Consumer Protection Research Paper Sample
Consumer protection refers to laws or policies that protect the rights of people as consumers. Furthermore, consumer protection also address other issues that help or support consumers through policies that set guidelines for truthful advertising or promotion, and standards for fair trade (Federal Trade Commission, 2015). Overall, consumer protection laws are in place to prevent businesses from committing fraud to take advantage of consumers or gain advantage over the competition. The succeeding discussion is a brief description of the legal issue, the summary of consumer protection laws and statutes, and examples of cases related to the legal issue. The Legal Issue
As formerly noted, consumer protection refers to laws and policies that aim to protect the rights of consumers and maintain a market that promotes fair trade or competition (American Bar Association, 2004). The main objective of consumer protection laws is to prevent the exploitation of consumers and the adoption of practices whereby businesses mat gain advantage over other businesses in the market. To fully understand consumer protection laws, perhaps it is equally important various issues that could violate the rights of American citizens as consumers. In relation to this, consumer protection laws also protect the rights of consumers by means of creating a competitive market that prevents monopoly and provides consumers with options when it comes to consumption (American Bar Association).
One of the main issues that consumer protection laws address is deception. Federal jurisprudence defines ‘deception’ as a practice whereby businesses mislead consumers, particularly about the products and services they offer to their customers (American Bar Association, 2004). Laws and statutes about consumer protection pertaining to deception implemented in states were essentially based on the Uniform Deceptive Trade Practices Act (UDTPA). The UDTPA laws set the characteristics of behavior and actions committed by businesses that may be defined as deceptive or misrepresentation of the products and services they offer (American Bar Association).
Aside from deception, another issue that consumer protection laws aim to curb is consumer fraud. Common law fraud constitute five different elements including false representation of products and services, the business’ intentional false representation of these products and services with the goal or objective of deceiving consumers, the business’ level of knowledge about the false representation, the effect of false representation on the consumers’ decision, and the damage or impact of false representation on the consumer (American Bar Association, 2004). Consumer protection laws aim to penalize businesses based on their intentions and knowledge of false representation, and false representation in itself whether intentional or not, and protect consumers when they are harmed resulting from their consumption of products or services purchased from businesses.
The third issue is false advertising. All businesses engage in the marketing and promotion of their products and services. The purpose of which is to introduce and publicize information about their products and services. Businesses, however, must follow standards and guidelines in advertising or promoting their products and services (American Bar Association, 2004). Businesses that violate these guidelines are punishable by law when they commit false advertising. Issues under false advertising include the use of misleading statements or omissions in the information being advertised. The Lanham Act includes trademark statutes but it constitutes laws prohibiting false advertising that relate to consumer protection (American Bar Association).
The law indicated in the 15 U.S.C, 1125 (a) as part of the Lanham Act prohibits the use of false descriptions and information in the advertising and promotion of products and services (Federal Trade Commission, 2015). Any word, term, symbol, or description used in promoting or marketing a product must be accurate and truthful. If businesses fail to follow these rules and guidelines, then they will be punishable by law. Furthermore, this statute in the Lanham Act specifies the standards in advertising that should prevent or avoid confusion among consumers or cause them to make harmful decisions when it comes to consumption (Federal Trade Commission). Businesses that violate these statutes are liable in civil action.
Consumer also provides opportunities for consumers to assert their rights. Consumer warranties, for instance, as well as contracts serve as protection for consumers. Consumer protection laws necessitate warranties when it comes to consumer products. Whenever a consumer purchases a product, the business should provide a contract that includes provision on services and warranties (Federal Trade Commission, 2015). The Federal Trade Commission (FTC) mandates the inclusion of warranties during consumption. FTC also monitors patterns or trends in market as well as consumer complaints. In this way, the agency would be able to identify potential threats and risks to consumers. The FTC does this to identify scams and determine their nature. Consequently, the FTC communicates warnings and advisories to consumers to prevent further victimization (Federal Trade Commission).
Summary of Laws
In 1914, former US president Woodrow Wilson approved the Federal Trade Commission Act. Consequently, the Federal Trade Commission (FTC) was established to enact laws and policies incorporate in the said Act. The FTC’s objective is to protect the rights of consumers and promote their welfare, as well as to ensure fair competition among businesses in various industries (Federal Trade Commission, 2015). The FTC’s main responsibility is to evaluate the practices of business institutions and to issue cease and desist orders when these businesses violate trade practices. Businesses are expected to be truthful in advertising and to set reasonable prices for their products and services (Federal Trade Commission, 2015).
Three weeks after the enactment of the Federal Trade Commission Act, the US Congress also enacted the Clayton Antitrust Act. The Act is part of the federal government’s existing antitrust laws (Federal Trade Commission, 2015). The main goal of the act is to prevent businesses from engaging in practices that do not promote competition. Anticompetitive practices in businesses are considered abusive or harmful to consumers because these enable businesses or companies to take advantage of consumers (Federal Trade Commission). Without competition, consumers would be largely dependent on businesses, thereby, motivating them to take advantage of this dependence by providing low quality products and services or overcharging their customers without providing them avenues to make complaints.
The application of the consumer protection laws implemented by the FTC. The Circle Cilk case involves a Philadelphia-based manufacturer of threats. The Circle Cilk Company has adopted the label or tag line “Circle Cilk Embroidery Floss” (Fair, 2014). Based on the company’s tagline, one would expect that the threat is made of silk. On the contrary, the company creates thread from cotton. Based on the statute on ‘net impression’ incorporated in the consumer protection laws enacted by the US government and implemented by the FTC in 1972, the word “cilk” was misleading because it led consumers to believe that the company manufactures thread made from silk. The FTC filed a lawsuit against the Circle Cilk Company under the provision that the company’s use of “cilk” in its tagline confused and misled consumers. Furthermore, the Circle Cilk Company’s tagline posed damage to other companies that indeed use silk to manufacture thread (Fair, 2014).
The Supreme Court, however, questioned the FTC’s arguments against the Circle Cilk Company. The argument led to the development and enactment of the Wheeler-Lee Act in 1938. The Act set guidelines in the way that businesses used words or terms to describe or advertise and promote their products and services. The Circle Cilk Company’s case also led to the enactment of several acts that applied to the textile industry. All of which were intended to ensure or maintain truthful advertising. The FTC works with the public agency that oversees the textile industry to make sure that companies use truthful descriptions and words in advertising as well as label their products correctly (Fair, 2014).
The Clayton Act made changes in the federal government’s existing antitrust laws then. Part of the changes include guidelines on pricing, the condition of sales, businesses’ mergers and acquisitions of other businesses, and the involvement of individuals in the management of businesses or corporations (Federal Trade Commission, 2015). In pricing, the Clayton Act mandates price discrimination among products or services offered by different businesses. Prices must be competitive. The Act also sets pricing guidelines to prevent monopoly. In terms of the condition of sales, the Act includes mandates on the dealings between the buyer and the seller. Mergers and acquisitions that lessen competition and the involvement of a single owner of two or more businesses competing in the same market are also prohibited by the Act.
In 1972, the United States Congress passed the Consumer Product Safety Act (CPSA), a legislation that commissioned the establishment of the United States Consumer Product Safety Commission (CPSC). The CPSA mandates the CPSC to develop standards and guidelines for the production of safe and high quality products (Federal Trade Commission, 2015). Businesses are expected to comply with these standards and guidelines during the production and distribution of their products and services. Products or services that pose risks or threats to the health and welfare of consumers, for instance, will be banned by the CPSC.
The CPSC works with other public agencies in assessing or inspecting consumer products and services. Other agencies such as the Food and Drug Administration (FDA), the Department of Agriculture, and the Environment Protection Agency (EPA), among others work with CPSC in setting standards and guidelines for the production, distribution, and consumption of products and services. Together with other public agencies, the CPSC oversees the production and distribution of 15,000 consumer products. The CPSC is responsible for banning or releasing mandates to recall faulty, low quality, and unsafe consumer products. To extend the CPSC’s capability to assess the quality and safety of consumer products particularly in the health industry, the agency has adopted the National Electronic Injury Surveillance System (NEISS). The agency uses the NEISS to collate data and statistics of cases in healthcare facilities such as hospitals that are related to the consumption of consumer products (Federal Trade Commission, 2015).
In 2008, the Consumer Product Safety Improvement Act was enacted. The Act includes provisions that aim to raise the quality of consumer products and services and ensure that these are safe and do not threaten or pose risks to the health, safety, and wellbeing of consumers. Following the legislation of the Act, businesses such as those that manufacture, distribute, and import consumer products are required by law to ensure that the raw materials they use do not post health risks to consumers, particularly children. To ascertain this, businesses are mandated to test their products at a certified laboratory prior to distribution and importation (Federal Trade Commission, 2015).
The US government has set different laws to protect consumers in different sectors such as banking, communications, digital media, and real estate among others. In the food and drugs industry, the federal government passed the Pure Food and Drug Act in 1906 (Federal Trade Commission, 2015). The legislation led to the establishment of the Food and Drug Administration (FDA), a public agency that oversees the quality of food and drugs being imported to and traded within the US. The FDA essentially checks the labels of food and drugs imported to and traded within the country. Businesses or companies are expected to place accurate and truthful labels on their products that include all the ingredients of food and drugs being distribution among consumers. Furthermore, the FDA also checks the purity levels of drugs being circulated in the market. Drug standards include specific purity levels to which pharmaceutical companies must comply (Federal Trade Commission).
Amendments in the Pure Food and Drug Act led to improvements in the ways that the FDA assessed or evaluated and categorized food and drug products in the market. Aside from ensuring that all products are appropriately labeled, the FDA’s responsibilities also include banning unsafe products that pose risks to the health and wellbeing of consumers, or safe products that are ineffective and do not bring about promised results or outcomes (Federal Trade Commission, 2015).
The case against Coca-Cola in 1909 is an example of the enforcement of consumer protection laws in the food and drug industry. The case – United States v. Forty Barrels and Twenty Kegs of Coca-Cola – was the government’s means of asking Coca-Cola to assess the ingredients found in the company’s product. Due to previous prohibitions in Coca-Cola’s use of cocaine in the company’s beverages, it decided to replace this ingredient with caffeine. The government, however, filed the lawsuit due to the excessive caffeine content of Coca-Cola’s products (Federal Trade Commission, 2015).
In communications, the National Do Not Call Registry is a policy that enables consumers to limit telemarketers contact with them. The FTC created the Registry following the enactment of the Do-Not-Call Implementation Act of 2003. The Act is part of Public Law NO. 108-10 signed by former president George W. Bush. The National Do Not Call Registry is also in compliance with the Telephone Consumer Protection Act of 1991. Through the Registry, consumers may report numbers or telemarketers towards the goal of preventing the latter from calling them. Consumers may also choose to list their numbers under the “do-not-call list”, which indicates the numbers that telemarketers are prohibited from calling (Federal Trade Commission, 2015).
In relation to the “do-not-call” policies formerly mentioned, privacy laws in the US also bolster consumer protection policies in the country. Privacy laws in the US grant American citizens the right to privacy. Individuals have the right to keep their personal information, including contact details, private (American Bar Association, 2004). One of the reasons why people may choose to do so is to prevent telemarketers and other businesses from directly contact them to offer their products and services.
In the banking and credit sector, the Truth in Lending Act (TILA) protects consumers from unfair policies adopted or implemented by banks and credit companies (Federal Trade Commission, 2015). The TILA mandates banks and credit companies to full disclosure of all costs (no hidden costs) and terms among consumers. Furthermore, banks and credit companies are expected to calculate all costs and disclose the amount to consumers so they would know what accounts or subscriptions to sight up for. The TILA also regulates how credit card companies set policies and practices such that consumers would be able to fairly.
Consumer Protection Statutes in Different States
An example of consumer protection statutes primarily implemented in states is the Deceptive Trade Practices Act (DTPA), which is implemented in Texas. Similar to existing consumer protection laws, the DTPA prohibits deceptive or false marketing and advertising (The Center for Consumer Law, 2009). Under the law, consumers have the right to file lawsuits against businesses or companies that violate the law. If the consumer wins the case, he or she is entitled to attorney’s fees courtesy of the respondent as well as damages. The local government in Texas also implements other consumer protection laws that are specific to particular industries or sectors. Examples of these industry-specific laws include the Business Opportunity Act, which provides equal opportunities for businesses, old and new, to establish commerce and compete in the marketplace, the Credit Services Organizations Act, and the Regulation of Telephone Solicitation Act, among others (The Center for Consumer Law).
In Georgia, the local government implements the Fair Business Practices Act. The Act also prohibits deceptive or false marketing and advertising (Governor’s Office of Consumer Protection, 2015). In cases where businesses violate the law, it is the responsibility of the Governor’s Office of Consumer Protection (OCP) to file lawsuits against offending companies or institutions. The Act also includes prohibitions on the false representation of a business or company’s products and services, false information about the product (e.g. place of origin of the product), and false claims about the quality and safety of a product or services among others. Moreover, the Act also provides prohibitions, standards and regulations in the way that businesses or institutions handle memberships, contests, giveaways, or promotions, telemarketing, and credit reporting (Governor’s Office of Consumer Protection).
The consumer protection statutes implemented by Georgia include descriptions of activities that are considered as unfair business practices. Following the Fair Businesses Practices Act, businesses are expected to promote the welfare of consumers through truthful advertising and the use of accurate descriptions when introducing or promoting products and services (Governor’s Office of Consumer Protection, 2015). The local government also implements specific statutes depending on the nature of products and services, as well as the nature of and the business model adopted in businesses whether it is in telemarketing, health clubs or fitness centers, or in credit card companies and banks.
In Massachusetts, consumer protection statutes include the Regulation of Business Practices for Consumers’ Protection and the Unfair Methods of Competition and Unfair and Deceptive Acts and Practices in the Business of Insurance. Consumer protection aims to prevent deception, particularly those that mislead consumers and bring them to make consumption decisions that harm them or place them at a disadvantage (Massachusetts Court System, 2014).
Examples of consumer protection laws implemented in Texas, Georgia, and Massachusetts, as formerly discussed, illustrate how various states adopt federal consumer protection laws and policies. Consumer protection laws implemented by the federal government and the state governments focus on two aspects – the protection of consumers and the promotion of policies that maintain fair trade and competition in the market. All of the statutes implemented in different states are similar such that they incorporate both aspects of consumer protection. In terms of differences, the statutes for consumer protection differ in their application to various industries. For instance, Massachusetts consumer protection focus on insurance products while statutes implemented in Texas apply to various sectors or industries. Furthermore, the acts punishable by law and the sanctions or penalties to businesses vary for each state.
Implications of Laws for Institutions Operating in this Area
All businesses that transact with consumers in various sectors or industries must follow consumer protection laws. The laws and guidelines set by consumer protection statutes must be applied throughout the supply chain – that is from the production of products and services to the distribution of these to consumers. The existence of consumer protection laws means that businesses should ensure that consumers receive quality products, avoid false advertising, and ensure that they do not gain advantage over the competition. By overseeing the supply chain, businesses could ensure that the production process, from the obtainment and use of raw materials to produce products, the packaging and labeling of products, and the distribution of products meet quality standards. In addition, businesses should place appropriate cost on their products.
Businesses should also work with advertisers and marketers to ensure that the content of advertisements are accurate and do not deceive consumers. In creating advertising and marketing content, businesses, marketers, and advertisers should follow guidelines of truthful promotion. In addition, businesses should provide warranties for their products or create contracts that would be fair to consumers. This means including clauses for each purchase that would allow consumers options to make complaints about their purchases or exchange their products when they do not meet expectations or promised features or services.
Both Sides of the Matter
The issue, when compared with other issues, is not that controversial. Perhaps when it comes to monopoly, however, this issue raises several ones that concern competing businesses. One of the main issues is that businesses are entitled to grow and expand. As they gain more revenue, they also gain the capacity to extend their products and services. The issue here, however, is that consumer protection laws include fair trade practices wherein businesses are prohibited to gain advantage over other businesses. Hence, perhaps businesses should ensure that while they grow and expand as an entity, they do so without gaining advantage over others in the industry.
The foregoing discussion illustrates consumer protection laws in the federal and state level. Moreover, the discussion illustrates the application of these laws through various examples of cases and specific examples of statutes implanted in different states. The existence of such laws set guidelines and standards that businesses should follow when developing and distributing their products. Consumer protection laws also make sure that consumers gain power and influence on businesses through fair trade practices that encourages competition.
American Bar Association. (2004). Consumer Protection Handbook. American Bar Association.
Center for Consumer Law. (2009). The Texas Deceptive Trade Practices Act in Context: Not All that Bad. Retrieved from: https://www.law.uh.edu/peopleslawyer/2009consumer-law-basics/presentations/RichardAlderman-paper.pdf
Fair, L. (2014). FTC Milestones: Shared beginnings in the Circle Cilk case. Retrieved from: https://www.ftc.gov/news-events/blogs/competition-matters/2014/11/ftc-milestones-shared-beginnings-circle-cilk-case
Federal Trade Commission. (2015). Our History. Retrieved from: https://www.ftc.gov/about-ftc/our-history
Governor’s Office of Consumer Protection. (2015). Status we Enforce. Retrieved from: http://consumer.georgia.gov/about-us/statutes-we-enforce
Massachusetts Court System. (2014). Massachusetts Law about Consumer Protection. Retrieved from: http://www.mass.gov/courts/case-legal-res/law-lib/laws-by-subj/about/consumer.html