Consumer protection: Definition from Answers.com

Legislative protection of the consumer dates back to the codes of antiquity. On the North American continent, provisions protecting consumers were incorporated into the earliest colonial codes. The 1648 Laws and Liberties of Massachusetts, for example, regulated the price of bread and butter, set standards for barrels and staves, and provided for inspections of commercial enterprises to ensure compliance with these regulations. A century and a half later, the architects of the new nation gave the federal government the power to promote consumer protection by granting Congress the Constitutional authority to "regulate Comerce … among the several States," and to "coin Money, regulate the Value thereof, … and fix the Standard of Weights and Measures."

Just as the economy underwent a transformation in the nineteenth century, so too did the amount and nature of consumer protection. In colonial agrarian communities, the buyer was effectively shielded by his knowledge of products and often by strong community sanctions against fraudulent practices. Rapid population growth, the rise of urban centers, and industrialization with its specialization and division of labor undermined these traditional protections. As a consequence, during the early nineteenth century, state and local authorities passed a deluge of economic restrictions. They enacted laws controlling the manufacture and sale of a wide range of products including chocolate, clapboards, firewood, fish, flax-seed, gunpowder, hops, nails, oils, sandals, shingles, shoes, and wood. They expanded the number of trades for which one needed a license. And they passed laws dealing with public markets, sale of unwholesome provisions, monopolies, frauds, usury, and weights and measures.

One feature of this early regulatory regime was that authority was local and diffuse. Legislatures did not create agencies to protect consumers, but rather gave this responsibility to an array of local and public officials—including mayors, justices of the peace, inspectors, weighers, cullers, surveyors, measurers, and gaugers. In the late nineteenth century, however, social and economic changes led to a centralization of regulatory authority and new mechanisms for protecting consumers. By the early twentieth century, a movement to create state commissions to regulate electric and gas utilities was sweeping across the country. During this same period, federal intervention in the economy became directed at stabilizing industries wracked by competition, while at the same time protecting consumers. Following journalistic exposés of the sale of unsanitary meats and the peddling of worthless patent medicines, Congress passed the Meat Inspection Act and the Pure Food and Drug Act in 1906. That same year, it expanded the powers of the Interstate Commerce Commission to include railroad rate-setting. And in 1914, Congress established the Federal Trade Commission to monitor false and misleading advertising.

Much of this late-nineteenth-and early-twentieth-century consumer legislation was ineffective because of narrow court interpretations and inadequate enforcement. Furthermore, the business community often helped draft the legislation and favored regulatory strategies that ameliorated only the worst effects of competition and that did not offer the most comprehensive or effective protection to consumers. Out of this milieu emerged a consumer movement directed at the proliferation of rival, often exaggerated product claims and dubious business practices. The advertising industry responded by creating the National Better Business Bureau in 1925 in an effort at self-policing. The Bureau was to monitor the integrity of national advertising, but it had to rely on voluntary codes of conduct since it had no enforcement powers. Private consumer education groups and club-women pushed for more protective legislation and published "guinea pig" books, which warned against product quackery. This agitation lead to the creation of Consumers Research in 1928, a private nonprofit organization designed to substitute the publication of laboratory test results for partisan advertising claims. Consumers Research was soon to be overshadowed by a rival nonprofit testing organization, Consumers Union, formed in 1936. The latter had by the beginning of the twenty-first century, a subscription roster of over four million for its magazine Consumer Reports.

These early consumer testing efforts greatly accelerated the growth of consumer legislation, including amendments that strengthened the Food and Drug Act and the Federal Trade Commission law and laws that mandated and supported consumer protection efforts in the Department of Agriculture, the Department of Transportation, and a host of other federal, state, and local govern-mental agencies. In 1961, President John F. Kennedy formed the Consumer Advisory Council. Lyndon B. Johnson established the position of special assistant on consumer affairs and the President's Committee on Consumer Interests.

These new executive branch offices reflected the emergence of the modern consumer movement. And the man most responsible for the modern consumer movement was Ralph Nader. Nader can claim credit for some of the nation's most important federal consumer protection laws, including the National Traffic and Motor Vehicle Safety Act (1966), the Freedom of Information Act (1966), and the Consumer Product Safety Act (1972). Perhaps Nader's greatest success was improved auto safety. His 1965 book, Unsafe at Any Speed, exposed the safety mishaps and design flaws of U.S. automobiles and spurred safety and design changes in the auto industry leading to such innovations as seat belts, air bags, and antilock brakes. Traffic deaths in the United States fell from roughly 55,000 in the early 1970s to 47,000 in 1990 due to Nader's efforts as well as such other factors as the raising of the drinking age to twenty-one in most states.

Nader extended and institutionalized his effort by using the almost half-million dollars he received from General Motors to settle an invasion of privacy lawsuit in the 1960s to fund a network of dozens of consumer groups. These organizations became training grounds for political activists and lawyers. Some of Nader's Raiders eventually went into private law practice where they continued to sue businesses on behalf of injured consumers and workers, helping to generate an increase in tort lawsuits in the 1970s and 1980s. Many of these lawsuits addressed real wrongs. Thousands of women were part of the class-action suits brought against the manufacturers of tampons causing toxic shock syndrome, a form of poisoning that killed or permanently injured the women. The lawsuit won millions of dollars in damages for women around the country and forced tampon manufacturers to alter their products. Lawsuits also recovered damages for victims of the Ford Pinto, an automobile that, because of a design flaw, tended to explode and burn when struck from behind. Businesses claimed, however, that many lawsuits were filed on much less justifiable grounds, clogging the courts and leading to outlandish jury verdicts, particularly when juries awarded punitive damages designed to punish defendants for their actions rather than compensate plaintiffs.

Nader did not work alone. The Consumer Federation of America formed national, state, and local consumer organizations in the 1960s and 1970s to assist in the handling of buyers' complaints, to lobby for legislation, and to introduce consumer education into the schools. Other organizations emerged, such as the Center for Science in the Public Interest, to support research and advocacy. And consumer testing organizations similar to the Consumers Union sprang up abroad and became federated in an International Organization of Consumers Unions founded in The Hague in 1960 to afford an international technical interchange.

As the modern consumer movement matured during the late 1970s and into the 1980s and 1990s, it found itself both enjoying the successes of trying to improve product safety and consumer awareness but also battling strong political and business attempts to curb or eliminate the movement's power. The consumer movement's successes included such important safety measures as the standard use of seat belts and air bags in cars and trucks sold in the United States. Consumers could also learn about the nutritional level of the packaged foods they bought, once the federal government, under prodding of the consumer movement, forced foodmakers to include such labeling on products. The movement also showed success on the anti-smoking front, with many public and private places across the country banning smoking. In addition, it forced regulatory agencies to recognize that their mission is not centrally that of assisting business but of helping to provide honest and fair dealing in the marketplace.

To others, however, the movement's maturity strangled the nation and business with regulations, increased costs for consumers, employed too many nonproductive lawyers, and added to the individual and collective sense of aggrievement that permeated much of American society during the late twentieth century. As conservatives reasserted their power—first with Ronald Reagan's two terms as president during the 1980s, then with the Republican sweep of the 1994 congressional elections—many of the political and bureaucratic gains of the consumer movement came under attack. Taking their cue from the 1994 campaign document known as the "Con-tract with America," congressional Republicans introduced legislation the following year to curb or repeal such legislation as the Clean Water (1967) and Clean Air (1970) acts, which they deemed harmful to business. They continued efforts begun in the 1980s to restrict punitive damages. They sought to severely restrict the ability of stockholders to sue a company while also making it more difficult to sue a company for product liability. And they moved to repeal some of the nation's banking and bankruptcy laws that benefited consumers. Although some of these efforts were successful, the strength of the consumer movement and the deep public support for its fundamental aims ensured strong resistance to any serious threats to the laws and regulatory apparatus that provides protection to consumers.

Bibliography

Goodwin, Lorine Swainston. The Pure Food, Drink, and Drug Crusaders, 1879–1914. Jefferson, N.C.: McFarland, 1999.

Holsworth, Robert D. Public Interest Liberalism and the Crisis of Affluence: Reflections on Nader, Environmentalism, and the Politics of a Sustainable Society. Boston: G.K. Hall, 1980.

McCraw, Thomas K. Prophets of Regulation. Cambridge, Mass.: Belknap Press of Harvard University Press, 1984.

Mayer, Robert N. The Consumer Movement: Guardians of the Marketplace. Boston: Twayne Publishers, 1989.

Nader, Ralph. Crashing the Party: Taking on the Corporate Government in an Age of Surrender. New York: Thomas Dunne Books/St. Martin's Press, 2001.

Novak, William J. The People's Welfare: Law and Regulation in Nineteenth-Century America. Chapel Hill: University of North Carolina Press, 1996.

Silber, Norman Isaac. Test and Protest: The Influence of Consumers Union. New York: Holmes & Meier, 1983.

—Thomas G. Gress

This entry contains information applicable to United States law only.

Consumer protection laws are federal and state statutes governing sales and credit practices involving consumer goods. Such statutes prohibit and regulate deceptive or unconscionable advertising and sales practices, product quality, credit financing and reporting, debt collection, leases, and other aspects of consumer transactions.

The goal of consumer protection laws is to place consumers, who are average citizens engaging in business deals such as buying goods or borrowing money, on an even par with companies or citizens who regularly engage in business. Historically, consumer transactions— purchases of goods or services for personal, family, or household use — were presumed fair because it was assumed that buyers and sellers bargained from equal positions. Starting in the 1960s, legislatures began to respond to complaints by consumer advocates that consumers were inherently disadvantaged, particularly when bargaining with large corporations and industries. Several types of agencies and statutes, both state and federal, now work to protect consumers.

Consumer Product Safety Commission

In 1972, Congress established the Consumer Product Safety Commission (CPSC). It is the job of the CPSC to protect consumers from faulty or dangerous products by enacting mandatory safety standards for those products. The CPSC has the authority to ban products from the marketplace or to recall products (when a product is recalled, it is removed from the shelves or sales lots, and consumers may be able to return it to the manufacturer or place of purchase for repair, replacement, or a refund). Still, the agency has trouble protecting consumers from hazardous products of which it is unaware.

In recent years, the CPSC has fallen victim to federal budget cuts: from 1975 to 1990, the agency's budget decreased 60 percent. Reductions in the agency's legal staff have prompted the CPSC to rely more and more on manufacturers to voluntarily recall their defective or hazardous products. When manufacturers do not cooperate, the CPSC must commence a legal action that may take years to resolve. Of 176 product recalls the CPSC supervised in 1993, almost all were voluntary. Manufacturers, by law, must report product safety problems to the CPSC, and the CPSC may fine manufacturers who fail to do so up to $1.25 million.

Unfair or Deceptive Trade Practices

The U.S. Federal Trade Commission (FTC), the largest federal agency that handles consumer complaints, regulates unfair or deceptive trade practices. Even local trade practices deemed unfair or deceptive may fall within the jurisdiction of FTC laws and regulations when they have an adverse effect on interstate commerce.

In addition, every state has enacted consumer protection statutes, which are modeled after the Federal Trade Commission Act (15 U.S.C.A. § 45(a)(1)). These acts allow state attorneys general and private consumers to commence lawsuits over false or deceptive advertisements, or other unfair and injurious consumer practices. Many of the state statutes explicitly provide that courts turn to the federal act and interpretations of the FTC for guidance in construing state laws.

The FTC standard for unfair consumer acts or practices has changed with time. In 1964, the agency instituted criteria for determining unfairness when it enacted its cigarette advertising and labeling rule: a practice was deemed unfair when it (1) offended public policy as defined by statutes, common law, or otherwise; (2) was immoral, unethical, oppressive, or unscrupulous; and (3) substantially injured consumers. The FTC changed the standard in 1980. Now, substantial injury of consumers is the most heavily weighed element, and it alone may constitute an unfair practice. Such an unfair practice is illegal pursuant to the Federal Trade Commission Act unless the consumer injury is outweighed by benefits to consumers or competition, or consumers could not reasonably have avoided such injury. The FTC may still consider the public policy criterion, but only in determining whether substantial injury exists. Finally, the FTC no longer considers whether conduct was immoral, unethical, oppressive, or unscrupulous.

The FTC has also developed, over time, its definition of deceptive acts or practices. Historically, an act was deceptive if it had the tendency or capacity to deceive, and the FTC considered the act's effect on the ignorant or credulous consumer. A formal policy statement made by the FTC in 1988 changed this definition: currently, a practice is deceptive if it will likely mislead a consumer, acting reasonably under the circumstances, to that consumer's detriment.

False advertising is often the cause of consumer complaints. At common law, a consumer had the right to bring an action against a false advertiser for fraud, upon proving that the advertiser made false representations about the product, that these representations were made with the advertiser's knowledge of or negligent failure to discover the falsehoods, and that the consumer relied on the false advertisement and was harmed as a result. In 1911, an advertising trade journal called Printer's Ink proposed model legislation criminalizing false advertisements. Forty-four states enacted statutes based on this model statute. However, because of the difficulty in proving beyond a reasonable doubt an advertiser's dishonesty, prosecutors seldom use these criminal laws. More frequently, the state attorneys general or the FTC regulates false advertising. For example, the FTC can issue a cease and desist order, forcing a manufacturer to stop advertising, or compelling the advertiser to make corrections or disclosures informing the public of the misrepresentations.

Truth in Lending Act

Consumer credit— home mortgages, student financial aid, and credit cards, for example — is an area fraught with complicated finance terms, and Congress has designed laws requiring lenders to fully disclose and explain those terms to potential borrowers. The Consumer Credit Protection Act of 1968 (15 U.S.C.A. § 1601 et seq.), also known as the Truth in Lending Act, prohibits lenders from advertising loan terms that are only available to preferred borrowers. In addition, advertisements for consumer credit transactions cannot disclose partial terms; either all the terms of the transaction or none of them must be spelled out. Finally, when the terms of credit provide for repayment in more than four installments, the agreement must conspicuously state that "the cost of credit is included in the price quoted for the goods and services."

The Truth in Lending Act is designed to protect society as a whole, and therefore does not provide the individual consumer with a personal cause of action when a lender violates the law. Nor are publishers of advertising, such as radio, newspapers, and television, generally held liable for lenders' advertisements that violate the act. Finally, the act does not consider statements made by salespeople in the course of selling products or services to be advertisements, therefore the law does not apply to those statements.

Warranties

Warranties are promises by a manufacturer, made to the consumer purchasing the manufacturer's product, that the product will serve the purpose for which it was designed. The Uniform Commercial Code is a law, adopted in some form in all states, that regulates sales transactions and specifically the three most common types of consumer warranties: express, merchantability, and fitness.

Express warranties are promises included in the written or oral terms of a sales agreement that assure the quality, description, or performance of the product. Express warranties are usually included in the sales contract, or are written in a separate pamphlet and packaged with the merchandise sold to the consumer. These warranties may be less obvious than are product advertisements. A consumer who relies on a written description of a product in a catalog or on a sample of a product may have a cause of action if the actual product differs. Express warranties can also be verbal, such as promises made by salespeople. However, because oral warranties are extremely difficult to prove, they are rarely litigated.

Merchantability and fitness warranties are both implied warranties, which are promises that arise by operation of law. A warranty of merchantability concerns the basic understanding that the product is fit to be purchased and used in the ordinary way — for instance, a lamp will provide light, a radio will pick up broadcast stations, and a refrigerator will keep food cold. A warranty of fitness concerns the consumer's purpose in purchasing a product, and allows the consumer to rely on the seller to offer goods only if they are suitable for that particular purpose. For example, there may be a breach of the implied warranty of fitness if a salesperson knowingly sells a consumer software that is not designed for operation on the consumer's computer. For a breach-of-implied-warranty claim to be successful, the consumer must establish that an implied warranty existed and was breached, that the breach harmed the consumer, that the consumer dealt with the party responsible for the implied warranty, and that the consumer notified the seller within a reasonable time. Implied warranties may be disclaimed by the seller if they are denied expressly and specifically at the time of the sale.

The Magnuson-Moss Warranty Act (15 U.S.C.A. § 2301 et seq.) is a federal law that requires sellers to explain, in easy-to-understand language, the terms of warranties that apply to written sales contracts for items costing $5 or more. Under this act, when a product fails to meet the standards promised by the warranty, the seller must repair it, replace it, or refund the purchase price.

Consumer Remedies

Laws protecting consumers vary in the remedies they provide to consumers for violations. Many federal laws merely provide for public agencies to enforce consumer regulations by investigating and resolving consumer complaints. For example, in the case of a false advertisement, a common remedy is the FTC-ordered removal of the offensive advertisements from the media. In other circumstances, consumers may be entitled to money damages, costs, and attorneys' fees; these remedies can be effective in a case involving a breach of warranty. Depending on the amount of damages alleged, consumers may bring such actions in small-claims courts, which tend to be speedier and less expensive than trial courts. Alternative dispute resolution (ADR) is another option for consumers. Some states pass consumer protection statutes that require some form of ADR — usually arbitration or mediation — before a consumer can seek help from the courts. Finally, when a large number of consumers have been harmed in the same way as a result of the same practice, they may join in a class action, a single lawsuit in which one or more named representatives of the consumer group sue to redress the injuries sustained by all members of the group.