Consumer protection is a vital part of every country’s economy, particularly to its growth. Laws are made and enforced by governments for the security of (in theory) every citizen. And since everyone is a consumer, this means everyone is vulnerable to unlawful business practices.
Consumer protection laws are placed to protect people from anything that may give you an unsatisfactory experience. These experiences range from injuries or even minor inconveniences to fraud and outright theft.
There are a WHOLE lot of laws that exist to protect consumers. Far too many to cover today. And most business owners don’t need to worry about too many consumer protection laws, either. Still, understanding the basics is important. And if you run certain niche businesses, some of these might be critical to comprehend and adhere to. Check out our list below to get an idea of several of the most important consumer protection laws.
Federal Trade Commission Act, Section 5
It’s not uncommon to see consumer news that involves alleged cases of deception. There have been thousands of undocumented cases of businesses conning consumers. This is a clear violation of consumer rights, and Section 5 of the Federal Trade Commission (FTC) Act tackles it.
This section of the FTC Act prohibits all unfair or deceptive acts or practices in or affecting commerce. It establishes that businesses must maintain fair treatment of all consumers. No one should be put at risk due to unfair or deceptive acts of businesses.
There are also legal standards for both unfairness and deception that are independent of each other. An act or practice is considered unfair when it causes or is likely to cause harm or can’t be reasonably avoided by a consumer. Meanwhile, an act or practice is deceptive when it misleads or is likely to mislead consumers, such as false advertising.
How Businesses Must Comply:
The FTC protects both consumers and competition. Businesses must keep several things in mind in order to follow it:
- Advertising must be truthful
- Businesses must be able to back-up advertising claims
- Be careful of implied claims in advertisements
- Don’t include any misrepresentation of any products
Failure to follow these laws can result in cease and desist orders, civil and monetary penalties, and corrective disclosures to consumers.
Financial Modernization Act
Also known as the Gramm-Leach-Bliley Act, this law requires all financial institutions in the US to explain in writing how they handle consumer non-public personal information (NPI). Personal information is valuable to one’s experience as a consumer because it’s a powerful tool for businesses. Plus, criminal minds could use it for fraudulent purposes. So it’s important that the consumer is adequately protected.
It also restricts how businesses share consumer data with third parties like online shopping websites. The plan to secure consumer information should be written and available publicly so anyone can easily access it.
The Safeguards Rule of this law requires financial institutions to create a written information security plan that describes a program to protect their customer’s information. Achieving full compliance with this rule requires covered financial institutions to prioritize employee management and training, information systems, and security management in their planning and implementation. The NPI scope that should be under the protection plan includes Social Security Number (SSN), credit and income histories, credit and bank account numbers, phone numbers, addresses, and names.
How Businesses Must Comply:
This law only applies to financial institutions. A financial institution need not only be a bank, though. Any business that allows customers to cash a check, make a money transfer, or apply for a loan are considered financial institutions.
If your business offers any of these to your customers, you must abide by the rules discussed above.
Children Online Privacy Protection Act
As mentioned above, everyone is a consumer, whether directly or indirectly. Children, too, should have their fundamental consumer rights protected.
Described as “the first U.S. privacy law written for the internet,” The Children Online Privacy Protection Act (COPPA) exists to ensure that their rights are upheld, especially in this modern age of technology and the internet.
COPPA prohibits any unfair and deceptive acts related to the collection of children’s personal information online. It regulates how their personal information is collected and used by all online services. The law is written specifically for businesses and online marketers that run websites frequented by children younger than age 13.
But COPPA covers any person or business who operates a website collecting personal information from or about users or visitors under the age of 13. The personal information covered by COPPA includes any identifiable information about an individual, such as name, address, phone number, SSN, or photo. It even covers identifiers that can be used to recognize users over time and across different websites, such as IP addresses.
How Businesses Must Comply:
Simply put, no online business or website can collect personal information of children under the age of 13. If your business does, it must stop immediately.
Failure to do so will result in penalties of a minimum of nearly $44,000 per violation. This fine can escalate in the event of more serious violations.
Warranties and Service Contracts
When someone buys a product or subscribes to a service, you’ll receive warranties and service contracts that’ll help in protecting their consumer rights. They’re there to ensure that the services or the products you’ve purchased will function and serve their purpose.
There are two kinds of warranties: express and implied. An express warranty is an oral or written guarantee from the seller that an item will function for a specified period. The implied warranty is provided by the law, which means that an item will work as long as it’s used for its intended purpose.
A warranty is a promise from the manufacturer that a certain product or service will maintain a certain quality over a specified time period. Businesses must be careful in their assessment of where they offer warranties and on what conditions the warranties cover.
A service contract is often referred to as an extended warranty, but they are not the same. Instead, service contracts come at an extra cost. They guarantee that the consumer that a product or service will be maintained over a period of time.
How Business Must Comply:
Start by evaluating your current warranty and service contract offers. Much like your return policy, it’s important to reassure customers and add convenience to the shopping experience, but not do so at the expense of your bottom line.
Once the policy is established, be sure to honor requests when valid, while protecting your business against fraudulent claims.
Identity Theft and Assumption Deterrence Act
Identity theft has become more rampant with the rise of digital technology. To this day, it continues to be a major issue for both businesses and consumers. The Identity Theft and Assumption Deterrence ACT (ITADA) was established and amended over the years for an added layer of protection from stolen identity troubles.
The ITADA defines an identity theft offender as someone who knowingly transfers or uses another person’s means of identification without lawful authority to commit, aid, or abet the violation of laws. The phrase “means of identification” covers personal information beyond sanctioned documents, such as digital data, which can be copied and duplicated.
How Businesses Must Comply:
Before ITADA became law, federal law only focused on banks and other financial institutions. It now applies to all types of businesses. Businesses must take proper precautions to protect the personal information of all customers.
Failure to adequately protect consumer information can result in steep fines and, perhaps worse, a loss of trust in your business.
Make sure that all loyalty program information, credit card data, membership details, or any other sensitive information if stored dynamically.
California Consumer Privacy Act (CCPA)
The CCPA only applies to California for the time being, but it’s likely that other states or the federal government adopt similar laws in the near future.
Taking effect in 2020, the law was written to protect consumers’ rights and privacy by changing the way that online data can be collected. Among other things, the law established the following:
- Consumers can know the categories of information that is collected.
- Consumers can request disclosures of where information was sold.
- The sale of any data can be denied by the consumer.
- Businesses must notify consumers when they sell any personal information/
- No business can sell personal information once denied.
- Businesses can’t discriminate against consumers who opted out of selling their data.
- Any business is held wholly liable for any data breaches.
California’s CCPA is certainly the most progressive consumer data protection law in the country, but Europe has far stricter regulations, signaling a likelihood that these will come to the U.S. shortly. As always, it’s best for businesses to prepare early.
How Business Can Protect Consumers’ Rights
Both businesses and consumers should educate themselves on relevant laws and issues as part of this process. It’s important that consumers’ rights and privacy are protected, and that businesses are able to operate without significant encumberment. Done well, and both sides come out winners.
Learn the basics and consult your legal team/HR department to establish policies and ensure long-term success.