Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.

Chapter 3

Ethics of Consumer Protection

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Hidden Taxation on Society

Dr Estes’ contention was that the profit and loss

statements revealed only the costs companies had
internalized and not the uncompensated costs to
society, namely, the external diseconomies. For the
persons affected, these represented “coerced
assessments”, a form of hidden taxation.

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Stakeholder Alliance

A North American Advocacy Group, The Stakeholder Alliance,

is pressing corporations to become fully accountable to their
stakeholders. The alliance has come out with the Sunshine
Standards with the objective that corporations must provide
information that stakeholders need in order to make rational,
informed decisions in a free market system, and to protect
themselves from the negative consequences of corporate
actions.  Disclosure must be complete, accurate, timely,
objective, understandable and public.

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Customers’ Information Needs

The information needs of customers are:

• Detailed legal records with reference to products and
services, such as product liability, injury and
unsubstantiated death claims over all jurisdictions for
five years; penalties inflicted and citations for
regulatory non-compliance, detailing each incident
and corresponding penalty, settlement effected and
such related information.

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Customers’ Information Needs (Contd.)

• Risks of injury from normal usage of product/service;

• Noise, odour and other nuisances/problems associated
with use of the product/service;
• Design for recycling;
• Biodegradability of products and packaging;
• Unusual life cycle costs;

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Customer’s Information Needs (Contd.)

• Warnings, with appropriate detail;

• Content, additives and treatments of food and
medicines, sufficient to allow reasonably-informed
consumers to make rational market decisions and to
protect themselves and their families; and
• Hidden characteristics.

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Consumer and Consumer Protection

A consumer is any person who, or firm—Hindu undivided

family (HUF), co-operative, or association—which,
•buys or hires (fully/partly paid for) any goods or service.
•the purpose of purchase of goods should not be for resale or
any commercial purpose (except self-employment).
•the services availed does not include free service or services
under a personal contract.
Consumer Protection refers to the steps necessary to be
taken or measures required to be accepted to protect
consumers from business malpractices.

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Parties to Consumer Protection

a. Consumers: Should know their rights and exercise

them.
b. Businessmen: Producers, distributors, dealers,
wholesalers as well as retailers should pay due
attention to consumer rights in their own interest, by
ensuring supply of quality goods and services at
reasonable prices.
c. Government: The government should enforce various
laws and amend existing laws to protect consumer
interests.

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
History and Growth of Consumer Protection

• 1920s: Efforts in the US to reduce the exaggerated

claims of advertisers of goods and services and demands
made for impartial testing of goods.
• 1930s: Growth of consumer co-operatives, the first
federal consumer agency, food and drug administration,
demands for labelling of products and the introduction of
USDA stamps.

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
History and Growth of Consumer Protection
(Contd.)

• 1940s: 150 local consumer councils across the United

States eventually drew together to form the National
Association of Consumers.
• 1950s: The American Council of Consumer Interests
was established by 750 members from universities,
schools and consumer research organizations.

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Ralph Nader’s Contribution to
Consumer Protection

• He coined the term “consumer advocate”.

• He called for the accountability of carmakers.
• He worked towards improved environment, healthcare,
insurance, pension and disability rights.
• He is the founder of numerous non-profit organizations.

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Ralph Nader’s Contribution to Consumer
Protection (Contd.)

• He educated America’s consumers.

• He started the US Public Interest Group (PIRG).
• He founded the Center for Study of Responsive Law,
Center for Auto Safety, the Disability Rights Center,
the Pension Rights Center, the Project for Corporate
Responsibility, and the Clean Water Action Project.

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Consumer Duties and Responsibilities

1) Substantiate the complaint

2) Listen to seller
3) Cooperate with the seller if needed
4) Avoid inconvenience to others
5) Not personalize issues
6) Not lend self to others

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Consumer Duties and Responsibilities
(Contd.)

7) Be well informed
8) Understand the grievances redressal process
9) Avoid impulsive buying
10) Buy goods from authorized agents

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
How are Indian Consumers Exploited?

1) Exorbitant prices of products and services

2) Deceptive selling practices
3) False and misleading advertisements
4) Defective quality, higher prices
5) Sale of hazardous products to ignorant consumers
6) Suppression of material information

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
How are Indian Consumers Exploited?
(Contd.)

7) False product differentiation

8) Producers’/sellers’ collusion
9) Supply of adulterated and substandard products
10) Cheating consumers by giving lesser quantity for the
price
11) Dishonoured guarantees and warranties
12) Poor redressal of customers’ genuine grievances

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
How are Indian Consumers Exploited?
(Contd.)

13) Creating a scare out of scarcity

14) Making consumer buy unwanted goods
15) Misleading representation on utility of products
16) Manipulating conditions of delivery
17) Customers pay for numerous intermediaries
18) Fall in prices never passed to consumers

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
How are Indian Consumers Exploited?
(Contd.)

19) Buying unaffordable goods

20) Advertisement cost
21) Counterfeits: These constitute a substantial quantity of
goods on store shelves
22) Hoarding and blackmarketing
23) Tie-in-sales
24) Gifts for products/services

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Legal Protection to Consumers

A number of laws have been passed by the Government of

India over the years to protect the interest of consumers.
1.Agricultural Products (Grading and Marketing) Act, 1937
2.Industries (Development and Regulation) Act, 1951
3.Prevention of Food Adulteration Act, 1954
4.Essential Commodities Act, 1955

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Legal Protection to Consumers (Contd.)

5. The Standards of Weights and Measures Act, 1956

6. Monopolies and Restrictive Trade Practices Act,
1969
7. Prevention of Black-marketing and Maintenance of
Essential Supplies Act, 1980
8. Bureau of Indian Standards Act, 1986
9. Consumer Protection Act, 1986

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Consumer Protection Act 1986

The Consumer Protection Act (COPRA), 1986, conferred a

legal right to the individual consumer to seek legal redress
or recover costs and damages for injury or loans suffered by
him/her as a result of faulty, defective goods and services,
bought or secured for valuable consideration.

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Rights of Consumers Under COPRA

The SIX RIGHTS of the consumer as enunciated under

Section 6 of the COPRA are:
I.The Right to Safety
II.The Right to be Informed
III.The Right to Choose
IV.The Right to be Heard
V.The Right to Seek Redressal
VI.The Right to Consumer Education

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Redressal agencies under COPRA

Redressal agencies for settlement of consumer disputes:

• A Consumer Disputes Redressal Forum known as the
District Forum has been established by the State
Government in each district of the State by notification.
• A Consumer Disputes Redressal Commission known as
the State Commission has been established in each state
by the State Government by notification.
• A National Consumer Disputes Redressal Commission
known as the National Commission established by the
Centre by notification.

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Consumer Protection (Amendment) Act 2002

The main changes introduced by the Amendment Act are as

follows:
•The District Consumer Redressal Forums can now deal with
complaints involving compensation amount upto Rs 2 million
•For the State Commission the limit is Rs 10 million
•For the National Commission, the limit is more than Rs 10
million.
•Setting up of benches and increase in the number of
members in the National and State Commissions.

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Consumer Protection (Amendment) Act 2002

• A sitting judge of the High Court is to preside over

selection committee when the president of the State
Commission is absent.
• In the absence of the incumbent president of the District
Forum, State Commission or National Commission, the
senior member to act as president of the respective
bodies.
• Minimum qualifications prescribed for members of all
consumer courts.

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Consumer Protection (Amendment) Act 2002

• For admission of complaints, issue of notices and

disposal of complaints a specific time frame has been
prescribed.
• Exclusion of services used for commercial purposes from
the purview of consumer courts
• The court can award punitive damages.
• Any affected party to deposit 50 percent of the amount
awarded to the consumer if appealed against the order of
the Forum
• If any person fails to pay compensation, the consumer
court can order recovery in the same manner as arrears
of land revenue.

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Institutional Arrangements Under Copra

• Consumer protection councils—both as the centre and

states
THREE-TIER CONSUMER DISPUTE REDRESSAL SYSTEM
• District forums
• State Consumer Dispute Redressal Commission
• National Commission

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Role and Initiatives of Voluntary
Organizations

1) Consumer Associations or Councils

2) Consumer Co-operatives
3) Co-ordination at the National Level

Business Ethics and Corporate Governance, 2e A. C. Fernando

 Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Other Initiatives to Promote Consumer
Protection

1) National Awards
2) Publicity measures
3) Customer Service Department of RBI

Business Ethics and Corporate Governance, 2e A. C. Fernando