Ben-Sahar_Consumer Law_Fall 2010
Who Gets Consumer Protection?
Searle v. Essley: What was the difficulty in making this decision?
Predominant Test: When you have could go both ways (commercial or household), you look at the predominant use of the thing purchased.
Deception – Common Law: 6-19, 34-49
Why is deception such a hot button issue?
Deception disrupts the free flow of information. Deception is like “disclosure-light.” Doesn’t tell you what to say, but when you do say something, you have to tell the truth.
Dual structure of Tort & Contract.
Tort Law: How much you are individually injured?
Requires intent to deceive.
Punitive damages are also available. The element of harm is at the core of measuring damages. Without harm, you can’t measure the different between actual value and paid value.
Reliance: This has become a lot less important over the years. Tort claims do not require privity.
Contract Law: Restores you back to as if the contract was actually a good contract. (breach of warranty)
Does not require intent. The seller has to make good.
Contract claims used to require privity.
If purchaser did not have a relationship with the seller, he had no cause of action.
§2-313: UCC express warranty clause: Representations about the good are express warranties that the good will hold up as promised.
This section written with the idea of buyers dealing w/each other.
In the consumer context, § 3-313, the language ended up having limited usage. à Because consumers don’t buy things directly from the Seller. §2-313(a) & (b): (look them up at cornell.edu)
What is a fraudulent misrepresentation?
Anything calculated to a) mislead another and b) allow the fraudfeasor undue advantage over the consumer. [Jones v. West Side Buick]
PL’s assumed to rely on odometers. Do not have to testify about reliance.
When can custom be used as a defense
Only when PL is familiar with the industry.
Only when custom is NOT against public good.
Punitive Damages avail when legal malice is present
When there’s an intentional wrongful act, OR
Wrongful act wi/out just cause.
Can be done to set an example, especially w/widespread custom.
A misrepresentation can be actionable even if nonverbal.
Obtaining a customer’s signature (Saylor v. Handley)
Fraudulently gotten signature is fraud, including intentional ommiss of terms.
Rule: Person who entrusts another orally to commit an agreement to writing has a write to rely on accuracy and truthfulness.
Representations by an Expert
Misrepresentation by expert is the same as misrepresenting a material fact. [Vokes v. Arthur Murray]
Deception – The FTC Act:
What is the FTC Act for?
Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.
How is deception determined?
If the feeble-minded person could be mislead, than this is deceptive. Evidence of ‘actual deception’ is unnecessary. [Charles of the Ritz v. FTC]
When does the manufacturer have a duty to warn consumer of hidden hazards?
Three-prong rule. [In re International Harvester Co]
Representation, prac. or omission likely to mislead consumers.
Consumer interprets message reasonably under the circumstances.
Misleading effects are material (likely to affect conduct or purchase decisions)
Omri’s note:Is “failure to warn” really a problem, if people never really read the warnings in the first place?
Bait and Switch
Elements of [Rule]:
Attractive but insincere offer,
designed to initiate contact with the consumer,
in an attempt to get the customer to buy something different.
Analysis of whether a B&S exists [In re Leon A. Tashoff]
Could the seller make money selling at $7.50?
What % of sales at $7.50?
Were salesmen incentivized to sell at this price?
Other B&S tactic: Sale price inflation
Put the normal price up a few bucks.
Then discount it back to the normal price and call it a sale.
How do you get around that being deceptive?
You have to show that there were some sales at the inflated price.
Remedies Under FTC Act (81-90)
Primary Remedy: Cease & Desist order.
If order sent to one per. and another knows about it and then does the same thing, that person also subject to penalty.
Notes from Section 5
§5(m): FTC can send the same order to other companies doing the same thing.
Problems with this? -> Other companies no opportunities to defend
The FTC decision becomes a RULE, w/out D.Pr.
Interested parties don’t get to participate.
§19: Authorizes FTC to get redress from consumers. Examine standard of damages when a trade regulation is involved.
Recission & Reformation.
Refund
Return of property, etc…
Use of Corrective Advertising [Warner-Lambert v. FTC (1977)]
When is Corrective Advertising appropriate?
When FTC’s claim is backed by evidence.
When the circumstances cause the reason why people are buying something to chance à Used to use special ingredient and advertised it, but don’t anymore.
Confessional Advertising: Only needed when Manufacturer has shown bad faith and needs to be humiliated.
Omri’s notes:
The “lingering effects” of these kinds of advertisings tend to dissipate in more or less 2 years.
Sometimes, disclosure of bad action by advertiser can give the advertiser this kind of “moral high ground.”
a. Does the remedy create any additional value?
Additional Advertising Comments: Reg Z: 226.24: Advertising in Closed-End Credit agreements
.26(d): Certain terms are triggers that require additional disclosures: like “downpayment” “repayment “amount of payment” “amount of finance charge”
Topical Statutes
Odometer Fraud: Necessary to prove “intent” to fraud.
Statutory basis for proving Intent to Fraud [Tusa v. Omaha Auto, referencing §32710 of Odometer Act]
Rule from Act: § 32710: Requires intent to defraud for penalty.
Seller’s Duty: Seller has affirmative duty to mark if he had reason to know of odom tampering (not proof, just reason to know).
How to prove Intent to Defraud (p. 103)
Circum evid is fine.
Intent inferred when se
Credit: Series of transactions in which the total amount of indebtedness may not exceed a limit established by the creditor. (Revolving Credit)
Open-end disclosures are MUCH MORE RELAXED than closed-end.
Consumer controls how much he will/not spend.
No telling what “Total Amount Financed” will be.
Creditor has no security interest against outstanding credit.
Ben-Shahar & Schneider, “The Failure of Mandated Disclosure”
Why do ‘voluntary disclosure’ models fail? – Like the ‘unraveling theory.’
Consumers do not understand the multiple dimensions of transactions.
There is always an underlying lack of sophistication among consumers.
If you disclose an auto maintenance record to a mechanic, he can make a good decision. But if you give the record to a lawyer, he doesn’t really know what to tell you.
Blinding Effect: When you disclose the fees on the mutual fund, they’re blinded to the real issue: the risk and return of the investment.
How do you tell if a consumer transaction is supposed to be Open-End or Closed-End?
Three Elements to an open-end credit transaction. [Benion v Bank One]
Expected repeat transactions.
Finance charge from time-to-time.
Credit available on outstanding balance.
Controlling fact is “expectation of repeated business.”
Language of disclosures has to be Clear.
Clear and Conspicuous standard: Disclosures have to be in ‘reasonable and understandable form”
Must use exact language mandated by TILA
“Total finance charge” is an infraction. You can only use “finance charge.”
Analyzing when a Credit Advertisement complies with TILA [Reg. Z: 226.16, 226.24]
Step 1: Does the ad use a term from 226.6?
Step 2: If it does, ad must also contain requirements in 226.16(b).
Step 3: Is this catalog, multi-page or electronic ad?
Step 4: Is it an ad for a home-equity line?
Enforcement of TILA
Triple enforcement system:
Consumer remedy
Agencies enforce compliance.
Criminal liability.
1980 changes made it harder for PL’s to recover.
What remedies does the consumer have when something is needs to be fixed? Magnuson-Moss Warranty Act.
Warranties must be labeled “full” or “limited.”
Almost no one gives a “full” warranty.
Credit Reporting:
234-246; 253-260, 264-269
Purpose of the Fair Credit Reporting Act:
To ensure credit reporting maximum accuracy.
To Prohibit use of stale information.
Collection of Information: Why should consumer information be shared?
Creditors would say that it’s good for the consumers.
