CHAPTER 6. CONSUMER - CONTRACT LAW by Laura Udis, Esq. First Assistant Attorney General and Garth Lucero, Esq. Deputy Attorney General

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1 CHAPTER 6 CONSUMER - CONTRACT LAW by Laura Udis, Esq. First Assistant Attorney General and Garth Lucero, Esq. Deputy Attorney General INTRODUCTION Consumer protection law is based on the concept that fairness and honesty in the marketplace promote the public interest. There is a common misconception that this idea developed only in recent years to replace the ancient doctrine of caveat emptor ( let the buyer beware ). In fact, the opposite is true. A fair price for a good product was the rule of the marketplace in medieval times. The doctrine of caveat emptor evolved during the Industrial Revolution, when notions of the sanctity of contracts developed to foster that period of fastpaced economic growth. Only since the mid-1960s have we returned to the fundamental doctrine that the law should prohibit us from taking unfair economic advantage of another. CONSUMER PROTECTION STATUTES Most states enacted consumer protection statutes during the mid-1960s through the mid- 1970s. Such statutes now exist in all fifty states. These statutes are aimed at preventing consumer deception and market abuse. Most consumer protection statutes prohibit unfair and deceptive advertising and sales practices. This prohibition was contained originally in a federal statute regulating interstate business practices, the Federal Trade Commission Act ( FTC Act). While many states have adopted the general provisions of the FTC Act, the specific language of these laws varies from state to state. However, the basic concept and intent of these statutes are identical. They are intended to protect reasonable consumers from unethical and unscrupulous business practices. Consumer protection statutes apply to most consumer transactions in which goods, services, or property are offered for sale or lease. The primary intent underlying consumer protection statutes is to promote full and fair disclosure of important facts about a transaction. The idea is to give consumers all necessary information so that they can make wise shopping decisions. Sellers, therefore, should tell buyers everything that is important about a sale before the sale is consummated, including any terms and conditions to which the consumer later may be subject. The consumer protection laws thus tend to balance the often unequal bargaining position of consumer buyers and merchant sellers. In other words, better-informed consumers are less likely to be taken by a merchant. Consumer protection statutes generally are broad and flexible so that they can apply to numerous forms of unfair and deceptive schemes in all types of transactions. As such, they can provide an all-purpose remedy against abusive business practices regardless of the product or service or the nature of the advertisement, sale or promise. 60

2 Many additional laws, rules and regulations exist to regulate business practices in certain industries and specific areas of trade or commerce. These laws generally supplement the consumer protection statutes. For example, insurance companies and insurance-related practices are regulated in each state by a governmental agency called the State Insurance Division. These agencies were created solely to regulate the agents for compliance with the specific laws, rules and regulations under the insurance code for a state. If they violate provisions of the insurance code, the agent or company can be sanctioned with fines or by revocation of their license to sell insurance. Consequently, if an agent intentionally misrepresented the price of an insurance policy, the consumer would have legal remedies against the agent and the insurance company under both the Consumer Protection Act and the insurance laws of the state. Examples of just a few of the many specific consumer protection statutes that apply to particular industries and to types of transactions include lemon laws (to protect buyers of defective automobiles), the Truth in Lending Act (to protect those borrowing money for personal use), the Fair Debt Collection Practices Act (restricts the practices used by collection agencies to collect bills), and the Uniform Commercial Code (governs contracts for the sale of merchandise). Since consumer protection statutes are designed to be enforced principally on behalf of unsophisticated consumers, these laws encourage fair and quick dispute settlements. Most consumer protection laws allow consumers to collect monetary damages, costs and attorney fees from the defendant business if the consumer wins his or her case. Many statutes provide settlement procedures to be used prior to filing a lawsuit. Typical settlement procedures require demand letters to inform a business of the consumer's claims and to request that the business offer to resolve the claims before the parties resort to litigation. A business's failure to respond completely and honestly to a demand letter is one of the factors that may entitle consumers to larger monetary damages awards from the court. BUSINESS PROTECTIONS A number of consumer laws also protect businesses from unfair and deceptive practices used by other businesses. In other words, most consumer protection laws allow a merchant to sue a competitor if the competitor's deceptive practices interfere with fair competition and cause financial injury to other merchants. Businesses should have the right to compete on a level playing field. COLORADO CONSUMER PROTECTION ACT The Colorado Consumer Protection Act ( CCPA ) was enacted by the Colorado General Assembly in 1969 to combat deceptive and fraudulent sales practices. The provisions of the CCPA are contained in the Colorado Revised Statutes, Title 6, Article 1, 101 through 908. The CCPA prohibits the use of deception and misrepresentation in connection with advertising and selling goods, services, and property in Colorado. The statutory remedies available against violators of the CCPA include court-ordered injunctions, restitution (refunds or return of property), civil fines up to $10,000 per violation, and costs and attorney fees to the 61

3 prevailing party in court. Since it was first enacted, the CCPA has been amended numerous times since to add more consumer protections and to address new consumer problems. The CCPA contains a list of several general advertising and sales practices that are prohibited. Examples include the following: 1. Passing Off Goods as Those of Another. Carter's Department Store takes locally manufactured blue jeans and places Levi labels on them. 2. Misrepresenting the Source of Your Merchandise. Brady's Dairy sells cheese called "Chunky Cheddar Made in Wisconsin. It is really made in Last Chance, Colorado. 3. Misrepresenting the Approval or Certification of Your Merchandise. Suncore sells a solar collector they advertise as "Department of Energy-Approved," when DOE has never heard of it. 4. Misrepresenting the Benefits of Your Product. GN-P also increases gas mileage by an average of four miles per gallon according to Petty Q., but it has no such effect. 5. Advertising with Intent Not to Sell as Advertised. Lawrence Toyota advertises Celicas at $4,025 base price. You arrive and cannot find one selling for less than $5, Misrepresentations Regarding the Price of Merchandise. Going Out of Business Sale, says Bark Brothers Sports. All inventory 50% off. In fact, Bark is simply changing the name of the company to Aspen Bark Sports. PROBLEM 1 Provide an example of conduct that you believe would violate each of the sections of the CCPA mentioned above. Explain why. The CCPA provisions may be enforced through lawsuits filed by the state attorney general or local district attorneys on behalf of numerous consumers or by an individual to protect his/her own rights. STATE AGENCIES Various state and federal agencies have the power to enforce consumer protection statutes. While this is usually done by the state attorney general, the local district attorney or other state consumer agencies also may enforce consumer laws. State agencies typically enforce the Consumer Protection Act on behalf of a large group of consumers who are injured by a business's deceptive practices. For example, if a department store is advertising merchandise as on sale when in fact the prices are marked up, numerous consumers will be injured financially because they will pay more for a product during the advertised sale than they would pay normally at the same store or at a competing retailer. Rather than expecting each individual shopper to file a lawsuit against the store, assuming he or she later realizes that shoppers were deceived, the state would likely intervene on behalf of all shoppers. This would ensure that the department store discontinues the alleged deceptive practices in the future and, at the same time, discourages other merchants from similar practices. 62

4 The consumer protection statute's broad coverage of consumer transactions enables government agencies to intervene on behalf of consumers in a wide range of cases. Most deceptive business practices, whether engaged in by retailer merchants, insurance companies, car dealers, apartment rental companies, mortgage lenders, hospitals, employment agencies, health clubs, hearing aid dealers, telemarketers and so forth, are subject to the consumer protection laws. Consequently, government agencies such as the state attorney general must carefully select the cases they pursue. In evaluating potential cases, those offices consider such factors as the number of victims, the total amount of financial losses, the seriousness of the alleged unlawful conduct, and the prospects of prevailing in court. FEDERAL AGENCIES Several federal consumer protection agencies exist to regulate businesses engaging in interstate commerce; that is, businesses in which the products are manufactured, shipped, distributed or sold in more than one state. Similar to the regulatory structure within state government, each federal agency typically regulates specific areas of trade or commerce. For example, the Postal Inspector regulates business practices that utilize the U.S. mail. The Consumer Product Safety Commission conducts laboratory and field tests on numerous manufactured products to ensure that hazardous or dangerous products are taken off the market. The Food and Drug Administration ( FDA ) is responsible for approval of prescribed drugs, over the counter drugs, and for the labeling and sale of food products, drugs and medical devices. The Office of the Comptroller of the Currency ( OCC ) regulates the business of national banks. The Federal Communications Commission ( FCC ) regulates telecommunications industry. The Federal Trade Commission ( FTC ), which is the federal government counterpart to the state attorneys general, enforces its consumer protection statute (the FTC Act) on a national basis. The Federal Trade Commission ( FTC ) is the federal government counterpart to the state attorney general in that it enforces its unfair and deceptive practices statutes, the FTC Act, on a national basis. Any widespread business fraud that involves activities in more than one state is subject to the FTC Act. Similar to local or state agency actions under their respective consumer protection acts, the Federal Trade Commission may file lawsuits in federal court to obtain courtordered injunctions to stop fraudulent practices and to obtain refunds for consumer victims. PRIVATE REMEDIES Most consumer protection laws, whether enforceable by government agencies or not, allow individuals to file their own private lawsuits for damages against a business which violates any of the law s provisions. These cases may be filed in federal, state, county or even small claims court, depending on the particular statute under which the case is brought and the amount of money at issue. In some circumstances, several consumers may join to file a class action lawsuit to protect numerous persons who are similarly affected by the alleged deceptive business practices. An example of a class action lawsuit is when a few consumers acting as representatives of all similarly situated customers sue the telephone company for billing overcharges collected from all telephone customers. PROBLEM 2 Provide examples of other actual or potential class action lawsuits regarding business practices. 63

5 CONSUMER PROTECTION AGENCIES Numerous government agencies are available to assist persons in Colorado. While some agencies may provide basic consumer information by telephone, most consumer protection agencies require consumer complaints to be submitted in writing. Some agencies provide standard complaint forms on which a person may submit a complaint against a business. Upon receipt of a consumer complaint, most agencies routinely forward it to the party complained against for a written response. This allows both sides of the controversy to be heard, thereby assuring an objective review of the circumstances or transactions in question. This complaint-handling process often promotes amicable resolutions of the complaints by bringing together the consumer and merchant to discuss and resolve the problem. This third-party dispute resolution process is referred to as mediation. Most agencies provide significant mediation services to consumers and businesses alike. It is important to recognize that most consumers are satisfied by the business once it understands the problem. Most honest businesses strive to keep their customers satisfied. This ensures repeat business. Therefore, consumers should attempt to resolve complaints with the company management before filing a formal written complaint with a consumer protection agency. Consumer protection agencies in Colorado include: 1. Colorado Attorney General's Office; local district attorneys; 3. Federal Trade Commission; 4. the U.S. Postal Inspector; 5. Consumer Product Safety Commission; 6. U.S. Food and Drug Administration; and 7. consumer relations departments of all other federal, state, and local government agencies. 64

6 Addresses of key agencies in Denver follow: Colorado Attorney General Consumer Protection Section 1525 Sherman Street, 5th Floor Denver, CO (800) (800) Colorado Attorney General Antitrust Unit 1525 Sherman Street Denver, CO (303) or (800) Denver District Attorney Office of Consumer Fraud 303 West Colfax Avenue Denver, CO (303) Administrator Collection Agency Board Office of the Attorney General 1525 Sherman Street, 5th Floor Denver, CO (303) Administrator Uniform Consumer Credit Code Office of the Attorney General 1525 Sherman St., 5th Floor Denver, CO (303) Colorado Department of Regulatory Agencies (Division of Insurance, Real Estate Commission, Public Utilities Commission, Division of Banking, Securities Division, medical and other occupational/professional licensing boards) 1560 Broadway, Suite 1550 Denver, Colorado (303)

7 Trade Associations In addition to the consumer protection agencies described above, many private trade associations have dispute resolution mechanisms designed to resolve differences between consumers and businesses. For example, the Metro Denver Automobile Dealers Association offers a service known as Auto Cap, which enables consumers to resolve differences with automobile dealers in metropolitan Denver. The Apartment Association of Denver offers a hotline service for tenant problems. Mobile home owners have an association that offers assistance to owners of homes located in mobile home parks. The Colorado Mortgage Bankers Association mediates consumer complaints against home mortgage companies. Organizations such as the Better Business Bureau ( BBB ) attempt to mediate disputes between their business members and the public. Finally, the local BBB can provide excellent reliability reports and information about various businesses so consumers can check references before they make a purchasing decision. CONTRACTS AND SALES In Colorado, signing a contract means that you are legally bound to honor its terms. There is no general three-day or five-day period to cancel a contract. Only in special situations does the law provide for a cooling-off period in which you may cancel the contract or loan without giving any reason. To cancel, the consumer must give notice in writing. In these cases, the seller must inform the consumer in writing of his or her right to cancel or right to rescind the contract. Home Solicitations. The consumer has the right to cancel a contract within three business days if all of the following are true: 1. the purchase contract is signed in the consumer's residence or another person's residence; 2. the sale was not previously negotiated at a business establishment; and 3. the purchase was made on credit without use of a credit card. Charitable Organizations. Cash donations to, or purchases from nonprofit organizations may be cancelled before midnight of the third business day, after you receive written confirmation of your contribution from the charity. However, donations of used goods (toys, furniture, clothes, etc.) have a one-day cancellation period. Security Interests in a Home. Regardless of where the contract or loan is signed, the consumer has a right to rescind or cancel within three business days, if the creditor takes a security interest in the consumer's residence (this time period may be extended if the creditor fails to comply with certain provisions of the Truth in Lending Act). The consumer does not have the right to cancel the loan by which he/she bought the residence.. In these cases, unless the consumer has an emergency need for the money or goods and services, the lender or the seller cannot give the consumer the money or begin to work until the three-day period ends. 66

8 Buyers Clubs. Buyers Club memberships may be cancelled before the close of business on the next business day following the signing. Time Shares. A person has five calendar days after purchasing a timeshare to cancel the contract. A "time share" is an interest in a piece of real estate, such as a condominium, which is divided into separate units based on time intervals, such as weekly units. Dance Clubs. Dance club studio contracts may be cancelled at any time during the term of the contract. However, you must still pay for 10 percent of the contract plus the lessons you may have already taken. Health Clubs. A membership to a health club can be cancelled up to three business days after the consumer receives a copy of the contract. Telephone Sales. Under certain telemarketing laws, some telephone solicitation sales must be cancelled within three business days. Discount Health Plans. Contracts for memberships in health care provider plans or networks which provide discounts on medical services and pharmacy products allow thirty days after entering the agreement to cancel. Hearing Aids. A hearing aid may be returned within thirty days after receiving it. The buyer receives a refund of all payments made, with the exception of the actual cost on any custom ear molds (up to a maximum of 10 percent of the total payment for the hearing aid). Credit Repair. A contract for services to clean up or erase bad credit may be cancelled within five business days after it is signed. COLORADO UNIFORM CONSUMER CREDIT CODE The Colorado Uniform Consumer Credit Code ( UCCC or Code ), C.R.S, Article 1-9, Title 5, includes most of the specific Colorado regulations regarding consumer credit. The UCCC administrator adopts rules and issues a number of formal and informal interpretations of the Code. The Code only applies to transactions included in its definition, scope and territorial application sections. Some consumer credit transactions are not subject to the code or are subject to only some of its provisions. For example, mortgages by which homes are bought are subject only to the Code's disclosure provisions. Sometimes federal law "preempts" a contrary provision of Colorado law. For example, national banks located in other states can ignore the Colorado interest rate limits and only must comply with the limits of their own states. This is true even if the consumer is a Colorado resident. 67

9 If the consumer credit transaction is subject to the Code, a number of requirements are imposed: disclosure of the cost of credit; maximum finance charge rates; limits on delinquency charges and attorney fees; opportunities to cure some defaults in making payments; restrictions concerning the sale of insurance in connection with the credit transaction; the right to rescind or cancel the contract or loan in two limited situations; restriction of some types of collection attempts; and prohibitions against garnishment, i.e., taking of wages prior to judgment. A consumer credit is a sale that meets all the following conditions: 1. the credit is extended by a person who does so regularly; 2. the borrower is an individual; 3. the credit is primarily for a personal], family or household purpose, and not for business; 4. either a finance charge (interest) is made or the debt is payable in five or more installments besides the down payment; and 5. the amount borrowed does not exceed $75,000 or else the credit is secured by real estate. Disclosures Credit is a service offered by the seller or lender to defer repayment of money and costs something. The cost is called interest or a finance charge. On some loans or sales the consumer may end up paying back more in finance charges than was borrowed in the first place. According to both the federal Truth and Lending Law and the Colorado UCCC, the finance charge must be stated to the consumer as a dollar amount and as an annual percentage rate (APR) (example: dollar amount: $1,700; APR-15%). The purpose of these disclosures is to enable the consumer to shop around for the best deal. These disclosures also include many other items, such as the number and amount of payments, the amount of credit being financed, and whether there is a prepayment penalty. On loans or sales subject to the UCCC, the creditor is not permitted to charge a prepayment penalty. Since these disclosures usually are not given until just before the credit documents are signed, the consumer should attempt to obtain the information contained in the disclosures before selecting a seller or lender. Many creditors offer revolving credit, in which the creditor makes a certain amount of credit available to be used as needed by the consumer. Credit cards and lines of credit are examples. This form of credit is very convenient for both consumer and creditor, particularly if the consumer will need to borrow money on several different occasions. Consumers should be careful because the creditor may increase the APR or change other contract terms after advance written notice sent one billing cycle before the change. A billing cycle is usually 20 to 30 days long. The changes apply even to money borrowed before the change. The consumer also should ask about annual fees and other charges the creditor will receive. Maximum Rates The UCCC limits the amount of finance charge a seller or lender can receive to 21 percent of the amount financed or, on the same loan, the lender can charge several different 68

10 step rates: 36 percent on amounts up to $1,000 plus 21 percent on amounts over $1,000 to $3,000, plus 15 percent on amounts over $3,000. On some credit sales or loans, the APR can exceed 21 percent because of the step rates. On revolving loan accounts (such as bank credit cards), a Colorado lender can charge 1¾ percent per month on charges for the purchase of goods and services. Remember that these are the highest rates that a creditor can charge in Colorado. Many creditors charge lower rates than the maximum permitted. Consumers should shop around for the best deal. Assignee Liability When a consumer purchases goods or services on credit, often he/she will receive notice that payments should be made to a bank or finance company that has taken an assignment of the promissory note. This finance company, called the assignee, has bought the note and has the right to receive the remaining payments due under the contract. If the item breaks down and is not repaired or the services bought are not being provided, the consumer has certain rights. The UCCC provides that if the consumer was able to refuse to pay the seller or merchant by proving that the seller has failed to live up to the contract, he/she also can refuse to make payments to the assignee. To exercise this right, the consumer must notify the assignee, not just the seller, in writing that he/she refuses to make any further payments because the seller has not lived up to the contract. If the consumer refuses to make payments, he/she may have to prove his/her case in court if sued by the creditor. The similar Federal Trade Commission Rule on Preservation of Consumers Claims and Defenses, in 16 C.F.R , also requires that the seller include in the contract a statement making an assignee subject to any defense or claim that could be asserted against the seller. WARRANTIES Before making a major purchase, the consumer should read an important part of the contract called the warranty. The warranty is the manufacturer's or seller's promise to stand behind a product. Warranties vary in the amount of protection they provide. Just as the consumer may compare different products before buying, product warranties should be compared. Warranties are governed generally by the federal Magnussen-Moss Act of 1975, which requires that warranties be available to read before purchases are made. Written Warranties. Written warranties come with most major purchases, although they are not legally required. The protection offered by a written warranty varies greatly, so it is important to compare warranties before making purchases. Some questions that should be asked when comparing warranties are: What parts and repair problems are covered? Are any expenses excluded from coverage? How long does the warranty last? What will you have to do to have repair done? What will the company do if the product fails? Does the warranty cover consequential damages, i.e., damages beyond the costs of repairing the product such as loss of use or the cost of renting or replacement while the product is being fixed? Are there any conditions or limitations on the warranty? 69

11 Spoken Warranties. Sometimes a salesperson will make an oral promise, such as that the store will provide replacement parts. However, if this claim is not in writing, the consumer may not be able to obtain the promised service. The consumer should have the salesperson put the promise in writing or not count on the service. Service Contract. When buying a car or a major appliance, the consumer may be offered a service contract. Although often called extended warranties, service contract are not warranties. Warranties are included in the price of the product. Service contracts come separately from the product, at an extra cost. To decide whether a service contract is needed, several factors should be considered: 1. whether the warranty already covers the repairs that would be received under the service contract; 2. whether the product is likely to need expensive repairs; 3. the duration of the service contract; and 4. the reputation of the company offering the service contract. Implied Warranties. Although written warranties are not required by law, another type of warranty is. It is called an implied warranty. Implied warranties are created by state law. Almost every purchase is covered by an implied warranty. The most common type of implied warranty is called the implied warranty of merchantability. This means that the seller promises the product will do what it is supposed to do; for example, a car will run and a toaster will toast. Another type of implied warranty is the warranty of fitness for a particular purpose. This applies when buying a product on the seller's advice that it is suitable for a particular use; for example, a seller suggesting that the consumer buy a certain sleeping bag for zero-degree weather implicitly warrants that the sleeping bag will be suitable at zero degrees. If a product does not come with a written warranty, it is still covered by an implied warranty, unless the product is marked as is or unless the seller clearly indicates otherwise in writing that no warranty is given. This is referred to as a disclaimer of warranty. If problems arise that are not covered by the written warranty, consumers should consider whether they are protected by any of the implied warranties. FEDERAL ACTS The Equal Credit Opportunity Act ( ECOA ) prohibits creditors from discriminating against consumers in any aspect of the credit transaction on the basis of sex, marital status, race, color, age, national origin, religion, or because they receive public assistance payments or exercise their rights under the Federal Consumer Protection Laws. The Federal Fair Credit Reporting Act and the Colorado Consumer Credit Reporting Act protects consumer privacy in connection with credit reports and safeguards the accuracy of credit bureau reports. Under the Colorado law, Colorado residents have the right to receive one free copy of their credit report each year from every consumer reporting agency. Credit reports are used by creditors, 70

12 employers, landlords, and insurance companies in making decisions about whether to offer credit, employment, insurance, and other services. The Federal Trade Commission ( FTC ) regulates trade activity and enforces these two federal laws. Consumer services are available by contacting the FTC online at by telephone at FTC-HELP, or by mail sent to the FTC Consumer Response Center at 600 Pennsylvania Avenue, NW #130, Washington, D.C The federal consumer credit laws include the following: 1. Truth and Lending Act 2. Equal Credit Opportunity Act 3. Fair Credit Billing Act 4. Fair Credit Reporting Act 5. Consumer Leasing Act 6. Real Estate Settlement Procedures Act 7. Home Mortgage Disclosures Act 8. Fair Debt Collection Practices Act 9. Home Ownership and Equity Protection Act COLLECTIONS/BANKRUPTCY When a consumer obtains credit, he/she promises to repay the creditor according to the agreement. If the consumer does not live up to the agreement, the creditor may sue, repossess any collateral, or contact the debtor or employ a third party to contact him/her to persuade him/her to pay the debt. If the creditor sues and obtains a judgment, the creditor may garnish wages and other assets and repossess or foreclose on assets. However, the consumer does have certain rights. Right to Cure If the consumer is late in making a payment on a transaction subject to the Colorado UCCC, the creditor must send a written notice to the consumer's last known mailing address advising the consumer of his/her right to cure the default within twenty days. If this notice is not sent, the creditor may not repossess the collateral or accelerate the entire amount of indebtedness; the creditor would only be able to try to collect any payments that were overdue. This right exists only if the debtor is late in making a payment and not if he/she is in default for any other reason, such as failure to keep property insurance on the collateral. This right exists only once in each one-year period (twice if the debt is secured by a mobile home). Unconscionable and Unfair Techniques For transactions subject to the Colorado UCCC, the code prohibits creditors from engaging in various collection techniques. Professional debt collectors who collect debts for others are subject to both the federal and Colorado Fair Debt Collection Practices Acts. C.R.S., Article 14, Title 12. This Colorado statute requires collection agencies to be licensed and 71

13 regulated by the Colorado Attorney General. The federal and Colorado acts also contain specific prohibitions on certain collection practices. Both the Colorado UCCC and the Colorado Fair Debt Collection Practices Act contain some general prohibitions concerning collection practices. The creditor or collection agency employed by the creditor cannot harass or abuse the consumer while trying to collect the debt. The collector cannot repeatedly contact the consumer or contact the consumer at inconvenient hours. The creditor or agency cannot use any false or misleading representations in trying to collect the debt, nor contact third parties about the debt except to obtain information about the consumer's location. The consumer still has the obligation to pay the debt but also has the right to these and other protections, including the right to notify a collection agency in writing to stop all contact with him/her or to provide proof of the debt. Of course, the agency or creditor may sue for the debt. Bad Checks If a consumer receives a bank notice that a check has failed to clear, he or she should immediately contact the person who was given the check and arrange to make payments for the check. Colorado s bad check law entitles the holder of the check to payment of the amount of the check plus a return check charge of no more than $20, if the business has posted the charge or contracted for it. In addition, if the business uses a collection agency to collect the check, the consumer also may have to pay up to 20 percent of the check amount but no less than $20 as collection costs. If the consumer fails to pay the check, return check charge and collection costs after fifteen days notice, the consumer may be liable for three times the amount of the check but at least $100, plus costs of collection and attorney fees. Colorado's bad check law is contained at C.R.S Consumers have certain defenses if, for example, checks bounced because the consumer's paycheck did not clear or if the consumer stopped payment on the check due to disputes about the quality of goods or services. Debt Collection If a debtor fails to pay a bill, a creditor may take the debtor to court to force him/her to pay the bill. A lawsuit brought against a debtor usually will result in a court judgment against the debtor for a specific dollar amount (assuming the debtor has not successfully defended against it). A court judgment is a decision by the court that one party owes the other an amount of money. Once it is entered, state laws usually provide a variety of means by which a creditor can take the debtor's money or property without the debtor's consent, in order to satisfy the judgment. Some money and property cannot be taken regardless of how much the debtor owes. Wages from employment can be garnished, but only 25 percent, or the amount by which net (after taxes) income exceeds $ weekly (thirty times the federal minimum of $5.15 wage), whichever is less. 72

14 PROBLEM 3 If the debtor nets only $100 weekly, can his/her wages be garnished? If a debtor nets $150 weekly, can his/her wages be taken? If so, in what amount? If a debtor nets $200 weekly, can his/her wages be taken? If so, in what amount? The law also protects certain property from creditors. In Colorado, up to $45,000 of home equity is protected. The debtor's car is exempt up to $3,000 if used for work ($6,000 if the debtor is elderly and disabled and uses the car for obtaining medical care). Many other types of property also are protected. Certain income also cannot be taken by creditors. This includes any governmental welfare benefits, social security benefits and certain types of retirement benefits. Bankruptcy Federal laws provide relief for debtors whose liabilities exceed their assets. Federal bankruptcy law prohibits creditors from continuing to try to collect debts after a petition in bankruptcy is filed. The bankruptcy law is administered by the Bankruptcy Division of the U.S. District Court. The purpose of the bankruptcy system is to bring all creditors into one place in order to make an orderly distribution of the debtor's remaining available assets and then to provide the debtor with a fresh start. Consumers normally have a choice of proceeding under Chapter 7 or Chapter 13. Under Chapter 7, the debtor's nonexempt assets are sold and distributed to the creditors. Under Chapter 13, the debtor proposes a plan by which he/she will pay back creditors over time. There is no Colorado equivalent of bankruptcy laws, although the bankruptcy judge often must look to Colorado law for answers on how to distribute assets. Consumers should carefully consider using bankruptcy to eliminate or discharge their debts because bankruptcy filings appear on credit bureau reports and may harm their credit rating for years to come. AUTOMOBILES Other than buying a home, automobile purchases represent a consumer s next largest investment. Therefore, consumers should be thoughtful in their approach to buying a vehicle. The ten commandments for purchasing an automobile are: 1. Determine beforehand what you can afford and what type of vehicle will best suit your needs. Be concerned not only with the initial cost, but with insurance, maintenance and operating costs. Shop around. 2. Have any used car thoroughly inspected by a qualified individual before purchase, to determine any repairs needed now or likely to be needed in the near future. 3. Shop for financing just as you shop for the car itself. Consider the terms of the financing number of months, down payment, interest rate, finance charges and total of the payments, not just the monthly payment. If you apply for your own financing, don't agree to buy or take delivery of the vehicle until you have your lender's approval. 73

15 4. It s the bottom line price, after credit for trade-ins that really counts. Getting a huge trade allowance doesn t mean much if the price of the car you are buying is inflated due to trade in allowance or if it would have been discounted anyway. The important figure is the price you pay after everything has been included. 5. Most used cars are sold as is without any guarantee or warranty. If an as is car breaks down after you buy it, you get the pieces; don't expect the dealer to put them back together. He doesn't have to. The dealer s only liability is for the equipment required by state law. 6. If you do get a warranty, know exactly what is and is not covered, how to get repairs done and what you must do to keep the coverage in effect. 7. Read everything and don't sign until you are sure you understand all the terms of the purchase documents, including the finance contract. Don t hesitate to ask questions and get copies of everything you sign. 8. Have all promises put in writing an oral contract isn't worth the paper it s written on. 9. High pressure by itself is not illegal. Don t be afraid to bargain and don t be afraid to say no or to walk out. 10. You do not have seventy-two hours or any other time period to change your mind. Once you sign, you have bought yourself a car. Any person who tampers with an odometer, operates a vehicle with a disconnected odometer with intent to defraud, or makes a false mileage disclosure when transferring a vehicle is liable for civil and criminal penalties. The victim of odometer tampering can sue for triple damages. The Colorado Attorney General's Office or the District Attorney's office also can provide assistance. A person who signs a sales contract is obligating himself or herself to a purchase; backing out of the deal likely means forfeiting the deposit. The automobile dealer may be able to sue for additional damages. Most dealer sales contracts contain language providing that if the consumer fails to complete the purchase, the dealer can keep your deposit and/or trade-ins as liquidated damages. Colorado law requires that such damages must be reasonable, which may have to be determined in court. When a dealer is arranging financing, the consumer is hound to a deal if the dealer has given him/her the final finance terms. In this situation, the dealer cannot keep the deposit if the buyer decides to back out. Some dealers want consumers to sign a rental agreement that requires them to pay rental charge fees for use of the car in case the financing doesn t go through. PROBLEM 4 You trade in your old car for a new one that you agreed to purchase. You change your mind and fail to complete the purchase. The dealer has sold your trade in. What do they owe you? If the consumer applies for financing, when he or she enters into a sales contract, he or she must be given a written disclosure of all the terms and conditions of this sale. An installment sale is one where the purchase is financed by the dealer. Terms and conditions refer to the disclosures required by the Truth-in-Lending Act, such as down payment, prepayment interest rate and deferred price. The consumer is entitled to disclosure of all terms in writing. If the 74

16 consumer is getting his or her own financing, it is not an installment sale. It is a cash sale to the dealer, who doesn t have to give the buyer any finance disclosures. If not a cash sale, the deal is usually binding once it is signed. The way to protect oneself is to have the dealer write inclusive subject to financing by and then name specifically the lender before signing the contract. This means the buyer won't have to buy the car if a lender turns down the buyer on the loan. Consumers have many protections by laws pertaining to automobile repairs. Those protections are largely provided in the Motor Vehicle Repair Act. Written Estimates A garage must supply the consumer with a written estimate of the cost of repairs if the repairs exceed $75, except hours. 1. when the consumer waives the right to an estimate by signing an estimate waiver; 2. when a consumer has his/her car towed to the garage; and 3. when the consumer takes the car to the garage before or after their normal business The written estimate must include 1. a total cost of repairs to be done; 2. a date when the repairs will be finished; 3. a statement of the consumer's right to have all old parts returned to the consumer, except body shop parts; 4. storage charges; and 5. the consumer's right to the return of replaced parts if requested when the repairs begin. Oral Consent When a consumer has not given the garage written consent to do the work or when a consumer has not signed an estimate waiver, the garage must obtain consent prior to doing any work. This consent can be obtained orally by the garage. The garage must record the consent noting: 1. the date; 2. time; 3. manner of consent; 4. name of the person giving the consent; 5. name of the person receiving consent; and 6. any phone numbers called. Waiver A consumer may waive his/her right to receive a written estimate prior to receiving repairs by signing his/her name and the date below the following statement, which should be placed in boldface type: I do not wish to receive an estimate to which I am entitled by law before repairs are authorized. Increased Cost When a garage discovers the need for more repair work, causing an increase in the bill, the garage must obtain the consumer's consent before doing the work. The consent must be recorded in the manner described in Oral Consent above. 75

17 Diagnosis When a diagnosis is necessary to determine what is wrong with a car, the garage must give a written estimate if the diagnosis will cost more than $75. This estimate must include the cost of any reassembly in case the consumer decides not to okay the repair, and the cost of parts and labor of items destroyed in a disassembly. Notice The garage also must notify the consumer of changes in the date the repairs are expected to be completed; obtain consent before using rebuilt, reconditioned or used parts; prepare detailed invoices of all repair work done, including parts installed and the names of the mechanics who did the work; and keep all documents for one year. Storage Charges A garage may charge storage charges if the consumer does not pick up his/her car within three days. Repossession If a consumer stops payment on a check or bounces a check, the garage may pick up the car that previously had been released to the consumer. The garage must notify the consumer in person or by certified mail twelve days before the car is picked up and file a lien in court if the car cannot be picked up without a breach of the peace. Failure of garages to adhere to the Motor Vehicle Repair Act can result in civil damages and, in some instances, criminal violations. Pyramid Schemes Pyramid schemes are illegal money chains promoted typically by individuals and small groups of people. A typical pyramid scheme involves a few individuals at the top who recruit participants who, in turn, recruit other participants to pay to join the organization. Recruits are promised large sums of money if they successfully bring in others to pay money to join the pyramid. Pyramid schemes focus on the exchange of money and recruitment, and there is no legitimate product or service being sold to the participants. Pyramid schemes are illegal in Colorado, and any persons participating in the scheme may be liable for civil penalties, refunds and, in some cases, criminal penalties. No-Call Laws In 2001, Colorado passed a no-call law that prohibits businesses from making commercial telemarketing calls or faxes to residential or wireless telephones whose numbers are on the official no-call list. Violations of this law can give consumers a $500 award in small claims court and allow the attorney general to prosecute if a pattern of unsolicited calls are made. Businesses may still call their existing customers or other persons who have consented to receive the calls. Consumers may register their telephone numbers on-line at or by calling 1 (888)