Question 1

To which type of transaction does the negative option rule apply?

Accepted Answer

The negative option rule applies when a consumer subscribes to a magazine, joins a CD club, enrolls in a DVD club, or enters some other plan that sends products on a regular basis. Under such plans, the seller notifies the subscriber about the next selection before it is shipped. If the subscriber does nothing, the seller will ship the next selection automatically.

Question 2

Which of the following is true of the "Cooling-Off" Rule?

Accepted Answer

The FTC has established the cooling-off rule to give consumers an opportunity to change their minds after signing contracts with people who come to their houses. Under this rule, sales of consumer goods or services over $25, made away from the seller's regular place of business, such as at a customer's home, may be cancelled within three business days after the sale occurs.

Question 3

The prime target of the ____________ has been handguns.

Accepted Answer

Some hold that dangerous "per se" products, such as handguns, must be targeted by the law, at all costs, no matter what. The per se rule labels a product dangerous because the product is dangerous in and of itself and can, therefore, have no value in the consumer market. In other words, such a product cannot be made "safe" because to make it safe would remove its basic function and render it useless.

Question 4

Renee applied for credit to open her own beauty salon. The bank denies her the credit after learning she was recently divorced and receives public assistance income. Which of the following federal laws did the bank violate?

Accepted Answer

The Equal Credit Opportunity Act was passed by Congress, as an amendment to the Truth-in-Lending Act, to ensure that all consumers are given an equal chance to receive credit. The law makes it illegal for banks and businesses to discriminate against credit applicants because of their sex, race, marital status, national origin, religion, or age or because they get public assistance income.

Question 5

Local business activity carried on within state boundaries is known as:

Accepted Answer

Purely local business activity, which has no out-of-state connections, is called intrastate commerce and is not governed by the FTCA.

Question 6

After receiving her credit card bill, Claire feels that the credit card company has made a mistake. Several transactions are not hers. The law that has established procedures for the prompt handling of such billing disputes is known as the:

Accepted Answer

Under the Fair Credit Billing Act (FCBA), when consumers believe an error has been made in a bill, they must notify the creditor within 60 days after the bill was mailed. The notice must identify the consumer and give the account number, the suspected amount of error, and an explanation of why the consumer believes there is an error.

Question 7

Which of the following entities are allowed to send merchandise through the mail to people who did not order it?

Accepted Answer

Except for free samples clearly and conspicuously marked as such and merchandise mailed by charitable organizations soliciting contributions, it is a violation of the postal law and the FTCA to send merchandise through the mail to people who did not order it.

Question 8

Jackson Motors tells Sue, a consumer, that Bliss Automobiles are made with metal bodies when they are in fact made of fiberglass. This would be considered a(n):

Accepted Answer

It is unfair or deceptive for a seller to make a fraudulent misrepresentation,-that is, a statement that is designed to mislead the buyer. A misrepresentation usually occurs when the seller misstates facts (that are not opinions) important to the consumer.

Question 9

Which of the following statements holds true of the FTC's Telemarketing Sales Rules?

Accepted Answer

Before consumers pay, telemarketers must tell them the total cost of the products or services offered and any restrictions on getting or using them or that a sale is final or nonrefundable.

Question 10

Under the ____________, sellers must ship orders within the time promised in their advertisements. If no time period is promised, sellers must either ship the order within 30 days or send the consumer an option notice.

Accepted Answer

Under the Mail and Telephone Order Rule (MTOR), sellers must ship orders within the time promised in their advertisements. If no time period is promised, sellers must either ship the order within 30 days or send the consumer an option notice.

Question 11

Cristina receives a new credit card from Seventh National Bank that does not provide a means for a retailer to verify that the holder of the card is in fact authorized to use it. The next day, Cristina discovers that she has lost her card. As soon as she discovers the card is missing, she calls Seventh National to report the loss. Already, $620 worth of unauthorized charges have been made on her credit card. Under the Truth-in-Lending Act Cristina will:

Accepted Answer

Under the Truth-in-Lending Act, credit cardholders are not responsible for any unauthorized charges made after the card issuer has been notified of the loss, theft, or possible unauthorized use of the card. Such notice may be given to the card issuer by telephone, letter, or any other means. Even then, credit cardholders are responsible only for the first $50 of any unauthorized charges. Note that debit cards do not have this built-in protection. The credit cardholder can avoid the $50 liability if the credit card issuer has not included on the card a method to identify the user of the card, such as a signature, a photograph, or other means of identification.

Question 12

Mary contracts to lease an automobile from Zippo Sales with payments of $300 per month for a year and a final balloon payment of $1,200. This final payment is:

Accepted Answer

The Consumer Leasing Act is a federal law requiring leasing companies to inform consumers of all of the terms of a lease of personal property. The CLA places a limit on the amount of a balloon payment (a very large final payment) to no more than three times the average monthly payments.

Question 13

The ____________ is an attempt by the federal government to reduce the use of unsolicited commercial e-mails on the Internet.

Accepted Answer

The Can Spam Act is an attempt by the federal government to reduce the use of unsolicited commercial e-mail, commonly known as spam, on the Internet.

Question 14

Congress passed the ____________ which requires lenders to disclose the finance charge and the annual percentage rate.

Accepted Answer

To help consumers know the truth about the cost of borrowing money, Congress passed the Truth-in-Lending Act. Under this act, lenders must disclose two important things to borrowers-the finance charge (the actual cost of the loan in dollars and cents) and the annual percentage rate or APR (the true rate of interest of the loan).

Question 15

A knife made by Knife Co has a metal handle with no warning, and the manufacturer has received reports that some consumers have received electrical shocks when attempting to use the knife as a screwdriver while installing an electrical outlet. Athena is one such consumer and decides to sue the manufacturer and the seller. Which of the following is true of this situation?

Accepted Answer

Sometimes a duty is placed on manufacturers to warn consumers that harm may result from a product. Unavoidably dangerous products may require a warning to inform the consumer of possible harm. If the warning is adequate, consumers may be required to use the product at their own risk. A warning must specify the risk presented by the product and give a reason for the warning.

Question 16

David went to the store to purchase a $15 MP3 player, advertised in the paper. The salesperson was encouraged by the store not to sell that MP3 player since it created a loss for the store. Instead, the salesperson told David that although the MP3 player was on sale, it was an undesirable, bottom-of-the-line product, and that David would be much happier with an Apple iPod Nano CD player for $250. The store:

Accepted Answer

A bait-and-switch scheme is an alluring, but insincere, offer to sell a product or service that the advertiser does not really intend to sell. Its purpose is to switch customers from buying the advertised merchandise to buying something else, usually at a higher price or on a basis more advantageous to the advertiser.

Question 17

Even though Spice gives her four-year-old car to Homeless Helpers Charity, she:

Accepted Answer

Anyone who sells or gives away a car must provide the new owner with a written statement disclosing the odometer reading at the time of the transfer.

Question 18

Which of the following is not a requirement for strict product liability?

Accepted Answer

The defective condition must have existed and not have changed from the time the product was sold to the time the injury occurred.

Question 19

Which of the following is true of public interest and public policy?

Accepted Answer

Public interest is the ideal consensus, and public policy is the coercive social engineering strategy by which that consensus is implemented.

Question 20

Under the doctrine of ____________, the principal consideration is the safety of a product, not the conduct of the manufacturer or supplier of the goods.

Accepted Answer

The principal consideration under the doctrine of strict liability is the safety of the product, not the conduct of the manufacturer or supplier of the goods. Under strict liability, manufacturers have the duty to design reasonably safe products. They must also give proper instructions for the product's use and provide warnings of possible danger.

Quiz 15: Product Liability and Consumer Protection