WHAT IS 'Consumer Liability'

Consumer liability places the accountability on consumers to prevent negligence in their consumption activities. Policies determining consumer liability are written into contracts in order to protect companies from the potential negligence of consumers.

BREAKING DOWN 'Consumer Liability'

Consumer liability assigns contractual accountability to consumers to prevent companies from being held liable when consumers are negligent. Typically, consumer liability is delineated in the fine print of a contract or a terms of service document, and the responsibility for reading and obeying the terms of the policy is in the hands of the consumer.

Consumer liability policies range from simple policies governing transactions, such as purchasing non-refundable tickets, to more sprawling policies such as those delineated in the Electronic Funds Transfer Act.

The famous McDonald’s coffee case is a notable landmark in the history of consumer liability law. In this lawsuit, a 79-year-old woman was scalded by a cup of coffee she bought at a McDonald’s restaurant drive-through. The jury in this case ultimately sided with the plaintiff, placing the responsibility for the injury on the restaurant rather then the negligence of the consumer. This case ended with an out-of-court settlement for the injured party and influenced the ways companies communicate with their customers about their products and establish the warranties associated with them.

If a product on the market is determined to be defective or injurious, a company will often issue a voluntary recall for that product. While the success of injury claims in these circumstances will vary widely from case to case, a recall will frequently set the groundwork for consumer liability in response to continued use of recalled products.

Consumer Liability and The Electronic Funds Transfer Act

As electronic banking mechanisms became more commonplace, removing the paper trail provided by checks, as well as a degree of human interaction within financial transactions, The Electronic Funds Transfer Act was established in the U.S. Passed in 1978, the Electronic Funds Transfer Act primarily serves as a protection for both consumers and financial institutions by setting limits liability for unauthorized electronic financial transactions.

Specifically, this law states that consumers may be exposed to limited liability for unauthorized electronic transfers in certain circumstances. The policy states that a consumer who realizes a credit or debit card has been lost or stolen must report to the issuing bank within two business days, or else the bank is limited in their liability to refund losses. Consumers are also provided a 60-day window to challenge banking errors and correct them before a challenge is considered null and void.

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