cal. 2009) (borrowers' allegation that lender's
explanation of the adjustable rate mortgage offered to borrowers was intentionally misleading, deceptive, and
ambiguous was sufficient to state claim for false advertising).
D. FEDERAL TRADE COMMISSION ACTIONS
1. Formal Complaint
An FTC action against those who are accused of deceptive advertising begins with an investigation,
3. Restitution Possible
The FTC may seek restitution if an ad involves wrongful charges to consumers.
ENHANCING YOUR LECTURE—
PROTECTING U.S. CONSUMERS
FROM CROSS-BORDER TELEMARKETERS
One of the problems that the Federal Trade Commission (FTC) faces in protecting consumers from
scams is that those involved in the illegal operations frequently are located outside the United States.
Nevertheless, the FTC has had some success in bringing cases under the Telemarketing Sales Rule (TSR)
against telemarketers who violate the law from foreign locations. As discussed in the text, the TSR requires
telemarketers to disclose all material facts about the goods or services being offered and prohibits the
telemarketers from misrepresenting information. Significantly, the TSR applies to any offer made to
consumers in the United States—even if the offer comes from a foreign firm.
A TELEMARKETING SCAM THAT ORIGINATED IN CANADA
Oleg Oks and Aleksandr Oks, along with several other residents of Canada, set up a number of sham
corporations in Ontario. Through these businesses, they placed unsolicited outbound telephone calls to
CHAPTER 24: CONSUMER LAW 5
whole or in part.
consumers in the United States. The telemarketers offered pre-approved Visa or MasterCard credit cards to
those consumers who agreed to permit their bank accounts to be electronically debited for an advance fee of
$319.
The telemarketers frequently promised that the consumers would receive other items—such as a cell
phone, satellite dish system, vacation package, or home security system—at no additional cost. In fact, no
consumers who paid the advance fee received either a credit card or any of the promised gifts. Instead,
consumers received a “member benefits” package that included items such as a booklet on how to improve
their creditworthiness or merchandise cards that could be used only to purchase goods from the catalogue
provided.
THE CANADIAN GOVERNMENT AND THE FTC
COOPERATE TO PROSECUTE THE TELEMARKETERS
The FTC, working in conjunction with the U.S. Postal Service and various Canadian government and law
enforcement agencies, conducted an investigation that lasted several years. Ultimately, in 2007 Oleg and
Aleksandr Oks pleaded guilty in Canada to criminal charges for deceptive advertising. They were barred from
telemarketing for ten years.a
In addition, the FTC filed a civil lawsuit against the Okses and other Canadian defendants in a federal
court in Illinois. The court found that the defendants had violated the FTC Act and the TSR and ordered them
to pay nearly $5 million in damages.b
FOR CRITICAL ANALYSIS
Suppose this scam had originated in a country that is not as cooperative as Canada is with the
United States. In that situation, how would the FTC obtain sufficient evidence to prosecute the foreign
telemarketers? Is the testimony of U.S. consumers regarding phone calls they receive sufficient
proof? Why or why not?
a. Oleg was also sentenced to a year in jail and two years’ probation.
b. Federal Trade Commission v. Oks, ___ F.Supp.2d ___, 2007 WL 3307009 (N.D.Ill. 2007). The court entered its final judgment on
March 18, 2008.
E. TELEMARKETING AND FAX ADVERTISING
1. Statutory Remedies
The Telephone Consumer Protection Act (TCPA) prohibits phone solicitation using an automatic
phone dialing system or a prerecorded voice and the transmission of ads via fax without the re-
cipient’s permission. Junk fax fines can be $11,000 per day.
Laws dealing with labels and packages are designed to require accurate information about the products and
to warn about potential dangers.
6 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in
whole or in part.
A. FUEL ECONOMY LABELS ON AUTOMOBILES
The Energy Policy and Conservation Act of 1975 requires automakers to include the Environmental
Protection Agency’s fuel economy estimate on a label on every new car.
CASE SYNOPSIS—
Case 24.2: Paduano v. Honda Motor Co.
Gaetano Paduano bought a new Honda Civic Hybrid in California. The EPA fuel economy estimate on the
label—mandated by the federal Energy Policy and Conservation Act (EPCA)—was forty-seven miles per
gallon (mpg) for city driving and forty-eight mpg for highway driving. Honda’s sales brochure added, “Just
drive the Hybrid like you would a conventional car and save on fuel bills.” The car’s fuel economy proved to
be less than half of the EPA estimate. A Honda employee told Paduano that to achieve the estimate he would
have to drive in a manner that “would create a driving hazard.” When American Honda Motor Co. refused to
buy the car back, Paduano filed a suit in a California state court against the automaker, alleging deceptive
advertising in violation of the state’s Consumer Legal Remedies Act and Unfair Competition Law. Honda
argued that the EPCA preempted these claims. The court issued a judgment in Honda’s favor. Paduano
appealed.
The state intermediate appellate court concluded that the federal law did not preempt Paduano’s claims,
and reversed and remanded. Paduano “seeks to prevent Honda from making misleading claims about how
easy it is to achieve better fuel economy. Contrary to Honda’s assertions, if Paduano were to prevail on his
claims, Honda would not have to do anything differently with regard to its disclosure of the EPA mileage
estimates.” In fact “allowing states to regulate false advertising and unfair business practices may further the
goals of the EPCA.”
..................................................................................................................................................
Notes and Questions
Is the ruling in this case favorable for the auto market? Why or why not? In the long-term, the ruling
might improve the market by leading to more truthful advertising and consumer confidence in that advertising.
The same result could undercut sales and profit, however, by increasing consumer mistrust of auto sellers’
statements about their products. In the short-term, the decision could lead to a loss of profit through refunds
and replacements to consumers situated similarly to the plaintiff in this case.
ANSWER TO “THE ETHICAL DIMENSION”
QUESTION IN CASE 24.2
Suppose that the defendant automaker had opposed this action solely to avoid paying for a car
that had proved to be a “lemon.” Would this have been unethical? Explain. Arguably, a judgment
against the defendant in this case could have applied to a large number of vehicles—and potentially to other
vehicle makers’ products—and this might have led to a significant payout to many consumers, undercutting
CHAPTER 24: CONSUMER LAW 7
profit. Is it unethical for a business firm to assert a position in litigation solely out of a concern for profit, rather
than out of a belief in the truth or “rightness” of the position? Because of the many stakeholders to whom a
business may owe a duty, there are many circumstances in which a firm could act ethically in forcefully
maintaining a position in the “game” of litigation that might be “weak” in terms of its truth or rightness.
Arguably, shareholders are owed a return on their investments, employees are owed jobs and payment for
their work, communities are owed vibrant economies, and so on. None of this would be possible if the
business at the core did not make a profit. Of course, there should be at least some basis in truth or rightness
for a legal argument, or it may ultimately prove to be a losing argument, in which circumstance the business’s
obligations would not be met.
whole or in part.
III. Sales
A. TELEPHONE AND MAIL-ORDER SALES
• The FTC “Mail or Telephone Order Merchandise Rule” covers sales in which orders are transmitted
using computers, fax machines, or similar means over phone lines. The rule covers shipping, notice
of delays, and refunds.
IV. Protection of Health and Safety
A. THE FEDERAL FOOD, DRUG, AND COSMETIC ACT
The Pure Food and Drug Act of 1906, as amended in 1938, is today’s Federal Food, Drug and Cosmetic
a. Tainted Foods
There have been many high-profile recalls of potentially tainted food products.
b. Modernization Legislation
Under the Food Safety Modernization Act (FSMA)—
implement preventive controls, monitor effectiveness, and take corrective actions.
• Imported foods must meet U.S. safety standards.
2. Drugs
The FDA must ensure that drugs are safe and effective before they are marketed to the public.
whole or in part.
• Sets standards for consumer products.
• Bans the manufacture or importation and sale of products that are potentially hazardous to
consumers.
• Removes from the market any products imminently hazardous.
• Requires manufacturers to report on products sold or intended for sale that have proved to be
C. HEALTH-CARE REFORMS
1. Expanded Coverage for Children and Seniors
Under the Patient Protection and Affordable Care Act of 2010—
2. Controlling Costs of Health Insurance
Under the Patient Protection and Affordable Care Act of 2010—
• Insurance companies must spend 85 percent of premium dollars from large employers, and 80
card companies.
A. THE TRUTH-IN-LENDING ACT
The Truth-in-Lending Act (TILA), which is administered by the Federal Reserve Board, requires sellers
and lenders to disclose credit or loan terms to debtors so that the latter may shop around for the best
whole or in part.
1. Disclosure Requirements
• Car loans
• Home improvement loans
• Real estate loans when the amount financed is less than $25,000
2. Equal Credit Opportunity
the card is lost. An issuer cannot bill for unauthorized charges if a card was improperly issued. To
withhold payment for a faulty product, a cardholder must use specific procedures.
ADDITIONAL BACKGROUND—
The Fair Credit Billing Act
In 1974, Congress enacted the Fair Credit Billing Act as a part of the Truth-in-Lending Act. Under the
terms of the Fair Credit Billing Act, a buyer can withhold payment for a product that was bought with a credit
card and that is alleged to be defective. It is up to the credit card issuer to intervene and attempt to settle the
dispute. A buyer does not have an unlimited right to stop payment, however. The buyer must first exercise a
good faith effort to get satisfaction from the seller.
Other provisions of the Fair Credit Billing Act relate to disputes over billing. If a debtor believes there is an
error in a bill, the debtor may suspend payment until the credit card company investigates the complaint. The
credit card holder, within sixty days of receipt of the disputed bill, must write to the company issuing the card
and explain the basis of the alleged error. The company must resolve the dispute within ninety days, during
which time it can neither close the account or issue additional financing charges. If, however, the error is
unfounded and is resolved against the debtor, the creditor may seek to collect finance charges for the entire
period for which payments were not made.
4. Amendments to Credit-Card Rules
Other, more recent provisions—
• Protect consumers from retroactive increases in interest rates on existing card balances
unless the account is sixty days delinquent.
• Require companies to provide forty-five days’ notice to consumers before changing credit-card
terms.
2 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
2. Claims Based on Half-Truths
B. BAIT-AND-SWITCH ADVERTISING
Federal Trade Commission (FTC) rules define and prohibit bait-and-switch advertising (refusing to show
an advertised item, failing to have in stock a reasonable quantity of the item, failing to promise to deliver
the advertised item within a reasonable time, or discouraging employees from selling the item).
• Claims must be substantiated.
• Ads must not be unfair (causing a substantial injury that a consumer cannot avoid and that is not
outweighed by a benefit to consumers or competition.
1. Clear and Conspicuous Disclosure
Many state consumer protection laws regulate deceptive online advertising.
CASE SYNOPSIS—
Case 24.1: Hypertouch, Inc. v. ValueClick, Inc.
Hypertouch, Inc., provides e-mail service. ValueClick, Inc., provides online marketing services. ValueClick
contracts with advertisers to send commercial e-mail. Hypertouch filed a complaint against ValueClick and
others for violating a California statute that prohibits e-mail ads containing deceptive content and header
information. The court held that the federal CAN-SPAM Act preempts the California statute and granted a
summary judgment in favor of ValueClick. Hypertouch appealed.
The California Court of Appeal reversed and remanded, holding that California’s statute is not preempted
by the CAN-SPAM Act. The CAN-SPAM Act expressly exempts from preemption state laws that prohibit
“falsity or deception” in commercial e-mail. The California statute imposes strict liability on anyone who
advertises in a commercial e-mail that contains false, deceptive, or misleading information, whether or not the
advertiser has knowledge of the violation. ValueClick included in over 45,000 e-mails received by Hypertouch
customers deceptive “header information.”
..................................................................................................................................................
CHAPTER 24: CONSUMER LAW 3
Notes and Questions
Isn’t false header information so transparent that there is no need for a government agency or
court to intervene? Doesn’t the marketplace effectively weed out such deception? False header
information and e-mail ad claims may seem transparent to most of us, but many persons fall victim to such
claims, no matter how false. Undoubtedly, products that do not do what is claimed on their behalf would
eventually disappear from the marketplace, but without some form of policing, others would quickly take their
place, and the truth would be more difficult to distinguish from the noisy barrage of lies.
4 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
• Transamerica Corp. v. Moniker Online Services, LLC, 672 F.Supp.2d 1353 (S.D.Fla. 2009) (service mark
owner's allegations—that defendants used well-known service mark to lead consumers to Web sites offering
services similar to those offered by mark owner, and that consumers believed they were accessing mark
owner's services when they were not—fell under false and misleading ad statutes).
• Smith v. William Wrigley Jr. Co., 663 F.Supp.2d 1336 (S.D.Fla. 2009) (consumer's allegations that
chewing gum company advertised brand of gum as “scientifically proven to help kill the germs that cause bad
breath,” that there was no scientific proof to substantiate the ad, that consumer bought the gum in reliance on
the ad, and that the company charged a premium based on the ad, adequately stated a claim for unfair and
deceptive trade practices).
• Brewer v. Indymac Bank, 609 F.Supp.2d 1104 (E.D.Cal. 2009) (borrowers' allegation that lender's
explanation of the adjustable rate mortgage offered to borrowers was intentionally misleading, deceptive, and
ambiguous was sufficient to state claim for false advertising).
D. FEDERAL TRADE COMMISSION ACTIONS
1. Formal Complaint
An FTC action against those who are accused of deceptive advertising begins with an investigation,
3. Restitution Possible
The FTC may seek restitution if an ad involves wrongful charges to consumers.
ENHANCING YOUR LECTURE—
PROTECTING U.S. CONSUMERS
FROM CROSS-BORDER TELEMARKETERS
One of the problems that the Federal Trade Commission (FTC) faces in protecting consumers from
scams is that those involved in the illegal operations frequently are located outside the United States.
Nevertheless, the FTC has had some success in bringing cases under the Telemarketing Sales Rule (TSR)
against telemarketers who violate the law from foreign locations. As discussed in the text, the TSR requires
telemarketers to disclose all material facts about the goods or services being offered and prohibits the
telemarketers from misrepresenting information. Significantly, the TSR applies to any offer made to
consumers in the United States—even if the offer comes from a foreign firm.
A TELEMARKETING SCAM THAT ORIGINATED IN CANADA
Oleg Oks and Aleksandr Oks, along with several other residents of Canada, set up a number of sham
corporations in Ontario. Through these businesses, they placed unsolicited outbound telephone calls to
CHAPTER 24: CONSUMER LAW 5
whole or in part.
consumers in the United States. The telemarketers offered pre-approved Visa or MasterCard credit cards to
those consumers who agreed to permit their bank accounts to be electronically debited for an advance fee of
$319.
The telemarketers frequently promised that the consumers would receive other items—such as a cell
phone, satellite dish system, vacation package, or home security system—at no additional cost. In fact, no
consumers who paid the advance fee received either a credit card or any of the promised gifts. Instead,
consumers received a “member benefits” package that included items such as a booklet on how to improve
their creditworthiness or merchandise cards that could be used only to purchase goods from the catalogue
provided.
THE CANADIAN GOVERNMENT AND THE FTC
COOPERATE TO PROSECUTE THE TELEMARKETERS
The FTC, working in conjunction with the U.S. Postal Service and various Canadian government and law
enforcement agencies, conducted an investigation that lasted several years. Ultimately, in 2007 Oleg and
Aleksandr Oks pleaded guilty in Canada to criminal charges for deceptive advertising. They were barred from
telemarketing for ten years.a
In addition, the FTC filed a civil lawsuit against the Okses and other Canadian defendants in a federal
court in Illinois. The court found that the defendants had violated the FTC Act and the TSR and ordered them
to pay nearly $5 million in damages.b
FOR CRITICAL ANALYSIS
Suppose this scam had originated in a country that is not as cooperative as Canada is with the
United States. In that situation, how would the FTC obtain sufficient evidence to prosecute the foreign
telemarketers? Is the testimony of U.S. consumers regarding phone calls they receive sufficient
proof? Why or why not?
a. Oleg was also sentenced to a year in jail and two years’ probation.
b. Federal Trade Commission v. Oks, ___ F.Supp.2d ___, 2007 WL 3307009 (N.D.Ill. 2007). The court entered its final judgment on
March 18, 2008.
E. TELEMARKETING AND FAX ADVERTISING
1. Statutory Remedies
The Telephone Consumer Protection Act (TCPA) prohibits phone solicitation using an automatic
phone dialing system or a prerecorded voice and the transmission of ads via fax without the re-
cipient’s permission. Junk fax fines can be $11,000 per day.
Laws dealing with labels and packages are designed to require accurate information about the products and
to warn about potential dangers.
6 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in
whole or in part.
A. FUEL ECONOMY LABELS ON AUTOMOBILES
The Energy Policy and Conservation Act of 1975 requires automakers to include the Environmental
Protection Agency’s fuel economy estimate on a label on every new car.
CASE SYNOPSIS—
Case 24.2: Paduano v. Honda Motor Co.
Gaetano Paduano bought a new Honda Civic Hybrid in California. The EPA fuel economy estimate on the
label—mandated by the federal Energy Policy and Conservation Act (EPCA)—was forty-seven miles per
gallon (mpg) for city driving and forty-eight mpg for highway driving. Honda’s sales brochure added, “Just
drive the Hybrid like you would a conventional car and save on fuel bills.” The car’s fuel economy proved to
be less than half of the EPA estimate. A Honda employee told Paduano that to achieve the estimate he would
have to drive in a manner that “would create a driving hazard.” When American Honda Motor Co. refused to
buy the car back, Paduano filed a suit in a California state court against the automaker, alleging deceptive
advertising in violation of the state’s Consumer Legal Remedies Act and Unfair Competition Law. Honda
argued that the EPCA preempted these claims. The court issued a judgment in Honda’s favor. Paduano
appealed.
The state intermediate appellate court concluded that the federal law did not preempt Paduano’s claims,
and reversed and remanded. Paduano “seeks to prevent Honda from making misleading claims about how
easy it is to achieve better fuel economy. Contrary to Honda’s assertions, if Paduano were to prevail on his
claims, Honda would not have to do anything differently with regard to its disclosure of the EPA mileage
estimates.” In fact “allowing states to regulate false advertising and unfair business practices may further the
goals of the EPCA.”
..................................................................................................................................................
Notes and Questions
Is the ruling in this case favorable for the auto market? Why or why not? In the long-term, the ruling
might improve the market by leading to more truthful advertising and consumer confidence in that advertising.
The same result could undercut sales and profit, however, by increasing consumer mistrust of auto sellers’
statements about their products. In the short-term, the decision could lead to a loss of profit through refunds
and replacements to consumers situated similarly to the plaintiff in this case.
ANSWER TO “THE ETHICAL DIMENSION”
QUESTION IN CASE 24.2
Suppose that the defendant automaker had opposed this action solely to avoid paying for a car
that had proved to be a “lemon.” Would this have been unethical? Explain. Arguably, a judgment
against the defendant in this case could have applied to a large number of vehicles—and potentially to other
vehicle makers’ products—and this might have led to a significant payout to many consumers, undercutting
CHAPTER 24: CONSUMER LAW 7
profit. Is it unethical for a business firm to assert a position in litigation solely out of a concern for profit, rather
than out of a belief in the truth or “rightness” of the position? Because of the many stakeholders to whom a
business may owe a duty, there are many circumstances in which a firm could act ethically in forcefully
maintaining a position in the “game” of litigation that might be “weak” in terms of its truth or rightness.
Arguably, shareholders are owed a return on their investments, employees are owed jobs and payment for
their work, communities are owed vibrant economies, and so on. None of this would be possible if the
business at the core did not make a profit. Of course, there should be at least some basis in truth or rightness
for a legal argument, or it may ultimately prove to be a losing argument, in which circumstance the business’s
obligations would not be met.
whole or in part.
III. Sales
A. TELEPHONE AND MAIL-ORDER SALES
• The FTC “Mail or Telephone Order Merchandise Rule” covers sales in which orders are transmitted
using computers, fax machines, or similar means over phone lines. The rule covers shipping, notice
of delays, and refunds.
IV. Protection of Health and Safety
A. THE FEDERAL FOOD, DRUG, AND COSMETIC ACT
The Pure Food and Drug Act of 1906, as amended in 1938, is today’s Federal Food, Drug and Cosmetic
a. Tainted Foods
There have been many high-profile recalls of potentially tainted food products.
b. Modernization Legislation
Under the Food Safety Modernization Act (FSMA)—
implement preventive controls, monitor effectiveness, and take corrective actions.
• Imported foods must meet U.S. safety standards.
2. Drugs
The FDA must ensure that drugs are safe and effective before they are marketed to the public.
whole or in part.
• Sets standards for consumer products.
• Bans the manufacture or importation and sale of products that are potentially hazardous to
consumers.
• Removes from the market any products imminently hazardous.
• Requires manufacturers to report on products sold or intended for sale that have proved to be
C. HEALTH-CARE REFORMS
1. Expanded Coverage for Children and Seniors
Under the Patient Protection and Affordable Care Act of 2010—
2. Controlling Costs of Health Insurance
Under the Patient Protection and Affordable Care Act of 2010—
• Insurance companies must spend 85 percent of premium dollars from large employers, and 80
card companies.
A. THE TRUTH-IN-LENDING ACT
The Truth-in-Lending Act (TILA), which is administered by the Federal Reserve Board, requires sellers
and lenders to disclose credit or loan terms to debtors so that the latter may shop around for the best
whole or in part.
1. Disclosure Requirements
• Car loans
• Home improvement loans
• Real estate loans when the amount financed is less than $25,000
2. Equal Credit Opportunity
the card is lost. An issuer cannot bill for unauthorized charges if a card was improperly issued. To
withhold payment for a faulty product, a cardholder must use specific procedures.
ADDITIONAL BACKGROUND—
The Fair Credit Billing Act
In 1974, Congress enacted the Fair Credit Billing Act as a part of the Truth-in-Lending Act. Under the
terms of the Fair Credit Billing Act, a buyer can withhold payment for a product that was bought with a credit
card and that is alleged to be defective. It is up to the credit card issuer to intervene and attempt to settle the
dispute. A buyer does not have an unlimited right to stop payment, however. The buyer must first exercise a
good faith effort to get satisfaction from the seller.
Other provisions of the Fair Credit Billing Act relate to disputes over billing. If a debtor believes there is an
error in a bill, the debtor may suspend payment until the credit card company investigates the complaint. The
credit card holder, within sixty days of receipt of the disputed bill, must write to the company issuing the card
and explain the basis of the alleged error. The company must resolve the dispute within ninety days, during
which time it can neither close the account or issue additional financing charges. If, however, the error is
unfounded and is resolved against the debtor, the creditor may seek to collect finance charges for the entire
period for which payments were not made.
4. Amendments to Credit-Card Rules
Other, more recent provisions—
• Protect consumers from retroactive increases in interest rates on existing card balances
unless the account is sixty days delinquent.
• Require companies to provide forty-five days’ notice to consumers before changing credit-card
terms.
