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LAW, BUSINESS, &

SOCIETY
11th
Edition

McGraw-Hill

2015 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not
authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated,
forwarded, distributed, or posted on a website, in whole or part..

Learning Objectives

Identify some consumer protections


offered under common law
Describe lemon laws as an example of
state consumer regulation

15-2

Explain the purpose, roles, and power


of the federal consumer protection
agencies including the Consumer
Financial Protection Bureau (CFPB), the
Federal Trade Commission (FTC), the
Consumer Product Safety Commission
(CPSC), and the Food and Drug
Administration (FDA)

15-3

Identify the circumstances in which the


Truth in Lending Act (TILA) applies to a
consumer loan
Identify protections offered under the
Fair Credit Reporting Act (FCRA)
Describe the protections offered by the
Fair Credit Billing Act (FCBA)
Recognize the purpose of the Electronic
Fund Transfer Act (EFTA)
15-4

Explain the purpose of the Equal Credit


Opportunity Act (ECOA)
Identify debt collection practices
forbidden by the Fair Debt Collection
Practices Act (FDCPA)
Explain the purpose and effect of filing
a Chapter 7 liquidation or straight
bankruptcy

15-5

Fraud

Victim is entitled to rescind the


contract and seek damages
Elements to be proved
Misrepresentation of a material fact
Misrepresentation was intentional
Injured party justifiably relied on the

misrepresentation
Injury resulted
Involves false conduct and false expression
15-6

Innocent Misinterpretation

Variation of fraud
Falsehood is unintentional
Wrongdoer believes the conduct in

question to be true
Wronged party may secure rescission of
the contract but damages are not awarded

15-7

Case: Fraud

Case
Tietsworth v. Harley-Davidson
677 N.W.2d 233 (Wis. S.Ct. 2004)
Court of appeals

Issue
Plaintiff alleged that the cam bearing

mechanism in TC-88 engines is inherently


defective, causing an dangerous
propensity for premature engine failure
15-8

Unconscionable Contracts

Procedural unconscionability
Bargaining power of parties was unequal

that the agreement was not freely entered


Arises from lack of knowledge or lack of
choice

Substantive unconscionability
One-sided, oppressive or unfair contract

15-9

State Laws

States have statutes addressing


consumer problems
Lemon laws
Protect consumers from defective vehicles
Vary across states
Purchaser is entitled to a replacement or

full refund if vehicle meets lemon


requirements

15-10

Case: Lemon Law

Case
Paul Sipe v. Workhorse Custom Chassis
572 F.3d 525 (8th Cir. 2009)
District court

Issue
Sipe filed suit against the defendant

alleging that Workhorse failed to repair his


motor homes engine and transmission

15-11

Consumer Financial
Protection Bureau (CFPB)

Charged with writing and enforcing


rules covering consumer financial
products and services
Provides financial education
Consolidates consumer finance
programs in various agencies
Responsible for enforcing finance laws

15-12

Federal Trade Commission


(FTC)

Prevents unfair methods of competition


and deceptive acts in and affecting
commerce
Rule making
FTC issues trade regulation rules that

specify deceptive acts or practices

Adjudication
FTC investigates suspect trade practices

15-13

FTC - Fraud and Deception

Section 5 of the FTC Act forbids unfair


and deceptive trade practices
Requirements of deception test
Claim is false or likely to mislead the

reasonable consumer
Claim is material to consumers decision
making

Quality claims must be factually


supportable
15-14

FTC - Consumer Privacy

Enforces privacy provisions in federal


laws
Red Flags Rule
Designed to slow identity theft

Consumer Privacy Bill of Rights


Addresses how businesses collect and use

consumers personal information


Outlines core principles

15-15

Consumer Product Safety


Commission (CPSC)

Protects people from unreasonable


risks of injury and death from products
Consumer Product Safety Improvement
Act
Lowered permissible levels of lead in

childrens products

Banned the manufacture, sale, and


resale of traditional drop-side baby crib
15-16

Consumer Product Safety


Commission (CPSC)

Pursues product safety by collecting


data and issuing rules
Promulgates mandatory consumer
product safety, performance, and
labeling standards
Manufacturing sites are inspected
Product safety testing procedures are
mandated
15-17

Food and Drug Administration


(FDA)

Regulates tobacco products and


ingredients
Assures the safety and security of food,
drugs, medical devices, and cosmetics
Decides on the marketing approval of
drugs

15-18

Food and Drug Administration


(FDA)

Empowered to impose fines and


remove dangerous drugs from the
market
Food Safety and Modernization Act
Requires food manufacturers to submit

food safety plans to the government

15-19

Credit Regulations

Dodd-Frank Wall Street Reform and


Consumer Protection Act
Provides increased legislative oversight of

the nations financial processes

Truth in Lending Act (TILA)


Designed to assure full disclosure of credit

terms

15-20

Case: Truth in Lending Act

Case
Barrer v. Chase Bank USA
566 F.3d 883 (9th Cir. 2009)

Issue
Does a credit card company violate TILA

when it fails to disclose risk factors that


allow it to raise a cardholders Annual
Percentage Rate?

15-21

Credit and Charge Cards

Credit Card Accountability,


Responsibility, and Disclosure Act
(CARD)
Forbids lenders from issuing credit cards to

those under age 21

Colleges and universities allow credit


marketing on campus
TILA and CARD Act provides substantial
protections for credit card users
15-22

Consumer Credit Reports

Credit score is computed from detailed


credit histories provided by credit
information giants
Fair Credit Reporting Act (FCRA)
Affords consumers several credit reporting

protections

Consumer Financial Protection Bureau


(CFPB) - Permits consumers to file
credit report complaints
15-23

Fair Credit Billing Act (FCBA)

Provides a mechanism to deal with the


billing errors
Creditor cannot threaten the
consumers credit rating during dispute
period
Wronged consumers can complain to
the FTC and sue for damages

15-24

Electronic Fund Transfer Act


(EFTA)

Provides remedies for lost or stolen


cards, billing errors, and other
problems
Imposes limits on debit card
interchange fees

15-25

Equal Credit Opportunity

Equal Credit Opportunity Act


Designed to combat bias in lending

Consumer Credit Protection Act


Credit must be extended to all

creditworthy applicants regardless of sex,


marital status, age, race, color, religion or
national origin

15-26

Case: Equal Credit


Opportunity Act

Case
Lucas Rosa v. Park West Bank & Trust Co.
214 F.3d 213 (1st Cir. 2000)
District court

Issue
Rosa sued the bank alleging that he was

unlawfully discriminated when the bank


required him to conform to sex stereotypes
to proceed with the credit transaction
15-27

Debtor Protection

Fair Debt Collection Practices Act


(FDCPA)
Shields debtors from unfair debt collection

tactics by debt collection agencies and


attorneys

FDCPA forbids:
Use of obscene language
Contact with third parties
Use of or threats to use physical force
15-28

Debtor Protection
Contact with the debtor during

inconvenient hours
Repeated phone calls with the intent to
harass
Contacting the debtor in an unfair,
abusive, or deceptive manner

CFPB holds supervisory authority over


debt collectors

15-29

Case: Fair Debt Collection


Practices Act (FDCPA)

Case
Williams v. OSI Educational Services
505 F.3d 675 (7th Cir. 2007)
District court

Issue
Williams sought relief under FDCPA

claiming that there is an issue of material


fact in OSIs letter which states the amount
of the debt
15-30

Bankruptcy

Adjudication relieving a debtor of all or


part of his/her/its liabilities
Any person, partnership, or corporation

can seek debtor relief

Governed by federal law


States do not have the authority to enact

bankruptcy legislation

15-31

Liquidation (Chapter 7)

Used by individuals and businesses


Debts are forgiven
Assets except exemptions are
distributed to creditors
Debtors receive a fresh start
Petition can be voluntary or involuntary

15-32

Reorganization (Chapter 11)

Used by individuals and businesses


Keeps creditors from the debtors
assets
Debtor creates a financial
reorganization plan and pays creditors

15-33

Adjustment of Debts (Chapter


13)

Restricted to individuals with regular


income
Individuals with limited debts are
protected from creditors
Debts can be paid in instalments

15-34

Bankruptcy Abuse Prevention and


Consumer Protection Act, 2005

Forces debtors to seek bankruptcy


through the challenging Chapter 13
process
Supporters argue that it reduces the
cost of credit for all Americans
Opponents claim the changes are
punitive assault on people down on
luck
15-35

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