Chapter 32
CONSUMER PROTECTION
RESTATEMENT
The consumer protection movement began with the goal of protecting those who had limited means and knowledge.
Since its beginning, the scope of consumer protection has expanded so that means and knowledge are irrelevant in
consumer protection. All sales and contracts for personal use include some forms of consumer protections.
Consumer or personal use includes personal or home use and not use for office or resale.
In a consumer protection suit, there may be several defendants in the form of seller, financing companies, banks, etc.
Defenses to consumer protection suits include the negligence of the consumer. Consumers must still exercise
reasonable care (such as reading the contract).
Remedies in consumer protection actions can be sought by government agencies, state attorneys general and the
individual consumer(s). The remedies available include replacement of goods, refund and both civil and criminal
penalties.
Many areas of commerce are subject to consumer protection regulations. Advertising is regulated by the FTC and
prohibits deception in advertising. If there has been deceptive advertising, the FTC can order the business to run
corrective ads.
Seals of approval on products are also regulated and if their presence is inaccurate, the seller is guilty of fraud. Any
other inaccuracies in labeling are also considered deceptive practices or possibly fraud.
Credit transactions involving consumers are regulated extensively from the advertising of credit terms to the
transaction itself to collection of the debt. All credit terms must be disclosed accurately, and any installment plans
with more than four payments are governed by the Truth in Lending Act.
The methods for soliciting a sale are also regulated including home solicitations, referral sales and telemarketing.
Terms for the transaction cannot be unconscionable or hidden on the back of the contract or in fine print.
Credit cards are fully regulated by the federal government with the fees charged, the solicitation and unauthorized
use governed by federal law. Collection of credit contracts are also fully regulated along with the reporting of credit
records of consumers.
More consumer protection laws are evolving with expansion of the protections afforded consumers including blue sky
laws (securities), real estate sales, franchise sales and automobile lemon laws.
STUDENT LEARNING OUTCOMES
LO.1: Explain what consumer protection laws do.
LO.2: List the rights and protections consumer debtors have when a collector contacts them.
LO.3: Give a summary of the rights of consumers with regard to credit reports.
LO.4: Describe the types of protections available for consumers who have credit cards.
INSTRUCTOR’S INSIGHTS
Break the chapter down into two components – related Learning Outcomes are indicated in ( ):
1. What are the general principles of consumer protection?
Give the historical development of consumer rights
2. In what areas of business are there consumer protection statutes?
Explain the regulation of advertising
Discuss honesty in product labeling
CHAPTER OUTLINE
I. What are the General Principles of Consumer Protection?
A. Expansion of protection
B. Who is a consumer?
1. Purchase
C. Who is liable under consumer protection statutes?
1. Sellers
2. Lenders
D. When is there liability under consumer protection statutes?
1. Some act or omission (false or deceptive ads)
CASE BRIEF: Laughlin v. Bank of America, N.A.
2014 WL 2602260 (D. N.J. 2014)
FACTS: Robert and Sheryl Laughlin (Plaintiffs), who were having difficulty making their mortgage payments,
applied for a HAMP modification with BANA. HAMP is the federal Home Affordable Modification
Program, a program that was one of several assistance programs created in an effort to stem the
foreclosure crisis. HAMP is intended to lower a qualifying mortgagors’ monthly payments to 31% of
the [borrowers’] verified monthly gross income in order to make payments more affordable. After
months of delay and inconsistent responses, BANA informed the Laughlins that they qualified for
the HAMP program and would be placed in a trial period plan. BANA told the Laughlins that if they
accepted a trial period plan under HAMP, they would be ineligible to short sell their house. The
Laughlins opted out of the proposed HAMP modification plan in order to remain eligible for a short
sale.
A BANA representative then advised the Laughlins to accept a HAMP modification instead of
attempting a short sale, but they were not allowed to have the previously offered HAMP Trial Plan
reinstated. On April 11, 2012, the Laughlins resubmitted the necessary financial documentation
required in order to be considered for a modification. On June 21, 2012, the Laughlins received a
Notice of Intent to Foreclose. On that same day, the Laughlins received a phone call from a BANA
representative, informing them that they were denied a loan modification, and would need to make
at least one monthly loan payment in order to qualify for any mortgage assistance programs. On
June 25, 2012, the Laughlins made this payment.
On August 15, 2012, the Laughlins received a Federal Housing Agency (“FHA”) Trial Period Plan
Agreement (“TPP”). On the same day, Robert Laughlin spoke with a BANA representative about his
concern regarding the calculation of the amount due under the loan. Laughlin believed that a
portion of the principal balance was being “doublecounted” because BANA was adding unpaid
principal on top of the balance due on the loan. A BANA representative informed them that this was
how the calculation was done. The Laughlins then [accepted the TPP].
Under the terms of the TPP, the Laughlins were obligated to make three monthly payments on or
before September 15, 2012, October 15, 2012, and November 15, 2012. The Laughlins made the
payments, and on November 30, 2012, were told that their loan modification request was under
review, and that they would receive a final loan modification within 30-45 days. They were advised
to continue making the monthly trial payments in the meantime.
On January 2, 2013, BANA acknowledged the Laughlins’ compliance with the FHA Trial Plan
Agreement, and advised in writing to continue making trial payments until a final loan modification
was processed. They received their permanent loan modification offer on April 10, 2013.
The terms of the permanent loan modification offer had a modified principal balance of
$680,042.78. Before the modification, their loan balance was $617,735.87. The proposed modified
loan also extended the term of the loan for thirty years, providing that the loan would now mature
on November 1, 2042. Finally, the proposed permanent loan modification included a balloon
payment of $25,013.27, which BANA said reflected the “missed” payments from the period between
the end of the TPP and before the permanent loan modification offer.
The Laughlins filed suit against BANA for breach of the duty of good faith and violation of the New
Jersey consumer fraud statute (NJCFA). BANA made a motion to dismiss the case and the
Laughlins opposed the motion.
ISSUE: Do loan modifications and the process for such fall under consumer protection statutes?
REASONING: The court held that allegations of “unconscionable commercial practice, deception, fraud, false
pretense, false promise, misrepresentation, or the knowing concealment, suppression, or omission
of any material fact” during the loan modification process constitute unlawful conduct in violation of
the NJCFA. Plaintiffs have a mortgage with BANA and, after they fell behind on mortgage
payments, worked with BANA to modify the terms of their mortgage. The loan modification process,
from negotiation to the signing of a permanent modification, effectively operates as a subsequent
performance on the original mortgage. The terms of the NJCFA specifically define “unlawful
conduct” to cover such subsequent performance on a loan. Considering the “broad legislative intent
evident from the language and the policy goals of the [NJ]CFA,” it would be disingenuous to hold
that a servicer would be free from the ramifications of violating the NJCFA if it engaged in unlawful
conduct while participating in a loan modification.
The TPP, at its core, operates as part of the mortgage modification process. Therefore, any sort of
allegations regarding unconscionable business practices in entering into a TPP or in the period of
time after the trial period ends all relate to mortgage modifications and operate as the subsequent
performance of a servicer in connection with the mortgage.
The Court found that Plaintiffs’ allegations that BANA breached its implied duty, based upon the
contractual relationship between Plaintiffs and BANA, to diligently evaluate Plaintiffs for a
permanent loan were actionable under the consumer protection statutes of New Jersey.
BANA’s Motion to Dismiss was denied.
E. What remedies do consumers have?
1. Class-action suits or suits brought on their behalf by attorneys general
2. Government agency action
F. What are the civil and criminal penalties under consumer protection states?
1. Compensatory damages
2. Treble damages
II. In What Areas of Business are There Consumer Protection Statutes? (See Figure 32-1 in text)
A. Inform the class about state legislation in the consumer protection area. For example, many states have
enacted specific consumer protection statutes involving health spa contracts, swimming pool construction,
B. Advertising
1. Covers deception
2. Regulated by Federal Trade Commission (FTC)
3. FTC requires support data for ad claims
4. Corrective advertising: can be required – also called retractive advertising
CASE BRIEF: McNeil-PPC, Inc. v. Pfizer, Inc.
351 F. Supp. 2d 226 (S.D. N.Y. 2005)
FACTS: In June 2004, Pfizer Inc. (“Pfizer”) launched a consumer advertising campaign for its mouthwash,
Listerine Antiseptic Mouthrinse. Print ads and hang tags on the bottles in the stores featured an
image of a Listerine bottle balanced on a scale against a white container of dental floss.
The campaign also featured a television commercial called the “Big Bang.” The commercial
announces that “Listerine’s as effective as floss at fighting plaque and gingivitis. Clinical studies
prove it.” Although the commercial cautions that “[t]here’s no replacement for flossing,” the
commercial repeats two more times the message that Listerine is “as effective as flossing against
plaque and gingivitis.” The commercial also shows a narrow stream of blue liquid flowing out of a
Cool Mint Listerine bottle, then tracking a piece of dental floss being pulled from a white floss
container, and then swirling around and between teeth – bringing to mind an image of liquid floss.
McNeil-PPC, Inc. (“PPC”) (and a division of Johnson & Johnson), the market leader in sales of
string dental floss and other interdental cleaning products, brought suit alleging that Pfizer engaged
in false advertising and unfair competition in violation of § 43(a) of the Lanham Act, 15 U.S.C. §
1125(a). PPC contends that Pfizer’s advertisements are false and misleading because the ads
implicitly claim that Listerine is a replacement for floss – that all the benefits of flossing may be
obtained by rinsing with Listerine.
PPC filed a motion for an injunction to stop Pfizer from running the ads.
ISSUE: Were the ads misleading and/or false?
REASONING: The court found that the studies were not done effectively and that the claims being made ran
contra to the authors’ conclusions as well as to the ADA’s final observations on the studies.
DISCUSSION POINTS: Thinking Things Through
The Difference in Concussions and Football Helmet Ad Claims
Point out the problems in the study from conflicts, to lack of randomness and statistical significance to not being able
to factor in the ages of the helmets. Nonetheless, the court held firm that there must be some proof of deception. The
study was flawed, but there was nothing misleading in the ads. The court concluded:
Schutt has failed to support its claims that Riddell’s advertisements are literally false, with one exception:
Riddell’s rush mailer stating that the concussion study showed a reduced risk of concussion in Youth
helmets. Even that claim must fail, however, because there is no evidence that Schutt suffered any injury
from those advertisements.
Schutt’s evidence of injury is scant; it boils down to evidence that Riddell is charging a $50 premium for
helmets using the Revolution Concussion Reduction Technology and has “converted” high school and
college players. However, Schutt does not offer any evidence that it has lost any sales or market share, and
there is no evidence that the “converted” high school and college players switched from using Schutt’s
helmets to Riddell’s Youth helmets (the only helmets mentioned in the false advertisement). Even if Niland’s
vague hearsay statements had been considered, they suggested only that customers were seeking
Revolution helmets, not the Youth helmets.
Although Schutt has managed to find one literally false advertisement, none of its Lanham Act claims survive
summary judgment. It is worth noting that this is not because Riddell’s advertisements were particularly open
and honest, but rather because Schutt tried to take the easiest evidentiary path to success: literal falsity.
However, at most, the challenged advertisements were misleading or deceptive.
Schutt’s Deceptive Trade Practices claim fails for two reasons. First, among other things, Wis. Stat. §
100.18(1) requires the plaintiff to show that the deceptive misrepresentation caused the plaintiff to suffer a
“pecuniary loss.” Novell v. Migliaccio , 2008 WI 44, ¶ 49, 309 Wis. 2d 132, 151, 749 N.W. 2d 544, 553. As
explained above, Schutt fails to identify any losses it suffered. Second, as I explained in Grice Engineering
v. JG Innovations, Inc. , 691 F. Supp. 2d 915, 922–23 (W.D. Wis. 2010), § 100.18 does not provide a cause
of action for misrepresentations made to non-parties; the Act “is not designed to protect product
manufacturers from the deceptive acts of their competitors.” I stand by that conclusion. Although Schutt
points out that this case is distinct from Grice because “there is no past relationship between Riddell and
Schutt” and the deception at issue involves “a purported health benefit,” neither of these distinctions matters.
The problem remains the same: Schutt is not the right entity to complain about Riddell’s alleged deception
because the deception was to others.
Because Schutt has failed to adduce evidence that could support either its Lanham Act or its Deceptive
Trade Practices Act claims, I will grant Riddell’s motion for summary judgment. Because Riddell’s motion to
strike Madrigal’s expert report involved testimony related to these claims, I will deny that motion as
unnecessary.
Riddell, Inc.’s motion for summary judgment on defendant Schutt Sports, Inc.’s counterclaims for false
advertising and deceptive trade practices, is GRANTED.
The first ethical issue was the conflict of interest in the study – one of the researchers was a Riddell employee. Then
the study was not the best done one in the world, but Riddell still used it in its ads without the qualifiers that the
reviewers had placed on the study. There were some issues with randomness, the age of the helmets, etc. and
perhaps Riddell could have disclosed that “results may vary” or something along those lines.
However, Schutt Sports apparently did not lose sales because of the use of the study. Riddell users converted to the
Revolution helmet, but there did not seem to be conversion. You have to have some damages to claim deceptive ads.
DISCUSSION POINTS: Sports & Entertainment Law
The NFL and Concussion Protocol
The NFL has had to settle a lawsuit for the damages from concussions and has developed a protocol that involves
independent evaluation of the injury and the ability to return to the game.
C. Labeling
D. Selling methods
1. Home-solicited sales: three-day rule on rescission – right to change mind within three days of sale
2. Referral sales
3. Telemarketing fraud
a. Telephone Consumer Protection Act (TCPA)
b. Rules on telemarketing
E. The consumer contract
1. Form of contract
2. Contracts printed on two sides
3. Particular sales and leases
4. Contract terms
5. Limitation of credit transactions (home mortgage restrictions)
a. Subprime lending market
b. State and federal regulation
6. Unconscionability
DISCUSSION POINTS: E-Commerce & Cyberlaw
Blocking WiFi to Charge More
The process of blocking is a violation of a federal law, an older federal law that is applied to WiFi. In addition, the
process interferes with a service that the users have already paid for through their own providers or through hotspots.
F. Credit disclosures
1. Truth in Lending Act