Gale Encyclopedia Of American Law 3Rd Edition Volume 3 P17 docx

Private Claims Against Governments; Recogni-
tion of States; and Treaties.
The society meets annually.
CONSULS
Governmental representatives stationed in foreign
countries who oversee economic and other interests
of their home country and its citizens in those
countries.
Consuls are not generally considered diplo-
matic agents, they therefore do not enjoy (unless
a treat states otherwise) diplomatic immunities
and privileges. However, their consular immuni-
ties exempt them from local laws and jurisdic-
tions as they exercise their official functions.
CROSS REFERENCE
Ambassadors and Consuls.
CONSUMER
An individual who purchases and uses products
and services in contradist inction to manufacturers
who produce the goods or services and wholesalers
or retailers who distribute and sell them. A
member of the general category of persons who
are protected by state and federal laws regulating
price policies, financing practices, quality of goods
and services, credit reporting, debt collection, and
other trade practices of U.S. commerce. A
purchaser of a product or service who has a legal
right to enforce any implied or express warranties
pertaining to the item against the manufacturer
who has introduced the goods or services into the
marketplace or the seller who has made them a

term of the sale.
CONSUMER CREDIT
Consumer credit refers to the short-term loans
made to enable people to purchase goods or
services primarily for personal, family, or house-
hold purposes.
Consumer credit transactions fall into several
different classes:
Installment credit involves credit that is
repaid by the borrower in several periodic
payments; loans repaid in one lump sum are
classified as noninstallment credit. Installment
credit has expanded in popularity, with an
increasing number of consumers buying goods
on credit in order to spread repayment of the
purchase price and the interest owed on the
principal borrowed over an extended time.
Originator and Holder
The originator of credit is the person or
company who originally extended the credit,
whereas the holder is the individual or business
who obtained the debt at a discounted price in
order to collect payments at a subsequent time.
Auto dealers are credit originators at the time
a consumer purchases an auto on credit, but
many loans are subsequently assigned by them
to banks or sales finance companies, which
become credit holders.
Commercial banks buy many consumer
installment loans from car dealers and depart-

ment stores and also participate in all aspects of
consumer credit transactions both as origina-
tors and holders. The portion of the consumer
credit market attributable to banks has greatly
increased due in large part to widespread use of
bank credit cards.
In addition, two types of finance companies
are active in the consumer credit industry. The
first type is the small loan company, which has
contact with consumers as originators and
makes loans to them directly. The other type
is the sales finance company, which does not deal
directly with consumers; it purchases and holds
consumer installment debts related to the sale of
durable goods on time. The distinction between
the two decreases in importance as consumer
finance companies diversify and engag e in
business on both levels.
Vendor and Lender
The law might regard credit differently, depend-
ing on whether it is offered by a vendor (seller).
When an appliance store gives credit to
customers who buy such items as washing
machines and refrigerators and pay for them
over a certain period of time, this action is
known as vendor credit. When a consumer
borrows funds from a finance company to pay
for appliances, this action is known as lender
credit, since the finance company lends but does
not sell.

Some states exempt vendor credit transac-
tions from the provisions of state
USURY laws.
A vendor or a lender can charge the consumer
interest (a fee for the use over time of borrowed
money). In the past, usury statutes restricting
the legal interest rate have ordinarily been
applied only to lender credit. The difference in
the treatment of lender credit and vendor credit
is based upon the assumption made by law that
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
148 CONSULS
vendors are able to adjust their prices to allow
for the period during which they await
payment. If, for example, the vendor’s time
price was excessive in that it allowed for a high
interest rate, then the consumer could opt for
payment of the cash price. Courts believe that
competitive pricing will prevent vendors from
charging too much interest when they extend
credit. It is the seller’s right to determine how to
reduce the time price to encourage consumers
to pay cash for goods.
Some courts have found since 1970, how-
ever, that these principles have no application
to
REVOLVING CHARGE accounts because depart-
ment stores do not charge consumers less for
paying for items in cash. There is one uniform
purchase price, regardless of whether the sale is

a credit or cash transaction. Both finance
charges and tax are computed on the basis of
the cash price.
In cases where courts have indicated that
state usury laws must necessarily be applied in
the vendor credit extended through revolving
charge account customers, state legislatures
have enacted statutes to increase the legal rate
of interest that may be charged on such
accounts. Most consumer credit cannot exist
within the usury law limits; therefore, the
pattern has been to enact laws that permit
special higher finance rates for vendor credit to
consumers.
Licensing Creditors
Banks, savings and loan associations, and
finance companies ordinarily must be licensed
under state or federal statute. Credit companies
that purchase retail installment debts from
sellers are also subject to governmental licensing
regulations.
When the licensing requirement is primarily
a revenue-raising device, potential licensees
often need only file the appropriate forms and
pay the required fee to obtain a license.
However, when the licensing provisions require
the applicant to be reputabl e and reliable, the
public is protected only if the licensing agency
has the energy and resources to investigate the
applicant’s qualifications.

Credit Reports
When a consumer makes an application for
credit, the creditor must decide whether the
applicant is a good risk. Most creditors regularly
order a credit report on an applicant rather than
undertake a costly investigation on their own.
Files are retained by two types of credit agencies.
Credit Bureaus Credit bureaus publish reports
that are primarily used by merchants who are
attempting to decide whether to allow con-
sumers to purchase merchandise financed by
credit that will be repaid on time. Such reports
ordinarily disclose financial information, such
as the location and size of an individual’s bank
accounts, charge accounts, and other debts and
the person’s bill-paying habits, income, occupa-
tion, marital status, and lawsuits.
Credit bureaus supply such information to a
group of subscribers who, in exchange, provide
them with information for their files. All the
information obtained is filed in case it is
requested by someone in the future. Nonsub-
scribers can ordinarily obtain information
through the payment of a fee.
A majority of credit bureaus are members of
the Associated Credit Bureaus of America,
which regulates public information for them.
It keeps members apprised of finan cial transac-
tions that might cause people to be unable to
meet their obligations.

Credit Reporting Bureaus Credit reporting
bureaus formulate financial reports on indivi-
duals for purposes not directly related to the
extension of credit. Such reports are used by
employers to evaluate job applicants, by insur-
ance companies to assess the risk in relation to a
prospective policy buyer, and by landlords to
avoid renting to tenants likely to cause damage
to the property or disturb other tenants.
Bureaus of this type compile data and provide
it upon request to interested parties.
These reports contain personal information
about the subjects and their fam ilies that is
obtained from interviews with neighbors,
associates, and co-workers. Information is kept
for possible future investigation requests.
Problems In the late 1960s, Congress investi-
gated abuses in the collection and dissemination
of information by credit bureaus and deter-
mined that such bureaus compiled files on more
than 50 percent of the people in the United
States. These information files, however, fre-
quently contain inaccurate, misleading, or
irrelevant facts and were not kept confidential.
The most frequent error was to confuse two
individuals having the same name or similar
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
CONSUMER CREDIT 149
names. The possibility of committing this error
increased as the area covered by the bureau

became larger.
Supervision Many states have enacted statutes
to regulate the business practices of credit
bureaus. However, the need for national unifor-
mity led to the enactment of federal laws dealing
with consumer credit information.
The
FAIR CREDIT REPORTING ACT, which is Title
VI of the CONSUMER CREDIT PROTECTION ACT (15
U.S.C.A. § 1601 et seq.), was enacted in 1970.
This congressional enactment affects and reg-
ulates businesses that regularly obtain consumer
credit information for other businesses, either
for payment or in a cooperative exchange.
The law covers any report by an agency if
it is related to a consumer’s credit worthiness,
credit standing or capacity, character, general
reputation, personal characteristics, or mode of
living. Further, the law applies to any such
report when employed or expected to be used
for evaluating a consumer for one of four
purposes: credit or insurance for personal,
family, or household use; employment; licenses
to operate particular businesses or practice a
profession; and any other legitimate business
need.
The requirements of the Fair Credit Report-
ing Act affect (1) the
CREDIT BUREAU; (2) the
businesses that use the credit reports compiled

by credit bureaus; (3) the rights of consumers
who are the subjects of such reports; and
(4) how the consumer can enforce his or her
rights when errors are discovered in such reports.
Credit bureaus are required to have standard
procedures for determining and updating the
accuracy of the information in their files. There
is a seven-year limit on the information on file,
except where the file discloses that the party was
bankrupt within a period of ten years. Data
relating to an individual’s character, reputation,
or lifestyle that are obtained through personal
interviews with neighbors and friends cannot
remain in a file unless it is verified every three
months.
While the Fair Credit Reporting Act does
not prohibit the collection and compilation of
information unrelated to finance—such as
appearance, political tenets, and sexual orienta-
tion—such information must be accurate and
not obsolete. The law does, however, restrict
credit bureaus to furnishing reports for reasons
of credit, insurance, employment, obtaining a
government license or other benefit, or other
legitimate business needs related to business
transactions with the consumer. Credit bureaus
are required to investigate new clients to
ascertain that they are using reports solely for
one of these five permitted purposes. In
addition, prospective clients are required to file

a statement with bureaus certifying the purpose
for which the reports will be used and agreeing
not to use them for any other purposes.
Consumers are legally entitled to ascertain
that no inaccurate or obsolete information
is kept in files on them and to be notified
when a creditor relies upon a report issued by
a credit bureau, so the consumer can see the
type of information kept on file and correct all
mistakes in it.
A consumer, however, has no right to
examine the actual file kept on him or her by
a credit reporting agency. Anyone who has been
refused credit on the basis of a report can
discover the nature and substance of all but
medical information contained therein, as well
as the source of the information, except
investigations based on comment from neigh-
bors and associates. The consumer can also find
out the identity of anyone who has received the
report for employment purposes during the last
two years or any other purpose during the last
six months.
A consumer who discovers inaccurate or
misleading information in his or her file can
request that the agency reinvestigate his or her
credit background and submit a brief statement
that either explains or corrects the information.
The agency must include such information
in the consumer’s file and notify recent users of

the changes in the consumer’s file upon the
consumer’s request.
Federal agencies, such as the
FEDERAL TRADE
COMMISSION
(FTC), can issue orders for the
enforcement of this law. Officers and employees
of the credit bureau who willfully or inten-
tionally violate this law are subject to criminal
prosecution. Both a fine and imprisonment for
each violation can be imposed upon conviction.
A credit bureau that fails to treat a
consumer in the manner required by this law
can be sued by the consumer who must prove
that the credi t bureau or the business that used
the report did not properly maintain reasonable
procedures to ensure compliance with the law.
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
150 CONSUMER CREDIT
The consumer must also show that such failure
to maintain was negligent or careless and that
he or she incurred personal or financial injury
from this failure.
If a business uses a consumer’s credit report
but fails to notify the consumer, then the
consumer may be able to recover damages. The
consumer is entitled to actual damages when
the business is negligent in failing to provide
notice. However , if the business has willfully or
recklessly failed to provide notice, the consumer

may recover actual, statu tory, and
PUNITIVE
DAMAGES
. The Supreme Court, however, has
held that when a business uses a consumer’s
credit score without notice but does not take an
adverse action, the consumer may not recover
damages under the act (Safeco Insurance Co. of
America v. Burr, 551 U.S. 47, 127 S. Ct. 2201,
167 L. Ed. 2d 1045 [2007]).
Credit Discrimination
Discriminatory practices in the granting of
credit led to the enactment of legislation to
ensure that all qualified applicants have the
same opportunity to receive credit.
Sex In the past, women were systematically
denied credit regardless of whether they would
be able to repay their loans. It was not
uncommon for bankers to refuse to consider a
married woman’s income when a couple
applied for a loan or a mortgage. Banks made
the assumption that a woman of childbearing
age was an automatic credit risk.
Single women had greater difficulty than
single men in obtaining credit, particularly
home mortgages. Creditors were also reluctant
to extend credit to married women in their own
names and refused to count a woman’s income
when calculating the creditworthiness of a
married couple. Women also had a difficult

time reestablishing credit upon
DIVORCE or
widowhood.
In 1974 Congress enacted the Federal Equal
Credit Opportunity Act (15 U.S.C.A. § 1691
et seq.), which prohibits credit discrimination
based not only upon sex and marital status,
but also upon race,
RELIGION, and national
origin. It has, however, very detailed prohibi-
tions against discrimination based upon sex and
marital status. Creditors are not permitted to
(1) assign a value to sex or marital status in
calculating an applicant’s creditworthiness;
(2) assign a value to having a telephone in the
name of the applicant; (3) question a married
couple’s childbearing plan; (4) alter the terms of
credit or require a reapplication when there is a
change in an individual’s marital status; (5) re-
fuse to consider the total income of the couple
who are making the application; (6) delay
action on an application or refuse to consider
it; or (7) discourage an individual from making
an application for credit.
Federal agencies such as the FTC can guard
against violations of this law through the
issuance of restraining orders. In addition,
consumers can commence an action against
creditors who have denied them an equal
opportunity to acquire credit. Where credit

discrimination is prohibited by a state law also,
the consu mer can choose whether to pursue the
state or the federal remedy.
Other Types of Discrimination Subsequent
amendments to the Equal Credit Opportunity
Act were concern ed with race and age discrimi-
nation. The act provides that a creditor can take
an applicant’s age into consideration only in a
situation where older people are given a
preference or where a specific type of credit is
allowed someone because that person is elderly.
The law also requires that public assistance
benefits be counted by creditors as a portion of
an applicant’s income. The race of an applicant
cannot be used as a ground for the denial of
credit.
Disclosure of Terms Until the late 1960s,
there was considerable variety as to the
information given consumers about their credit
arrangements. The greatest lack of uniformity
was in the statement of the rate of interest
charged. Some creditors did not disclose the
rate of interest, telling consumers only the
number and amount of monthly payments.
Those creditors that did state the rate of interest
stated it in a variety of ways.
In response, Congress enacted the
TRUTH IN
LENDING ACT
as Title I of the Consumer Credit

Protection Act of 1968. The law is essentially a
disclosure statute, offering little substantive
protection to consumers. A creditor is free to
impose any charges for credit permitted by state
law. In addition, the statute does not restrict or
confine the terms and conditions of the
extension of credit. All that the Truth-in-
Lending Act requires is that the consumer be
informed of the terms and conditions of the
credit transaction.
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
CONSUMER CREDIT 151
Under the statute and FTC regulations, the
creditor must describe the credit terms clearly
and conspicuously in a disclosure statement. At
the time of disclosure, the creditor must furnish
the customer with a copy of the statement. The
disclosure requirements of the act are detailed
and complex, because they deal with many types
of credit transactions. In general, the creditor
must disclose the amount financed, the
ANNUAL
PERCENTAGE RATE
, and any finance charges
associated with the extension of credit to the
consumer. Any charges payable in the event of
late payment must also be disclosed.
FURTHER READINGS
Bangert, Sharon J., Robert A. Cook, and Joseph D. Looney.
2002. “Unfair and Deceptive Advertising of Consumer

Credit.” The Maryland Bar Journal 35 (March–April):
8–13.
Hammond, Bob. 1996. Life after Debt: How to Repair Your
Credit and Get Out of Debt Once and For All. Franklin
Lakes, N.J.: Career.
Hynes, Richard, and Eric A. Posner. 2002. “The Law and
Economics of Consumer Finance.” American Law and
Economics Review 4 (spring): 168–207.
Leonard, Robin, and Deanne Loonin. 2002. Credit Repair,
edited by Kathleen Michon, 6th ed. Berkeley, Calif.:
Nolo.
Medoff, James C. 1996. Indebted Society: Anatomy of an
Ongoing Disaster. New York: Little, Brown.
National Consumer Law Center. 2002. Fair Credit Reporting.
Boston: National Consumer Law Center.
Paris, James L. 1995. Living Financially Free. Eugene, Ore.:
Harvest House.
Suit, Christopher. 2001. How to Stop Telemarketers, Junk
Mail, and Fix Your Credit. Vancouver, Wash.:
Streetlight.
CROSS REFERENCES
Damages; Restraining Order; Truth in Lending Act
CONSUMER CREDIT PROTECTION
ACT
The Cons umer C redit Protection Act (15 U.S.C.A.
§ 1601 et seq. [1972]) is a feder al stat ute designed
to protect borrowers of money by mandating
complete disclosure of the terms and conditions
of finance charges in t ransactions; by limiting the
GARNISHMENT of wages; and b y regulating the use of

charge accounts.
The
CONSUMER CREDIT Protection Act was the
first general federal consumer-protection legis-
lation. Title I of this law, known as the Truth-
in-Lending Act (15 U.S.C.A. § 1601 et seq.
[1968]), requires that the terms in consumer
credit transactions be fully explained to the
prospective debtors. Title VI of the Consumer
Credit Protection Act, known as the
FAIR CREDIT
REPORTING ACT
(15 U.S.C.A. § 1601 et seq.
[1978]), applies to businesses that regularly
obtain consumer credit information for other
businesses. Its purpose is to ensure that
consumer reporting activities are conducted in
a manner that is fair and equitable to the
affected consumer.
Whereas the Consumer Credit Protection
Act is a federal law, states have also passed many
statutes regulating consumer credit. For exam-
ple, the
UNIFORM CONSUMER CREDIT CODE (UCCC)
is an initiative that was drafted by the National
Conference of Commissioners on Uniform
State Laws in 1968 to help provide consistency
among the variety of consumer credit laws that
exist throughout state jurisdictions. The pur-
pose of the UCCC is threefold: to protect

consumers who are obtaining credit to finance
transactions; to ensure that adequate credit is
provided; and to govern the credit industry
generally. As of 2009, the UCCC had been
adopted in only five states and Guam. Many
states, however, continue to enact legislation
that would provide consumer debtors with
similar protections contained in the provisions
of the UCCC.
CONSUMER FRAUD
Deceptive practices that result in financial or other
losses for consumers in the course of seemingly
legitimate business transactions.
Many think that consumer fraud only
affects unwitting people who are all too willing
to be duped. In truth, even the savviest
customer can fall victim to
FRAUD. It may be as
simple and seemingly innocuous as getting
stuck paying a higher rate for a magazine
subscription, or it may be as devastating as
having one’s identity stolen.
According to the
FEDERAL TRADE COMMISSION
(FTC), consumers reported $1.2 billion in losses
from fraud in 2007. In addition to those who
are unwittingly defrauded, there are a number
of consumers who share at least a degree of
culpability in their losses. People who try to save
money on their income taxes by purchasing a

new
SOCIAL SECURITY number or wage statement
may become victims of fraud, but chances are
that they understood that their actions were
illegal, which makes them guilty of fraud as well.
Consumer fraud can take place in person,
by telephone or mail, or over the
INTERNET.
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
152 CONSUMER CREDIT PROTECTION ACT
As technology has continued to improve,
INTERNET FRAUD has risen faster than other types.
With or without technology, however, consu-
mers can protect themselves against fraud by
following a few simple, common-sense mea-
sures such as not revealing personal information
to strangers.
The following are some of the most common
types of consumer fraud.
Identity Theft
IDENTITY THEFT accounts for more than 30
percent of all fraud complaints reported to the
FTC. All identity theft is serious, but even in its
mildest form it can involve, for instance, the
theft of a consumer’s long-distance access code.
The thief sells the code to individuals who
use the code to charge long-distance calls all
over the world. In its most serious form, a thief
gains access to the victim’s Social Security
number. With this number, and some other

basic information, a thief can create a double of
the victim. The victim’s information can be
used to make purchases, to rent an apartment,
or to take out bank loans. Often, victims of
identity theft first find out their misfortune
when they receive credit card bills totaling
thousands of dollars, even though they did not
open the accounts or make the purchases.
Identity thieves can gain access to their
victim’s information by copying it off forms (for
example, if they work in an office where such
information is kept), by stealing a wallet or
personal papers, or by otherwise exploiting a
careless individual. (Fraud experts warn people
never to give their Social Security or bank
account numbers to someone who has phoned
them, even from a seemingly legitimate busi-
ness.) Often identity thieves work in large rings
that span several states, which makes it difficult
to track them down. Thus, even when a theft
ring is cracked, others quickly crop up to take
its place.
Telephone and Mail Solicitations
To most people, junk mail and telemarketer
calls are merely a nuisance, but unscrupulous
companies can use both the mail and the
telephone to part innocent (and not merely
gullible) people from their money. Applications
for credit cards or personal loans promise easy
credit, but the fine print promises exorbitant

interest rates. Sweepstakes promising millions
in winnings await the lucky recipient, who often
feels compelled to send an order for several
magazines along with the prize receipt. Charities
use telemarketing and mass mailings to ask for
donations; while some of those charities are
established and legitimate, others are dubious.
Many phony charities assume names that sound
like better-known organizations in the hope of
fooling consumers.
Every day, people are contacted by tele-
phone and mail with phony offers. Despite
warnings from consumer-advocacy groups,
people continue to provide credit card num-
bers, bank information, and even Social Security
numbers to those whom they do not know. The
elderly are a common target, in part because
once they find that they have been defrauded
they are likely not to report the crime because
they are embarrassed. Groups such as the
Federal Trade Commission, the National Con-
sumers League (NCL), and Consumers Union
provide information to the ge neral public in an
effort to curtail fraud.
In 2002 several states initiated “do-not-call”
programs that allow people to store their
telephone numbers in a centralized database
that telemarketers are prohibited from calling.
A telemarketer who calls a prohibited number
faces stiff fines.

Consumer Fraud Complaints, by Consumer Age, in 2007
a
Percent
Age
19 and under
20–29
30–39
40–49
50–59
60–69
70 and over
2%
16%
21%
23%
20%
9%
9%
a
Percentages are based on the total number of fraud complaints where consumers reported
their age (126,659). 23% of consumers reported their age.
SOURCE: Federal Trade Commission, Consumer Fraud and Identity Theft
Complaint Data, January–December 2007, Februar
y
13, 2008.
0 5 10 15 20 25
ILLUSTRATION BY GGS
CREATIVE RESOURCES.
REPRODUCED BY
PERMISSION OF GALE,

A PART OF CENGAGE
LEARNING.
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3
RD E DITION
CONSUMER FRAUD 153
Internet Fraud
The growth of the Internet as a communication
tool has also meant its growth as an instrument
of fraud. Internet fraud grew so rapidly through
the 1990s and early 2000s that the
FEDERAL
BUREAU OF INVESTIGATION
(FBI) and the National
White Collar Crime Center (NW3C) launched
the Internet Fraud Complaint Center, now
known as IC3, which compiles data and offers
tips on ways to avoid being defrauded. Accord-
ing to the IC3 Annual Report for 2008,
complaints of Internet fraud accounted for
$265 million in losses, a 33.1 percent increase
over the previous year. The average individual
loss was $931 per victim.
One of the most common types of fraud,
accounting for over 25 percent, is Internet-
auction fraud. Although there are a number of
legitimate online auction houses, many are
simply scams. Consumers who purchase items
on these sites find that the goods they bid for
never existed or that the goods are stolen or that
the seller has added numerous hidden charges.

The seller might even act as a shill by placing
false bids. (Some consumers jump on the fraud
bandwagon, as well, by using aliases to place
multiple phony high bids in order to deter low
or moderate bidders.)
The Internet is also home to credit card scams,
investment scams, and home-improvement
scams. These may appear on Websites, or they
may be sent in the form of unsolicited commer-
cial email (UCE), better known as “spam.” One
well-known spam message is the “Nigerian
Letter,” in which a person who claims to be a
former high official, usually from the Nigerian
government, seeks help in converting millions
of dollars in funds. The consumer is asked to
provide bank account information so that the
funds can be transferred to that account. The
perpetrators then empty the bank account and
disappear before the consumer knows what has
happened. Because the perpetrators are usually
located in a foreign country and are practically
impossible to locate, the victim loses all of the
funds that were in the account.
Income Tax Fraud
The INTERNAL REVENUE SERVICE (IRS) warns
taxpayers to be on guard against tax scams that
can result in loss of funds and, in some cases,
legal difficulties. Some con artists make money
at their victims ’ expense by claiming that they
can help to secure tax refunds for their clients.

Invariably, the clients must pay a fee upfront.
One example of this is a company that claims it
can help taxpayers find legal loopholes that will
allow them to stop paying taxes. Another is
a company that offers to help people submit
claims for nonexistent credits. (Some
African Americans have been targeted by a
“reparations” scam in which they are told they
can apply for a slavery-reparations credit simply
by paying a fee. No such credit exists.)
If the taxpayer knowingly engages in a
scheme that is illegal (for example, signing up
for a new Social Security number), he or she
may face fines or imprisonment.
Combating Fraud
Education is essential for combating consumer
fraud. The FTC, FBI, NCL, Consumers Union,
and Direct Marketing Association, all work to
educate the public and to identify fraudulent
businesses. The Better Business Bureau is also a
useful tool for consumers who wish to get
information about specific companies.
FURTHER READINGS
Bertrand, Marsha. 1999. Fraud! How to Protect Yourself from
Schemes, Scams, and Swindles. New York: AMACOM.
Stark, Debra Pogrund. 2008. “Does Fraud Pay? An Empiricle
Analysis of Attorney’s Feeds Provisions in Consumer
Fraud Statutes.” Cleveland State Law Review. 56.
U.S. Federal Trade Commission. 1997. Fighting Consumer
Fraud: The Challenge and the Campaign. Washington,

D.C.: U.S. Federal Trade Commission.
CROSS REFERENCES
False Advertising; Federal Trade Commission; Internet.
CONSUMER PRICE INDEX
A computation made and issued monthly by the
Bureau of Labor Statistics of the federal Labor
Department that attempts to track the price level
of designated goods and services purchased by the
average consumer.
The consumer price index (CPI) is an
indicator of the rate of inflation in the economy
because it measures changes in the cost of
maintaining a particular standard of living.
CONSUMER PRODUCT SAFETY
COMMISSION
The CPSC was established to protect the public
against unreasonable risks of injury from
consumer products; to assist consumers in
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
154 CONSUMER PRICE INDEX
evaluating the comparative safety of consumer
products; to develop uniform safety standards
for consumer products and minimize conflict-
ing state and local regulations; and to promote
research and investigation into the causes and
prevention of product-related deaths, illnesses,
and injuries. The commission is an independent
federal regulatory agency, established by the Act
of October 27, 1972 (86 Stat. 1207). It makes
information available to the public through its

Web site, .
The Consumer Product Safety Commission
(CPSC) has primary responsibility for establish-
ing man datory product safety standards in
order to reduce the unreasonable risk of injury
to consumers from consumer products. It also
has the authority to ban hazardous consumer
products. The Consumer Product Safety Act (15
U.S.C. 2051 et seq. [1972]) authorizes the CPSC
to conduct extensive research on consumer
product standards; to engage in broad con-
sumer, industry information, and education
programs; and to establish a comprehensive
injury-information clearinghouse.
The CPSC has the authority to regulate the
sale and manufacture of more than 15,000
different consumer products, from cribs to all-
terrain vehicles, and from barbecue grills to
swimming pools. Products not under jurisdic-
tion of the CPSC include those specifically
named by law as under the jurisdiction of other
federal agencies; for example, automobiles are
regulated by the National Highway Traffic
Safety Administration (NHTSA); guns are
regulated by the
BUREAU OF ALCOHOL, TOBACCO,
FIREARMS, AND EXPLOSIVES (ATFE); and drugs are
regulated by the
FOOD AND DRUG ADMINISTRATION
(FDA). Recently, the CPSC has taken action

against suppliers of chemicals that could be
used to manufacture fireworks.
In addition to the authority created by the
act, the CPSC assumes responsibility for the
Flammable Fabrics Act (67 Stat. 111; 15 U.S.C.
1191), the Poison Prevention Packaging Act (84
Stat. 1670), the Hazardous Substances Act (74
Stat. 372; 15 U.S.C. 1261), and the Act of
August 2, 1956 (70 Stat. 953; 15 U.S.C. 1211 ),
which prohibits the transportation of refrigera-
tors without door-safety devices. The act also
provides for petitioning of the CPSC by
any interested person, including consumers or
consumer organizations, to commence proceed-
ings for the issuance, amendment, or revocation
of a consumer product safety rule.
In 1999 the CPSC introduced a new
interactive section for children on its Web site.
Geared toward children between the ages of
eight and twelve, it features games and puzzles
that are designed to test children’s knowledge of
safety and to teach them safety facts.
On May 5, 2009, President
BARACK OBAMA
announced that he would nominate Inez
Tenenbaum to head the CPSC.
CROSS REFERENCE
Consumer Protection.
CONSUMER PROTECTION
Consumer protection laws are federal and state

statutes governing sales and credit practices
involving consumer goods. Such statutes prohibit
and regulate deceptive or unconscionable advertis-
ing and sales practices, product quality, credit
financing and report ing, debt collection, leases,
and other aspects of consumer transactions.
The goal of
CONSUMER PROTECTION laws is to
place consumers, who are average individuals
engaging in business deals such as buying goods
or borrowing money, on a par with companies
or citizens who regularly engage in business.
Historically, consumer transactions—purchases
of goods or services for personal, family, or
household use—were presumed fair because it
was assumed that buyers and sellers bargained
from equal positions. Starting in t he 1960s,
legislatures began to respond to complaints by
consumer advocates that consumers were in-
herently disadvantaged, particularly when bar-
gaining with large corporations and industries.
Several types of agencies and statutes, both state
and federal, now work to protect consumers.
Consumer Product Safety Commission
In 1972 Con g ress established the CONSUMER
PRODUCT SAFETY COMMISSION
(CPSC). The CPSC
aims to protect consumers from faulty or
dangerous products by enacting mandatory safety
standards for those products. The CPSC has the

authority to ban products from the marketplace
or to recall products (when a product is recalled,
it is removed from the shelves or sales lots, and
consumers may be able to return it to the
manufacturer or place of purchase for repair,
replacement, or a refund). Still, the agency has
trouble protecting consumers from hazardous
products of which it is unaware. It has also faced
increased challenges w ith respect to the g rowing
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
CONSUMER PROTECTION 155
number of imports in the United States,
particularly from toy m a nufacturers. It has
attempted to address this difficulty by imple-
menting the Import Safety Initiative in 2008, but
there remain significant impediments to the
CPSC achieving its mission of protecting con-
sumers from all f aulty or dangerous products.
In the 1990s and early 2000s, the CPSC has
fallen victim to
FEDERAL BUDGET cuts. Reductions
in the agency’s legal staff have prompted the
CPSC to rely more and more on manufacturers
to voluntarily recall their defective or hazardous
products. When manufacturers do not cooper-
ate, the CPSC must commence a legal action
that may take years to resolve.
Unfair or Deceptive Trade Practices
The FEDERAL TRADE COMMISSION (FTC), the largest
federal agency that handles consumer com-

plaints, regulates unfair or deceptive trade
practices. Even local trade practices deemed
unfair or deceptive may fall within the
JURISDIC-
TION
of FTC laws and regulations when they
have an adverse effect on interstate commerce.
In addition, every state has enacted con-
sumer protection statutes, which are modeled
after the Federa l Trade Commission Act (15
U.S.C.A. § 45[a][1]). These acts allow state
attorneys, along with general and private
consumers, to commence lawsuits over false
or deceptive advertisements, or other unfair and
injurious consumer practices. Many state sta-
tutes explicitly provide that courts turn to the
federal act and interpretations of the FTC for
guidance in construing state la ws.
The FTC standard for unfair consumer acts
or practices has changed with time. In 1964 the
agency instituted criteria for determining un-
fairness when it enacted its cigarette advertising
and labeling rule. A practice was deemed unfair
when it (1) offended public policy as defined by
statutes,
COMMON LAW, or otherwise; (2) was
immoral, unethical, oppressive, or unscrupu-
lous; and (3) substantially injured consumers.
The FTC changed the standard in 1980. Now,
substantial injury of consumers is the most

heavily weighed element, and it alone may
constitute an unfair practice. Such an unfair
practice is illegal pursuant to the Federal Trade
Commission Act unless the consumer injury is
outweighed by benefits to consumers or com-
petition, or consumers could not reasonably
have avoided such injury. The FTC may still
consider the public policy criterion, but only in
determining whether substa ntial injury exists.
Finally, the FTC no longe r considers whether
conduct was immoral, unethical, oppressive, or
unscrupulous.
The FTC has also developed, over time, its
definition of deceptive acts or practices. Histor-
ically, an act was deceptive if it had the tendency
or capacity to deceive, and the FTC considered
the act’s effect on the ignorant or credulous
consumer. A formal policy statement made by
the FTC in 1988 changed this definition.
A practice is deceptive if it will likely mislead
a consumer, acting reasonably under the
circumstances, to that consumer’s detriment.
False advertising is often the cause of
consumer complaints. At common law, a
consumer had the right to bring an action
against a false advertiser for
FRAUD,upon
proving that the advertiser made false repre-
sentations about the product, that these repre-
sentations were made with the advertiser’s

knowledge of or negligent failure to discover
the falsehoods, and that the consumer relied on
the false advertisement and was harmed as a
result. In 1911 the advertising trade journal
Printer’s Ink proposed model legislation crimi-
nalizing false advertisements. Forty-four states
enacted statutes based on this model statute.
However, because of the difficulty in proving
beyond
REASONABLE DOUBT an advertiser’s dis-
honesty, prosecutors seldom use these criminal
laws. More frequently, the state attorneys
general or the FTC regulates false advertising.
For example, the FTC can issue a cease-and-
desist order, forcing a manufacturer to stop
In 2003 the Federal
Trade Commission’s
Bureau of Consumer
Protection introduced
the National Do Not
Call Registry, which
allows consumers to
opt out of receiving
phone calls from
telemarketers.
MARK WILSON/
GETTY IMAGES
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3
RD E DITION
156 CONSUMER PROTECTION

advertising or compelling the advertiser to make
corrections or disclosures informing the public
of the misrepresentations.
Truth in Lending Act
Consumer credit— home mortgages, student
financial aid, and credit cards, for example—is
an area fraught with complicated finance terms,
and Congress has designed laws requiring
lenders to fully disclose and explain those terms
to potential borrowers. The
CONSUMER CREDIT
PROTECTION ACT
of 1968 (15 U.S.C.A. § 1601
et seq.), also known as the
TRUTH IN LENDING ACT,
prohibits lenders from advertising loan terms
that are only available to preferred borrowers.
In addition, advertisements for
CONSUMER CREDIT
transactions cannot disclose partial terms; either
all the terms of the transaction or none of them
must be spelled out. Finally, when the terms of
credit provide for repayment in more than four
installments, the agreement must conspicuously
state that “the cost of credit is included in the
price quoted for the goods and services.”
The Truth in Lending Act is designed to
protect society as a whole and, therefore, does
not provide the individual consumer with a
personal

CAUSE OF ACTION when a lender violates
the law. Nor are publishers of advertising, such
as radio, newspapers, and television, generally
held liable for lenders’ advertisements that
violate the act. Finally, the act does not consider
statements made by salespeople in the course
of selling products or services to be advertise-
ments; therefore, the law does not apply to
those statements.
Fair Debt Collection Practices Act
The Cons umer Protection Act was amended
in 1996 to include the Fair Debt Collection
Practices Act (
PUBLIC LAW 104-208, 110 Stat.
3009 [1996]). Congress passed the law to
address the abusive, deceptive, and unfair debt
collection practices used by many debt collec-
tors. Personal, family, and household debts are
covered under the act, which includ es money
owed for the purchase of an automobile, for
medical care, or for charge accounts. A collector
may contact a person by mail, telephone,
telegram, or fax. However, a debt collector
may not contact a debtor at an inconvenient
time, such as before 8 a.m. or after 9 p.m.,
unless the debtor agrees. A debt collector also
may not contact a debtor at an inappropriate
place. For example, a collector may not contact
a debtor at his place of work if the collector
knows that the debtor’s employer disapproves

of such contacts.
Collectors may not contact debtors if the
debtors send the collectors a letter asking them
to stop. Collectors may not threaten or abuse
debtors or make false statements. Despite these
restrictions, the FTC’s annual report to Con-
gress in 2009 reflected that it received nearly
79,000 complaints about third-party debt col-
lectors in 2008. Persons may sue collectors for
violating the law and can collect up to $1,000
and attorneys’ fees for a violation. A group
of people may also sue a debt collector and
recover money for damages up to $500,000, or
1 percent of the collector’s net worth, whichever
is less.
Warranties
Warranties are promises by a manufacturer
made to the consumer purchasing the manu-
facturer’s product that the product will serve the
purpose for which it was designed. The
UNIFORM
COMMERCIAL CODE
is a law, adopted in some form
in all states, that regulates sales transactions and
specifically the three most common types of
consumer warranties: express, merchantability,
and fitness.
Express warranties are promises included in
the written or oral terms of a sales agreement
that assure the quality, description, or perfor-

mance of the product. Express warranties are
usually included in the sales contract or are
written in a separate pamphlet and packaged
with the merchandise sold to the consumer.
These warranties may be less obvious than are
product advertisements. A consumer who relies
on a written description of a product in a
catalog or on a sample of a product may have a
cause of action if the actual product differs.
Express warranties can also be verbal, such as
promises made by salespeople. However, be-
cause oral warranties are extremely difficult to
prove, they are rarely litigated.
Merchantability and fitness warranties are
both implied warranties, which are promises
that arise by
OPERATION OF LAW.Awarranty of
merchantability concerns the basic understand-
ing that the product is fit to be purchased and
used in the ordinary way—for instance, a lamp
will provide light, a radio will pick up broadcast
stations, and a refrigerator will keep food cold.
A warranty of fitness concerns the consumer’s
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
CONSUMER PROTECTION 157