Chapter 16 - Consumer Protection

CHAPTER 16CONSUMER PROTECTION

INTRODUCTION

Safeguarding consumers while continuing to supply them with the goods and services they want, at the prices they want, is a prime social responsibility of business. Many companies recognize that providing customers with excellent service and product quality is an effective, as well as ethical, business strategy. Consumers, through their organizations, have advocated for their rights to safety, to be informed, to choose, to be heard, and to privacy. Government agencies serve as watchdogs for consumers, supplementing the actions taken by consumers to protect themselves and the actions of socially responsible corporations.PREVIEW CASES

Hurricane Katrina/Progressive GroupNational Research Center for College and University AdmissionsPhishing

Teaching Tip: Introduction

These preview cases introduce students to several issues in consumer protection. In the first example, an insurance company takes action to destroy cars recovered after the Hurricane Katrina, so they would not be fraudulently sold to unsuspecting car buyers. In the second, data provided by students are used for commercial purposes for which they did not give permission. In the third, a new online scam called “phishing” tricked some Internet users into disclosing credit card numbers and other sensitive information. All three examples address various aspects of consumer rights.

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CHAPTER OUTLINE

I. ADVOCACY FOR CONSUMER INTERESTS

A. Reasons for the Consumer Movement

B. The Rights of ConsumersII. HOW GOVERNMENT PROTECTS CONSUMERS

A. Goals of Consumer Laws

B. Major Consumer Protection Agencies

Teaching Tip: Drug Approval DecisionsThe text discusses the FDA's review of new pharmaceutical drugs and devices prior to their introduction. Students may be asked to find a current example of a drug under FDA review, or recently reviewed by the FDA, and to examine the FDA's decision. What criteria should the FDA use in determining if the benefits of a new medicine outweigh the risks?

III. CONSUMER PRIVACY IN THE INTERNET AGE

* Consumer Self-Help

* Industry Self-Regulation

* Privacy LegislationIV. PRODUCT LIABILITY: A SPECIAL ISSUE

A. Strict Liability

* Business Efforts to Reform the Product Liability Laws

Teaching Tip:Students may be asked to evaluate the effects of the 2005 Class Action Fairness Act. What has been the impact of this legislation, and to what extent has, or has not, this new law addressed the concerns of advocates for tort reform?

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IV. POSITIVE BUSINESS RESPONSES TO CONSUMERISM

A. Quality Management

B. Voluntary Industry Codes of Conduct

C. Consumer Affairs Departments

D. Product Recalls

Teaching Tip: Product RecallsStudents may be asked to bring in an example of a recent product recall. Do you believe the company took the right action? What, if anything, should the company have done differently?

V. CONSUMERISM’S ACHIEVEMENTS

GETTING STARTED

KEY LEARNING OBJECTIVES

1. Understanding why a consumer movement arose in the United States and other nations.

The consumer movement represents an attempt to promote the interests of consumers by balancing the amount of market power held by sellers and buyers.

2. Knowing the five major rights of consumers.

The five key consumer rights are the rights to safety, to be informed, to choose, to be heard, and to privacy.

3. Assessing the ways in which government regulatory agencies protect consumers, and what kinds of products are most likely to be regulated.

Consumer protection laws and regulatory agencies attempt to assure that consumers are treated fairly, receive adequate information, are protected against potential hazards, have free choices in the market, and have legal recourse when problems develop. They also protect children’s privacy online. Products are most likely to be regulated if they pose a potential hazard, or if consumers are unable to judge for themselves their quality and safety.

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4. Determining how consumer privacy online can best be protected.

Rapidly evolving information technologies have given new urgency to the issue of consumer privacy. Three approaches to safeguarding online privacy are consumer self-help, industry self-regulation, and protective legislation.

5. Examining how the courts protect consumers, and efforts by businesses to change product liability laws.

Business has complained about the number of product liability lawsuits and the high cost of insuring against them. Although consumer groups and trial attorneys have opposed efforts to change product liability laws, modest tort reforms have recently been legislated.

6. Evaluating how socially responsible corporations can proactively respond to consumer needs.

Socially responsible companies have responded to the consumer movement by giving serious consideration to consumer problems, increasing channels of communication with customers, instituting arbitration procedures to resolve complaints, and by recalling defective products. They have also pursued voluntary codes of conduct and quality management in an effort to meet—and even anticipate—consumers’ needs.

KEY TERMS AND CONCEPTS USED IN THE CHAPTERalternative dispute resolution, 356

consumer hotlines, 358

consumer movement, 344

consumer privacy, 351

consumer protection laws, 346

deceptive advertising, 346

product liability, 353

product recalls, 359

quality management, 356

strict liability, 353

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INTERNET RESOURCES

www.consumersinternational.org Consumers Internationalwww.cpsc.gov U.S. Consumer Product Safety Commissionwww.ftc.gov U.S. Federal Trade Commissionwww.bbb.org Better Business Bureauwww.consumerfed.org Consumer Federation of America

DISCUSSION CASE

BIG FAT LIABILITY

Discussion Questions

1. What are the arguments for and against the proposition that the food and restaurant industries should be held liable for the rise of obesity in the United States?

According to the 2001 report, The Surgeon General’s Call to Action to Prevent and Decrease Overweight and Obesity, the problem of obesity and its health effects is growing. In the United States, around 300,000 premature deaths a year are associated with being overweight – approaching the 400,000 deaths associated with cigarettes. The direct and indirect costs of overweight and obesity are $117 billion a year (compared with $140 billion for smoking).

The food and restaurant industries should be held liable for obesity because:

The rise in consumption of fast food has closely paralleled the obesity epidemic. Fast food products have relatively high fat and sugar content and often come in extra-large portions.

Food companies have concentrated on developing processed products – such as candy, gun, snacks, and bakery goods – that contain excessive calories. Both restaurants and food makers have failed to communicate adequately the health risks of some foods.

Both restaurants and food makers have inappropriately marketed unhealthy products to children.

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The food and restaurant industries should not be held liable because:

The main causes of obesity are overeating and lack of physical activity. Food and lifestyle choices are an individual responsibility.

Unlike cigarettes, food products are not normally addictive. Because obesity has many causes, and the exact role of particular companies

is unclear and impossible to quantify.

2. In your opinion, should the food and restaurant industries be held liable for the rise of obesity, or not? That is, which side do you support, and why?

Students may defend either of the arguments listed in response to question 1, above.

3. If you were a manager for a fast food chain or food company, what actions would you take with respect of obesity, if any?

Whether or not a restaurant chain or food company is responsible for obesity, it would be wise to attempt to respond to public criticism to reduce their exposure to liability. Possible actions the industry can take include offering healthy food options, fully disclosing the nutritional and caloric content of products to customers, and refraining from advertising directed at children.

4. What do you think is the best solution to the obesity epidemic? What role can the food and restaurant industries, trial attorneys, government regulatory agencies, and individual consumers play in a solution, if any?

All four have a part to play in any solution. As mentioned in the response to Question 3, the food and restaurant industry can support initiatives to develop and market healthy food options and to disclose fully the nutritional and caloric content of products to customers. Actions by trial attorneys can have a deterrent effect, prompting companies to take action to reduce their potential legal liability. Government regulatory agencies can provide information on nutrition and health to the public and can establish labeling and information disclosure rules. Finally, individual consumers can take responsibility to making informed and healthy choices when purchasing food at the grocery store or eating out and for maintaining a healthy lifestyle.

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