Consumer protection laws are made to protect consumers from fraudulent business practices, defective products, and dangerous goods and services. They play an important role in a reliable market economy, helping to keep sellers honest, with no threat of unpleasant surprises.
Consumer protection laws in the U.S. are comprised of various federal and state laws, each of which governs a particular area of the economy. The government oversees consumer protection through the Federal Trade Commission (FTC), while states use a variety of agencies and statutes to enforce consumer protection and sometimes expand on these laws. Not all jurisdictions protect consumers in the same way, with some being more pro-consumer than others.
- Consumer protection laws exist to prevent dangerous or unethical business practices, such as false advertising or faulty products.
- They play an important role in a reliable market economy, helping to keep sellers honest, with no threat of unpleasant surprises.
- For most consumer goods, the Federal Trade Commission regulates warranties and service contracts.
- States use agencies and statutes to enforce consumer protection and may expand on federal laws, with some being more pro-consumer than others.
- In finance, consumer protection laws seek to prevent predatory lending, housing discrimination, securities fraud, privacy violations, and other unethical practices.
Consumer Warranties and Service Contracts
Whenever you buy merchandise, it comes with a warranty. This is a guarantee that it will serve the purpose it was purchased for—in other words; it will function.
Express and Implied Warranties
The two basic types of warranty are express and implied. An express warranty is a promise from the seller, either written, oral, or expressed in an ad, promising that the item will perform its function for a specified period. Whether the item purchased is new or used, an express warranty is a guarantee that the item will work. However, not all items come with an express warranty.
The law automatically provides the second type of warranty, the implied warranty. Implied warranties are a part of all retail sales of new and used consumer goods. The retailer of an item implies that the item will work properly and be of average grade and quality, as long as it is used for the purpose it was sold. For example, a refrigerator will keep stuff cool as long as you are not trying to cool the entire room, and a blender will blend as long as you are not blending rocks.
Whenever you buy something, it's important to get warranty specifics in writing. Find out what the warranty covers. Does it include service fees if the item needs to be repaired? How long is the warranty? According to the FTC, an implied warranty can last as long as four years, but the actual time period can vary according to the state.
Dealing With Warranty Breach
If a warranty is breached, get the item replaced or repaired by the seller. If that doesn't work, try resolving the dispute through mediation. If that fails, you have the right to sue the manufacturer or seller.
Service contracts cannot be canceled after you've signed them, but according to the FTC, there is a cooling-off period in which, under certain circumstances, you might be able to void a contract. Contact the Federal Trade Commission at FTC.gov for information on the right way to approach your particular situation.
To file a complaint about a seller or manufacturer, you can contact the Federal Trade Commission, Consumer Product Safety Commission, or call up your local prosecutor and ask for the consumer fraud division. If you were defrauded by a telephone solicitor or fell into a TV advertiser's trap, the Federal Communications Commission is the place to turn for help.
The Fair Credit Reporting Act allows consumers to request a free credit report from each of the three major credit bureaus, once a year. You should regularly check your credit report for false or outdated information.
Key Consumer Protection Laws
Federal Securities Act
One of the most important consumer protections in finance is the Securities Act of 1933, which was enacted during the Great Depression. The act strictly limits the sale of investment contracts ("securities") and requires issuers to disclose the details of their financing and business plans. The act also established the Securities and Exchange Commission, which enforces securities laws and punishes violations.
Fair Credit Reporting Act
The Fair Credit Reporting Act was passed in 1970 to regulate the collection of credit information, which is frequently used to determine mortgage and lending rates. The law limits who can access a consumer's credit history, and prohibits lenders from providing outdated or inaccurate information. The law also allows consumers to read their own credit reports, and to contest any inaccurate information.
The Consumer Financial Protection Bureau (CFPB) is responsible for protecting consumers when it comes to financial products and services.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, usually shortened to "Dodd-Frank Act," was a sweeping reform of U.S. financial regulations in the wake of the 2008 financial crisis. The act stepped up oversight of banks and financial institutions, particularly those deemed to have been responsible for the Great Recession. It created the Financial Stability Oversight Council, with the ability to break up banks that were "too big to fail" or to increase their reserve requirements. It also established the Consumer Finance Protection Bureau, which regulates subprime mortgages and other predatory lending practices.
The Fair Housing Act
The Fair Housing Act protects buyers and renters of housing from being discriminated against by sellers, landlords, or financial institutions.
The Fair Debt Collection Practices Act (FDCPA)
This law limits the actions of third-party debt collectors when attempting to collect debts on behalf of another person or entity. It outlines when and how often a third-party debt collector can contact a debtor, with noncompliance resulting in lawsuits.
Section 5 of the Federal Trade Act
Section 5 of the Federal Trade Commission Act, sometimes just referred to as “Section 5,” demands that consumers be treated fairly and not deceived or put at risk by businesses. That includes:
- Causing substantial injury to a consumer
- A statement, omission, or practice likely to mislead consumers
Telephone Consumer’s Protection Act (TCPA)
This act ensures that consumers are not deceived and harassed by telemarketers. Thanks to the TCPA, a national do-not-call list was created.
The CAN-SPAM Act
The Controlling the Assault of Non-Solicited Pornography And Marketing Act of 2003 is a law passed in 2003 that governs email communication. It establishes requirements for commercial messages, including not using false or misleading headers and subject lines, identifying messages as ads, and providing a postal address and information on how to opt-out of being contacted in the future. Recipients have the right to stop being contacted, and penalties will be dished out to those who violate the act’s rules.
The Gramm-Leach-Bliley Act (GBLA)
The GBLA, among other things, requires all U.S. financial institutions to reveal in writing how they handle, share, and protect consumers’ information.
The Children’s Online Privacy Protection Act
This act governs what information websites directed to children under 13 years of age can collect from their visitors.
Be Aware of Scams
According to the book "The Truth About Avoiding Scams," by Steve Weisman, scam artists always take advantage of whatever is happening at a particular place in time. In the wake of the housing bust of 2008, for example, there were a lot of phony foreclosure rescues that caused people to lose the equity in their houses to so-called rescuers.
There has also been an increase in scam attempts through automated phone calls. During the COVID-19 pandemic, the Federal Trade Commission began receiving reports of scammers posing as government officials, using the promise of unemployment benefits to extract social security numbers, private bank accounts, or other sensitive information.
How to Avoid Scams
Consumer protection laws exist to protect consumers and make us feel more confident about buying things. However, having this protection doesn't mean we shouldn't care about getting scammed. It's better for everyone if a complaint is never made.
Tips include using credit cards rather than debit cards for online shopping and closely reviewing every item on your monthly bills. Customers should also use a separate email account for their online shopping. This method helps avoid spam. Also, never respond to emails asking you to "confirm" recent transactions after you shop because they can be phishing scams.
How to Get a Free Credit Report
Under the Fair and Accurate Credit Transaction Act (FACTA), you are entitled to a free copy of your credit report, at your request, once every 12 months.
Financial institutions use the information contained in this report to determine the risk in lending to you. Consumers usually find out about this report only after there has been negative information reported (mishandled accounts, erroneous data, and so on).
What Are Online Consumer Protection Laws?
The Restore Online Shoppers' Confidence Act, or ROSCA, prohibits the sale of user data by third-party payment processors. It also regulates "negative option" contracts, in which a consumer's inaction is interpreted as an intention to pay for a service. Although ROSCA does not prohibit negative options, it does enact certain requirements to ensure that the buyer has informed consent.
How Do Consumer Protection Laws Apply to Mortgage Lending
Consumer protection laws protect borrowers against discrimination and predatory lending practices. The Fair Housing Act prohibits discrimination on the basis of race, sex, religion, national origin, and several other categories. This prohibition applies at every stage of the mortgage application process.
In addition, the Dodd-Frank Wall Street Reform Act prohibits several aspects of predatory lending, such as undisclosed mortgage terms and steering clients to those mortgage products which carry a higher commission.
What Are Consumer Protection Laws for Bankruptcy?
The Bankruptcy Abuse Prevention and Consumer Protection Act has several provisions to limit abuse of the bankruptcy system, including an income threshold for Chapter Seven bankruptcy. It also protects IRAs from bankruptcy liquidations, so that a person who declares bankruptcy will not have to lose their retirement savings.
What Are Consumer Protection Laws that Protect Your Privacy?
The Fair Credit Reporting Act limits the use of consumers' credit history, such as bill payments and borrowing history. Also, the Financial Modernization Act of 1999 establishes protections for personal financial information and requires banks to disclose clearly how private information will be used.
The Bottom Line
The modern economy is dependent on consumer protection laws. These rules help eliminate bad businesses as well as give consumers peace of mind and encourage them to spend more. Over the past few decades, the number of laws has continued to grow and evolve to reflect new technologies and business practices. And thanks to the internet and other technologies, consumers are better informed of their rights than ever before.