Question 1

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, after concluding an ad is deceptive, would typically draft a formal complaint as a next step. This initiates formal legal proceedings against the company responsible for the deceptive advertising.

Question 2

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

Accepted Answer

Under the Truth-in-Lending Act, Credit Loan must inform potential borrowers of its own credit terms, including interest rates, fees, and payment terms. The act does not require Credit Loan to disclose credit terms offered by other lenders or comparative prices for goods to be bought with the borrowed funds. Credit scores of borrowers are also not required to be disclosed under this act.

Question 3

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

Accepted Answer

The statement "The Winner's Choice" is considered puffery, a subjective opinion that does not typically require substantiation, and is unlikely to mislead consumers in a way that the Federal Trade Commission would take action against.

Question 4

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

To avoid claims of deceptive advertising, Mattress should clearly and conspicuously disclose the shipping cost in its ads. This will provide customers with transparency and prevent them from feeling misled or deceived by hidden costs.

Question 5

Value Loan Company extends credit to consumers. Value Loan applies a variety of requirements to determine applicants' qualifications for credit, the amount, the interest rate, and other terms. Under the Equal Credit Opportunity Act, the lender cannot base its credit decisions on an applicant's

Accepted Answer

The Equal Credit Opportunity Act prohibits lenders from basing credit decisions on an applicant's gender. Therefore, choice D is the correct answer. Choices A, B, and C are not protected by this act and may be used as factors in determining credit qualifications.

Question 6

EZ Workout Inc. advertises Fit Step, an exercise machine, online. In its ads, EZ claims that the use of Fit Step measurably enhances the attainability of fitness and weight loss goals, and will contribute significantly to the length of its users' lives. In this context, the company's ads and claims must be

Accepted Answer

The claims made by EZ Workout Inc. in its ads must be substantiated, meaning that the company must provide evidence or proof to support the accuracy of its claims. This is particularly important when making claims related to health and fitness, as consumers rely on the accuracy of such claims in making informed decisions about their health and well-being. Hyperlinking and avoidability are not relevant in this context.

Question 7

Bee 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. If these parties are subject to the Truth-in-Lending Act, Regulation Z applies to

Accepted Answer

The Truth-in-Lending Act and Regulation Z apply to all three transactions mentioned - the car loan, the home repair loan, and the retail installment sale of the laptop. This is because these transactions involve the extension of credit to the consumer, and therefore the lender or seller must disclose certain information and follow certain rules regarding interest rates, fees, and repayment terms.

Question 8

Direct Sales Corporation sells products to consumers over the phone, through the mail, and online. Under the Federal Trade Commission's Mail or Telephone Order Merchandise Rule, the firm may be liable for failing to

Accepted Answer

According to the Federal Trade Commission's Mail or Telephone Order Merchandise Rule, a company is required to ship orders within the time promised in its ads. Therefore, Direct Sales Corporation may be liable for failing to do so. Choices B and C are not mandatory requirements of the rule. Choice D is incorrect as only one option is correct.

Question 9

The Federal Trade Commission (FTC) receives numerous complaints that a Renewal Subscriptions Inc. ad is deceptive. The FTC's first step is to

Accepted Answer

The FTC's first step when receiving complaints about a deceptive ad from a company is to investigate the matter further. They will gather evidence, conduct interviews, and review documents related to the case before deciding on any further actions such as drafting a formal complaint, issuing a cease-and-desist order, or referring the case to the U.S. Department of Justice.

Question 10

Creamery Inc. makes and sells dairy products. Creamery's product packages must include

Accepted Answer

The contents' net quantity is required by law to be included on food packaging, so choice B is the correct answer. The company owner's identity and the type of consumer interested in the product are not required to be included on the packaging. The restaurants and stores in which the product is sold would not be applicable information for the consumer and would not be required on the packaging.

Question 11

An ad for Bagels Inc. attracts buyers who would otherwise have made purchases from Croissant Company. To bring a successful claim against Bagels under the federal Lanham Act for false advertising, Croissant must establish that

Accepted Answer

To bring a successful claim under the Lanham Act, Croissant must establish all three elements: 
A) the ad was false or deceptive; 
B) the buyers were deceived by the ad; and 
C) the ad directly caused Croissant to lose sales. Therefore, the correct answer is D, as all three elements must be proven.

Question 12

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 mandates that every new car must have a label attached that includes the Environmental Protection Agency's fuel economy estimate, ensuring consumers are informed about the vehicle's fuel efficiency.

Question 13

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 important credit terms and costs to borrowers, ensuring that they have a clear understanding of the loan terms before agreeing to them. As Teri is borrowing money from a bank, this act would apply to her loan transaction.

Question 14

Quik Mart sells groceries. Rite Price sells groceries and fills prescriptions. The party with the chief responsibility to prevent unsafe food and drugs from being sold is

Accepted Answer

The Food and Drug Administration (FDA) has the chief responsibility to prevent unsafe food and drugs from being sold. While both Quik Mart and Rite Price sell groceries, only Rite Price also fills prescriptions which adds an additional layer of responsibility for ensuring the safety of the products they sell. However, ultimately it is the FDA who has the primary responsibility for regulating and ensuring the safety of food and drugs sold in the United States.

Question 15

Whole Grains Company wants to make and market new processed bread and cereal products. On each product's label, standard nutrition facts are

Accepted Answer

Standard nutrition facts are required by law to be included on most packaged foods, including bread and cereal products.

Question 16

ChemCo Inc. makes and sells products containing ingredients potentially hazardous to consumers. The government agency that has the authority to order ChemCo to remove a product from the market is

Accepted Answer

The Consumer Product Safety Commission has the authority to order recalls of products that pose a danger to consumers, including those made by ChemCo Inc.

Question 17

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

Accepted Answer

The answer of Mai receives an unsolicited credit card in...

Question 18

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

Accepted Answer

The Consumer Financial Protection Bureau (CFPB) was created under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to oversee the practices of banks, mortgage lenders, and credit-card companies in order to protect consumers from unfair or deceptive practices.

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 to disclose the total cost of credit to consumers, including the annual percentage rate and any fees associated with the loan. This law applies to installment contracts like the one Greg signed with Home Appliance Store to finance his purchase of kitchen appliances.

Question 20

Home Made Inc. advertises a variety of household products online. In this context, the company's ads must be

Accepted Answer

The ads must be truthful to avoid any false claims or deception towards the customers. Being forceful or colorful does not guarantee the honesty and accuracy of the advertisement.

Quiz 24: Consumer Protection