Apr 11, 2018 | Blog, Consumer Protection
Is it Illegal to Condition Warranty Coverage on the Use of Specified Parts or Services?
On April 10, 2018, the Federal Trade Commission announced that it sent warning letters to six major companies that market and sell automobiles, cellular devices, and video gaming systems in the United States.
The letters warn about the FTC’s concerns about the statements of the companies that consumers must use specified parts or service providers to keep their warranties intact. Unless warrantors provide the parts or services for free or receive a waiver from the FTC, such statements, generally, are prohibited by the Magnuson-Moss Warranty Act, a law that governs consumer product warranties. Similarly, such statements may be deceptive under the FTC Act.
FTC staff recently took a closer look at the warranties and promotional materials of the various companies and saw language that raised concerns that some businesses were telling consumers that their warranty would be void if they used unauthorized parts or service. The following are examples of the language of the questionable warranty provisions:
The use of [the company’s parts] is required to keep your . . . manufacturer’s warranties and any extended warranties intact.
This warranty shall not apply if this product . . . is used with products not sold or licensed by [company name].
This warranty does not apply if this product . . . had had the warranty seal on the [product] altered, defaced, or removed.
FTC staff suggested that the companies review the Magnuson-Moss Warranty Act and, if necessary, revise their practices accordingly. The letters put the companies on notice that after 30 days, the FTC will be taking another look at their written warranties and promotional materials. FTC staff has requested that each company review its promotional and warranty materials to ensure that such materials do not state or imply that warranty coverage is conditioned on the use of specific parts of services.
Warranties Under the Magnuson-Moss Warranty Act and Its Two Exceptions
According to the Magnuson-Moss Warranty Act:
No warrantor of a consumer product may condition his written or implied warranty of such product on the consumer’s using, in connection with such product, any article or service (other than article or service provided without charge under the terms of the warranty) which is identified by brand, trade, or corporate name.
Thus, according to the FTC, a company cannot void a consumer’s warranty or deny warranty coverage solely because the consumer uses a part made by someone else or gets someone not authorized by the company to perform service on the product.
There are only two exceptions:
1) If the company provides the article or service to consumers for free; or
2) If the company gets a waiver from the FTC. Under 15 U.S.C. § 2302(c), the FTC may grant a waiver only if the company proves that “the warranted product will function properly only if the article or service so identified is used in connection with the warranted product, and the waiver is in the public interest.” Companies, according to the FTC, may, however, disclaim warranty coverage for defects or damage caused by the use of unauthorized parts or service.
Section 5 of the FTC Act’s Prohibition on Deception Applies to Misleading Warranty Claims
A violation of the Magnuson-Moss Warranty Act, according to the FTC, is a violation of Section 5 of the FTC Act. But separate and apart from Magnuson-Moss, a claim that creates a false impression that a warranty would be void due to the use of unauthorized parts or service may be a stand-alone deceptive practice under the FTC Act.
Source: FTC.gov
Feb 6, 2018 | Blog, Consumer Protection
The Telemarketing Sales Rule: For-Profit Telemarketers Must Be Truthful
According to a recent Federal Trade Commission blog posting (“Telemarketing Sales Rule requires clarity on charity”):
To make sure that telemarketers are truthful about why they are calling, so consumers can make an informed decision about whether to engage with a telemarketer and contribute to a charity, the 2001USA Patriot Act expanded the Federal Trade Commission’s Telemarketing Sales Rule to cover calls made to solicit charitable contributions.
At the direction of Congress, the FTC modified the Telemarketing Sales Rule to:
1) Apply to interstate calls made by for-profit telemarketers to solicit charitable contributions;
2) Require for-profit telemarketers to promptly disclose the name of the group making the request and that the purpose of the call is to ask for a donation; and
3) Prohibit for-profit telemarketers from making false or misleading statements to induce a person to contribute.
For-Profit Charitable Callers Must Follow the Telemarketing Sales Rule
Another FTC blog posting (“For-profit charitable callers must follow the rules”) advised that “The Do Not Call Registry” is designed to stop unwanted sales calls; however, one exception to the Do Not Call Registry allows for-profit fundraisers to call individuals on behalf of charities even if one’s telephone number is listed on the Do Not Call Registry. When these charitable fundraisers call someone, however, they must still follow the Telemarketing Sales Rule.
Notable provisions of the Telemarketing Sales Rule Which For-Profit Fundraisers Must Follow:
Telemarketers must promptly tell consumers the charity on whose behalf they’re calling and truthfully disclose if the purpose of the call is to ask for a donation.
Telemarketers cannot make misleading statements to persuade people to donate, including misrepresentations about the charitable purpose, how much money goes to the charity, whether donations are tax deductible, how the money will be used, or the telemarketer’s connection to the charity.
Telemarketers cannot use robocalls or prerecorded messages to reach consumers unless the person is a current member of the charity or has donated to the charity in the past. And even if the consumer has donated to that charity before, robocalls from a telemarketer must promptly offer a way to opt out of future calls.
If the consumer tells the telemarketer they don’t want to be called by that charity again, the telemarketer must maintain a Do Not Call list for that charity and stop calling that person on behalf of that charity.
Telemarketers cannot call before 8 A.M. or after 9 P.M.
Telemarketers must keep certain records, like scripts and promotional materials, for two years.
Have You Received Unsolicited or Unwanted Telemarketing Calls, Autodial Calls, Robocalls or Text Messages?
If you have received unwanted, unsolicited or harassing telemarketing calls, autodial calls, robocalls or text messages and would like to speak privately with an attorney to learn more about your potential legal rights, please complete the form to the right or contact Michael Yarnoff, Esq., (215) 792-6676, Ext. 804, [email protected]; John Kehoe, Esq., (215) 792-6676, Ext. 801, [email protected]; or send an e-mail to [email protected].
Dec 13, 2017 | Blog, Consumer Protection
Overdraft Programs & Overdraft Fees – CFPB’s Overdraft Program Study
“Consumer Voices on Overdraft Programs” – CFPB Overdraft Study – Key Findings
The CFPB reported that it launched a qualitative study to explore consumers’ thoughts, intentions, and expectations about overdraft programs to supplement its quantitative analyses of overdraft programs and their impacts on consumers. This qualitative study consisted of in-depth interviews with consumers who had experience with overdraft programs.
The CFPB’s report detailed the findings from consumer interviews, including how interviewed consumers understood overdraft programs, consumer perceptions of experiences with overdraft, and consumer beliefs about the advantages and drawbacks to alternatives to overdraft.
The CFPB reported the following key findings from consumer interviews:
Consumers in the study noted several benefits to the availability of overdraft as well as drawbacks. Despite recognizing some benefits, however, all participants were concerned about the high cost of overdraft fees.
Participants commonly reported surprise at the overdraft fees they were charged. At the same time, some participants expressed awareness that they risked overdraft fees when transacting.
Participants expressed uncertainty about how their financial institutions make decisions about what to pay into overdraft or how they charge overdraft fees; participants were particularly uncertain about how their financial institution’s overdraft policies differed across types of transactions.
Many participants’ overdraft experiences reflected uncertainty about transaction processing, such as the timing of deposits being credited to their accounts. Participants also commonly forgot about scheduled payments that resulted in overdrawn accounts.
Participants frequently cited friends and family members as resources that could provide an alternative for them to overdraft. Their views on other financial products as alternatives to overdraft such as credit cards or savings diverged widely, with some participants viewing these alternatives as beneficial and others viewing alternatives as risky.
CFPB’s Overdraft Study Highlights Importance of Providing Suggestions & Strategies To Support Consumers
The CFPB report stated that
. . . the range of experiences with overdraft described by consumers participating in the CFPB’s study highlights the importance of providing resources that reflect the diversity in how consumers use and understand overdraft programs. The wide range of preferences and experiences that consumers relayed through the interviews indicates that financial educators may best achieve their goals by designing flexible resources that adapt to individual consumers’ experiences and preferences. Below are some suggestions of strategies . . . to support consumers:
**Remind consumers to consider a bank or credit union’s overdraft practices when selecting a checking account.
**Encourage consumers to investigate all overdraft options offered for their current checking account, including linking an account, in order to select the plan that best fits their needs.
**Help clients develop a system for staying aware of the timing of their scheduled payments. The CFPB’s Your Money Your Goals toolkit includes a spending tracker and a bill calendar that consumers can use to keep track of their cash flow. Those who are interested in the tools can order them for free at consumerfinance.gov/your-money-your-goals/.
**Encourage consumers to check account balances periodically by doing things such as calling their bank, visiting an ATM, signing up for text alerts, viewing accounts online, or using mobile applications before making discretionary purchases.
**Suggest that consumers sign up for low balance alerts to help them avoid unintentional overdraft.
CFPB Educational Resources and Tips for Consumers on Managing Checking Accounts, Including Information on Overdraft-Related Issues
Guides to selecting and managing checking accounts, available at consumerfinance.gov/about-us/blog/guides-to-help-you-open-and-manage-your-checking-account/.
A worksheet to support consumers in managing spending to achieve their financial goals at consumerfinance.gov/about-us/blog/managing-your-spending-achieve-your-goals/.
Explanation of how overdraft programs differ for everyday debit card purchases and ATM withdrawals at consumerfinance.gov/about-us/blog/understanding-overdraft-opt-choice/.
Answers to consumer questions about overdraft and other issues relating to bank accounts and services as part of the Ask CFPB website at consumerfinance.gov/askcfpb.
The CFPB’s report, which shares findings from qualitative interviews the CFPB conducted with consumers about their experiences with overdraft programs, can be viewed by clicking CFPB’s Consumer Voices Report.
Aug 17, 2017 | Blog, Consumer Protection
Overdraft – CFPB’s “Know Before You Owe” Disclosure Prototypes
Consumers Typically Pay Almost $450 More in Fees
On August 4, 2017, the Consumer Financial Protection Bureau (CFPB) announced
. . . new Know Before You Owe overdraft disclosure prototypes designed to improve the model form that banks and credit unions already provide to consumers weighing overdraft coverage. The [CFPB] is currently testing four prototypes that each have a simple, one-page design aimed at making the costs and risks of opting in to overdraft coverage easier to understand and evaluate. People who frequently attempt to overdraw their checking accounts typically pay almost $450 more in fees if they opted in to debit card and ATM overdraft coverage, according to a new CFPB study . . . [which] found that most of these frequent overdrafters are financially vulnerable, with lower daily balances and lower credit scores than people who do not overdraft as often.
“[The CFPB’s] study shows that financially vulnerable consumers who opt in . . . risk incurring a rash of fees when using their debit card or an ATM,” said CFPB Director Richard Cordray. “Our new Know Before You Owe overdraft disclosure prototypes are designed to help consumers better understand the consequences of the opt-in decision.”
According to the CFPB’s press release:
An overdraft occurs when consumers lack the funds in their account to cover a transaction, but the bank or credit union pays anyway. Financial institutions may charge a fee for this service, typically around $34 per transaction, and require that the account deficit be repaid with subsequent deposits. In 2010, federal regulations began requiring financial institutions to obtain a consumer’s consent in advance before charging overdraft fees on most debit card transactions and ATM withdrawals. Consumers who do not opt in to overdraft coverage will generally have debit card purchases and ATM withdrawals declined with no charge if their account doesn’t have enough funds to cover the transaction at the time they attempt it.
In addition to debit card transactions and ATM withdrawals, consumers can overdraw their account through checks, online bill payments, or direct debits from lenders or other billers. Banks and credit unions can charge overdraft fees on checks or electronic payments made through the Automated Clearing House system, and on debit card payments set up on a recurring basis. Charging these fees does not require the consumer to opt in, because those fees are not covered by the 2010 rule.
CFPB Says “Know Before You Owe”
The CFPB’s announcement stated that
[b]ecause of the possibility of racking up fees, choosing whether to opt in to debit card and ATM overdraft services can be an important decision for consumers. Federal regulations already require financial institutions to give consumers certain overdraft information, and the regulations provide a model form. The four one-page prototype model forms unveiled today, like the Bureau’s Know Before You Owe disclosures for mortgages and prepaid accounts, are designed to give consumers more clarity about a key financial decision. The CFPB developed the prototypes through interviews with consumers, and is now testing them more widely. The prototypes are aimed at making it easier to:
- Understand the costs of opting in:The updated designs are aimed at helping consumers to better understand opt-in costs by clearly laying out the size of the fees and when they can be charged. They are intended to clarify the institution’s overdraft polices. They also explain that the opt-in decision applies only to one-time debit card and ATM transactions, and that it does not affect overdraft on checks and other electronic transactions.
- Evaluate the risks and benefits of opting in:The prototypes are intended to better assist consumers in making their own choice about whether they want overdraft services for most debit card transactions. They make clear that debit card and ATM overdraft is optional, and that consumers are not required to opt in.
These updated prototypes, if adopted, could also make it easier to provide customers with the disclosure form. The CFPB would make any new Know Before You Owe model overdraft form available on its website. Institutions would be able to plug their specific program information into the online form and then quickly download it for free. This new approach could make it seamless for banks and credit unions to use a new model form within their existing compliance systems, and easier to update their disclosures following future overdraft program changes. However, as the Bureau tests these prototypes further and considers changes to existing requirements, the model form provided in the 2010 rule continues to apply.
The Kehoe Law Firm, P.C. is a multidisciplinary, plaintiff–side law firm dedicated to protecting investors and consumers from corporate fraud, negligence, and other wrongdoing. Driven by a strong and principled sense of social responsibility and obtaining justice for the aggrieved, Kehoe Law Firm, P.C. represents plaintiffs seeking to recover investment losses resulting from securities fraud, breaches of fiduciary duty, corporate wrongdoing or malfeasance, those harmed by anticompetitive practices, and consumers victimized by fraud, negligence, false claims, deception, data breaches or whose rights to minimum wage and overtime compensation under the federal Fair Labor Standards Act and state wage and hour laws have been violated.
Jun 19, 2017 | Blog, Consumer Protection
The FTC, in a June 16, 2017 post by Rosario Méndez, Attorney, Division of Consumer and Business Education, FTC, provided information for consumers about the “signs of a debt relief scam.”
According to the FTC’s post:
. . . a call from someone who says they can reduce or eliminate your debts might sound like the answer to your problems. But in many cases, unscrupulous people are behind these calls. They don’t have any intention of helping you, but are very interested in taking your money. How can you tell if you’re dealing with a debt relief scammer? Because they ask you to pay them before they do anything for you.
That’s what the FTC and the Florida Attorney General said happened in a massive debt relief scam they were able to stop last month. The defendants told people they would pay, settle, or get rid of their debts. But they didn’t. Instead, they just took people’s money. Over time, people found out that their debts were not paid, their accounts were in default, and their credit scores were severely damaged. Some people even got sued by their creditors, or were forced into bankruptcy.
According to the posting, . . . scammers try to take advantage of those dealing with debt – but there’s legitimate help . . .. [Individuals] can talk to [their] creditors directly to negotiate a modified payment plan. [Individuals] also can look for credit counseling.
The FTC posting also recommends that [t]o find reputable help, start with a credit union, local college, military base, or the U.S. Cooperative Extension Service.
Importantly, the FTC posting states that if a person decides to work with a debt relief service to remember the following:
- A legitimate debt relief company won’t make you pay up front. That’s illegal.
- No one can guarantee that your creditors will forgive your debts.
Kehoe Law Firm, P.C. is a multidisciplinary, plaintiff–side law firm dedicated to protecting investors and consumers from corporate fraud, negligence, and other wrongdoing. Driven by a strong and principled sense of social responsibility and obtaining justice for the aggrieved, Kehoe Law Firm, P.C. represents plaintiffs seeking to recover investment losses resulting from securities fraud, breaches of fiduciary duty, corporate wrongdoing or malfeasance, those harmed by anticompetitive practices, and consumers victimized by fraud, false claims, deception or data breaches. Together, the partners of the Kehoe Law Firm, P.C. have spent more than 30 years prosecuting precedent-setting securities and financial fraud cases in federal and state courts on behalf of institutional and individual clients.
