What Are Consumer Protection Laws?
Javier Ramirez
Liberty University
BUSI 520: Strategic Marketing Management
Muriel Wilson
January 9, 2022
What Are Consumer Protection Laws?
Consumer protection laws are made to protect consumers from fraudulent
business practices, defective products, and dangerous goods and services. They play an
important role in a reliable market economy, helping to keep sellers honest, with no threat
of unpleasant surprises.
Consumer protection laws in the U.S. comprise various federal and state laws, each
of which governs a particular area of the economy. The government oversees consumer
protection through the Federal Trade Commission (FTC), while states use a variety of
agencies and statutes to enforce consumer protection and sometimes expand on these
laws. Not all jurisdictions protect consumers in the same way, with some being more pro-
consumer than others.
Key Takeaways
Consumer protection laws exist to prevent dangerous or unethical business
practices, such as false advertising or faulty products.
They play an important role in a reliable market economy, helping to keep
sellers honest, with no threat of unpleasant surprises.
For most consumer goods, the Federal Trade Commission (FTC) regulates
warranties and service contracts.
States use agencies and statutes to enforce consumer protection and may
expand on federal laws, with some being more pro-consumer than others.
In finance, consumer protection laws seek to prevent predatory lending,
housing discrimination, securities fraud, privacy violations, and other unethical practices.
Consumer Warranties and Service Contracts
Whenever you buy merchandise, it comes with a warranty. This is a guarantee that
it will serve the purpose it was purchased for—in other words: It will function.
Express and Implied Warranties
The two basic types of warranty are express and implied. An express warranty is a
promise from the seller, either written, oral, or expressed in an ad, promising that the item
will perform its function for a specified period. Whether the item purchased is new or used,
an express warranty is a guarantee that the item will work. However, not all items come
with an express warranty.2
The law automatically provides the second type of warranty, the implied warranty.
Implied warranties are a part of all retail sales of new and used consumer goods. The
retailer of an item implies that the item will work properly and be of average grade and
quality, as long as it is used for the purpose it was sold. For example, a refrigerator will keep
things cool as long as you are not trying to cool the entire room, and a blender will blend as
long as you are not blending rocks.
Whenever you buy something, it's important to get warranty specifics in writing. Find out
what the warranty covers. Does it include service fees if the item needs to be repaired? How
long is the warranty? According to the FTC, an implied warranty can last as long as four
years, but the actual time period can vary according to the state.2
Dealing With Warranty Breach
If a warranty is breached, get the item replaced or repaired by the seller. If that
doesn't work, try resolving the dispute through mediation. If that fails, you have the right to
sue the manufacturer or seller.
Service contracts cannot be canceled after you've signed them, but according to
the FTC, there is a cooling-off period in which, under certain circumstances, you might be
able to void a contract. Contact the agency at FTC.gov for information on the right way to
approach your particular situation.2
To file a complaint about a seller or manufacturer, you can contact the
FTC, Consumer Product Safety Commission, or call up your local prosecutor and ask for the
consumer fraud division. If you were defrauded by a telephone solicitor or fell into a TV
advertiser's trap, the Federal Communications Commission (FCC) is the place to turn for
help.
The Fair Credit Reporting Act allows consumers to request a free credit report from
each of the three major credit bureaus, once a year. You should regularly check your credit
report for false or outdated information.3
Key Consumer Protection Laws
Federal Securities Act
One of the most important consumer protections in finance is the Securities Act of
1933, which was enacted during the Great Depression. The act strictly limits the sale of
investment contracts (referred to as "securities") and requires issuers to disclose the details
of their financing and business plans. The act also established the Securities and Exchange
Commission (SEC), which enforces securities laws and punishes violations.4
Fair Credit Reporting Act
The Fair Credit Reporting Act was passed in 1970 to regulate the collection of credit
information, which is frequently used to determine mortgage and lending rates. The law
limits who can access a consumer's credit history, and prohibits lenders from providing
outdated or inaccurate information. The law also allows consumers to read their own credit
reports, and to contest any inaccurate information.35
TheConsumerFinancialProtectionBureau(CFPB)isresponsibleforprotecting
consumerswhenitcomestofinancialproductsandservices.
Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act, usually
shortened to the "Dodd-Frank Act," was a sweeping reform of U.S. financial regulations in
the wake of the 2008 financial crisis. The act stepped up oversight of banks and financial
institutions, particularly those deemed to have been responsible for the Great Recession. It
created the Financial Stability Oversight Council, with the ability to break up banks that
were "too big to fail" or to increase their reserve requirements. It also established the CFPB,
which regulates subprime mortgages and other predatory lending practices.6
The Fair Housing Act
The Fair Housing Act protects buyers and renters of housing from being
discriminated against by sellers, landlords, or financial institutions.7
The Fair Debt Collection Practices Act (FDCPA)
This law limits the actions of third-party debt collectors when attempting to collect
debts on behalf of another person or entity. It outlines when and how often a third-party
debt collector can contact a debtor, with noncompliance by debt collectors resulting in
lawsuits.8
Section 5 of the Federal Trade Act
Section 5 of the Federal Trade Commission Act, sometimes just referred to as
“Section 5,” demands that consumers be treated fairly and not deceived or put at risk by
businesses. That includes:
Causing substantial injury to a consumer
A statement, omission, or practice likely to mislead consumers9
Telephone Consumer’s Protection Act (TCPA)
This act ensures that consumers are not deceived and harassed by telemarketers.
Thanks to the TCPA, a national do-not-call list was created.10
The CAN-SPAM Act
The Controlling the Assault of Non-Solicited Pornography And Marketing Act of
2003 is a law that governs email communication. It establishes requirements for commercial
messages, including not using false or misleading headers and subject lines, identifying
messages as ads, and providing a postal address and information on how to opt out of being
contacted in the future. Recipients have the right to stop being contacted, and penalties will
be dished out to those who violate the act’s rules.11
The Gramm-Leach-Bliley Act (GBLA)
The GBLA, among other things, requires all U.S. financial institutions to reveal in
writing how they handle, share, and protect consumers’ information.12
The Children’s Online Privacy Protection Act
This act governs what information websites directed to children under 13 years of
age can collect from their visitors.13
There are many other acts worth learning about that apply in certain situations,
including the Home Owner Protection Act, the Electronic Funds Transfer Act, and the Fair
Credit Billing Act.
Be Aware of Scams
According to the book "The Truth About Avoiding Scams," by Steve Weisman, scam
artists always take advantage of whatever is happening at a particular point in time. In the
wake of the housing bust of 2008, for example, there were a lot of
phony foreclosure rescues that caused people to lose the equity in their houses to so-called
rescuers.14
There also has been an increase in scam attempts through automated phone calls.
During the COVID-19 pandemic, the FTC began receiving reports of scammers posing as
government officials, using the promise of unemployment benefits to extract Social Security
numbers, private bank accounts, or other sensitive information.
How To Avoid Scams
Consumer protection laws exist to protect consumers and make us feel more
confident about buying things. However, having this protection doesn't mean we shouldn't
care about getting scammed. It's better for everyone if a complaint is not necessary.
How to Get a Free Credit Report
UndertheFairandAccurateCreditTransactionsAct(FACTA),youareentitledtoa
freecopyofyourcreditreport,atyourrequest,onceevery12months.Financialinstitutions
usetheinformationcontainedinthisreporttodeterminetheriskinlendingtoyou.
Consumersusuallyfindoutaboutthisreportonlyaftertherehasbeennegative
informationreported(mishandledaccounts,erroneousdata,andsoon).15
Tips include using credit cards rather than debit cards for online shopping and
closely reviewing every item on your monthly bills. Customers should also use a separate
email account for their online shopping. This method helps avoid spam. Also, never respond
to emails asking you to "confirm" recent transactions after you shop because they can be
phishing scams.16
What Are Online Consumer Protection Laws?
There are many such laws in the U.S. to shield consumers from fraud, faulty
products, or data privacy invasion. One example is the Restore Online Shoppers' Confidence
Act, or ROSCA, which prohibits the sale of user data by third-party payment processors. It
also regulates "negative option" contracts, in which a consumer's inaction is interpreted as
an intention to pay for a service. Although ROSCA does not prohibit negative options, it does
enact certain requirements to ensure that the buyer has informed consent.17
How Do Consumer Protection Laws Apply to Mortgage Lending?
Consumer protection laws safeguard borrowers against discrimination and
predatory lending practices. The Fair Housing Act prohibits discrimination on the basis of
race, sex, religion, national origin, and several other categories. This prohibition applies at
every stage of the mortgage application process.18 In addition, the Dodd-Frank Wall Street
Reform Act prohibits several aspects of predatory lending, such as undisclosed mortgage
terms and steering clients to those mortgage products that carry a higher commission.6
What Are Consumer Protection Laws for Bankruptcy?
The Bankruptcy Abuse Prevention and Consumer Protection Act has several
provisions to limit abuse of the bankruptcy system, including an income threshold for
Chapter 7 bankruptcy for individuals. It also protects IRAs from bankruptcy liquidations, so a
person who declares bankruptcy will not have to lose their retirement savings.19
What Are Consumer Protection Laws that Protect Your Privacy?
The Fair Credit Reporting Act limits the use of consumers' credit history, such as bill
payments and borrowing history. Also, the Financial Modernization Act of 1999 (also known
as the Gramm-Leach-Bliley Act) establishes protections for personal financial information
and requires banks to disclose clearly how private information will be used.5
The Bottom Line
The modern economy is dependent on consumer protection laws. These rules help
eliminate bad businesses as well as give consumers peace of mind and encourage them to
spend more. Over the past few decades, the number of laws has continued to grow and
evolve to reflect new technologies and business practices. And thanks to the internet and
other technologies, consumers are better informed of their rights than ever before.
