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C H A P T E R 17
CONSUMER PROTECTION
This chapter explores the major acts that focus on consumer protection and fairness. Issues of
consumer health and safety are also covered. Additionally, which agencies handle which
consumer issues is addressed.
I. COMMISSIONS AND AGENCIES. Federal offices involved in consumer protection are
either independent commissions or agencies.
II. FOOD SAFETY AND LABELING.
A. Product Definition: Food or Drug? FDA looks at intended use of the product.
D. Pesticides and Human-Made Bugs.
E. Genetically Modified Food and Other Crops. Animal Plant Health Inspection
CASE 17.1 Monsanto Co. v. Geertson Seed Farms, 130 S.Ct. 2743 (2010).
Monsanto developed Roundup Ready Alfalfa (RRA) which was
genetically engineered to be Roundup-proof. Monsanto licensed its
intellectual property rights to RRA to Forage Genetics
deregulating RRA.
F. Cloned Meat and Milk. Cloned food authorized by FDA in 2008.
G. Irradiated Foods.
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1. Nutrition Facts.
III. DRUGS AND MEDICAL DEVICES.
A. FDA Standards for Drug Approval. FDA determines which drugs will be
available only by prescription.
IV. LABELING OF OTHER PRODUCTS.
A. Clothing. The FTC has primary responsibility for regulating the packaging and
labeling of commodities including clothing.
V. BROADCASTING AND THE INTERNET.
A. Broadcasting. The FCC seeks to ensure that broadcast media are competitive and
operate for the public’s benefit and use.
CASE 17.1 Federal Communications Commission v. Fox Television Stations,
Inc., 556 U.S. 502 (2009). The Federal Communications
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Golden Globes decision, in which it greatly expanded the scope of
what constitutes indecency in response to use of the “F–Word” in
live television. What result? HELD: Supreme Court reversed the
B. Internet. Though generally open as a free speech medium, primary regulation has
come about to prevent fraud, auction fraud, pyramid schemes, and securities
fraud.
VI. THE CONSUMER PRODUCT SAFETY COMMISSION (CPSC) protects the public against
unreasonable risks of injury associated with consumer products (including infant products
and toys) and provides assistance to consumers in evaluating the comparative safety of
such products.
VII. AUTOMOBILES. The National Highway Traffic Safety Administration (NHTSA) has the
power to establish motor vehicle safety standards.
VIII. PRIVACY PROTECTIONS. Concerns over identity theft prompted Congress to pass the
CAN-SPAM Act. In 2008, spam-king Robert Soloway was convicted of email fraud and
sentenced to prison.
IX. UNFAIRNESS, DECEPTION, AND FRAUD.
A. Deceptive Advertising and Warranties.
1. Common Law provides two remedies for a consumer who has been misled
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2. FTC Regulatory Law. FTC is charged with preventing unfair and
deceptive trade practices.
• Deceptive Price. FTC rules forbid sale of advertised items at
higher prices to unaware customers as well as bait and switch
advertising.
• Quality Claims made without any substantiation are deceptive.
Conversely obvious exaggerations and vague generalities are
considered to be “puffing” and not deceptive.
CASE 17.3 Lavie v. Procter & Gamble Co., 129 Cal. Rptr.2d
3. Infomercials are ads presented in the format of half-hour television shows.
The National Infomercial Merchandising Association has elected self-
regulation to the FTC to prevent abuse or deception.
4. Magnuson–Moss Warranty Act. Written warranty on goods over $15 must
5. State Lemon Laws deal with warranties on new cars and new mobile
homes.
B. Sales Practices. States and federal laws protect consumers against unfair and
deceptive practices, e.g., making false promises, and fraud.
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2. UCC Unconsionability Principle. Section 2-302 prohibits the
enforcement of patently unfair contracts.
5. Telemarketing. The use of auto-dialers and “900” numbers is covered by
the Telephone Consumer Protection Act.
6. Mail-Order Sales. Unsolicited merchandise may be kept.
X. STATE OCCUPATIONAL LICENSING. State governments also have consumer affairs
offices.
XI. CONSUMER CREDIT. IN 2010, Congress passed the Dodd-Frank Wall Street Reform and
Consumer Protection Act (discussed also in Chapter 3) which adds significant protection
for borrowers, including limits on pre-payment penalties.
A. The Consumer Financial Protection Bureau. Established by Dodd-Frank, to
B. Overview of Consumer Credit Protection Act (CCPA.
C. Truth-in-Lending Act (TILA) requires clear disclosure of credit terms for sales,
loans, and leases between creditors and consumers. Regulation Z requires
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for unauthorized charges.
1. Home Equity Lending Plans, Subprime Mortgages, and Predatory
Lending. Consumers have a right of rescission, available for three days if
all procedures are properly followed by the lender, or for three years if
2. Credit Advertising. Any advertised specific credit terms must actually be
available, and any credit terms must be explained fully. In 2009, Congress
passed the Credit Card Accountability Responsibility and Disclosure Act
which bans retroactive rate increases on existing balances, and requires
contract terms to be spelled out and remain stable for at least the first year.
D. Credit Billing requires creditors to respond to consumer complaints.
G. Fair Credit Reporting Act (FCRA) allows consumers to request all information
(except medical information) on themselves. FCRA gives consumers a right to
accurate copies of their credit report sent to creditors. Credit bureaus must
investigate disputes and resolve them within 30 days.
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K. State Laws Regulating Consumer Credit. The Uniform Consumer Credit Code
(UCCC) has not worked.
THE RESPONSIBLE MANAGER: TEACHING SUGGESTIONS
1. How can the legally astute manager guard against Identity Theft? What steps can be
taken to minimize a company’s liability? Identity theft is increasingly common. Via the internet
2. Discuss, as managers, what companies could have been done to avert the predatory
lending and sub-prime crisis?