Deck 48: The Federal Trade Commission Act and Consumer Protection Laws

Question 1

John E. Koerner Co., Inc., applied for a credit card account with the American Express Company. The application was for a company account designed for business customers. Koerner asked American Express to issue cards bearing the company's name to Louis Koerner and four other officers of the corporation. Koerner was required to sign a company account form, under which he agreed that he would be jointly and severally liable with the company for all charges incurred through use of the company card. American Express issued the cards requested by the company. Thereafter, the cards were used almost totally for business purposes, although Koerner occasionally used his card for personal expenses. Later, a dispute regarding charges appearing on the company account arose. Does the Fair Credit Billing Act apply to this dispute?

Answer 1

Fair Credit Billing Act applies to credit cards. This act applies to resolve credit card issues relating to disputes. If any business card holder has disputes regarding the use of credit card then the above act applies to issues. Generally, business credit cards are issued for all business transactions, not for personal transactions. In the case of a business card's right to use is provided more than one person then there is the chance of creation of disputes between them.
Fair Credit Reporting Act assesses the creditability of persons. Credit reporting provides the ability to obtain a credit or employment from the market or industry. The downfall in credit rating will cause the negative impact of the profile of a company or an individual depending upon the type of case. To obtain a good credit rating profile should be free from any type of fraud or unfair trade practices.
The credit rating agency enjoys some exclusive rights relating to rating profiles. The rating agency is under some obligations also. The Agency can't reduce or increase the rating of any enterprise without any valid reason. If the agency does unfair trade practices to reduce rating then it is liable for penalty as per the rules of outside controlling agency.
Equal Credit Opportunity Act says that credit rating should not be discriminated against based on sex, age, color, race nationality. If any rating agency does credit discrimination based on the above factors then credit agency is liable for liabilities as described under the act. This act applies to all credit rating agencies that give a rating, extend ratings, etc.
In the given case, a business card is used by one person for personal use. According to the fundamentals of business, the use of corporate credit cards for personal use amount to the offence. Also, the use of a business credit card is prohibited as per the provisions of the fair billing act as explained above.
Therefore, a Fair Credit Billing Act applies to this dispute.

Question 2

Stanley Crawford owed $2,037.99 to the Heilig-Meyers furniture company on a credit account. In September 2001, LVNV Funding, LLC, acquired the debt from Heilig-Meyers. The last transaction on Crawford's account occurred on October 26, 2001. Although Crawford's debt went unpaid, LVNV did not file suit against Crawford over it. Accordingly, under the three-year Alabama statute of limitations that governed the account, Crawford's debt became unenforceable in October 2004. Crawford filed for Chapter 13 bankruptcy in 2008. During the bankruptcy proceeding, LVNV filed a proof of claim in an effort to collect the Heilig-Meyers debt. In response, Crawford filed a counterclaim against LVNV, alleging that LVNV's filing of a proof of claim regarding Crawford's time-barred debt violated the Fair Debt Collection Practice Act's prohibition on deceptive or unfair debt collection actions. Was Crawford correct?

Answer 2

Fair Debt Collection practice is all about prohibition of abusive, deceptive and unfair practices by debt collectors. This led to the emergent of Fair Debt Collection Practices Act 1977 (FDCPA).
As per the mentioned case it is stated that SC owed money to HM Furniture Company on a credit account. Later, HM were acquired by LVNV Funding. This resulted in SC's debt unpaid. There was no case filed against SC resulting in unenforceable debt collection. During this SC filed for bankruptcy and over this LVNV filed a case against SC for collection of debt given by HM. Over this SC filed a case stating that time has ended for LVNV to file a claim for the debt given to SC.
SC was correct because as per Fair Debt Collection practice is all about prohibition of abusive, deceptive and unfair practices by debt collectors. This led to the emergent of Fair Debt Collection Practices Act 1977 (FDCPA). This act provides a time limit as per the agreement between parties over the payment of debt. And in this case the time limit for collection of debt from SC has been ended.

Question 3

For many years, advertisements for Listerine Antiseptic Mouthwash had impliedly claimed that Listerine was beneficial in the treatment of colds, cold symptoms, and sore throats. An FTC adjudicative proceeding concluded that these claims were false. Thus, the FTC ordered Warner-Lambert Company, the manufacturer of Listerine, to include the following statement in future Listerine advertisements: "Contrary to prior advertising, Listerine will not help prevent colds or sore throats or lessen their severity." Warner-Lambert argued that this order was invalid because it went beyond a command to simply cease and desist from illegal behavior. Was Warner- Lambert correct?

Answer 3

Federal Trade Commission (FTC) is an independent agency free from government and political control. The main mission of the commission is to keep the economy free from unfair trade practices. FTC has supervisory powers to regulate any enterprise which involves in unfair trade practices.
The FTC may issue advisory opinions and guidance to the industry. The issue of opinion is not compulsory for trade commission. The commission may issue an opinion voluntarily.
It is under obligation for all enterprises to comply with the rules and regulations issued by the commission. If any enterprise does not comply with the rules and regulations issued by trade commission then appropriate liability or penalty may impose by the commission.
In the given case, the FTC issued direction to amend the discretion on the product previously supplied by the company LAM in the market. LAM refuses to amend the description of the product because the company argues that it will lead to creating a bad impression.
The order issued by FTC to include a statement is correct as per the provisions of the FTC Act. According to the act, FTC has the right to issue orders or instructions to any manufacturer to amend or modify the description of the products for the public interest. The remedies under successful adjudications are the right to claim the dumping margin or right to demand injunction.
The decision delivered by the FTC is in accordance with the Affirmative disclosers. The decision of FTC is correct. Therefore, the LAM is not correct.
.

Question 4

Pantron I Corp. sold a shampoo and conditioner known as the Helsinki Formula. Pantron promoted the Helsinki Formula as an aid in fighting male pattern baldness. According to Pantron, polysorbate was the main ingredient that made the Helsinki Formula effective in arresting hair loss and stimulating hair growth. The Federal Trade Commission filed suit against Pantron on the theory that Pantron's advertisements made deceptive representations about the effectiveness of the Helsinki Formula, as well as deceptive representations that scientific evidence supported the effectiveness claims. The FTC sought injunctive and monetary relief. The evidence showed that the Helsinki Formula was effective for some users with male pattern baldness but that this effectiveness was probably due to the "placebo effect" (i.e., the effectiveness for some users stemmed from psychological reasons rather than from the inherent merit of the product). Because there was no scientifically valid evidence indicating that polysorbate is effective in treating hair loss or in inducing hair growth, the district court concluded that Pantron's advertisements were deceptive in representing that scientific evidence supported a conclusion that the Helsinki Formula was effective. The district court therefore issued an injunction that barred Pantron from representing, in its advertisements, that scientific evidence supports the alleged effectiveness of the Helsinki Formula in treating baldness or hair loss. However, because the Helsinki Formula did work for some users some of the time (whatever the reason), the district court concluded that the FTC had failed to carry its burden of proving that Pantron engaged in deceptive advertising when it represented that the Helsinki Formula was effective for persons with male pattern baldness. The court therefore refused to enjoin Pantron from making such a representation of effectiveness (i.e., a representation of effectiveness that did not go on to make the false claim of supporting scientific evidence). The court also refused to order monetary relief. In its appeal to the U.S. Court of Appeals for the Ninth Circuit, the FTC argued that when a product's effectiveness is due only to the placebo effect, an advertising claim of effectiveness is false and deceptive for purposes of the FTC Act. Was this FTC argument legally correct? Which party-the FTC or Pantron-was entitled to win the appeal?

Question 5

Besides maintaining a private law practice, Keith Gill offered credit repair services to consumers in a business that he operated with a retired attorney, Richard Murkey. In various contexts, Gill and Murkey made representations to the effect that they could remove any accurate and nonobsolete information of a negative nature from the credit reports of consumers who used their credit repair services. The Federal Trade Commission filed suit against Gill and Murkey, alleging, among other things, that these representations violated § 5 of the Federal Trade Commission Act. Was § 5 violated?

Question 6

Between 1966 and 1975, the Orkin Exterminating Company, the world's largest termite and pest control firm, offered its customers a "lifetime" guarantee that could be renewed each year by paying a definite amount specified in its contracts with the customers. The contracts gave no indication that the fees could be raised for any reasons other than certain narrowly specified ones. Beginning in 1980, Orkin unilaterally breached these contracts by imposing higher-thanagreed-upon annual renewal fees. Roughly 200,000 contracts were breached in this way. Orkin realized $7 million in additional revenues from customers who renewed at the higher fees. The additional fees did not purchase a higher level of service than that originally provided for in the contracts. Although some of Orkin's competitors may have been willing to assume Orkin's pre-1975 contracts at the fees stated therein, they would not have offered a fixed, locked-in "lifetime" renewal fee such as the one Orkin originally provided. Under the three-part test stated in the text, did Orkin's behavior violate FTC Act § 5's prohibition against unfair acts or practices?

Question 7

Patron Aviation, Inc., an aviation company, bought an airplane engine from L M Aircraft. The engine was assembled and shipped to L M by Teledyne Industries, Inc. L M installed the engine in one of Patron's airplanes. The engine turned out to be defective, so Patron sued L M and Teledyne. One of the issues presented by the case was whether the Magnuson- Moss Act was applicable. Does the Magnuson-Moss Act apply to this transaction?

Question 8

National Financial Services, Inc., a debt collection agency that serves magazine subscriptions clearinghouses, handled roughly 2.2 million accounts during 1986 and 1987. It sent letters to debtors whose accounts were delinquent. The average unpaid balance owed on these accounts was approximately $20. One letter sent by National Financial to a large number of debtors stated that their account "Will Be Transferred To An Attorney If It Is Unpaid After The Deadline Date!!!" Debtors who did not pay after receiving this letter received one or more letters that bore the letterhead of "N. Frank Lanocha, Attorney at Law." Lanocha prepared the text of these form letters and gave copies to National Financial's president, Smith. Smith then arranged for the letters to be prepared and mailed out. One of these letters contained the following statements: "Please Note I Am The Collection Attorney Who Represents American Family Publishers. I Have The Authority To See That Suit Is Filed Against You In This Matter." The letter also stated: "Unless This Payment Is Received In This Office Within Five Days Of The Date Of This Notice, I Will Be Compelled To Consider The Use Of The Legal Remedies That May Be Available To Effect Collection." The Federal Trade Commission sued National Financial, Smith, and Lanocha, alleging violations of the Fair Debt Collection Practices Act. How should the court rule?

Question 9

National Credit Management Group (NCMG) offered credit monitoring and credit card services to consumers throughout the United States. NCMG used the 1-800-YES-CREDIT toll-free telephone number as the central marketing focus of its business. The company's advertisements on radio and cable television stated that persons with credit problems should call the toll-free number to receive a "confidential analysis" of their credit histories. Many of these advertisements also promised that NCMG would provide consumers with a complimentary application for a major credit card without a security deposit. In a number of the television advertisements, NCMG would flash the word "APPROVED" on the television screen or would otherwise highlight that word when the advertisement made reference to the credit card application.
NCMG received approximately 6,500 "inbound" calls per week from consumers who were responding to the radio and television advertisements. NCMG did not engage in "cold-calling" of consumers. When consumers called 1-800-YES-CREDIT, an NCMG representative offered them an initial credit analysis for an up-front fee of $95. During this phone conversation, the NCMG representative asked consumers for information-name, address, Social Security number, checking account number, employment information, and income information-that the representative stated was necessary to enable the credit analyst to gather information concerning the particular consumer's credit history. The NCMG representative also stated that the $95 fee was the charge associated with the accumulation and monitoring of the information contained in the credit profile of the consumer, and that the credit analyst would be telephoning the consumer in approximately two weeks to discuss the consumer's credit history. Between 5 and 9 percent of consumers who called the toll-free number purchased either the $95 initial credit analysis offered or other services (described below) that NCMG offered.
NCMG used the checking account information obtained by its representatives to set up an arrangement under which consumers' checking accounts would be debited in the amount of $95 if they accepted the initial credit analysis offer. Consumers who initially gave verbal authorization for the debiting arrangement later encountered great difficulty in attempting to cancel it. In the initial telephone conversation described above, the NCMG representatives did not tell consumers that when they used their "complimentary" application for a credit card (the application referred to in NCMG's advertisements), they could have to pay fees ranging from $50 to $100 to sponsoring banks. Neither were consumers informed that they were not guaranteed of receiving a credit card. Although sponsoring banks approved a high percentage of consumers who used the NCMGprovided application, not all applicants were approved for a credit card.
NCMG did not actually perform a credit analysis for paying consumers, nor did NCMG check those consumers' credit reports. When the supposed credit analyst made the above-described follow-up telephone call to a consumer, he or she did not discuss the consumer's credit history. Instead, the credit analyst attempted to sell the consumer NCMG's two-year program designed for persons who wished to establish or reestablish their credit. The two-year program, which consisted largely of NCMG's furnishing certain educational materials, ranged in cost from several hundred dollars to well over $1,000, with the NCMG caller having the discretion to set the price at what seemed an appropriate level under the circumstances. The credit analyst typically did not disclose that the earlier check-debiting arrangement would be used as the payment mechanism for persons who agreed to subscribe to the two-year program.
The Federal Trade Commission (FTC) filed suit against NCMG. Among other things, the FTC alleged that NCMG violated § 5 of the FTC Act as well as the Telemarketing Sales Rule (TSR). Did NCMG violate § 5? Did NCMG violate the TSR?

Question 10

The owners of a certain house had listed it for rental with Gatewood Realty, Inc. Ira Simonoff, a Gatewood broker, showed the house to brothers Jonathan and Robert Scott, who offered to rent the house at a lesser monthly rate than the owners had specified. Simonoff then asked the Scotts for certain background information. Jonathan Scott responded to Simonoff's request for his Social Security number by telling Simonoff that he (Simonoff) was not authorized to make a credit check. Robert Scott added that he did not want his credit checked. During the discovery phase of the litigation described below, Jonathan Scott testified that Simonoff assured him no credit check would be run. Both brothers testified that they understood Simonoff would not check their credit. Simonoff, however, testified that he informed the brothers of the house owners' requirement of a credit check and that one of the brothers had simply asked Simonoff not to have a credit check done "if at all possible." When Simonoff relayed the Scotts' offer to the owners, they insisted that credit checks be conducted. Simonoff therefore asked Peter Visconti, who was affiliated with Real Estate Finance Group (REFG), to check the Scotts' credit. According to later testimony by Visconti, Simonoff represented that he had written authorizations from the Scotts. (The Scotts denied that any such authorizations existed.) Visconti obtained credit reports on the Scotts by falsely representing to a computerized credit reporting service that he needed the reports to evaluate a mortgage application. He then supplied the credit reports to Simonoff. When a real estate broker working on behalf of the Scotts learned that Simonoff had obtained their credit reports, she so informed the Scotts.
The Scotts filed suit against REFG, Gatewood, and Simonoff for alleged violations of the Fair Credit Reporting Act (FCRA). After discovery, the Scotts moved for partial summary judgment against all defendants on the theory that they had obtained the Scotts' credit reports by means of false pretenses, in violation of the FCRA. Gatewood and Simonoff moved for summary judgment in their favor. The district court granted the Scotts' summary judgment motion as to REFG but not as to Gatewood and Simonoff. Instead, the court granted summary judgment in favor of Gatewood Realty and Simonoff and ordered dismissal of the Scotts' FRCA claim against them. The Scotts appealed the dismissal of their FCRA claim against Gatewood and Simonoff. How did the appellate court rule?

Question 11

When Samuel Grant sued his landlord, the landlord filed a counterclaim. Grant later was awarded a $608 judgment against the landlord, with the landlord receiving a $476.10 judgment against Grant on the counterclaim. This left Grant with a net judgment of $131.90. Approximately one year after the above case, Texaco denied Grant's application for a credit card. Texaco did soon the basis of a credit report prepared by TRW, Inc. This credit report stated that a judgment of approximately $400 had been entered against Grant in the above-described litigation between Grant and his landlord. Grant then informed TRW that the litigation involving his landlord had resulted in a net judgment in Grant's favor. TRW eventually sent Grant an "Updated Credit Profile" showing that the $400 judgment had been deleted from his file. Several months later, Grant again applied for a Texaco credit card. Texaco again denied his application because a newly issued TRW credit report indicated that a $400 judgment had been entered against him in the case involving his landlord. Grant then sued TRW on the theory that TRW had violated the Fair Credit Reporting Act (FCRA). TRW moved to dismiss the case. Should Grant's FCRA case be dismissed?

Question 12

Sylvia Miller, a married woman, wanted to buy a pair of loveseats from a retail furniture store. The store offered to arrange financing for her through the Public Industrial Loan Company. Public later refused to extend credit to Miller unless her husband cosigned the debt obligation. The reason was a consumer reporting agency's unfavorable credit report on Miller. Was Public's action forbidden sex discrimination under the Equal Credit Opportunity Act? In any event, what other legal remedy might Miller have?