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, comprising state and Federal laws. While "buyer beware" was once the motto of the free market, these regulations help keep sellers honest, with no threat of unpleasant surprises.
Consumer protection legislation is meant to protect us against these types of issues. That is why it's important to familiarize ourselves with the more common consumer protection laws.
- Consumer protection laws exist to prevent dangerous or unethical business practices, such as false advertising or faulty products.
- For most consumer goods, the Federal Trade Commission regulates warranties and service contracts.
- Warranties include a promise from the seller that the good will serve the purpose it was purchased for.
- A service contract defines the duties that will be performed for a given service, as well as deadlines and payment agreements between a customer and a company or person.
- In finance, consumer protection laws seek to prevent predatory lending, housing discrimination, securities fraud, privacy violations, and other unethical practices.
- Thanks to the Internet and telemarketing, scams and fraud are still common, since these operators can be hard to track down.
- To protect your private information, never give out social security, credit card, or bank account numbers over the phone. Check your billing statements and credit history regularly for fraudulent purchases.
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.
Suppose you buy a new bike for your daughter as a birthday gift. When she tries it in the park three weeks later, you both notice the front tire is bent. What do you do? Should you fix it yourself and avoid the trouble of going back to the store? Has the return time lapsed? Is the bike still covered under warranty? What do you do if you didn't purchase extra insurance coverage? Does a raincheck apply if the price suddenly changes if you need to buy a new item? This is one example of a scenario that customers go through daily.
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 Federal Trade Commission (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 advertisers 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 consumers' 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 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.
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 house 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
It also helps to use credit cards, not debit cards, for online shopping. Debit cards offer fewer protections than credit cards, and can also give access to your entire checking or savings account.
Closely review every item on your monthly bills. If there is a transaction you don't recognize, question the creditor in writing. If you think a charge is fraudulent, also notify your card company in writing no later than 60 days after the charge appears. Customers should 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.
Credit cards have better consumer protections than debit cards, and longer chargeback periods. This makes credit cards a safer option for online shopping.
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).
A report can be obtained annually for free from credit reporting agencies. It contains accounts opened and checks ordered in your name. However, it is not the same as the free full consumer credit report. This report is a completely separate report that the mass majority of consumers only find out about after they have been declined by a financial institution to open a checking or savings account.
The majority of banks and credit unions use the information contained in the report to approve, decline, or determine what type of account if any, can be opened at their financial institution. Consumers who have a negative report may not be able to open a checking or savings account for five years.
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 origins, 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
Finding out about the warranties of products you buy, reading service contracts, avoiding scams, and obtaining a consumer report is part of the overall maintenance of your financial health. Staying on top of these details helps you to make better-informed decisions and get more out of your hard-earned money. There are many other acts worth learning about that apply in certain situations, including the Home Owner Protection Act, the Home Affordable Modification Program, the Electronic Funds Transfer Act, the Fair Debt Collection Act, and the Fair Credit Billing Act.