Question 1

The federal agency that oversees the practices of banks, mortgage lenders, and credit-card companies is

Accepted Answer

The Consumer Financial Protection Bureau (CFPB) is a federal agency that regulates the practices of banks, mortgage lenders, and credit-card companies to protect consumers from unfair, deceptive, or abusive practices. The other options, such as Regulation Z, the Federal Reserve Board, and the Consumer Product Safety Commission, have different regulatory responsibilities and do not directly oversee financial institutions' practices.

Question 2

Crunchy Inc. makes claims in its advertising about its snack products. Crunchy's claims would most likely be deemed deceptive if the claims

Accepted Answer

A claim is considered deceptive if it misleads a reasonable consumer, as this can lead to false beliefs about the product's characteristics or benefits.

Question 3

Direct Sales Corporation sells products to consumers over the phone, through the mail, and online. The company may violate the Federal Trade Commission's Mail or Telephone Order Merchandise Rule if it

Accepted Answer

The FTC's Mail or Telephone Order Merchandise Rule requires sellers to notify consumers when orders cannot be shipped on time and provide options for cancellation or consent to a delay.

Question 4

Elliptical Company advertises Fitness Step, an exercise machine, online. There are several disclosures that Fitness Step needs to make, including shipping costs, surcharges for shipping the large machine, and warnings about the use of the machine by people with certain health conditions. In this context, the company must

Accepted Answer

The company must clearly and conspicuously disclose the information online.

Question 5

Credit Loan Company extends credit in the ordinary course of its business. Under the Truth-in-Lending Act, Creditworthy must inform potential borrowers of

Accepted Answer

Under the Truth-in-Lending Act, lenders are required to disclose their own credit terms to potential borrowers, ensuring transparency and allowing borrowers to make informed decisions.

Question 6

Urban Loan Company extends credit to consumers. Urban is subject to the Equal Credit Opportunity Act, which prohibits credit discrimination based on  which of the following

Accepted Answer

The Equal Credit Opportunity Act prohibits credit discrimination based on gender, race, national origin, religion, age, and marital status. It does not pertain to credibility, financial awareness, or occupation.

Question 7

An ad for Running Shoes Inc. states that its footwear is "The Athlete's Choice." Because of this ad, the Federal Trade Commission most likely will

Accepted Answer

The phrase "The Athlete's Choice" is considered puffery, which is a subjective claim that is not meant to be taken literally. The FTC typically does not take action against such claims as they are not misleading or deceptive.

Question 8

Teri borrows $10,000 from USA Bank to remodel a room in her home. This transaction is subject to

Accepted Answer

The Truth-in-Lending Act requires lenders to disclose the cost of borrowing, including the annual percentage rate (APR), finance charges, and other loan terms. As Teri is borrowing money from a bank, this law would apply to her transaction.

Question 9

Mattress Company advertises a special sale-all bedding, half price. The ad does not state that the sale price does not include delivery or shipping costs. To avoid claims of deceptive advertising, Mattress should

Accepted Answer

Disclosing the shipping cost in the ads ensures transparency and prevents claims of deceptive advertising by informing customers of the total cost upfront.

Question 10

Marilyn receives an unsolicited credit card in the mail and tosses it on her desk. Without Marilyn's permission, her roommate Nancy uses the card to buy a new laptop for $1,800. Marilyn is

Accepted Answer

Under the Fair Credit Billing Act, if a credit card is unsolicited and used without the cardholder's permission, the cardholder is not liable for any unauthorized charges.

Question 11

Soundbyte Corporation sells phones. Soundbyte's ad states that on its phones voice comes through as "clear as the sky on a cloudless day." The Federal Trade Commission would consider this claim

Accepted Answer

The claim "clear as the sky on a cloudless day" is considered puffery, which is a subjective statement that is not meant to be taken literally and is generally allowed in advertising.

Question 12

Spicy Salsa, Inc., complains to the Federal Trade Commission (FTC) about an ad broadcast by Tangy Taco Sauce Company, Spicy's competitor. The FTC investigates and concludes that the ad is deceptive. The FTC's next step is to

Accepted Answer

The FTC typically drafts a formal complaint to the company in question after concluding that an ad is deceptive, which may lead to further actions such as a cease-and-desist order if the issue is not resolved.

Question 13

Breadboard, Inc., makes and sells grain products. Breadboard's product packages must include

Accepted Answer

The contents' net quantity must be included on product packages to inform consumers about the amount of product they are purchasing, as required by labeling regulations.

Question 14

Consumer Finance Corporation (CFC) extends credit to consumers. CFC is subject to the Equal Credit Opportunity Act, which prohibits credit dis-crimination based on

Accepted Answer

The Equal Credit Opportunity Act prohibits credit discrimination based on race, among other factors such as color, religion, national origin, sex, marital status, or age.

Question 15

Hearth & Home Furniture store advertises bedroom suites at a "Special Low Price of $599." When Ilene tries to buy one of the suites, Jill, the salesperson, tells her that they are all sold and no more are obtainable. Jill adds that Hearth & Home has other bedroom suites available for as low as $2,599. If done systematically, this is

Accepted Answer

This is an example of bait-and-switch advertising, where the store lures customers in with a low price on a product that they do not actually have in stock, and then tries to sell them a higher-priced alternative.

Question 16

Mac n' Cheese Company wants to make and market new processed pasta and sauce products. On each product's label, standard nutrition facts are

Accepted Answer

Standard nutrition facts are required to be included on the label of packaged processed foods by the FDA.

Question 17

Bea borrows funds from Credit Union to repair her home and to buy a car. She buys a laptop from Discount Store in a transaction financed by the seller. Bea will pay those loans off over two to four years. If these parties are subject to the Truth-in-Lending Act, Regulation Z applies to

Accepted Answer

Regulation Z of the Truth-in-Lending Act applies to all consumer credit transactions, including loans for cars, home repairs, and retail installment sales, as long as they are for personal, family, or household purposes.

Question 18

Elise and other consumers complain to the Federal Trade Commission (FTC) that a Faux Diamonds Company ad is deceptive. The FTC's first step is to

Accepted Answer

The FTC's first step in response to a complaint about a deceptive ad is to investigate the claims to determine if there is any merit to the complaint.

Question 19

Greg signs an installment contract with Home Appliance Store to finance the purchase of new kitchen appliances. This transaction is subject to

Accepted Answer

The Truth-in-Lending Act requires lenders, like Home Appliance Store, to disclose important information about a credit transaction, including the finance charges, annual percentage rate (APR), and total payment amount. This helps consumers understand the true cost of credit and make informed decisions about borrowing.

Question 20

Pro Motor Company makes cars. Federal law requires Pro to attach a label that includes the Environmental Protection Agency's fuel economy estimate for a vehicle to

Accepted Answer

Federal law requires Pro Motor Company to attach the Environmental Protection Agency's fuel economy estimate label to every new car. Compliance with this requirement is mandatory.

Quiz 21: Consumer Protection