Consumer Protection

2. Chapter 16 Consumer Protection Pressures to Promote Consumer Interests How Government Protects Consumers Consumer Privacy in the Internet Age Product Liability: A Special Problem Positive Business Responses to Consumerism Consumerism’s Achievements

3. The anatomy of consumerism In 1960, President John F. Kennedy told Congress that consumers were entitled to four kinds of protections: • The right to safety: to be protected against the marketing of goods that are hazardous to health or life. • The right to be informed: to be protected against fraudulent, deceitful, or grossly misleading information, advertising, labeling, or other practices, and to be given the facts to make an informed choice. • The right to choose: to be assured, wherever possible, access to a variety of products and services at competitive prices. • The right to be heard: to be assured that consumer interests will receive full and sympathetic consideration in the formulation of government policy, and fair and expeditious treatment in its administrative tribunals.

4. Reasons for consumer movement • Complex products have enormously complicated the choices consumers need to make when they go shopping. • Services, as well as products, have become more specialized and difficult to judge. • When business tries to sell both products and services through advertising, claims may be inflated or they may appeal to emotions having little to do with how the product is expected to perform. • Product safety has often been ignored.

5. Goals of consumer laws • To provide consumers with better information when making purchases. • To protect consumers against possible hazards from products they may purchase. • To promote competitive pricing and consumer choice. • To protect privacy.

6. Figure 16.1a Major consumer protections specified by consumer laws Information protections • Hazardous home appliances must carry a warning label. • Home products must carry a label detailing contents. • Autos must carry a label showing detailed breakdown of price and all related costs. • Tobacco advertisements and products must carry a health warning label. • Alcoholic beverages must carry a health warning label. • All costs related to real estate transactions must be disclosed. • Warranties must specify the terms of the guarantee and the buyer’s rights. • False and deceptive advertising can be prohibited. • Food and beverage labels must show complete information. • Food advertising must not make false claims about nutrition.

7. Figure 16.1b Major consumer protections specified by consumer laws • Direct hazard protections • Hazardous toys and games for children are banned from sale. • Safety standards for motor vehicles required. • National and state speed limits are specified. • Hazardous, defective, and ineffective products can be recalled. under pressure from EPA, CPSC, NHTSA, and FDA. • Pesticide residue in food is allowed only if it poses a negligible risk. Pricing protections • Unfair pricing, monopolistic practices, and noncompetitive acts are regulated by the FTC and Justice Department and by states. Liability protections • When injured by a product, consumers can seek legal redress. Privacy protections • Limited collection of information online and about children is allowed. Other protections • No discrimination in the extension of credit is allowed.

8. Figure 16.2a Major federal consumer protection agencies and their main responsibilities • Consumer Product • Safety Commission • Safety standards for consumer products • Flammable fabrics, hazardous substances, poison prevention packaging • Federal Trade • Commission • Competitive pricing • Deceptive trade practices • Packaging and labeling • Consumer credit disclosure and reporting • Online privacy • Food and Drug • Administration • Safety, effectiveness, and labeling of drugs, foods, food additives, cosmetics, and medical devices • Standards for radiation exposure • Toxic chemicals research

9. Figure 16.2b Major federal consumer protection agencies and their main responsibilities • Department of • Justice • Fair competition • Consumer civil rights • National Highway • Traffic Safety • Administration • Motor vehicle safety standards • Automobile fuel economy standards • National uniform speed limit • Consumer safeguards for altered odometers • National • Transportation • Safety Board • Airline safety

10. Protecting consumer privacy online Consumer self-help Internet users should use technologies that enable them to protect their own privacy. Industry self-regulation Businesses should adopt voluntary policies and technical standards that protect the privacy of individuals’ information. Privacy legislation The government should pass laws that establish minimum privacy standards for collecting information online.

11. Strict liability Strict liability Manufacturers responsible for injuries resulting from use of their products, whether or not they were negligent or breached a warranty.

12. Product liability reform proposals 1) Set up uniform federal standards for determining liability. 2) Shift the burden of proving liability to consumers. 3) Eliminate some bases for liability claims. 4) Require the loser to pay the legal costs of the winner. 5) Limit punitive damages.

13. Business responses to consumerism Quality management This approach emphasizes achieving high quality and customer satisfaction through teamwork and continuous improvement of a company’s product or service. Voluntary industry codes of conduct In some cases, businesses in an industry have banded together to agree on voluntary codes of conduct, spelling out how they will treat their customers. Consumer affairs departments These centralized departments normally handle consumer inquiries and complaints about a company’s products and services. Product recalls Occurs when a company, either voluntarily or under an agreement with a government agency, takes back all itemsfound to be dangerously defective.