Deck 33: Consumer Protection

Question 1

The San Antonio Retail Merchants Association (SARMA) was a credit reporting agency. It was asked by one of its members to furnish information on William Douglas Thompson III. It supplied information from a file that contained data on William III and on William Daniel Thompson Jr. The agency had incorporated information related to William Jr. into the file relating to William III so that all information appeared to relate to William III. This was a negligent mistake because each William had a different social security number, which should have raised a suspicion that there was a mistake. In addition, SARMA should have used a number of checkpoints to ensure that incoming information would be put into the proper file. William Jr. had bad credit standing. Because of its mistake, SARMA gave a bad report on William III, who was denied credit by several enterprises. The federal Fair Credit Reporting Act makes a credit reporting agency liable to any consumer about whom it furnishes a consumer report without following reasonable procedures to ensure maximum possible accuracy of information. William III sued SARMA for its negligence in confusing him with William Jr. Is SARMA liable? [Thompson v San Antonio Retail Merchants Ass'n, 682 F2d 509 (5th Cir Tex)]

Answer 1

Refer to the case Thompson v San Antonio Retail Merchants Association
Case Issue
The facts to this case are:
• Defendant, a credit reporting agency, negligently amended information of a consumer (plaintiff).
• The credit report of the plaintiff was then inaccurate leading to plaintiff's difficulty in obtaining credit applications.
The issue is whether plaintiff can recover for the inaccurate information by defendant. Trial court held for plaintiff, defendant appealed.
Relevant Terms, Laws, and Cases
Fair Credit Reporting Act (FCRA) - federal regulation on credit reporting agency. This statute seeks to prevent inaccurate credit reports which hurt consumers.
Opinion
Appeals court affirmed the decision. The court argued that :
• FCRA holds credit report agencies liable for failing to comply with the act
• The defendant failed to comply with 1681e (b), which requires them to have "reasonable procedures" for " maximum accuracy" of consumer credit information.
• For example, defendant failed to have their program detect error report due to social security mix up which was apparent to a reasonable person
Hence, as the defendant failed to comply with the FCRA they are liable for damages to plaintiff.

Question 2

Colgate-Palmolive Co. ran a television commercial to show that its shaving cream, Rapid Shave, could soften even the toughness of sandpaper. The commercial showed what was described as the sandpaper test. Actually, what was used was a sheet of Plexiglas on which sand had been sprinkled. The FTC claimed that this was a deceptive practice. The advertiser contended that actual sandpaper would merely look like ordinary colored paper and that Plexiglas had been used to give the viewer an accurate visual representation of the test. Could the FTC prohibit the use of this commercial? [Federal Trade Commission v Colgate-Palmolive Co., 380 US 374]

Answer 2

Refer to the case FTC v Colgate Palmolive
Case Issue
The facts to this case are:
• Defendant, a hygiene product manufacture, showed an ad which showed their shaving cream able to soften sandpaper.
• However, the sandpaper was actually Plexiglas sprinkled with sand.
The issue is whether this ad is considered a deceptive practice as maintained by FTC (plaintiff)
Relevant Terms, Laws, and Cases
Federal Trade Commission (FTC) - responsible for regulating and reviewing business practices to protect consumers. Roles include prevention of monopolies and deceptive business practices.
Opinion
The Supreme Court held for the FTC. They argued that:
• The ad made consumers believe sandpaper was used.
• The act was deceptive in that actual sandpaper was not used.
• It didn't matter if the product actual can smoothen sandpaper.
Hence, the court agreed with the FTC. Perhaps, the company should have used actual sandpaper on the advertisement.

Question 3

Sharolyn Charles wrote a check for $17.93 to a Poncho's Restaurant on July 4, 1996, as payment for a meal she had there. The check was returned for insufficient funds. Poncho's forwarded the check to Check Rite for collection.
On July 19, Check Rite sent a letter to Charles, stating that "[t]his is an attempt to collect a debt" and requesting total payment of $42.93-the amount of the check plus a service charge of $25. On August 7, Check Rite sent a second letter, requesting payment of $42.93 and advising Charles that failure to pay the total amount due might result in additional liability for damages and attorneys' fees, estimated at $242.93.
Check Rite subsequently referred the matter to the law firm of Lundgren Associates for collection. On September 8, Lundgren sent a letter to Charles offering to settle within 10 days for a total amount of $127.93-the amount of the check plus a settlement amount of $110. Lundgren further advised that it had made no decision to file suit, that it could later decide to do so, and that Charles's potential liability was $317.93. Charles immediately sent to Lundgren a money order in the amount of $17.93. On September 13, Lundgren sent a second letter, repeating the settlement offer made in the September 8 letter. Lundgren then returned Charles's payment on September 14, declining to accept it as payment in full and repeating the settlement offer. On September 19, Lundgren sent a fourth letter to Charles, repeating the settlement offer.
On October 15, 1996, Charles filed suit in federal district court alleging violations of the Fair Debt Collections Practices Act (FDCPA). Lundgren Associates moved to dismiss the case on grounds that an attempt to collect on a check is not a "debt" governed by FDCPA. The district court dismissed the case; Charles appealed. Should Charles win? Is she protected under the FDCPA? [Charles v Lundgren Associates, P.C., 119 F3d 739 (9th Cir)]

Answer 3

Refer to the case Charles v Lundgren Associates
Case Issue
The facts to this case are:
• Plaintiff paid a check for a restaurant meal which later bounced.
• The meal payment was sent to collections which ended up at a law firm.
• Plaintiff sued under the Fair Debt Collections Practices Act (FDCPA)
The issue is whether the FDCPA holds for a bounced check; that is whether the bounced check is a debt under FDCPA. District court held that it wasn't as a bounced check is not an extension of credit, the typical definition of debt.
Relevant Terms, Laws, and Cases
Fair Debt Collections Practices Act (FDCPA) - regulates the debt collection procedures and prevents harmful and harassing debt collection practices.
Opinion
Court of Appeals reversed the decision. They argued that:
• Debt in the FDCPA is not limited to credit extensions.
• A previous case defined debt to be "any obligation in which money is owed ", this includes a bounced check for a meal.
Hence, the bounced check is a debt and must fall under the FDCPA.

Question 4

Thomas was sent a credit card through the mail by a company that had taken his name and address from the telephone book. Because he never requested the card, Thomas left the card lying on his desk. A thief stole the card and used it to purchase merchandise in several stores in Thomas's name. The issuer of the credit card claimed that Thomas was liable for the total amount of the purchases made by the thief. Thomas claimed he was not liable for any amount. The court decided Thomas was liable for $50. Who is correct? Why?

Question 5

Iberlin and others subscribed to the services of TCI Cablevision of Wyoming, which imposed a $2 late charge on any bill not paid when due. Iberlin brought suit against the company, claiming the late charge was for extending credit and thus did not comply with state and federal laws governing credit charges. Was Iberlin correct? [Iberlin v TCI Cablevision of Wyoming, 855 P2d 716 (Wyo)]

Question 6

International Yogurt Co. (IYC) developed a unique mix for making frozen yogurt and related products. Morris and his wife purchased a franchise from the company but were not told that a franchise was not a requirement for obtaining the mix-that the company would sell its yogurt mix to anyone. The Morrises' franchise business was a failure, and they sold it at a loss after three years. They then sued the company for fraud and for violation of the state Franchise Investment Protection Act and the state Consumer Protection Act for failing to inform them that the mix could be obtained without a franchise. IYC claimed that no liability could be imposed for failing to make the disclosure. Was it correct? [Morris v International Yogurt Co., 729 P2d 33 (Wash)]

Question 7

Lutz Appellate Services received unsolicited faxed messages from Curry Taylor. The first of these messages read as follows:
CURRY TAYLOR
IS NOW HIRING
ALL POSITIONS
CALL TODAY 1-800-222-8738
The second stated:
CURRY TAYLOR
-APPELLATE SPECIALISTS NEEDED
-GENEROUS PAY STRUCTURE
-EXPERIENCE WELCOME BUT NOT
NECESSARY
-CALL 1-800-409-0060 TODAY,
ASK FOR BILL
Curry was a competitor of Lutz and was seeking to hire away employees. Lutz filed suit alleging that the unsolicited faxes were advertisements prohibited by the Telephone Consumer Protection Act. What do you think? Does the TCPA prohibit these faxes?

Question 8

The town of Newport obtained a corporate MasterCard that was given to the town clerk for purchasing fuel for the town hall. The town clerk used the card for personal restaurant, hotel, and gift shop debts. The town refused to pay the card charges on the grounds that they were unauthorized. Was the town correct? [MasterCard v Town of Newport, 396 NW2d 345 (Wis App)]

Question 9

Stevens purchased a pair of softball shoes manufactured by Hyde Athletic Industries. Because of a defect in the shoes, she fell and broke an ankle. She sued Hyde under the state consumer protection act, which provided that "any person who is injured in... business or property... could sue for damages sustained." Hyde claimed that the act did not cover personal injuries. Stevens claimed that she was injured in her "property" because of the money that she had to spend for medical treatment and subsequent care. Decide. [Stevens v Hyde Athletic Industries, Inc., 773 P2d 87 (Wash App)]

Question 10

A consumer made a purchase on a credit card. The card issuer refused to accept the charge, and an attorney then sued the consumer for the amount due. In the complaint filed in the lawsuit, the attorney wrongly stated that interest was owed at 18 percent per annum. This statement was later corrected by an amendment of the complaint to 5 percent. The case against the consumer was ultimately settled, but the consumer then sued the attorney for penalties under the Fair Debt Collection Practices Act, claiming that the overstatement of the interest due in the original complaint was a violation of that act. The attorney defended on the ground that the act did not apply. Did it? [Green v Hocking, 9 F3d 18 (6th Cir)]

Question 11

Classify each of the following activities as proper or prohibited under the various consumer statutes you have studied.
a. Calling a hospital room to talk to a debtor who is a patient there.
b. Calling a hospital room to sell surgical stockings.
c. Rolling back the odometer on one's car before selling it privately.
d. No TILA disclosures on an instant tax refund program in which the lender takes 40 percent of the tax refund as a fee for advancing the money when the taxpayer files the tax return.

Question 12

Alpha University has an arrangement with a Axis Credit Card Company to collect 1 percent on all credit card charges made by students who obtain their cards through booths on the Alpha campus. Do any consumer protection statutes apply to this relationship?

Question 13

List three areas in consumer credit cards affected by the CARD Act.