CHRONOLOGICAL LIST OF WITNESSES Dixon, Hon. Paul Rand, Chairman, Federal Trade Commission; accom- Knauer, Hon. Virginia H., Special Assistant to the President for Consumer Affairs, and Hon. Richard W. McLaren, Assistant Attorney General in charge of the Antitrust Division, Department of Justice; accompanied by Robert L. Meade, Director of Legislative Affairs; Mrs. Betty Bay, Elman, Hon. Philip, Commissioner, Federal Trade Commission_ Jones, Hon. Mary Gardiner, Commissioner, Federal Trade Commission. MacIntyre, Hon. A Everette, Commissioner, Federal Trade Commission__. 57 Nicholson, Hon. James M., former Commissioner, Federal Trade Commis- 78, 85 Tydings, Hon. Joseph D., U.S. Senator from Maryland. Banzhaf, John, chairman, Legislative Action on Smoking and Health; Gordin, George, Jr., National Consumer Law Center, Boston College__ 164 Berlin, Edward, general counsel for the Consumer Federation of America__ _ Dunkelberger, Edward, general counsel, National Canners Association. Grant, Bess Myerson, commissioner, Consumer Affairs, New York City; 171 7778 Schiff, Herbert H., chairman of the board and president of Scoa Industries, Inc.; accompanied by Eugene A. Keeney, president of the federation; and James M. Goldberg, vice president, Government Affairs Division... ---- ADDITIONAL STATEMENTS, ARTICLES, AND LETTERS Department of Consumer Affairs, local laws___ McLaren, Richard W., Assistant Attorney General, Antitrust Division, CONSUMER PROTECTION TUESDAY, DECEMBER 16, 1969 U.S. SENATE, COMMITTEE ON COMMERCE, Washington, D.C. The subcommittee met at 9:35 a.m. in room 5110, New Senate Office Building, Hon. Frank E. Moss (chairman of the subcommittee) presiding. Present: Senators Moss and Prouty. OPENING STATEMENT BY THE CHAIRMAN Senator Moss. The Consumer Subcommittee will come to order. We are opening hearings this morning on three related bills that offer the consumer protection against fraudulent practices of unscrupulous operators, S. 2246, the Deceptive Sales Act which I introduced last spring, would give the Federal Trade Commission power to seek preliminary injunctions in order to bring unfair or deceptive practices to an immediate halt while the Commission acts on the case. S. 3092, introduced this fall by Senator Tydings and which I have cosponsored, would permit consumers to bring class actions in Federal courts based upon existing substantive law without regard to jurisdictional amount. S. 3201, the Consumer Protection Act sent up by President Nixon and introduced on December 3, contains provisions anologous to these two bills and has other provisions. Our principal focus will be upon S. 3201 in these hearings, but we have brought the other two bills into the picture because they are possible alternative formulations of some provisions of S. 3201. There is little need for me to detail the practices toward which these bills are directed. The case of an elderly couple frightened into purchase of an unneeded and overpriced furnace by a phony "inspector;" the plight of poor and only semiliterate parents paying many times more than the normal price for a set of encyclopedias sold as readymade education for their children; and the family whose house and possessions are threatened with repossession on a mortgage unwittingly signed as part of credit documents for shoddy house siding, poorly applied-all these cases are too familiar to each of us. Today we begin to look at measures that may curtail such practices and offer remedy to deceived consumers. The importance we attach to these measures should be apparent from the immediate attention we are giving to the President's bill. Although it was introduced into the Senate just 2 weeks ago, we have undertaken these hearings to bring it quickly into public discussion. Staff member assigned to this hearing: John Cary. These initial hearings are intended to give the administration an opportunity to present its case for S. 3201. In addition, the subcommittee hopes to discover the administration's conception of consumer protection and the goals it intends to reach. We will consider the adequacy of the overall program as well as the value of the specific bill. I expect that individual testimony of the Federal Trade Commissioners will provide ample basis for assessing the feasibility and impact of the FTC provisions of S. 3201. I expect Senator Tydings to testify tomorrow and to provide us with an opportunity to compare his class action bill with the class action provisions of S. 3201. We will resume hearings on February 3, 4, and 5, after we have had a bit of time to think about S. 3201 and these initial hearings. At that time we will be able to examine the technical aspects of the bills with specificity and will hear from a wide variety of witnesses. This session there are a number of consumer bills before the Congress ranging from proposals offering protection against certain abuses of consumers' rights to creation of channels of consumer representation in the Federal Government. I think it is important to see where S. 3201, S. 2246, and S. 3092 fit into the picture. The bills before us offer general protection against a broad range of deceptive practices and acts. While bills such as the Independent Consumer Council, sponsored by Senator Hart and myself, promise to provide final advancement of consumers' rights, initial reliance must be placed upon legislative steps set forth in bills before us today. (The bills and agency comments follow :) [S. 2246, 91st Cong., first sess.] A BILL To amend the Federal Trade Commission Act, as amended, by providing for temporary injunctions or restraining orders for certain violations of that Act Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "Deceptive Sales Act of 1968". SEC. 2. That section 13(a) of the Federal Trade Commission Act (15 U.S.C. 53(a)) be amended as follows: SEC. 13. (a) Whenever the Commission has reason to believe "(1) that any person, partnership, or corporation is engaged in, or is about to engage in, the dissemination or the causing of the dissemination of any advertisement in violation of section 12, or any act or practice in commerce within the meaning of section 5 which is unfair or deceptive to the consumer, and "(2) that the enjoining thereof pending the issuance of a complaint by the Commission under section 5, and until such complaint is dismissed by the Commission or set aside by the court on review, or the order of the Commission to cease and desist made thereon has become final within the meaning of section 5, would be to the interest of the public, the Commission by any of its attorneys designated by it for such purpose may bring suit in a district court of the United States or in the United States court of any territory, to enjoin such dissemination or the causing of such dissemination or any act or practice in commerce within the meaning of section 5 which is unfair or deceptive to the consumer. Upon proper showing a temporary injunction or restraining order shall be granted without bond. Any such suit shall be brought in the district in which such person, partnership, or corporation resides or tansacts business." [S. 3092, 91st Cong., first sess.] A BILL To amend the Federal Trade Commission Act to extend protection against fraudu lent or deceptive practices, condemned by that Act, to consumers through civil actions, and to provide for class actions for acts in defraud of consumers Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "Consumer Class Action Act". SEC. 2. Section 5 of the Federal Trade Commission Act (15 U.S.C. 45) is amended by adding at the end thereof the following: "(m) Consumers who have been damaged by unfair or deceptive acts or practices in commerce are hereby authorized to bring consumer class actions for redress of such damages. Such actions shall be brought as consumer class actions in accordance with section 4 of the Consumer Class Action Act." SEC. 3. (1) Congress hereby declares that the protection afforded under the existing Federal Trade Commission Act is not sufficient to prevent unfair and deceptive acts perpetrated against consumers and that consumers should be allowed to sue directly for redress in the case of such practices. Congress, therefore, finds and declares that class actions are the most effective machinery for redress of consumer rights. (2) Congress further finds and declares that many substantive rights to protect consumers are established in the laws of the States, but there is no remedy by which many persons, each having a small claim, can obtain effective redress under State law. Therefore, it is in the public interest to embrace as Federal law certain State recognized rights and afford a uniform Federal process, by consumer class actions, as an effective remedy. (3) Congress further finds that the lack of an effective process and remedy in these respects impairs the free flow of consumer goods in commerce and that there is an overriding Federal interest in achieving candor and fair dealing in the marketplace, an interest which, if not protected, clogs the entire economy. SEC. 4. (a) (1) An Act in defraud of consumers which affects commerce is unlawful and the district courts of the United States shall have original jurisdition without regard to the amount in controversy to entertain civil class actions for redress of such unlawful acts. (2) For the purposes of this section an "act in defraud of consumers" is— (A) An unfair or deceptive act or practice which is unlawful within the meaning of section 5(a) (1) of the Federal Trade Commission Act, or (B) an act that gives rise to a civil action by a consumer or consumers under State, statutory or decisional law for the benefit of consumers. (3) "Consumer" means any natural person who is offered or supplied goods, services, interests in land, or intangibles primarily for personal, family, household, or agricultural purposes. (b) In the case of any class action brought upon the basis that a deceptive Act or practice which is unlawful within the meaning of section 5(a)(1) of the Federal Trade Commission Act has violated consumers' rights, the court shall in construing the terms "unfair or deceptive", give great weight to the interpretation given such terms by the Federal Trade Commission and by the Federal courts in applying section 5(a)(1) of the Federal Trade Commission Act; except that nothing in this Act or the amendments made by this Act, shall be construed to require the court to await administrative action by the Federal Trade Commission before applying Federal law to the facts of the case. (c) In the case of any class action brought upon the basis of a violation of consumers' rights under any State law the court shall, in deciding such action apply the following criteria: (1) State law relating to the consumers' rights under State statutory or decisional law is adopted as Federal law. (2) Federal law applicable to each class shall be fashioned upon the law of the State and the State statutory and decisional construction shall be applied as if jurisdiction of the Federal court were based on diversity of citizenship. (3) In cases of conflict between State statutory and decisional construction and Federal law the latter shall prevail, and Federal law governing the case shall be fashioned from State law not in conflict, as near as may be, and from Federal law. (4) If, prior to the date of enactment of this Act, a cause was not subject to removal under section 1441 of title 28, United States Code, the adoption of State law as Federal law by this Act shall not authorize the removal of such a cause on the jurisdictional basis of a Federal question. (d) Whenever a class of consumers prevails in a class action under this Act, including the amendments made by this Act, the court shall award to the attorneys representing such class a reasonable fee based on the value of their services to the class. An award of attorney's fees is to be made in addition to the damages or relief recovered by the class except that attorneys' fees may be awarded from money damages or financial penalties which the defendant owes to members of |