Business Law Chapter 40

Business Law Chapter 40 - Business Law Chapter 40 Consumer...

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Business Law Chapter 40 Consumer Law Introduction - Congress and states that protect consumers from the unscrupulous. - To aid consumers, Congress empowered federal agencies to enforce consumer laws. FTC is most important agency. Federal Trade Commission - Created by Congress in 1915 to regulate business. - Original focus was antitrust law. But now it regulates everything from advertising to consumer loans to warranties to debt collection processes. - FTC has several options for enforcing law: o Voluntary Compliance – FTC will ask offender business to sign voluntary compliance affidavit promising to stop the prohibited activity o Administrative Hearings and Appeals – if company refuses to stop voluntarily, FTC takes case to administrative law judge (ALJ) within the agency. The violator may settle the case at this point by signing a Consent Order. If the case proceeds to a hearing, the ALJ has right to issue a Cease and Desist Order which commands violator to stop the offending activity. The defendant can appeal the case to the 5 commissioners of FTC. o Penalties – FTC can impose a fine for each violation of a voluntary compliance affidavit, consent order, a cease and desist order, an FTC rule, or a cease and desist order issued against someone else. FTC can file suit in federal court asking for damages on behalf of injured consumer if: defendant has violated FTC rules, or a reasonable person would have known under the circumstances that the conduct was dishonest/fraudulent. Sales
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Section 5 of the FTC Act prohibits “unfair and deceptive acts or practices” Deceptive Acts or Practices - Many deceptive acts or practices involve advertisements. - Under the FTC Act, an advertisement is deceptive if it contains an important misrepresentation or omission that is likely to mislead a reasonable consumer. - Example case pp. 769 Unfair Practices - FTC Act prohibits unfair acts or practices. The commission considers a practice to be unfair if it meets all of the following 3 tests: o It causes substantial consumer injury – can mean physical or financial injury. o Harm of the injury outweighs any countervailing benefit – the benefit to consumers of a cheaper product more than outweighed the risk of injury to them. Ex. pp. 970 o The consumer could not reasonably avoid injury – FTC is particularly vigilant in protecting susceptible consumers – such as elderly or the ill – who are less able to avoid injury. - The FTC may decide that a practice is unfair simply because it violates public policy even it does not meet the 3 tests. - Distinguish between deceptive and unfair example case pp. 970 (ACI) Other Sales Practices - Bait and Switch – FTC rule prohibit bait and switch advertisements: a merchant may not advertise a product and then disparage it to consumers in an effort to sell a different item. o
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This note was uploaded on 06/29/2011 for the course MGT 3000 taught by Professor Murrmann during the Spring '11 term at Virginia Tech.

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Business Law Chapter 40 - Business Law Chapter 40 Consumer...

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