Test Questions & Answers Ch48 Trade Commission Consumer Laws

Business Law, 17e (Langvardt)

Chapter 48 The Federal Trade Commission Act and Consumer Protection Laws

1) The Federal Trade Commission is a state agency.

2) The Federal Trade Commission's (FTC's) principal missions are to keep the U.S. economy both free and fair.

3) An order commanding the respondent to cease engaging in the deceptive or unfair conduct is the usual penalty that results from a successful FTC adjudicative proceeding.

4) To prove deception of a consumer under Section 5 of the FTC Act, it is not important if the consumer was acting reasonably when they were taken advantage of.

5) Corrective advertising is an order from the FTC that requires the seller's future advertisements to correct false impressions created by its past advertisements.

6) The obligations imposed on telemarketers by the FTC's Telemarketing Sales Rule do not apply to sellers that solicit sales through mailed catalogs and then receive consumers' orders by telephone.

7) The do-not-call registry is unconstitutional because it violates the First Amendment,

8) According to the Magnuson-Moss Warranty Act of 1975, a consumer is a buyer or transferee who either uses the product himself or sells it to another consumer.

9) If a $100 replacement part for a piece of manufacturing equipment is sold to a manufacturing plant, the Magnuson-Moss Act does not apply to the sale.

10) Much of the information contained in a monthly credit card statement is compulsorily required by the Truth in Lending Act.

11) The Truth in Lending Act (TILA) has provisions dealing with consumer credit advertising that prevents a creditor from "baiting" customers.

12) The Truth in Lending Act (TILA) specifies that if a home equity plan involves a variable interest rate, the "index rate" to which changes in the APR are pegged must be based on some publicly available rate and must not be under the creditor's control.

13) Besides imposing duties on consumer reporting agencies, the Fair Credit Reporting Act (FCRA) imposes duties on users of credit reports generated by such agencies.

14) A comprehensive consumer credit report is a credit report that includes information on a person's character, reputation, personal traits, or mode of living and is based on interviews with neighbors, friends, associates, and the like.

15) The Fair and Accurate Credit Transactions (FACT) Act was a 2003 amendment to the Fair Credit Reporting Act that aided victims of identity theft.

16) The Equal Credit Opportunity Act's (ECOA's) provisions apply only in the consumer credit setting but not in the commercial credit context.

17) A credit card issuer that fails to comply with the Fair Credit Billing Act forfeits its right to collect $50 of the disputed amount from the cardholder.

18) The Consumer Financial Protection Bureau (CFPB) has authority to take regulatory action to prohibit hidden fees charged by a financial institution.

19) The Fair Debt Collection Practices Act (FDCPA) does not bar debt collectors from contacting third parties such as the debtor's employer, relatives, or friends.

20) The main federal body concerned with the safety of consumer products is the Federal Trade Commission.

21) The FTC commissioners serve for:

A) fixed five-year terms.

B) staggered five-year terms.

C) fixed seven-year terms.

D) staggered seven-year terms.

22) What is the term for the source containing the FTC's interpretation of the laws it administers?

A) Industry guides

B) Advisory opinion

C) Executive order

D) Legislative act

23) When the Federal Trade Commission conducts an administrative hearing, the presiding judge in this hearing is a(n):

A) administrative law judge.

B) federal district court judge.

C) arbitration judge.

D) FTC commissioner.

24) The usual penalty resulting from a final decision against the respondent is a:

A) fine of $20,000.

B) cease-and-desist order.

C) fine of $10,000.

D) consent order.

25) Many alleged violations of statutes or trade regulation rules are never adjudicated by the FTC. Instead, they are settled through a ________.

A) cease-and-desist order

B) standard $16,000 fine per violation

C) consent order

D) standard $26,000 fine per violation

26) An advertisement is in violation of the Federal Trade Commission Act only when it:

A) is likely to mislead any consumer.

B) is likely to mislead a consumer who acts reasonably.

C) actually deceives any consumer.

D) does not involve a material misrepresentation.

27) Section 5 of the FTC Act normally is NOT violated when sellers make:

A) deceptive omissions from their advertisements.

B) exaggerated sales talk in their advertisements.

C) false or misleading claims of an implied nature.

D) unfair claims, even if they are substantial.

28) Which of the following is most likely to violate Section 5 of the FTC Act?

A) "Puffing" statements

B) Statements of opinion

C) Deceptive omissions

D) Sales talk

29) The Federal Trade Commission recently instituted an adjudicative proceeding against OK Corp., a manufacturer of inflatable dolls. OK is alleged to have made deceptive statements concerning the quality of its product in nationwide advertisements. Which of the following statements is accurate?

A) If the statements in the OK ads were material misrepresentations that could mislead reasonable consumers, the FTC's deception standard would require a conclusion that OK did engage in deceptive advertising.

B) OK may be held to have engaged in deceptive advertising regardless of whether the material misrepresentations could mislead reasonable consumers.

C) If the FTC proves that the intent in OK advertisements was to offend reasonable consumers, then an administrative law judge could order OK to cease making such an advertising claim.

D) OK cannot be held to have engaged in deceptive advertising if no consumers have actually been deceived by the OK ads.

30) European Union (EU) countries depend more on litigation instituted by private parties as the chief legal means of dealing with misleading advertising. In this sense, the approach taken by EU nations resembles advertising regulation in the United States under:

A) Section 5 of the FTC Act.

B) Section 4 of the Clayton Act.

C) Section 16(c) of the Sherman Act.

D) Section 43(a) of the Lanham Act.

31) The FTC focuses on ________ when it attacks unfair acts or practices.

A) free and fair trade

B) antitrust action

C) consumer harm

D) anticompetitive behavior

32) Which of the following will lead to a violation of the FTC Act Section 5's prohibition of unfair acts or practices?

A) An advertisement that causes emotional distress.

B) A seller's use of high-pressure sales tactics on vulnerable consumers.

C) An advertisement that is perceived to be offensive in nature.

D) A seller's failure to give a consumer complex technical data about a product.

33) Which of the following is NOT a possible consequence resulting from a successful FTC adjudicative proceeding attacking deceptive or unfair behavior?

A) Affirmative disclosure

B) All-products order

C) Corrective advertising

D) Imprisonment

34) Supermart Inc., a manufacturer of lawn furniture, is ordered by the FTC to place a warning on their TV advertisements that the price shown does not include everything that is shown and some items are additional costs. This remedy by the FTC is called what?

A) Affirmative disclosure

B) Fair Credit Monitoring

C) Imprisonment

D) Hybrid order

35) Which of the following acts is most likely to violate the Telemarketing Sales Rule (TSR)?

A) Calling a consumer's residence at 9:30 p.m. to inform the consumer about an exciting prize promotion

B) Soliciting sales through the mailing of a catalog and then receiving customers' orders by telephone

C) Making telephone calls to a customer to get an appointment for a face-to-face sales presentation

D) Making telephone calls of solicitation to a consumer but completing the transaction in a face-to-face meeting

36) Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 was enacted to regulate:

A) personal unsolicited calls.

B) personal e-mail messages.

C) commercial e-mail messages.

D) commercial unsolicited calls.

37) Enforcement authority for violations of the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act) was given to:

A) the FTC, state attorneys general, and users of Internet access services.

B) the FTC, state attorneys general, and providers of Internet access services.

C) district courts, state attorneys general, and users of Internet access services.

D) the FTC, district courts, and providers of Internet access services.

38) The ________ case is an example of litigation initiated by commercial telemarketers questioning the legal validity of the do-not-call registry.

A) Central Hudson

B) Kraft

C) Evory

D) Mainstream Marketing

39) In response to the Do-Not-Call Registry, affected commercial telemarketers initiated litigation brought on lack of statutory authority and:

A) First Amendment grounds.

B) Fourth Amendment grounds.

C) Fifth Amendment grounds.

D) Seventh Amendment grounds.

40) The Magnuson-Moss Warranty Act of 1975 mainly applies to:

A) presale agreements for products used for commercial purposes.

B) written warranties for products used for consumer purposes.

C) presale agreements for products used for consumer purposes.

D) written warranties for products used for commercial purposes.

41) The Magnuson-Moss Warranty Act applies to sales of goods costing:

A) $15 or more to a consumer.

B) $15 or more to any purchaser.

C) $50 or more to a consumer.

D) $50 or more to any purchaser.

42) Which of the following actions is most likely to adhere to the Magnuson-Moss Warranty Act of 1975?

A) A seller does not disclose any limitations on the duration of implied warranties.

B) A seller's written warranty does not include information on the duration of the warranty.

C) A seller refuses to disclose warranty terms to a buyer before the sale.

D) A seller fails to give a written warranty to a consumer for a consumer product.

43) Which of the following would keep the Truth in Lending Act (TILA) from applying to a transaction?

A) The intent of the debtor to make commercial use of funds borrowed in the transaction.

B) The transaction being an open-end credit plan.

C) The debtor being a natural person rather than a business entity.

D) The creditor being a credit card issuer rather than a maker of a conventional loan.

44) Which of the following is true about the Truth in Lending Act (TILA)?

A) Extending credit must be the creditor's primary business.

B) A creditor must require payment in more than two installments.

C) A debtor must be a natural person, not a business organization.

D) Consumer credit includes credit extended for agricultural purposes.

45) The TILA's detailed disclosure provisions break down into three categories. One of those categories is that of:

A) open-end credit.

B) debit card applications.

C) mixed credit.

D) consumer loans.

46) Which of the following instances of lending is most likely to be covered by the Truth in Lending Act (TILA)?

A) A savings and loan association extends a $30,000 credit to a retail consumer.

B) An auto retailer extends a $25,000 credit to a buyer payable in five equal installments.

C) An accountancy firm extends a $10,000 one-time credit to an employee.

D) A bank extends a $20,000 credit to a farmer for use in agricultural purposes.

47) Nearly Insolvent Savings & Loan (NISL) recently ran a newspaper advertisement that read as follows: "Unsecured open-end credit lines (maximum $15,000) now available to consumers. Borrow against your line as you need money. Your minimum monthly payment to NISL? Only $25." Which of the following is a legally accurate statement about this advertisement?

A) The advertisement complies with the Truth in Lending Act both in word and in spirit.

B) The Truth in Lending Act does not apply, because NISL would be extending consumer credit in an amount that exceeds the ceiling set forth in the statute.

C) The Truth in Lending Act does not apply, because NISL would be extending credit for consumer uses rather than for commercial uses.

D) The advertisement violates the Truth in Lending Act because it fails to state the annual percentage rate (APR).

48) Under the Truth in Lending Act (TILA), if a credit plan for a home equity loan involves a variable interest rate, the "index rate" to which changes in the APR are pegged must be:

A) based on creditworthiness of the debtor.

B) under the creditor's control.

C) based on some publicly available rate.

D) under the debtor's control.

49) Under the Truth in Lending Act (TILA), a creditor can unilaterally terminate a credit plan for a home equity loan and require immediate repayment of the outstanding balance when a consumer has:

A) paid the installment without the added interest.

B) lost his only source of income.

C) defaulted on one repayment installment.

D) made material misrepresentations.

50) Max's credit card was stolen last week. By the time Max reported this theft and got his card canceled, the thief had already withdrawn $10,000 using his card. Under the Truth in Lending Act (TILA), what is Max's maximum liability for this unauthorized use of his card?

A) $100

B) $50

C) $500

D) $10,000

51) The Fair Credit Reporting Act imposes disclosure duties on:

A) users of credit reports.

B) credit receivers.

C) users of debit services.

D) debit and credit receivers.

52) Harry filed for bankruptcy five years ago. He needs a consumer reporting agency to provide a credit report on him for a government license he has applied for. Under the Truth in Lending Act (TILA), the agency should avoid including in the report obsolete information predating the report by more than:

A) ten years.

B) fifteen years.

C) seven years.

D) five years.

53) Tony Sinister is a candidate for a middle management position at Mobco Inc. Mobco retained Clandestine Investigation & Credit Reporting Agency (CICRA) to interview Sinister's friends, neighbors, and associates and then prepare an investigative consumer report on Sinister. Which of the following would the Fair Credit Reporting Act require in this situation?

A) That CICRA not disclose to Mobco any information pertaining to Sinister's personal traits or reputation.

B) That Mobco inform Sinister of its request for the report and of his right to obtain further disclosures about the investigation.

C) That CICRA conduct interviews of Sinister's neighbors and relatives to gather relevant information.

D) That Mobco call off the investigation because a hiring decision does not involve credit-related information.

54) Violations of the Magnuson-Moss Warranty Act of 1975 are violations of:

A) FTC Act Section 5.

B) FTC Act Section 10.

C) Section 43(a) of the Lanham Act.

D) Section 41 of the Lanham Act.

55) The FCRA establishes ________ for persons who knowingly and willfully obtain consumer information from a credit bureau under false pretenses.

A) cease-and-desist orders

B) out-of-court settlements

C) consent orders

D) criminal penalties

56) The ________ Act aids victims of identity theft by allowing them to file identity theft reports with consumer reporting agencies.

A) Fair Credit Billing

B) Equal Credit Opportunity

C) Fair and Accurate Credit Transactions

D) Fair Credit Reporting

57) The ________ Act is not limited to consumer credit; it also covers business and commercial loans.

A) Truth in Lending

B) Equal Credit Opportunity

C) Fair and Accurate Credit Transactions

D) Fair Credit Reporting

58) The Equal Credit Opportunity Act (ECOA) requires creditors to notify applicants in how many days of a decision on credit request?

A) 90

B) 180

C) 30

D) 15

59) In his April 2011 credit card bill, Shawn noticed an entry for $1,179 paid by him to a resort on the west coast. Shawn lives in Montpelier, Vermont and claims he last traveled to the west coast almost two years back. In May 2011, he gave a written notice of the alleged error in the billing statement to his credit card issuer. Assume that the credit card issuer has failed to comply with the rules of the Fair Credit Billing Act. Under this Act, how much of the disputed amount can the issuer collect from Shawn?

A) $1,179

B) $1,079

C) $1,229

D) $1,129

60) The Consumer Financial Protection Bureau (CFPB) was created by the:

A) Dodd-Frank Wall Street Reform and Consumer Protection Act.

B) Equal Credit Opportunity Act.

C) Fair Debt Collection Practices Act.

D) Fair and Accurate Credit Transactions Act.

61) E. Z. Pickens owes a past-due consumer debt of $1,335 to the Needless Markup Department Store. Needless Markup retained Relentless Collection Agency, Inc. (RCA) to collect the debt. RCA employees were unable to locate Pickens so they asked his friends and his brother (Slim) about his whereabouts. When Pickens still had not been found, an RCA employee contacted Pickens's employer and asked how to locate him. Eventually, as a result of these inquiries, an RCA employee made contact with Pickens. Pickens contends that RCA violated the Fair Debt Collection Practices Act. Is he correct?

A) Yes, because the FDCPA prohibits debt collectors from trying to locate a debtor without the debtor's prior written permission.

B) Yes, because the FDCPA prohibits debt collectors from contacting the debtor's employer.

C) No, because the FDCPA applies only when a creditor is collecting a debt; it does not apply to agencies that collect debts on behalf of creditors.

D) No, because the FDCPA allows debt collectors to contact the debtor's friends, relatives, or employer if such contacts are necessary to locate a debtor.

62) Which of the following actions or statements by a debt collector would be least likely to violate the Fair Debt Collection Practices Act?

A) Contacting the debtor's adult son to determine whether the debtor has the financial resources to pay the debt.

B) Telling the debtor that a failure to pay the debt on time will lead to her imprisonment.

C) Repeatedly telephoning the debtor at home after she arrives home from work.

D) Telling the debtor the exact legal course of action the creditor intends to take if the debt is not paid on time.

63) The FDCPA requires a collector to give a debtor certain information about the debt:

A) within ten days of the collector's first communication with the debtor.

B) within ten days of the debtor receiving the credit amount.

C) within five days of the collector's first communication with the debtor.

D) within five days of the debtor receiving the credit amount.

64) What is the main federal body concerned with the safety of consumer products?

A) Consumer Product Safety Commission (CPSC)

B) International Product Council (IPC)

C) Federal Consumer Watchdog (FCW)

D) Internal Revenue Service (IRS)

65) Which of the following statements about the Federal Trade Commission is false?

A) The Federal Trade Commission is headed by five commissioners.

B) The Federal Trade Commission's headquarters is in Washington, DC.

C) The Federal Trade Commission was formed shortly after the 1914 enactment of the Federal Trade Commission Act.

D) The Federal Trade Commission is part of the executive branch of the federal government.

66) The ________ appoints the Federal Trade Commission's commissioners.

A) president

B) Senate

C) attorney general

D) House of Representatives

67) The Federal Trade Commission is headquartered in:

A) Washington, District of Columbia.

B) Harrisburg, Pennsylvania.

C) New York, New York.

D) Annapolis, Maryland.

68) The most important tool Congress has given the Federal Trade Commission (FTC) is:

A) the Truth in Lending Act.

B) Section 5 of the Federal Trade Commission Act.

C) the Fair Credit Billing Act.

D) the Dodd-Frank Act.

69) The text discusses three of the Federal Trade Commission's most important enforcement devices. Which of the following is not one of those?

A) Procedures for facilitating voluntary compliance

B) Its issuance of trade regulation rules

C) Its adjudicative proceedings

D) Its legislative function to create and amend statutes

70) ________ are the Federal Trade Commission's responses to a private party's query about the legality of proposed business conduct.

A) Advisory opinions

B) Industry guides

C) Executive orders

D) Legislative acts

71) Which of the following statements represents the Federal Trade Commission's authority to seek a civil penalty for noncompliance with a cease-and-desist order?

A) The Federal Trade Commission can seek up to $8,000 for all violations.

B) The Federal Trade Commission can seek up to $10,000 per violation.

C) The Federal Trade Commission can seek up to $16,000 per violation.

D) The Federal Trade Commission has no authority to seek civil penalties for noncompliance with a cease-and-desist order.

72) A(n) ________ is an order approving a negotiated agreement in which the respondent promises to cease certain activities.

A) advisory opinion

B) consent order

C) cease-and-desist order

D) industry guide

73) The case in the text, Federal Trade Commission v. Ross, is in example of:

A) an adjudicative proceeding under Section 5 of the FTC Act.

B) a consent order entered into by the parties.

C) disobeying an advisory opinion.

D) the FTC's decision to litigate in court rather than by way of an adjudicative proceeding.

74) Section 5 of the FTC Act empowers the Commission to regulate:

A) free and fair trade between countries.

B) antitrust action prohibited by the Dodd-Frank Act.

C) anticompetitive practices made unlawful by the Sherman Act.

D) mergers and acquisitions.

75) Which of the following statements about Section 5 of the FTC Act and anticompetitive behavior is false?

A) Section 5 empowers the Commission to prevent "unfair methods of competition."

B) The Commission has statutory authority to enforce the Clayton Act.

C) Section 5 only reaches anticompetitive behavior covered by other antitrust statutes.

D) Section 5 enables the FTC to proceed against incipient antitrust violations.

76) In Kraft, Inc. v. Federal Trade Commission, the case in the text, the court held that:

A) implied claims are inescapably subjective and unpredictable.

B) the Commission reasonably found that Kraft's conduct was deliberate because it persisted in running the challenged ad copy.

C) Kraft's claim in its advertisement was not material to customers because it did not affect their choice when choosing their product.

D) the scope of the FTC's cease-and-desist order was not reasonably related to Kraft's violation of the FTC Act because it extended to products that were not subject to the challenged advertisements.

77) The case in the text, POM Wonderful, LLC, v. Federal Trade Commission, is an example of when the FTC will investigate an advertisers' potentially misleading claims that:

A) might cause an unreasonable consumer to rely on it.

B) arise from sponsored content.

C) are communicated through Twitter or Facebook.

D) use of their products leads, or may lead, to certain beneficial health effects.

78) Section 5 of the FTC Act prohibits unfair acts or practices that cause substantial consumer harm. Which of the following examples would generally not qualify as a substantial harm?

A) Emotional distress

B) Monetary loss

C) Unwarranted health risks

D) Unwarranted safety risks

79) Which of the following is not required of a consumer harm that is challenged under Section 5 of the FTC Act?

A) The harm must be one where a consumer had a significant monetary loss

B) A substantial harm

C) The harm must not be outweighed by any offsetting consumer or competitive benefits produced by the challenged products

D) A harm must be one that consumers could not reasonably have avoided

80) Which of the following is not considered when the FTC determines whether an advertisement is deceptive?

A) Whether the advertisement involves a material misrepresentation, omission, or practice

B) Whether the advertisement is likely to mislead a consumer

C) Whether the advertisement is often taken seriously by consumers

D) Whether the consumer acted reasonably under the circumstances

81) The Telemarketing Sales Rule defines ________ as "a plan, program, or campaign which is conducted to induce the purchase of goods or services by use of one or more telephones and which involves more than one interstate telephone call."

A) telemarketing

B) advertising

C) campaigning

D) telecommunications

82) In recent years, the FTC has encouraged companies that provide Internet browsers to offer a ________ system under which consumers can choose not to have their Internet use traced by third parties.

A) Traffic Blocking

B) Privacy

C) Invisible Browsing

D) Do Not Track

83) Which of the following is defined by the Truth in Lending Act as a plan that contemplates repeated transactions and involves a finance charge that may be computed on the unpaid balance?

A) Revolving credit

B) Interest credit

C) Open-end credit

D) Closed-end credit

84) Which of the following prohibits credit discrimination on the bases of sex, marital status, age, race, color, national origin, religion, and the obtaining of income from public assistance?

A) Truth in Lending

B) Equal Credit Opportunity

C) Fair and Accurate Credit Transactions

D) Fair Credit Reporting

85) As explained in the case in the text, Evory v. RJM Acquisitions Funding, L.L.C., the Fair Debt Collection Practices Act (FDCPA) sets out categories for forbidden collector practices and lists specific examples of each category. Which of the following is not likely to constitute harassment, oppression, or abuse?

A) Threats of violence

B) Obscene language

C) A voicemail message

D) Repeated phone calls

86) Describe the similarities between the United States' approach to advertising regulation and that taken by other countries.

87) Beginning in 1998 and continuing until August 1, 2003, Aromatic Co. promoted the sale of its Essence of Terre Haute (ETH) brand perfume by encouraging ETH buyers to save the proof of purchase seals on ETH labels. Consumers with at least 25 proofs of purchase seals could redeem them for fabulous prizes. This promotion caused the sales of ETH since 1998 to be well in excess of ETH sales levels from 1993 through 1998. In a nationally televised announcement on August 1, 2003, Aromatic stated that it was ceasing the proof of purchase program and that effective immediately, no more proof of purchase seals would be accepted for redemption. This left millions of ETH buyers with worthless proof of purchase seals, many of which came from bottles of ETH purchased within one week before Aromatic's August 1 announcement. Assume that the Federal Trade Commission has brought an adjudicative proceeding against Aromatic on the theory that the August 1 announcement (and the underlying decision to halt the program without giving consumers a reasonable period of time within which to redeem their seals) constituted an unfair practice in violation of Section 5 of the FTC Act. Aromatic argues, in defense, that its August 1 announcement was easily understandable and contained no deceptive statements. It also argues that the elements of unfairness are not present here. Analyze and evaluate Aromatic's arguments.

88) Average Corp. recently paid for an advertisement that appeared in newspapers across the country. The advertisement consisted of the expression of Average's views on what the federal government should be doing in order to help combat the AIDS crisis. In the expression of these views, the Average advertisement made erroneous statements about how AIDS may be acquired. Assume that the FTC, concerned about the erroneous statements, has begun a deceptive advertising proceeding against Average. What is the strongest legal argument for Average to use in an attempt to have the proceeding dismissed? Explain your reasoning.

89) Pesky, Inc. employs numerous sales representatives who attempt to sell the company's products door-to-door. All of the products sold in this manner are designed for use in the home. They range in price from $29.95 to $149.95. Each Pesky sales representative has been instructed to provide customers the address from which warranty information about Pesky's products may be obtained. The sales representatives give customers this address before the sale of any product takes place. The FTC has sued Pesky in federal court, requesting appropriate injunctive relief on the theory that Pesky's practices (as just described) do not comply with the Magnuson-Moss Act and its implementing regulations. Is the FTC's position correct? Explain.

90) Amy Ames applied for a loan at Local State Bank. Three weeks later, she received notice from Local State that her application had been denied. Ames later learned, from a reliable source, that the bank denied her application because a credit report on her stated that she had filed for bankruptcy three times. Ames contends this statement in the credit report is untrue. What can she do?