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1. The Consumer Trade Commission focuses mainly on protection of consumers in the area
of antitrust law.
Answer: False
2. The FTC can impose a fine for each violation of a voluntary compliance affidavit, a
consent order, an FTC rule, or a cease and desist order, even one issued against someone else.
Answer: True
3. Consumer credit reporting agencies are unregulated governmental agencies.
Answer: False
4. If the FTC determines a business has violated the law, it will normally try to get the
business to voluntarily stop the activity.
Answer: True
5. The Truth-in-Lending Act applies to private individuals who loan money.
Answer: False
6. "Bait and switch" tactics are not a violation of FTC rules if the consumer is given a choice
of which product to buy.
Answer: False
7. Prime Products, Inc. was going to be able to ship the comforter Margaret ordered within
three weeks instead of the seven days it had originally promised. Prime must cancel
Margaret’s order and notify her that it can deliver within three weeks if she wants to reorder.
Answer: False
8. The Federal Trade Commission Act considers the terms “deceptive” and “unfair” to be
synonymous when determining what practices should be prohibited.
Answer: False
9. Brett applies for a $30,000 loan to purchase a truck for his family’s use. This loan is
subject to TILA disclosure requirements.

Answer: False
10. Employers must have written permission from job applicants to request a credit report.
Answer: True
11. Company policy of PushOne, Inc. is to block the company name and telephone number
on potential customers’ Caller ID systems so they won’t know the call is from a telemarketer.
This policy violates FTC rules.
Answer: True
12. The Equal Credit Opportunity Act makes it illegal for a lender to discriminate against a
potential borrower because of race, national origin, religion, or sex, but it is permissible to
treat a borrower differently if he or she is on welfare.
Answer: False
13. If you lease a car rather than buy one on credit, you have no statutory consumer
Answer: False
14. The FTC may consider an act unfair if it simply violates public policy.
Answer: True
15. The Magnuson-Moss Warranty Act covers all consumer products regardless of their cost.
Answer: False
16. The Magnuson-Moss Warranty Act only covers face-to-face sales, not catalog or Internet
Answer: False
1. A company advertised a pain relief ointment called "Aspercreme." The package stated "the
strong relief of aspirin right where you hurt." The product did not contain any aspirin. The
FTC ruled that:
a. the advertising was not deceptive since the benefit of the product outweighed any harm
caused by potentially misleading claims.

b. the advertising was misleading, and the company would have to change the name of the
product or add aspirin to its formula.
c. the advertising was deceptive, and the FTC required the company to specifically state in its
promotions that the product did not contain aspirin.
d. None of the above
Answer: C
2. The issue in the Gray v. American Express Co. case involved:
a. lost credit cards.
b. disputed bills.
c. unfair interest rates.
d. privacy.
Answer: B
3. In a closed-end credit transaction:
a. the lender makes a series of loans with a maximum amount set before the first loan is
b. if the lender is offering a “teaser rate,” this must be clearly disclosed.
c. the Federal Reserve Board should be consulted before a lender is chosen.
d. there is only one loan, and the borrower knows the amount and payment schedule in
Answer: D
4. Millie ordered clothes from a mail order catalog. No time was specified as to when the
goods would be shipped. In such a case the FTC requires that the company must ship the
goods to Millie:
a. within 3 business days after receiving the order.
b. within 10 business days after receiving the order.
c. within 30 days after receipt of the order.

d. within a reasonable time and within time lines consistent with industry standards.
Answer: C
5. Ron's Furnace Repair advertised it would inspect any homeowner's furnace for free. Janet
had Ron's come to inspect her furnace. The servicewoman dismantled the entire furnace then
refused to put it back together unless Janet paid her $250. The FTC considers such a practice
to be:
a. an unfair practice.
b. a deceptive practice.
c. an act that violates public policy.
d. All the above.
Answer: D
6. Mabel is a single 40-year-old who has borrowed money on numerous occasions. Her
payment record has been good, except she has been delinquent in paying a few bills. Which
of the following is true regarding credit information gathered on Mabel?
a. Since Mabel has been delinquent, she waives her right to see the credit files.
b. If Mabel is rejected for a loan because of the consumer report, the lender must tell her the
source of the report.
c. Mabel has a right to have the information regarding her delinquency in paying a few loans
stricken from her credit record because her record has generally been good.
d. Mabel's only legal remedy, if there is erroneous information in her credit file, is to report
the problem to the FTC for enforcement.
Answer: B
7. The Fair Debt Collection Practices Act prohibits which of the following practices?
a. A debt collector falsely representing himself as a lawyer.
b. A debt collector telephoning the debtor at 8:00 a.m.
c. Visiting a debtor at work if the employer permits personal visits.
d. Using neighbors to locate the debtor.

Answer: A
8. Which of the following statements express the purpose of the Truth-in-Lending Act?
a. To require lenders to charge a "reasonable" rate of interest.
b. To help small business.
c. To provide consumers with information necessary to make the best credit decision.
d. To help lenders limit state laws.
Answer: C
9. "Bait and switch" is:
a. advertising a product for sale and then giving a rain check.
b. placing the store brand and the national brand side-by-side in a store.
c. selling the store brand at a lower price than the national brand.
d. the act of advertising certain goods and then pressuring the customer to buy different, more
expensive goods.
Answer: D
10. If a consumer cancels a door-to-door sale within the required time, how many days does
the seller have to return the buyer's money?
a. Three.
b. Ten.
c. Twenty-one.
d. Thirty.
Answer: B
11. Marla applies for and receives a three-year loan through Sharkey Lenders for $5,000 at
27% APR.If the loan agreement violates the applicable usury statute, Marla may be able to
a. the interest that exceeds the usury limit.

b. all of the interest on the loan.
c. the interest and the $5,000.
d. Any of the answer choices are possible, depending on where the loan was made.
Answer: D
12. The Consumer Leasing Act requires a lessor to disclose in writing all EXCEPT:
a. number of payments.
b. penalties for late payments.
c. lease rates of the competition.
d. penalties for early termination.
Answer: C
13. Grady receives a $12,940 credit card bill in the mail from a company with which he did
not open an account. He fears he is a victim of identity theft. Does he have any recourse?
a. Yes, under the Fair and Accurate Credit Transactions Act (FACTA), Grady can place an
alert in his credit files using the National Fraud Alert System.
b. Yes, under the Fair Credit Billing Act he may call the credit card company to complain
about the bill, and the credit card company must investigate and correct any errors.
c. Yes, under the Truth in Lending Act, Grady is liable only for the first $50 in unauthorized
d. No, he should have been more careful with his personal information so no one could have
applied for credit in his name.
Answer: A
14. Don received in the mail merchandise he never ordered. The package was addressed to
him, and when he opened it he saw a brochure stating he could keep the products for only
$19.95. If he chose not to keep the products he was instructed to mail them back within five
days. Don:
a. can keep and use the merchandise without having to pay for it.
b. can keep the merchandise only if he pays the $19.95.

c. must send the merchandise back within five days if he does not want it.
d. None of the above is correct.
Answer: A
15. Under FTC rules, a customer can cancel a door-to-door sales contract within:
a. three business days of the sale.
b. five business days of the sale.
c. one calendar week from the date the sale was made.
d. a “reasonable time” after the sale was made.
Answer: A
16. The maximum rate of interest for credit transactions is established by:
a. state law.
b. federal law.
c. the Federal Reserve Board.
d. the FTC.
Answer: A
17. The type of product that prompted passage of the Consumer Product Safety Act was:
a. automobiles.
b. children's toys.
c. refrigerators.
d. food products.
Answer: B
18. John loans George money and they sign a written agreement whereby George will repay
John in monthly installments. Is this loan subject to the Truth-in-Lending Act?
a. Yes, if the loan is for more than $1,000.
b. Yes, if John and George live in different states.

c. No, if John is not in the business of offering credit.
d. No, if John and George are related.
Answer: C
19. Victoria has a MasterCard with a credit limit of $9,000. This is:
a. open-end credit.
b. closed-end credit.
c. an installment loan.
d. a secured debt.
Answer: A
20. Under the TILA, for subprime mortgage loans, a lender:
a. may charge a prepayment penalty any time the loan is paid off before its due date.
b. must collect property taxes and homeowner’s insurance for all first mortgages.
c. may not change the amount of the monthly payment during the period of the loan.
d. may consider the value of the home in determining the borrower’s ability to repay the loan.
Answer: B
21. MoneyMaker Toy Company violated the safety standards set forth by the Consumer
Product Safety Commission when it produced a toy gun that caused injury to hundreds of
children. Because of MoneyMaker’s actions:
a. the CPSC can impose civil penalties on the company.
b. the CPSC can impose criminal penalties on the company.
c. users can sue for damages, including attorney’s fees, if MoneyMaker knew it was violating
a consumer product safety rule when it produced the guns.
d. All of the answers are correct.
Answer: D

22. Under the Fair Debt Collection Practices Act, a collection company is legally permitted
a. call the debtor between 8 a.m. and 9 p.m.
b. call acquaintances of the debtor to locate the debtor.
c. contact the debtor at work if not prohibited by the employer.
d. All of the above are permissible.
Answer: D
Fact Pattern 40-1
John purchased $600 worth of clothes from Clothing Mart. He paid for the clothes with a
credit card. When he received his statement, he sent the credit card company a check for
$600. The credit card company mistakenly recorded his payment as $60. When John received
his next statement, he noticed the $540 error and contacted the credit card company.
A few days later when he attempted to use his card to buy gasoline, he was told by the cashier
that the card had been canceled and she was instructed to take his card. John was shocked,
embarrassed, and angry. When he contacted the credit card company, it pointed out a
provision in his initial contract for the card that stated the company could revoke his card
privileges at any time with or without cause.
23. Such a provision within the credit card contract is:
a. unconscionable.
b. an illegal contract of adhesion.
c. not binding, as a person cannot waive the statutory rights granted to him by federal credit
card legislation.
d. valid unless state legislation prohibits such clauses.
Answer: C
24. What federal law applies to this particular situation?
a. Truth in Lending Act.
b. Fair Credit Billing Act.

c. Fair Credit Reporting Act.
d. Equal Credit Opportunity Act.
Answer: B
25. Consumers have a right to:
a. exclude as obsolete information about a bankruptcy discharge seven years previously.
b. know the name of anyone to whom credit information has been supplied by a consumer
reporting agency within the last three years.
c. have their own version of a disputed credit situation included in their credit file.
d. have their credit rating reviewed at least once a year.
Answer: C
1. What are the three tests or elements used by the FTC to determine whether a particular act
is an unfair trade practice?
Answer: The FTC considers an act to be unfair if each of the following three tests is met: (1)
the act causes the consumer substantial physical or financial injury; (2) the harm of the injury
outweighs any countervailing benefit; and (3) the consumer could not reasonably avoid the
injury. Additionally, the FTC may decide a practice is unfair on grounds it violates public
policy even if the three tests mentioned above are not actually satisfied.
2. Commonground Collections has been hired to collect past-due medical bills for Lakeview
Physicians. List some activities that Commonground may not do pursuant to the FDCPA.
Answer: Under the FDCPA, Commonground may not:
• contact a debtor who has notified the agency in writing to make no further contact.
• directly contact a debtor who is represented by an attorney.
• call before 8 a.m. or after 9 p.m.
• use threats or obscene or abusive language.
• imply they are attorneys or government representatives if they are not.

• use a false name.
• threaten to arrest debtors.
• make other false or deceptive threats
• contact debtors at work if employers prohibit this.
• contact acquaintances other than to locate debtor.
• tell acquaintances the consumer is in debt.
3. The Trimbles apply to Community Savings & Loan for an installment loan of $20,000 to
remodel their bathroom. Discuss the disclosures Community is required to make.
Answer: The Truth in Lending Act will apply to this loan since it is a consumer loan, it will
be repaid in more than four installments or has a finance charge, the loan is for less than
$25,000, and is made by someone in the business of offering credit. All loans regulated by the
TILA must have clear disclosures in a meaningful sequence. Also, the lender must disclose
the finance charge (the amount in dollars the consumer will pay in interest and fees over the
life of the loan) and the annual percentage rate (the actual rate of interest the consumer pays
on an annual basis).
4. Explain the difference between a debit and a credit card and discuss the potential liability
for a lost or stolen card.
Answer: A credit card evidences an open-end credit account in which the customer may
charge purchases up to a specified dollar limit and typically has the option of paying the
balance in full each month or making only the required minimum payment. Under the TILA,
a credit card customer is liable only for the first $50 in charges a thief makes before the
customer notifies the credit card issuer. If the customer notifies the issuer before any charges
are made, the customer has no liability. If a thief steals only the credit card number but not
the card itself, the customer is not liable for any unauthorized charges. A debit card looks and
feels like a credit card, but has different legal consequences. Debit cards work like checks and
are sometimes called check cards. When you use a debit card, the bank deducts money
directly from your account. If you report a lost debit card before anyone uses it, you are not
liable for any unauthorized withdrawals. If you report the theft within two days of
discovering it, the bank will cover losses over $50. If you wait until after two days, your bank

will only replace stolen funds over $500. After 60 days of receipt of your bank statement, you
bear any losses.
5. Richard received his credit card bill and noticed an error. He wrote to the company the next
week, pointing out the error in his bill. Under the law, what is the credit card's obligation once
it receives Richard's letter?
Answer: Under the Fair Credit Billing Act, the company must acknowledge receipt of the
letter within 30 days. Within two billing cycles (but not longer than 90 days) it must
investigate the complaint. If an error is found, it must correct it and notify Richard. If the
company finds no error, it must write to Richard with an explanation. The credit card
company is prohibited from trying to collect the disputed amount nor can it close or suspend
the account until it has responded to Richard's complaint. The credit card company cannot
report to credit agencies that the consumer has an unpaid bill until ten days after the response.
If the consumer still disputes the charge, the credit card company may report the amount to a
credit agency, but must disclose that it is disputed.
6. Brooke uses her credit card to purchase a lawn mower at the local “big box” hardware
store, but when she tries to use the mower for the first time, she finds it is not self-propelled
as advertised. Does she have any recourse?
Answer: Since Brooke used a credit card for the purchase, she is protected under the TILA. If
there is a dispute between a merchant and a customer, the credit card company cannot bill the
customer if she makes a good faith effort to resolve the dispute, the dispute is for over $50,
and the merchant is in the same state as or within 100 miles of the customer’s house.

Test Bank For Introduction to Business Law
Jeffrey F. Beatty, Susan S. Samuelson

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