Chapter 15 - Consumer

protection Unit 3 Ethics and the Law

Standards .

BMA-LEB-2 Compare and contrast the relationship between ethics and law for a business

BMA-LEB-3 Explain and illustrate through simulation the process by which a legal dispute is resolved for a business and personal issue

BMA-LEB-4 Investigate major crimes affecting business and the impact on a business

BMA-LEB-5 Evaluate the use of tort law in a business setting.

BMA-LEB-10 Explore how related student organizations are integral parts of career and technology education courses through leadership development, school and community service projects, entrepreneurship development, etc.

Essential Questions Essential Questions

• What are some forms of protection/agencies through the government to protect consumers?

• What is caveat emptor means? • What are some forms of

protection through actions by the consumer?

SECTION 1: PROTECTION THROUGH GOVERNMENTAL ACTION

Elizabeth had about 3,000 miles on her new car when she drove it into Jiffy Lube and ordered the all fluid replacement for $49.95. After having her car serviced, she left Jiffy Lube and at the first stop light she encountered, Elizabeth’s brakes failed and her car rammed the back of a garbage truck. When a mechanic checked the brake fluid, he found that Jiffy Lube had mistakenly replaced it with transmission fluid causing the brake failure. Elizabeth complained to Jiffy Lube but they refused to pay for the damages and repair.

How can Elizabeth resolve the problem in her favor?

Answer

A government agency also may order restitution.

What’s Your Verdict: Elizabeth should try to solve her problem through the Jiffy Lube corporate office or customer service dept. If that doesn’t work, she can sue Jiffy Lube in small claims court and notify the appropriate government agencies and/ or the Better Business Bureau of what happened.

Consumer Consumer An individual who acquires goods

that are intended primarily for personal, family, or household use.

Consumers are protected in the marketplace through actions that they may take on their own behalf as well as through actions the government takes to protect them.

Consumer Caveats

Caveat emptor historically assumed consumers were adequately protected by their own ability to judge a product’s safety and utility and could seek help or advice from: The state attorney

general’s office,

The local Better Business Bureau (BBB),

And if appropriate, the customer service department of the company involved.

In our affluent, technology oriented society, it is very difficult for consumers to judge properly the quality or dis/advantages of a product.

Today, local, state, federal governments have passed legislation to protect consumers and punish sellers who deceive a consumers while under contract. This has led to caveat

venditor.

Caveat Emptor

“Let the buyer beware”

Caveat Venditor

“Let the seller beware”

Class Actions Class action suits

have been authorized to help overcome the problem of litigation costs being more expensive than the cost to repair and/or damages for a faulty product or service.

The ability to combine individual cases of action in one suit provides incentives for law firms to handle such cases.

http://www.topclassactions.com/

Governmental Procedure When a government

agency acts on behalf of the injured consumer, it may investigate and issue a cease-and-desist order to a company. If the defendant violates

the order, heavy civil penalties (i.e. monetary fine) may be imposed.

Often a defendant will sign a consent order rather than resist the charge in a long legal battle.

A government agency also may order restitution.

What’s Your Verdict: Elizabeth should try to solve her problem through the Jiffy Lube corporate office or customer service dept. If that doesn’t work, she can sue Jiffy Lube in small claims court and notify the appropriate government agencies and/ or the Better Business Bureau of what happened.

Class ActionsClass Actions

Allows one or several persons to sue not only on behalf of themselves, but also on behalf of many others similarly wronged

Cease-and-Desist OrderAn order requiring the

company to stop the specified conduct.

If a defendant violates the order, heavy civil penalties may be posed.

RestitutionRestitution

Permits a party to a contract to recover money or property (or the value thereof) given to the other party

Protection Against Inferior

Services & GoodsCook’s Pest Control developed and sold thousands of robot cockroach traps called the Terminator. The user of the trap simply places it on the floor and device would pursue, kill, and consume any roaches on the floor. Recent consumer reports have shown the traps are too sensitive to vibration and causes the Terminator to attack mice, house pets, and even furry house slippers.

What could the government require Cook’s Pest Control to do?

What’s Your Verdict?

Cook’s Pest Control could be required to notify those concerned and implement an appropriate remedy. Failure to comply could lead to a fine or imprisonment. If necessary, the CPSC has the power to seize the hazardous robot cockroach traps and ban them from the market place.

Licensing Protection of consumers

by government often begins with licensing suppliers of consumer services. Examples: Pharmacists,

lawyers, construction professionals, realtors, & beauticians

Certain businesses/ institutions must pass inspection before they receive operating licenses and maintain standards in order to stay in business. Examples: Hospitals,

check cashing services, private schools, & rest homes

Businesses offering repairs are required to give written estimates and detailed bills for all work performed. Examples: Businesses

that repair cars, electronic equipment, and watches, etc.

States regulate special sales by retail businesses by requiring a special license and the business must shut down after the special sale or be found guilty of fraud. Examples: Bankruptcy

sales and going out of business sales

Unsafe Products In 1972, the federal government

passed the Consumer Product Safety Act (CPSA) which created the Consumer Product Safety Commission (CPSC).

CPSC issues and enforces safety standards for most consumer products.

The CPSC gathers information regarding faulty/ malfunctioning products through reports from directly manufacturers, distributors, or retailers of products and hospitals that treat product-based injuries.

The manufacturer, distributors, and retailers of a hazardous product must notify the purchasers and then either recall and repair the product, replace it, or refund the purchase price.

Responsible parties may do a voluntarily recall before the CPSC steps in.

Consumers who think the CPSC is not taking action where needed may sue in federal district court to have a protective rule established.

Maintains a toll-free telephone service & a website to

report claims concerning unsafe products,

find out about product recalls,

get information about unsafe children’s products.

Additional protection is afforded to consumers in indirect ways like safety laws designed to protect consumers and to assist them in deciding which products and services best meet their needs.

Unsafe Products Cont’d Food and Drug Administration

Seizes adulterated products that are unclean and not meant for human use or consumption.

Requires product packaging contain nutritional labeling, weight of the package content, and the name & address of the manufacturer, packager, or distributor.

Approves effective and safe drugs to be sold over the counter or by prescription.

US Dept. of Agriculture (USDA) Inspects canners, packers, and

processors of poultry & meat to ensure the products are free of disease & processed under sanitary conditions.

States and localities usually provide periodic health inspections and ratings (that must be displayed) of businesses where food is handled.

Examples: The purity / quality of dairy, meat, fruits, & veggies are inspected at meat markets, bakeries, restaurants, & hotels.

The Weights and Measures Division of the National Institute of Standards and Technology promotes uniformity in US weights and measures laws, regulations, and standards.

Examples: A gallon of gas, pounds of bananas, or foot of rope is uniform across the nation.

Protection Against Unfair Trade Practices

To protect customers against unfair trade practices, federal antitrust laws and the Federal Trade Commission Act are designed to prevent unfair trade practices in interstate commerce. States have similar laws

regulating intrastate commerce.

False and misleading advertising intentionally deceives customers about quality or effectiveness or fails to reveal critically important facts. Bait and switch is not

considered deceptive of the advertised items are available or the supply is limited.

Unfair Trade Practice Any method of business that is

dishonest or fraudulent or that illegally limits free competition

Improper business practice involving luring buyers to the store with an understocked, abnormally low-priced good and then redirecting them to a more expensive product

Unfair Pricing and Services

Intentionally misrepresenting goods are being sold at a considerably discounted prices . Examples: BOGO o r

2-4-1 sales if the main item is not artificially raised for the sale or when estimated costs are significantly different from actual cost or there are unauthorized repairs.

Mislabeling goods is unlawful and requires the shape and size be accurately labeled and warning labels are clearly visible.

Examples: Most common instance is when no indication is given that the goods are secondhand.

Other Unfair Trade Practices

Using a brand name or trademark so similar to a competitor’s that it confuses the public.

Sending unordered merchandise and demanding payments.

Giving a corporation’s purchasing agent money “under the counter” in exchange for an order from the suppliers.

Paying a retail salesperson “push money’ for extra effort in promotion

Conducting “industrial espionage” to find out a competitor’s secrets.

Conducting fraudulent telemarketing and Internet schemes.

Failing to provide written warranties when required.

SECTION 2: PROTECTION THROUGH ACTION BY THE CONSUMER

Bobby ran a lawn mowing business to earn college tuition. To make his weed trimmer work faster, he removed the back shield from it. He also refused to wear safety goggles while operating the trimmer. One a day, a piece of trimmer line broke and hit him in the eye, blinding him permanently. The remainder of the trimmer line was tested and shown to be only half as strong as advertised, so Bobby sued.

Can he recover damages for the injury caused by the defective product?

What’s Your Verdict:

Bobby’s removal of the safety guard and the failure to wear safety goggles bar his recovery of damages. Legally, the injury was the result of his choices, not the defect in the trimmer line. There is no liability if the injury was a result of an unintended use of the product.

Uniform Commercial Uniform Commercial CodeCode

Instead of relying on the government, victims may sue for damages in a product liability suit.

Product liability suits may be based on the torts of fraud, negligence, strict liability, or breach of warranty.

Because warranties involve sales of goods, they are governed by the Uniform Commercial Code. The UCC is a large

set of business statutes which simplified, clarified, and modernized many laws relating to commercial transactions.

Uniform Commercial Code (Cont’d)

Under the UCC a buyer can accept goods in three ways

1. After a reasonable opportunity to inspect the goods, the buyer signifies to the seller that the goods conform to the contract or will be retained in spite of their nonconformity.

2. The buyer acts inconsistently with the seller’s ownership (for example, uses, consumer, or resells the goods).

3. They buyer fails to make an effective rejection after having a reasonable opportunity to inspect the goods.

Product LiabilityThe affixing of responsibility to

compensate buyers, users, and even those standing nearby for injuries caused by a defective project

Extent of Warranty Coverage In the past, privity of

contract limited product liability suits to the immediate buyer and seller listed in the contract. Example: An injured

consumer could only sue the retailer, but not the wholesaler or the manufacturer of the defective product.

Today, the UCC has broadened the range of suit to include Injured parties who are the

buyer’s family, household members, guests, and nonusers to sue retailers, intermediate sellers, and manufacturers of inaccurately advertised, mislabeled, and defective products.

What’s Your Verdict:

Bobby’s removal of the safety guard and the failure to wear safety goggles bar his recovery of damages. Legally, the injury was the result of his choices, not the defect in the trimmer line. There is no liability if the injury was a result of an unintended use of the product.

Privity of Contract

The relationship that exists between or among the contracting parties as a result of their legally binding agreement

How Important Are Warranties?Sharon, a sales agent employed by Total Electronics, persuaded the Fletchers to install a central air conditioning system. Sharon assured them that “this unit will keep all rooms at 68° even on the hottest summer days and the coldest winter mornings.” The unit failed to perform as promised.

Do the Fletchers have any rights against Total Electronics?

What’s Your Verdict?

Sharon made an express warranty. Sharon’s employer, Total Electronics, is liable because the warranty was breached. A breach of warranty is a breach of contract.

Types of WarrantyExpress Warranty

An express warranty may be oral, written, or implied by conduct and, if offered, must be made available to consumers prior to the sale of the item.

A written express warranty is not required but can only be given if the product

Costs more than $15

Is normally used for personal, family, or household purposes

Implied Warranty The law compels all sellers to

honor certain implicit or unstated warranties to all purchasers.

Implied by law and do not need to be mentioned in a contract.

There are three types of implied warranties:

Warranty of Title

Warranty Against

Warranty of Fitness for a Particular Purpose

Express Warranties

A one-page written warranty must include:1. To whom the warranty is extended2. Description of the product and any

exclusions3. What the warrantor (one who gives the

warranty) will and will not do in the event of a breach of warranty

4. When the warranty begins (usually the purchase date) and ends

5. Procedure to obtain performance of warranty obligations

6. Availability of informal methods of settling disputes

7. Limitation on how long implied warranties last

8. Exclusions or limitations on incidental consequences

9. The words: “This warranty gives you specific legal rights, and you may also have other rights which vary from state to state.”

10. The clear identification of the names and addresses of the warrantors.

Implied Warranties Given By All Sellers

Warranty of Title - the seller warrants that he or she has the title to the goods and the right to transfer them

Warranty Against Encumbrances-the seller’s warranty that the goods shall be delivered free of all claims of third parties of which the buyer is not aware at the time of contracting.

Warranty of Fitness for a Particular Purpose-the seller’s warranty that the goods are reasonably fit for the purpose for which they are being sold.

Implied Warranties Given Only By Merchants

Warranty Against Infringement-a merchant makes an implied warranty that the goods in which she or he normally deals shall be dekivered to a buyer free of any third party’s claims for patent, copyright, or trademark infringement.

Warrant of Merchantability-requires that the goods be fit for the ordinary purposes for which such goods are used.

Express Warranty An assurance of quality or promise of

performance explicitly made by the seller

An express warranty that obligates the seller to repair or to replace a defective product without cost to the buyer and within a reasonable time

Full Warranty

Limited Warranty Any warranty that provides less protection than a

full warranty.

The seller must identify the warranty as limited upon purchase

Puffing Greatly exaggerated sales talk

Examples: “Superb quality” or “best on the market”

Implied Warranty An implicit warranty obligation imposed by law on

all sellers

Encumbrances A claim of a third party against the property

For example, an unpaid balance

Warranty of Merchantability Requires that the goods be fit for the ordinary

purposes for which such goods are used

Exclusion of Warranties Some goods may be sold without

any warranty. To do so, the seller must refrain from

making any express warranties, and use appropriate language that will exclude implied warranties.

A disclaimer is a notice of exclusion.

DisclaimerDisclaimerA notice of exclusion

Lemon Laws

Warranties are augmented by consumer self-help laws called Lemon Laws.

These laws protect consumers of vehicles mainly, but may extend to other consumer products in certain jurisdictions.

These laws apply to products purchased this defects that after reasonably attempted, cannot be repaired.