Consumer Law – Prof William Pinilis – Spring 2017
CHAPTER 1: OVERVIEW OF CONSUMER LAW
-What is Consumer Law?
-Consumer laws provide rights to individuals and duties on businesses when these parties engage in a transaction for $ or value
-Main feature is a concern w/ the disparities btw consumers and businesses in purchase and credit transactions
-Primary goals:
-Keep markets for goods and services functioning well
-Protect consumers from harm when market mechanisms fall short
-A consumer law is one that applies to consumer-to-business transactions for the purchase of goods, services, or property, and the financing of such purchases
-Origins of Consumer Law
-Modern consumer law intervenes to prevent, or to remedy, the harms of some consumer transactions
-Common law of Ks is foundational to consumer law. At its heart, the question is whether an enforceable promise was made btw a consumer and a biz and whether the biz should be held accountable when a consumer regrets the deal
-Carlill v. The Carbolic Smoke Ball Co.
-Carlill, believing Carbolic’s ad that its product would prevent flu, bought a Smoke Ball and used it as directed until she caught the flu
-Carbolic’s newspaper ad offered 100 lb reward to anyone who caught the flu after using their product correctly for 2 wks, and guaranteed the award by saying they’d deposited 1000 lbs in the bank as a show of their sincerity
-While sales puffery in ads is generally not intended to create a K w/ potential buyers, in this case it did b/c Carbolic elevated their language to that of a promise, by relying on their own sincerity
-Federal Trade Commission v. Airborne Health, Inc.
-Airborne advertised that its products could provide health benefits and prevent or reduce cold symptoms
-FTC sued Airborne, claiming that they’d violated the FTC Act §§45(a) and 52 by falsely advertising its products capabilities based on unreliable scientific evidence and misinterpretations of tests and studies
-Airborne didn’t admit or deny liability, instead they agreed to a permanent injunction
-Holding: the FTCA prohibits deceptive practices and false advertising. Manufacturers and companies may not advertise or promote products based on unreliable scientific evidence or on misinterpretations of tests and studies
-Accordingly, Airborne agreed that it would no longer promote or advertise that its products have health benefits or can otherwise prevent or reduce colds
-The approach of consumer law has evolved to address the exploitation of consumers’ trust
-In the place of a common law action for K, as seen in Carbolic, are a variety of statutes that require disclosures, define how terms or statements can be used in ads, and impose warranties on the sale of goods
-Consumer law also has origins in tort law, specifically deceit / fraud
-Such actions are difficult to prove
-Statutes that ban unfair or deceptive acts or practices, which was the basis for the FTC’s actions against Airborne, are a partial response of modern consumer law to the limitations of tort
-Enforcement of consumer statutes is often by public officials, such as state AGs, rather than private litigants
-Evolution from Carbolic to Airborne shows the developments in the theory of such a case and illustrates the reliance on public enforcement
-Today, consumer law bridges the public law and private law divide
-It’s often shaped by public law such as administrative law and by private law such as tort suits
-Consumer Law in the Modern Marketplace
-Central debate in consumer law is whether a particular market is sufficiently broken to justify legal intervention
-Efficient marketplaces require that parties be able to acquire relevant info in a timely fashion, to communicate successfully with each other, and to have the power to enter into a deal or look elsewhere for a better one
-Classic economics often assumes the existence of such features in a marketplace
-Primary defensive tool of consumer law is the provision of information
-Idea is to compensate for a failure of consumers to seek out info or for the ability of businesses to shroud key info from consumers
-Theory is that w/ better info, the marketplace is repaired so consumers can then be held to the bargains they made b/c they did so w/ full knowledge of the deal and its consequences
-Consumer law also imposes substantive limits on transactions
-These laws typically arise from an intuition that market failure is driven by unequal bargaining power rather than a lack of info
-Examples include rules that prohibit lenders from taking household goods like baby cribs as collateral for certain loans (it’s just being taken for its hostage value), and limits on mandatory arbitration clauses in some Ks (Ks of adhesion and a small number of market actors may effectively prohibit consumers from choosing a K that allows them to litigate disputes)
-Substantive limits place a heavier check on peoples and business’s freedom than disclosure laws
-Typically reserved for high-stakes transactions or when mandatory info disclosure has failed to eliminate the troubling conduct
-Consumer laws may also be motivated by desire to enhance the remedies available to wronged consumers
-Common law cause of action may be very difficult to prove
-Damages may be easy to prove but very small
-Consumer statutes solve these problems by permitting class actions or by providing for statutory or exemplary damages
-Enhanced remedies incentivize lawyers to represent consumers and therefore police the market
-Consumer Law Compared to Consumer Protection
-Markets sometimes require intervention on behalf of consumers in order to be robust and reliable
-Better markets improve the nature of competition as a whole
-Corrections to markets can help competing businesses have a level playing field and make transactions more efficient
-Consumer protection as a term bears a mantle of social activism that consumer law doesn’t
-In the 70s when consumer law entered law school curricula, classes nearly always focused on the perspective of the consumer
-Since then, the role of law and economics in the legal academy and deregulation movement in policymaking have pulled consumer law away from its consumer protection origins and toward market concerns
-Today it may be trending back towards consumer protection
-Global financial crisis of ’08 sparked new level of activism about the appropriate balance of power btw businesses and consumers
-Fields Related to Consumer Law
-Built on common law foundations of tort, K, and sometimes property
-Laws that touch on concerns about info asymmetry, unequal bargaining power, economic empowerm
ort herself, to carry her family and possessions, and to make $ from selling produce, although she didn’t have a biz at the time of purchase
-An individual’s purchase of a product primarily for personal use, but also for biz purpose, is a consumer transaction subject to TILA
-Who is Consumer Law Trying to Protect?
-Challenge for policymakers is ID’ing the qualities that might be relevant to the appropriate scope of the law and to balance the need to protect some consumers w/ the law, against the desire to give freedom to other consumers from the law
-Some groups receive special protection
-Can’t issue a credit card to those under 21 w/o an adult co-signer
-Some protections afforded older consumers, b/c of questions about financial sophistication and mental capacity
CHAPTER 3: WHO MAKES CONSUMER LAW?
-General Overview
-Statutes and regs are the most voluminous source of consumer law
-Common law of K and tort continue to be important
-Consumer law exists at the international, federal, state, and local levels
-Preemption is a major issue as actors battle for the right to make law
-Types of Law
-Statutes
-Most complete codification of federal consumer law is in the Consumer Credit Protection Act. The 7 subchapters are:
-TILA
-Restrictions on Garnishment
-CROA
-FCRA
-ECOA
-FDCPA
-EFT
-These laws weren’t all passed at once, but brought together in the codification process
-The other most important federal consumer law is the FTC Act, which makes unfair and deceptive practices unlawful
-Most statutes delegate additional authority (rulemaking and enforcement) to specific govt agencies
-States are also an important source of common law
-Biggest distinction among state statutes is uniform state laws and non-uniform state laws
-UCC is nearly identical in each state
-Promulgated by non-govt bodies, then enacted by state legislatures
-Other state laws may sharply differ, like usury laws
-Regulations
-Most fed consumer statutes empower fed agencies to pass substantive rules
-These have the force and effect of law
-Must be rooted in the grant of power from Congress in the statute under which the rule is made
-Effectively expand the statute by filling in the details
-May provide factors to be considered in determining a violation of law or define frequently used terms
-Most consumer law rules are made by informal “notice and comment” rulemaking. 3 major steps:
-Agency will give notice, which contains either the terms or substance of the proposed rules