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

Question 1

An order telling the respondent to cease engaging in the deceptive or unfair conduct is the usual penalty resulting, from a successful FTC adjudicative proceeding.

Answer 1

True

Question 2

The Equal Credit Opportunity Act's (ECOA) provisions apply only in the consumer credit setting but not in the commercial credit context.

Answer 2

False

Question 3

The Federal Trade Commission is an executive branch of the federal government.

Answer 3

False

Question 4

If a $100 replacement part for a piece of manufacturing equipment is sold to a manufacturing plant, the Magnuson-Moss Act does not apply to the sale.

Question 5

The FTC commissioners serve for:

A) five-year terms.
B) staggered five-year terms.
C) fixed seven-year terms.
D) staggered seven-year terms.

Question 6

According to the Magnuson-Moss Warranty Act of 1975, a consumer is a buyer or transferee who either uses the product himself or sells it to another consumer.

Question 7

The do-not-call registry is unconstitutional because it discriminates and does not apply to charitable and political callers.

Question 8

Much of the information contained in a typical monthly credit card statement sent to a consumer is compulsorily required by the Truth in Lending Act.

Question 9

Many alleged violations of statutes or trade regulation rules are never adjudicated by the FTC. Instead, they are settled through a _____.

A) cease-and-desist order
B) standard $16,000 fine per violation
C) consent order
D) standard $26,000 fine per violation

Question 10

An advertisement is in violation of the Federal Trade Commission Act only when it:

A) is likely to mislead any consumer.
B) is likely to mislead a consumer who acts reasonably.
C) actually deceives any consumer.
D) does not involve a material misrepresentation.

Question 11

The obligations imposed on telemarketers by the FTC's Telemarketing Sales Rule do not apply to sellers that solicit sales through mailed catalogs and then receive consumers' orders by telephone.

Question 12

The Consumer Financial Protection Bureau (CPFB) has authority to take regulatory action to prohibit hidden fees charged by a financial institution.

Question 13

Besides imposing duties on consumer reporting agencies, the Fair Credit Reporting Act (FCRA) imposes duties on users of credit reports generated by such agencies.

Question 14

A credit card issuer that fails to comply with the Fair Credit Billing Act forfeits its right to collect the disputed amount from the cardholder.

Question 15

The TILA also deals in consumer credit advertising and thus prevents a creditor from "baiting" customers.

Question 16

The usual penalty resulting from a final decision against the respondent is a:

A) fine of $20,000.
B) cease-and-desist order.
C) fine of $10,000.
D) consent order.

Question 17

An in-depth consumer credit report is a credit report that includes information on a person's character, reputation, personal traits, or mode of living and is based on interviews with neighbors, friends, associates, and the like.

Question 18

The Fair Debt Collection Practices Act (FDCPA) does not bar debt collectors from contacting third parties such as the debtor's employer, relatives, or friends.

Question 19

The TILA specifies that if a home equity plan involves a variable interest rate, the "index rate" to which changes in the APR are pegged must be based on some publicly available rate and must not be under the creditor's control.

Question 20

When the Federal Trade Commission conducts a public administrative hearing, the presiding judge in this hearing is a(n):

A) administrative law judge.
B) federal district court judge.
C) arbitration judge.
D) FTC commissioner.

Question 21

The Federal Trade Commission recently instituted an adjudicative proceeding against OK Corp., a manufacturer of inflatable dolls. OK is alleged to have made deceptive statements concerning the quality of its product in nationwide advertisements. Which of the following statements is accurate?

A) If the statements in the OK ads were material misrepresentation that could mislead reasonable consumers, the FTC's deception standard would require a conclusion that OK did engage in deceptive advertising.
B) OK may be held to have engaged in deceptive advertising even if all company employees and executives involved in advertising decisions believed in good faith that false statements in the ads were true.
C) If the FTC proves that the intent in OK advertisements was to offend reasonable consumers, then an administrative law judge could order OK to cease making such an advertising claim.
D) OK cannot be held to have engaged in deceptive advertising if no consumers have actually been deceived by the OK ads.

Question 22

Which of the following is true about the Truth in Lending Act (TILA)?

A) Extending credit must be the creditor's primary business.
B) A creditor must require payment in more than two installments.
C) A debtor must be a natural person, not a business organization.
D) Consumer credit includes credit extended for agricultural purposes.

Question 23

Which of the following instances of lending is most likely to be covered by the Truth in Lending Act (TILA)?

A) A savings and loan association extends a $30,000 credit to a retail consumer.
B) An auto retailer extends a $25,000 credit to a buyer payable in five equal installments.
C) An accountancy firm extends a $10,000 one-time credit to an employee.
D) A bank extends a $20,000 credit to a farmer for use in agricultural purposes.

Question 24

The Magnuson-Moss Warranty Act of 1975 mainly applies to:

A) presale agreements for products used for commercial purposes.
B) written warranties for products used for household purposes.
C) presale agreements for products used for household purposes.
D) written warranties for products used for commercial purposes.

Question 25

Which of the following will lead to a violation of the FTC Act Section 5's prohibition of unfair acts or practices?

A) An advertisement that causes emotional distress.
B) A seller's use of high-pressure sales tactics on vulnerable consumers.
C) An advertisement that is perceived to be offensive in nature.
D) A seller's failure to give a consumer complex technical data about a product.

Question 26

Which of the following acts is most likely to violate the Telemarketing Sales Rule (TSR)?

A) Calling a consumer's residence at 9:30 PM to inform about an exciting prize promotion.
B) Soliciting sales through the mailing of a catalog and then receiving customers' orders by telephone.
C) Making telephone calls to a customer to get an appointment for a face-to-face sales presentation.
D) Making telephone calls of solicitation to a consumer but completing the transaction in a face-to-face meeting.

Question 27

Section 5 of the FTC Act normally is NOT violated when sellers make:

A) false statements about legal regulations.
B) deceptive omissions from their advertisements.
C) false or misleading claims of an implied nature.
D) claims regarding taste or smell of their products.

Question 28

Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 was enacted to regulate:

A) personal unsolicited calls.
B) personal e-mail messages.
C) commercial e-mail messages.
D) commercial unsolicited calls.

Question 29

Enforcement authority for violations of the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act) was given to:

A) the FTC, state attorneys general and users of Internet access services.
B) the FTC, state attorneys general and providers of Internet access services.
C) district courts, state attorneys general and users of Internet access services.
D) the FTC, district courts, and providers of Internet access services.

Question 30

Which of the following is NOT a possible order resulting from a successful FTC adjudicative proceeding attacking deceptive or unfair behavior?

A) Affirmative disclosure
B) All-products order
C) Corrective advertising
D) Imprisonment

Question 31

Nearly Insolvent Savings & Loan (NISL) recently ran a newspaper advertisement that read as follows: "Unsecured open-end credit lines (maximum $15,000) now available to consumers. Borrow against your line as you need money. Your minimum monthly payment to NISL? Only $25." Which of the following is a legally accurate statement about this advertisement?

A) The advertisement complies with the Truth in Lending Act in word and in spirit.
B) The Truth in Lending Act does not apply, because NISL would be extending consumer credit in an amount that exceeds the ceiling set forth in the statute.
C) The Truth in Lending Act does not apply, because NISL would be extending credit for consumer uses rather than for commercial uses.
D) The advertisement's failure to state the annual percentage rate (APR) is a reason why the advertisement violates the Truth in Lending Act.

Question 32

Which of the following is most likely to violate Section 5 of the FTC Act?

A) "Puffing" statements
B) Statements of opinion
C) Deceptive omissions
D) Sales talk

Question 33

Which of the following would keep the Truth in Lending Act from applying to a transaction?

A) The intent of the debtor to make commercial use of funds borrowed in the transaction.
B) The transaction being an open-end credit plan.
C) The debtor being a natural person rather than a business entity.
D) The creditor being a credit card issuer rather than a maker of a conventional loan.

Question 34

Which of the following actions is most likely to adhere to the Magnuson-Moss Warranty Act of 1975?

A) A seller does not disclose any limitations on the duration of implied warranties.
B) A seller's written warranty does not include information on the duration of the warranty.
C) A seller refuses to disclose warranty terms to a buyer before the sale.
D) A seller fails to give a written warranty to a consumer for a consumer product.

Question 35

EU countries depend more on litigation instituted by private parties as the chief legal means of dealing with misleading advertising. In this sense, the approach taken by EU nations resembles advertising regulation in the United States under:

A) Section 5 of the FTC Act.
B) Section 4 of the Clayton Act.
C) Section 16(c) of the Sherman Act.
D) Section 43(a) of the Lanham Act.

Question 36

The Magnuson-Moss Warranty Act applies to sales of goods costing:

A) $15 or more to a consumer.
B) $15 or more to any purchaser.
C) $50 or more to a consumer.
D) $50 or more to any purchaser.

Question 37

The FTC focuses on _____ when it attacks unfair acts or practices.

A) free and fair trade
B) antitrust action
C) consumer harm
D) anticompetitive behavior

Question 38

The _____ case is an example of litigation initiated by commercial telemarketers questioning the legal validity of the do-not-call registry.

A) Central Hudson
B) Kraft
C) Evory
D) Mainstream Marketing

Question 39

The TILA's detailed disclosure provisions break down into three categories. One of those categories is that of:

A) open-end credit.
B) debit card applications.
C) mixed credit.
D) consumer loans.

Question 40

In response to the Telemarketing Sales Rule (TSR), affected commercial telemarketers initiated litigation brought on lack-of-statutory authority and:

A) First Amendment grounds.
B) Fourth Amendment grounds.
C) Fifth Amendment grounds.
D) Seventh Amendment grounds.

Question 41

E.Z. Pickens owes a past-due consumer debt of $1,335 to the Needless Markup Department Store. Needless Markup retained Relentless Collection Agency, Inc. (RCA) to collect the debt. RCA employees were unable to locate Pickens so they asked his friends and his brother (Slim) about his whereabouts. When Pickens still had not been found, an RCA employee contacted Pickens's employer and asked how to locate him. Eventually, as a result of these inquiries, an RCA employee made contact with Pickens. Pickens contends that RCA violated the Fair Debt Collection Practices Act. Is he correct?

A) Yes, because the FDCPA prohibits debt collectors from trying to locate a debtor without the debtor's prior written permission to do so.
B) Yes, because the FDCPA prohibits debt collectors from contacting the debtor's employer.
C) No, because the FDCPA applies only when a creditor is collecting a debt; it does not apply to agencies that collect debts on behalf of creditors.
D) No, because the FDCPA allows debt collectors to contact the debtor's friends, relatives, or employer if such contacts are necessary to locate a debtor.

Question 42

Average Corp. recently paid for an advertisement that appeared in newspapers across the country. The advertisement consisted of the expression of Average's views on what the federal government should be doing in order to help combat the AIDS crisis. In the expression of these views, the Average advertisement made erroneous statements about how AIDS may be acquired. Assume that the FTC, concerned about the erroneous statements, has begun a deceptive advertising proceeding against Average. What is the strongest legal argument for Average to use in an attempt to have the proceeding dismissed? Explain your reasoning.

Question 43

Under the TILA, if a credit plan for a home equity loan involves a variable interest rate, the "index rate" to which changes in the APR are pegged must be:

A) based on creditworthiness of the debtor.
B) under the creditor's control.
C) based on some publicly available rate.
D) under the debtor's control.

Question 44

In his April 2011 credit card bill, Shawn noticed an entry for $1,179 paid by him to a resort on the west coast. Shawn lives in Montpelier, VT and claims he last traveled to the west coast almost two years back. In May 2011, he gave a written notice of the alleged error in the billing statement to his credit card issuer. Assume that the credit card issuer has failed to comply with the rules of the Fair Credit Billing Act. Under this Act, how much of the disputed amount can the issuer collect from Shawn?

A) $1,179
B) $1,079
C) $1,035
D) $1,129

Question 45

The FDCPA requires a collector to give a debtor certain information about the debt:

A) within ten days of the collector's first communication with the debtor.
B) within ten days of the debtor receiving the credit amount.
C) within five days of the collector's first communication with the debtor.
D) within five days of the debtor receiving the credit amount.

Question 46

The FCRA establishes ________ for persons who knowingly and willfully obtain consumer information from a credit bureau under false pretenses.

A) cease-and-desist orders
B) out-of-court settlements
C) consent orders
D) criminal penalties

Question 47

The Fair Credit Reporting Act imposes disclosure duties on:

A) users of credit reports.
B) credit receivers.
C) users of debit services.
D) debit and credit receivers.

Question 48

Amy Ames applied for a loan at Local State Bank. Three weeks later, she received notice from Local State Bank that her application had been denied. Ames later learned, from a reliable source, that the bank denied her application because a credit report on her stated that she regularly uses and deals in illegal drugs. Ames contends that this statement in the credit report is untrue. What can she do?

Question 49

Which of the following actions or statements by a debt collector would be least likely to violate the Fair Debt Collection Practices Act?

A) Contacting the debtor's adult son to determine whether the debtor has the financial resources to pay the debt.
B) Telling the debtor that a failure to pay the debt on time will lead to her imprisonment.
C) Repeatedly telephoning the debtor at home after she arrives home from work.
D) Telling the debtor the exact legal course of action the creditor intends to take if the debt is not paid on time.

Question 50

Under the TILA, a creditor can unilaterally terminate a credit plan for a home equity loan and require immediate repayment of the outstanding balance when a consumer has:

A) paid the installment without the added interest.
B) lost his only source of income.
C) defaulted on one repayment installment.
D) made material misrepresentations.

Question 51

Max's credit card was stolen last week. By the time Max reported this theft and got his card canceled, the thief had already withdrawn $10,000 using his card. Under the TILA, what is Max's maximum liability for this unauthorized use of his card?

A) $100
B) $50
C) $500
D) $10,000

Question 52

Beginning in 1998 and continuing until Aug. 1, 2003, Aromatic Co. promoted the sale of its Essence of Terre Haute (ETH) brand perfume by encouraging ETH buyers to save the proof of purchase seals on ETH labels. Consumers with at least 25 proofs of purchase seals could redeem them for fabulous prizes. This promotion had caused the sales of ETH since 1998 to be well in excess of ETH sales levels from 1993 through 1998. In nationally televised announcements on Aug. 1, 2003, Aromatic stated that it was ceasing the proof of purchase program and that effective immediately, no more proof of purchase seals would be accepted for redemption. This left millions of ETH buyers with worthless proof of purchase seals, many of which came from bottles of ETH purchased within one week before Aromatic's Aug. 1 announcement. Assume that the Federal Trade Commission has brought an adjudicative proceeding against Aromatic on the theory that the Aug. 1 announcements (and the underlying decision to halt the program without giving consumers a reasonable period of time within which to redeem their seals) constituted an unfair practice in violation of Section 5 of the FTC Act. Aromatic argues, in defense, that its Aug. 1 announcements were easily understandable and contained no deceptive statements. It also argues that the elements of unfairness are not present here. Analyze and evaluate Aromatic's arguments.

Question 53

The Consumer Financial Protection Bureau (CPFB) was created by the:

A) Dodd-Frank Wall Street Reform and Consumer Protection Act.
B) Equal Credit Opportunity Act.
C) Fair Debt Collection Practices Act.
D) Fair and Accurate Credit Transactions Act.

Question 54

Pesky, Inc. employs numerous sales representatives who attempt to sell the company's products door-to-door. All of the products sold in this manner are designed for use in the home. They range in price from $29.95 to $149.95. Each Pesky sales representative has been instructed to provide customers the address from which warranty information about Pesky's products may be obtained. The sales representatives give customers this address before the sale of any product takes place. The FTC has sued Pesky in federal court, requesting appropriate injunctive relief on the theory that Pesky's practices (as just described) do not comply with the Magnuson-Moss Act and its implementing regulations. Is the FTC's position correct? Explain.

Question 55

The __________ Act is not limited to consumer credit; it also covers business and commercial loans.

A) Truth in Lending
B) Equal Credit Opportunity
C) Fair and Accurate Credit Transactions
D) Fair Credit Reporting

Question 56

Harry has a history of poor credit scores (650 or below). He also filed for bankruptcy five years ago. He needs a consumer reporting agency to provide a credit report on him for a government license he has applied for. Under the TILA, the agency should avoid including in the report obsolete information predating the report by more than:

A) ten years.
B) fifteen years.
C) seven years.
D) five years.

Question 57

Describe the similarities between the United States' approach to advertising regulation and that taken by other countries.

Question 58

Tony Sinister is a candidate for a middle management position at Mobco, Inc. Mobco retained Clandestine Investigation & Credit Reporting Agency (CICRA) to interview Sinister's friends, neighbors, and associates and then prepare an investigative consumer report on Sinister. Which of the following would the Fair Credit Reporting Act require in this situation?

A) That CICRA not disclose to Mobco any information pertaining to Sinister's personal traits or reputation.
B) That Mobco inform Sinister of its request for the report and of his right to obtain further disclosures about the investigation.
C) That CICRA conduct interviews of Sinister's neighbors and relatives to gather relevant information.
D) That Mobco call off the investigation because a hiring decision does not involve credit-related information.

Question 59

The __________ Act aids victims of identity theft by allowing them to file identity theft reports with consumer reporting agencies.

A) Fair Credit Billing
B) Equal Credit Opportunity
C) Fair and Accurate Credit Transactions
D) Fair Credit Reporting

Question 60

Violations of the FCRA are violations of:

A) FTC Act Section 5.
B) FTC Act Section 10.
C) Section 43(a) of the Lanham Act.
D) Section 41 of the Lanham Act.