Environmental Engineering Chapter 26 Under New Rules Though Banks Are Not

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Chapter 26

CONSUMER LAW

Suggested Additional Assignments

Research: Unfair or Deceptive Advertising

Ask students to bring to class an ad that they think is deceptive or unfair. They could either clip an ad

from a newspaper or magazine, or record one from television.

Research: Credit Reports

Ask students to order a credit report from one of the three national credit reporting agencies. They can

obtain ordering information from the following websites:

Chapter Overview

Chapter Theme

This chapter covers statutes that are designed to protect consumers. It also discusses the important role

that the FTC plays in enforcing consumer rights.

Quote of the Day

“Everyone lives by selling something.” –Robert Louis Stevenson (1850-1894), Scottish author of

Treasure Island and Kidnapped.

Federal Trade Commission

Congress created the FTC in 1915 to regulate business. Although its original focus was on antitrust law, it

Consumer Financial Protection Bureau

Sales

Deceptive Acts or Practices

An advertisement is deceptive if it contains an important misrepresentation or omission that is likely to

mislead a reasonable consumer.

2 Unit 5 Government Regulation and Property

Case: Federal Trade Commission v. Direct Marketing Concepts, Inc.

Facts: Direct Marketing Concepts, Inc. broadcast an infomercial for Coral Calcium that featured a

spokesperson named Robert Barefoot. In the ad, his claims were as bare as his feet. He asserted that

virtually all diseases — heart disease, cancer, lupus, multiple sclerosis, Parkinson’s — are caused by a

condition called acidosis. And that calcium derived from Okinawan coral cures these diseases by

rendering the body more alkaline: “I’ve had 1,000 people tell me how they’ve cured their cancer. I‘ve

witnessed people get out of wheelchairs with multiple sclerosis just by getting on the coral.”

Issue: Were these infomercials misleading as a matter of law?

Excerpts from Judge Thompson’s Decision: When the FTC brings an action based on the theory that

advertising is deceptive because the advertisers lacked a reasonable basis for their claims, the FTC must:

(1) demonstrate what evidence would in fact establish such a claim in the relevant scientific community;

and (2) compare the advertisers’ evidence to that required by the scientific community to see if the claims

have been established.

On the first prong, the FTC produced four expert declarations which demonstrated that the claims

the first prong.

On the second prong, the FTC relied on the same four expert declarations, in which the experts compared

the Defendants’ evidence to the available literature and concluded in each case that the Defendants’

evidence was woefully inadequate. The experts specifically opined that: (1) there was no evidence that

reductions of these studies. However, none of these scientists or studies supports the panacean claims

made in the Coral Calcium infomercial. The Defendants therefore engaged in deceptive advertising as a

matter of law.

The Defendants attempt to head off the above analysis by asserting that their infomercials advanced no

actual health claims but, instead, presented only puffery which was further attenuated by the presence of

general disclaimers. However, specific and measurable claims are not puffery, and may be the subject of

deceptive advertising claims. [T]he Defendants’ infomercials presented specific and measurable health

claims.

Disclaimers or qualifications in any particular ad are not adequate to avoid liability unless they are

sufficiently prominent and unambiguous to change the apparent meaning of the claims and to leave an

Chapter 26 Consumer Law 3

accurate impression. The disclaimers at issue here did nothing to affect the meaning of the infomercials’

health claims. The infomercial transcripts reveal only disclaimers that the infomercials are paid

advertising. In contrast, the health claims were bold and straightforward, presented by supposed experts

as testable observations backed up by clinical trials and studies.

[W]e affirm the district court’s grant of summary judgment.

Decision: Yes, the infomercials were misleading and no trial was needed.

Reasoning: To make claims such as these, the defendants must have some scientific evidence. But

medical experts for the FTC testified that there is no evidence that calcium cures any of the diseases listed

Question: Did the court find that the FTC met the two requirements that the defendant lacked a

reasonable basis for its claims?

Question: What was an argument that the defendants asserted?

Additional Case: You Be The Judge: Federal Trade Commission v. Business Card

Experts, Inc.

Facts: Business Card Experts, Inc. (BCE) grossed over $16 million selling business-card dealerships.

The prices of the dealerships ranged from $10,000 to $25,000.

BCE recruited dealers through advertisements on the Internet and in newspapers and magazines. The

2007 U.S. Dist. LEXIS 31366, United States District Court for the District of Minnesota, 2007.

4 Unit 5 Government Regulation and Property

business.” When in reality he had ordered only 5 boxed of cards in the prior three years. Another sales

rep told and FTC investigator that he had fifteen people working for him and earned his investment back

in three to four months, when in reality he sold less than $19,000 worth of cards in three years.

Dealers did testify that the BCE website was helpful for ordering cards, the cards were good quality,

and they were competitively priced.

Section 5 of the FTC Act prohibits “unfair or deceptive acts or practices in or affecting

commerce.” According to the court, to establish liability under section 5, the FTC must prove that

defendants made a material misrepresentation that was likely to mislead customers acting reasonably

under the circumstances. Misrepresentations about expected profits from a business or returns from an

investment violate section 5.

BCE does not dispute that it lacks sufficient assets to compensate the pool of potential victims. It is

also clear that, in its current form as a receivership, BCE has or will soon become a money-losing

operation. The status quo is therefore not sustainable. The Court has carefully balanced, on the one hand,

BCE’s interest in maintaining BCE in its current form in case they ultimately prevail, against, on the other

hand, the interests of potential victims and active BCE dealers. In light of the FTC’s very strong

likelihood of success, the most important interest at stake is that of the potential victims. Thus, the FTC’s

request for an injunction is allowed.

Question: Is it reasonable for someone to believe that they could make $150,000 per year by selling

business cards?

Question: Is it the role of the law to protect the silly and gullible?

Answer: The law does not protect people from making bad investment decisions. However, it does

Question: Did BCE tell the truth?

Question: Were these business card dealerships a good investment?

Question: Was it legal to sell them anyway?

Answer: It was perfectly legal to sell them, just not perfectly legal to lie about them.

Unfair Practices

The FTC Act prohibits unfair acts or practices. A practice is unfair if:

• It causes a substantial consumer injury

Chapter 26 Consumer Law 5

Research: Unfair or Deceptive Advertising

If students located ads that they think are deceptive or unfair, ask them to show these ads to the class.

General Questions:

• What is deceptive or unfair about the ad?

Key Issue: Additional Sales Rules

FTC rules prohibit bait and switch advertisements. They also regulate mail or telephone order merchan-

dise, unordered merchandise, and door-to–door sales.

Question: Have students ever been the victims of bait and switch sales practices? Have they noticed

what some stores do to prevent charges of baiting and switching?

Question: Is this a satisfactory solution?

Question: Many charities send out return address labels printed with the recipient’s name, hoping for

a contribution In return. Does the recipient have a (legal) obligation to make a contribution if she

keeps the labels? What if she uses them?

General Questions:

• Would you feel a moral obligation to make a donation if you used the address labels?

• Have students received other free gifts?

Consumer Credit

Example

The newest controversy in consumer loans involves so-called “payday lending companies.” Ima Poor

is living from paycheck to paycheck. She can pay all her regular expenses, barely, but has no

savings. One broken arm later and she finds herself $500 in debt. How can she pay? She goes to a

6 Unit 5 Government Regulation and Property

Question: What interest rate is Poor paying?

Answer: A $30 fee on a two-week loan of $100 works out to an annual interest rate of 780 percent.

Question: What other alternatives does she have?

Answer: Not many. Most banks will not make loans for less than $1,000, and her credit rating may

inconvenient and may be embarrassing.

Question: Isn’t this incredibly sleazy on the part of the payday lenders?

Answer: They say that they are performing a vital service, helping out a segment of society that

pay off most loans within a couple of weeks.

Question: Forget sleazy, isn’t this illegal, at least in states that have usury statutes?

General Question: Can you see now the point of usury laws and the Truth in Lending statute?

Truth in Lending Act (TILA) General Provisions

Congress passed TILA to ensure that consumers receive adequate information about credit terms before

entering into a loan.

In all loans regulated by the Truth in Lending Act, the disclosure must be clear and in meaningful

sequence. The lender must disclose the finance charge and the annual percentage rate.

Additional Cases: Three TILA Cases

1. IN RE Pittman v. Allright.

Allright Mortgage Company extended a loan to James Pittman. The loan

2. Mars v. Spartanburg Chrysler Plymouth, Inc and First National Bank of South Carolina.

When Mars

purchased a car from Spartanburg Chrysler Plymouth, the defendant used the term “amount financed”

instead of the required term “unpaid balance.”

Question: Have these firms violated TILA?

Answer:

• In the first two cases, the courts held that the lenders had violated TILA, even though the

Chapter 26 Consumer Law 7

Question: Note that if Bonfiglio had borrowed money from a bank to pay the law firm, the bank

would have had to comply with TILA. Why should the bank have to comply and not the law firm?

Answer: TILA is complex, with a great number of technical rules. Those not in the business of

Home Loans

Mortgage Loans

TILA prohibits unfair, abusive, or deceptive home mortgage lending practices.

TILA also regulates so-called subprime loans (also known as higher-priced mortgage loans). These are

loans that have an above-market interest rate because they involve high-risk borrowers.

Home Equity Loans

Credit Cards

Credit and debit cards are extremely important to most consumers so lately they have come under

increased scrutiny from Congress and the regulatory agencies.

Disclosure

TILA establishes disclosure rules for credit cards, which it calls open-end credit. This is a credit

transaction in which the lender makes a series of loans that the consumer can repay at once or in

installments. These rules apply to all consumer credit cards.

Regulation of Credit Card Debt

Credit Card Act of 2009. During the economic crisis that began in 2008, many consumers struggled to

Liability

Stolen Cards. Under TILA, you are liable only for the first $50 in charges the thief makes before you

notify the credit card company.

Disputes with Merchants.In the event of a dispute between a customer and a merchant,

the credit card company cannot bill the customer if (1) she makes a good faith effort to

8 Unit 5 Government Regulation and Property

Case: Gray v. American Express Co.

Facts: In December, Oscar Gray used his American Express credit card to buy airline tickets costing

$9,312. American Express agreed that Gray could pay for the tickets in 12 monthly installments. In

January, Gray paid $3,500 and then in February an additional $1,156. In March, American Express billed

Gray sued American Express for violating the FCBA. The trial court dismissed the complaint on the

grounds that Gray had waived his rights under the FCBA.

Issue: Is American Express liable to Gray for violating the FCBA?

Holding: Yes. The contract between Gray and American Express provided: “We can revoke your right

to use [the card] at any time. We can do this with or without cause and without giving you notice.”

However, the FCBA provides that, “during the pendency of a disputed billing, the card issuer shall not

cause the cardholder’s account to be restricted or closed because of the failure of the obligor to pay the

amount in dispute.” These two provisions are in conflict, and, in such a case, the FCBA prevails.

Question: Doesn’t American Express have the right to cancel an account whenever it wants?

Question: Why shouldn’t American Express have the right to cancel an account anytime? Gray

could always get another card from Visa or MasterCard.

Answer: If every company acted as American Express did in this case, Gray might soon run out of

Question: Gray had signed a contract with American Express that allowed the company to cancel a

card whenever it wanted. He’s a law professor, for heaven’s sake. If he did not want to abide by

American Express’s rules, why did he sign the agreement?

Debit Cards

Liability

Your liability for a stolen debit card is much greater than on a credit card. If you report the loss before

anyone uses your card, you are not liable for any unauthorized withdrawals. If you report the theft

within two days of discovering it, the bank will make good on all losses above $50. If you wait until

after two days, your bank will only replace stolen funds above $500. After 60 days of receipt of your

bank statement, all losses are yours: the bank will not repay any stolen funds.

Fees

Traditionally banks would charge a flat fee of $20-$30 each time cardholders overdrew their bank

account, no matter how small the overdraft. Under new rules, though, banks are not allowed to

overdraw an account and charge the fee unless the consumer signs up for an overdraft plan.

Chapter 26 Consumer Law 9

Credit Reports

Accuracy of Credit Reports

A number of statutes, including the Fair Credit Reporting Act (FCRA), the Fair and Accurate Credit

Research: Credit Reports

If you asked students to obtain a credit report, you could now find out what they discovered.

General Questions:

• Did anyone have any difficulty in obtaining a credit report?

• Did anyone find inaccurate information in his or her report?

Question: What can you do if your credit report contains inaccurate information?

Answer: If a consumer tells an agency that some of the information in his file is incorrect, the

Identity Theft

In identity theft, a fraudster steals his victim’s personal information, such as social security number, credit

Debt Collection

You Be the Judge: Brown v. Card Service Center

Facts: Card Service Center (CSC) sent Elizabeth Brown a collection letter demanding payment for a

delinquent credit card balance of $1,874. The letter said:

“You are requested to contact the Recovery Unit of the Card Service Center…to discuss your

account. Refusal to cooperate could result in a legal suit being filed for collection of the account.

You now have five (5) days to make arrangements for payment of this account. Failure on your part

You be the Judge: Did CSC’s letter violate the FDCPA?

Holding: Yes, the district court’s ruling is reversed. According to the FDCPA, a debt collector may not

use any false, deceptive, or misleading representation or means in connection with the collection of any

10 Unit 5 Government Regulation and Property

deceptive, or misleading” or constitutes a threat to take any action not intended to be taken, it violates the

Act.

Because the FDCPA is designed to protect consumers, in considering claims under the FDCPA,

communications from lenders to debtors should be analyzed from the perspective of the “least

sophisticated debtor. According to the court, the basic purpose of the least-sophisticated consumer

standard is to ensure that the FDCPA protects all consumers, the gullible as well as the shrewd. Using this

standard, the court concluded that such debtor might be given the impression that litigation or referral to a

lawyer would be imminent if he or she did not respond within five days even though CSC had no

intention of taking that action, or has never or very rarely taken that action before. A debt collection letter

is deceptive where it can be reasonably read to have two or more different meanings, one of which is

inaccurate.

Question: Did Elizabeth Brown do anything wrong?

Question: Then why did she win this case?

Question: What did CEU do wrong?

Answer: The notice it sent Brown threatened legal action if she did not respond to the notice within

ever, initiated legal action under these circumstances.

Question: The letter sent to Brown from CSC stated that Brown’s failure to respond “could” result

in legal action. Doesn’t that mean that it may not result in legal action?

Question: It could mean that, but that ambiguity is what makes the notice illegal. According to the

court, if the language could have two possible interpretations, one of which is inaccurate, then the

statement is deceptive and a violation of the FDCPA.

General Question: In the scheme of things, who behaved worse – Brown or CSC?

Three FDCPA Examples

1. Loretta Broadway of Meriden, Connecticut, owed $373 to a catalog company. She received a letter

that threatened to have her car and bank account seized if she did not pay what she owed. The letterhead

looked like this:

Goldman & Levine

Question: What conclusion would you draw from this letterhead?

Question: In fact, the letter was from G&L Financial Services, d/b/a as Goldman & Levine. What

conclusion would you draw from that information?

Answer: That G&L was violating the FDCPA, which prohibits a collection agency from using a fake

& Levine.

2. As a standard part of its debt collection process, Allied Bond and Collection Agency in Trevose,

Pennsylvania told consumers it “might recommend” that the creditor file a complaint against them.

Question: Did Allied Bond’s statement violate the FDCPA?

Chapter 26 Consumer Law 11

3. A collection agency was trying to collect $200 that Patty Herndon of Temperance, Michigan, owed to

a medical clinic. When the collection agency could not reach her, it called her mother, a 66-year-old

widow, and said, “If you see her, give her the message that we’re after her.”

Question: Is this agency in violation of the FDCPA?

Answer: Yes, the FDCPA prohibits an agency from contacting acquaintances of the debtor for any

Equal Credit Opportunity Act (ECOA)

The Equal Credit Opportunity Act (ECOA) prohibits any creditor from discriminating against a borrower

because of race, color, religion, national origin, sex, marital status, age (as long as the borrower is old

enough to enter into a legal contract), or because the borrower is receiving welfare.

Case: Treadway v. Gateway Chevrolet Oldsmobile Inc.

Facts: Gateway Chevrolet Oldsmobile (GCO), a car dealership, sent an unsolicited letter to Tonja

Treadway notifying her that she was “pre-approved” for the financing to purchase a car. In fact,

Treadway had recently filed for bankruptcy and was not eligible for credit, a fact GCO knew. GCO

promised to apply for a loan on Treadway’s behalf, but never did. Instead it told her she had to have a

Treadway sued GCO, alleging that it had violated the ECOA by not notifying her that it had taken an

adverse action against her. The district court granted GCO’s motion for summary judgment on the

grounds that GCO had not committed an adverse action under the ECOA. This appeal followed.

Issue: Did Gateway violate the ECOA?

Holding: Judgment for GCO reversed. The term, “adverse action” includes “a denial or revocation of

credit.” By deciding not to send Treadway’s application to any lender, GCO effectively denied her credit.

Since GCO did not tell Treadway of its decision not even to apply for a loan on her behalf, it would be

difficult for her ever to determine that she was the victim of discrimination. Car dealers could throw the

credit report of every minority applicant in the “circular file” and none would be the wiser.

Question: Did Treadway ever file a loan application?

Question: Then how could she claim that she had been denied credit?

that that was the same thing as denying credit.

Question: Did the court rule that GCO had discriminated?

Answer: No, but it ruled that failing to tell her the truth was an “adverse action”. The statute requires

scam.

These three examples were reported in Sana Siwolop, “Nasty Calls at 6 A.M.: Dunners Who Go Too Far,” New

York Times, July 14, 1996, p. F8

362 F.3d 971; 2004 U.S. App. LEXIS 6325 Court of Appeals for the Seventh Circuit, 2004

12 Unit 5 Government Regulation and Property

Magnuson-Moss Warranty Act

When Senator Frank E. Moss sponsored the Magnuson-Moss Warranty Act, this is how he explained the

need for such a statute:

[W]arranties have for many years confused, misled, and frequently angered American consumers….

Consumer anger is expected when purchasers of consumer products discover that their warranty may

Additional Case: Muchisky v. Frederic Roofing

Thomas Muchisky hired Frederic Roofing Company to re-roof his home. Their contract included a

12-year warranty guaranteeing the roof would be free from defects in workmanship and materials. The

roofing job was unsatisfactory, and Muchisky sued for damages. If the Magnuson-Moss Warranty Act

applied, then Muchisky was entitled to legal fees as well as damages.

Issues: Does the Magnuson-Moss Warranty Act apply in this case? Is the re-roofing of a home a

“consumer product” under the Act?

Holding: The Act does not apply to purchases and sales of real estate, but it does apply to consumer

products that become affixed to property, such as air conditioners and hot water heaters. The court

concluded that the roofing was a consumer product and awarded attorney’s fees to Muchisky.

Question: Does the Magnuson-Moss Warranty Act apply to all warranties?

Question: Is a house a consumer product?

Question: What about a product attached to a house, such as an air conditioner or hot water heater?

Question: Is a new roof real estate or a consumer product?

Question: So where do you draw the line? What about new windows? Or a new carpet?

Ethics

The quote of the day is: “Everyone lives by selling something.”

Question: What obligations does a salesperson have to consumers? Why not simply adopt the rule,

“Buyer Beware?”

Answers:

• In many of the cases discussed in this chapter, there is inequality of bargaining power, strength,

and determination. Certainly, the victims of the Arthur Murray studio (text p. 966) could have

838 S.W.2d 74, 1992 Mo. App. LEXIS 1287 Missouri Court of Appeals, 1992

Chapter 26 Consumer Law 13

• These laws are designed to protect those who cannot protect themselves–which means all of us.

General Question: Are other federal statutes needed to protect consumers?

Consumer Product Safety

The goal of the Consumer Product Safety Act of 1972 (CPSA) is to prevent injuries from consumer

products such as toys. This act created the Consumer Product Safety Commission (CPSC) to evaluate

consumer products and develop safety standards. Manufacturers must report all potentially hazardous

product defects within 24 hours of discovery.

Multiple Choice Questions

1. Dell advertised that a computer came with particular software. In fact, the software was not

available for several months. Instead, Dell sent customers a coupon for the software “when

available.” What did Dell do wrong?

I. Failed to offer buyers the opportunity to cancel their orders

II. Did not automatically cancel the orders

III. Did not ship the software within 30 days

(a) I and II

(b) I, II and III

(d) II and III

When customers called the number provided, New Rapids Carpet Center, Inc., sent salespeople to

visit them at home to sell them carpet that was not as advertised—it was not continuous filament

nylon pile broadloom, and the price was not $77. What set of rules has New Rapids violated?

(a) Unordered Merchandise

(b) Consumer Product Safety

(d) Bait-and-Switch

(e) Fair Credit Reporting Act

3. Which of the following laws set limits on interest rates?

14 Unit 5 Government Regulation and Property

(a) State usury laws

(b) TILA and state usury laws

(d) None,there are no limits on interest rates.

4. Companies must obtain permission from a consumer before charging for overdrafts on:

(a) debit cards.

(b) credit cards

(d) both

5. You notice a charge on your credit card bill of $149.99 for a kayak. This seems very strange to

you because you have not purchased a kayak. What do you need to do to avoid having to pay this

charge?

(a) Call the store.

(b) Call the credit card company.

(d) Write the credit card company.

Essay Questions

1. You Be the Judge: WRITING PROBLEM Process cheese food slices must contain at

least 51 percent natural cheese. Imitation cheese slices, by contrast, contain little or no natural

cheese and consist primarily of water, vegetable oil, flavoring, and fortifying agents. Kraft, Inc.,

makes Kraft Singles, which are individually wrapped process cheese food slices. When Kraft

began losing market share to imitation slices that were advertised as both less expensive and

equally nutritious as Singles, Kraft responded with a series of advertisements informing

consumers that Kraft Singles cost more than imitation slices because they are made from five

ounces of milk. Kraft does use five ounces of milk in making each Kraft Single, but 30 percent of

the calcium contained in the milk is lost during processing. Imitation slices contain the same

amount of calcium as Kraft Singles. Are the Kraft advertisements deceptive? Argument for

Kraft: This statement is completely true—Kraft does use five ounces of milk in each Kraft

Single. The FTC is assuming that the only value of milk is the calcium. In fact, people might

prefer having milk rather than vegetable oil, regardless of the calcium. Argument for the FTC:

It is deceptive to advertise more milk if the calcium is the same after all the processing.

2. Josephine was a 60-year-old widow who suffered from high blood pressure and epilepsy. A bill

collector from Collections Accounts Terminal, Inc., called her and demanded that she pay $56

she owed to Cabrini Hospital . She told him that Medicare was supposed to pay the bill. Shortly

thereafter, Josephine received a letter from Collections that stated:

You have shown that you are unwilling to work out a friendly settlement with us to clear

the above debt. Our field investigator has now been instructed to make an investigation in

Chapter 26 Consumer Law 15

your neighborhood and to personally call on your employer. The immediate payment of

the full amount, or a personal visit to this office, will spare you this embarrassment.

Has Collections violated the law?

Answer: The court held that Collections’ letter violated the Fair Debt Collection Practices Act.

3. Thomas worked at a Sherwin-Williams paint store that James managed. Thomas and James had a

falling out when, according to Thomas, “a relationship began to bloom between Thomas and one

of the young female employees, the one James was obsessed with.” After Thomas quit, James

claimed that Thomas owed the store $121. Sherwin-Williams reported this information to the

Chilton credit reporting agency. Thomas sent a letter to Chilton disputing the accuracy of the

Sherwin-Williams charges. Chilton contacted James who confirmed that Thomas still owed the

money. Chilton failed to note in Thomas’s file that a dispute was pending. Thereafter, two of

Thomas’s requests for credit cards were denied. Have James and Chilton violated the Fair Credit

Reporting Act?

Answer: Once Chilton received notice of the dispute, it was obligated to re-verify the accuracy of

4. In October, Renie Guimond discovered that her credit report at TransUnion incorrectly stated that

she was married, used the name “Ruth Guimond,” and had a credit card from Saks Fifth Avenue.

After she reported the errors, TransUnion wrote her in November to say that it had removed this

information. However, in March, TransUnion again published the erroneous information. The

following October, TransUnion finally removed the incorrect information from her file. Guimond

was never denied credit because of these mistakes. Is TransUnion liable for violating the Fair

Credit Reporting Act?

Answer: Although Guimond was never denied credit, she had been deterred from even applying

5. Thomas Waldock purchased a used BMW 320i from Universal Motors, Inc. It was warranted “to

be free of defects in materials or workmanship for a period of three years or 36,000 miles,

whichever occurs first.” Within the warranty period, the car’s engine failed and upon examination

was found to be extensively damaged. Universal denied warranty coverage because it concluded

that Waldock damaged the engine by over-revving it. Waldock vehemently disputed BMW’s

contention. He claimed that, while being driven at a low speed, the engine emitted a gear–

crunching noise, ceased operation, and would not restart. Is Universal in violation of the law?

Answer: It depends on whom you believe. If, as Universal alleged, the damage was caused by

6. ETHICS After TNT Motor Express hired Joseph Bruce Drury as a truck driver, it ordered a

background check from Robert Arden & Associates. TNT provided Drury’s Social Security

number and date of birth, but not his middle name. Arden discovered that a Joseph Thomas

Drury, who coincidentally had the same birth date as Joseph Bruce Drury, had served a prison

16 Unit 5 Government Regulation and Property

sentence for drunk driving. Not knowing that it had the wrong Drury, Arden reported this

information to TNT, which promptly fired Drury. When he asked why, the TNT executive

refused to tell him. Did TNT violate the law? Whether or not TNT was in violation, did its

executives behave ethically? Who would have been harmed or helped if TNT managers had

informed Drury of the Arden report?

Discussion Questions

1. Should employers use credit checks as part of the hiring process? On the one hand, each year

employers suffer losses of $55 million because of workplace violence while retailers lose $30

billion a year from employee theft. Those who commit fraud are often living above their means.

On the other hand, there is no evidence that workers with poor credit reports are more likely to be

violent, steal from their employers or quit their jobs. And refusing to hire someone with a low

credit score may simply be kicking him when he is down. What would you do if you were an

employer?

2. The fee on a debit card overdraft can be as high or higher than the amount drawn out. Instead of

overdrawing their accounts, consumers would be much better off either not spending the money,

using a credit card or paying cash. Typically, the people most likely to sign up for overdraft

“protection” are those who can least afford it – they have maxed out their credit cards and used up

any home equity. Is it ethical for a bank to offer an overdraft plan?

3. Look at the section entitled “Credit Card Act of 2009” All of these activities used to be legal.

Which ones were unethical?

4. Go to youtube.com and search for “free credit reports”. Watch advertisements for

freecreditreport.com. Although the characters repeat the word, “free” over and over, in fact the

reports are not free unless the consumer signs up for the paid credit monitoring service. At the

end of the ad, a voice quickly says, “Offer applies with enrollment in Triple Advantage.” Are

these ads deceptive under FTC rules? Are they ethical under your Life Principles?

5. Advertisements for Listerine mouthwash claimed that it was as effective as flossing in preventing

tooth plaque and gum disease. This statement was true, but only if the flossing was done

incorrectly. In fact, many consumers do floss incorrectly. However, if flossing is done right, it is

more effective against plaque and gum disease than Listerine. Is this advertisement deceptive?