STATEMENT OF HON. MARY GARDINER JONES, COMMISSIONER, FEDERAL TRADE COMMISSION, WASHINGTON, D.C.

Miss JONES. Thank you, Senator. If you would prefer that orderI did not mean to jump up before you called.

Senator Moss. We are delighted to have you.

Miss JONES. I do not intend to read my full statement, Senator. I am going to try and summarize it briefly.

Senator Moss. Thank you. The full statement will be in the record. Miss JONES. Thank you very much.

In your letter inviting us to testify here this morning you asked that we direct our comments to the question of S. 3201 as a vehicle for action by the Federal Trade Commission on a broad range of consumer problems facing the Nation.

I thought, therefore, it would be useful first to consider just what are the major consumer problems that are confronting us and consumers in the Nation. We can categorize them briefly into four categories.

No. 1, I think that consumers are urgently concerned today with what one might refer to as the quality of life in this Nation. They are concerned with the technological fallout of business decisions. They are concerned not only with the functions of the competitive system but with the question of what is the impact of business decisions on our environment, on our genetic development, on all of the aspects of life now that come under this rubric of quality of life.

I think the second concern of consumers is more directly related to the marketplace in the area of product information on the kinds of products that are coming out on the retail shelves today. Consumers no longer can trust their judgment and their general experience to make the kinds of decisions and selections they have to between values and to try and understand comparative quality of products. So they need product information. Along with this they need performance standards so they can in fact, make the type of informed judgments in the marketplace on which we rely for our competitive system to work. Third, of course, are the frauds and deceptions which have been talked about this morning. Consumers do need substantial protection from these practices in the marketplace.

And fourth, and as an overall area of need, consumers need educational and informational programs to help them participate in a meaningful way in the marketplace.

Now against that background of four consumer concerns as I see them, let me apply S. 3201.

S. 3201 first tries to broaden the geographic scope of the Commission's jurisdiction. This is to update it, really, since the Commission's statute of jurisdiction was written in terms of "in commerce" and the more modern version is "affecting commerce." I think this would be a useful amendment to the Commission's jurisdiction but I do not think that we should look at this as removing any major obstacle to the kind of thing that has made the Commission less effective than it might be.

So I think while it is a useful thing, I do not think it goes to the guts of the problem of consumer protection that we have in this country. I would like to see S. 3201 amend the substantive jurisdiction of the

FTC. I would like to see it amend the Commission's statute so that we would have the authority to consider, investigate, and make recommendations on the broader social and environmental implications of business decisions.

Now, note I am not asking for any adjudicative, any prohibitory jurisdiction in this area. This is much too new and ambiguous an area. But I think there should be an agency with investigatory powers to be able to study what are the social implications of some of the business decisions that are affecting us and to be able to make reports. We need a factfinding forum for this kind of problem, and I think the Commission is well experienced to do this type of thing.

Second, I would like to see the Commisssion's rulemaking authority be made explicit so that we have the express right to issue regulations requiring the disclosure of product information not just to eliminate deceptions, but also to enable consumers to compare values, analyze quality, and generally to issue those regulations which would promote the effective functioning of the competitive system.

I think we already probably have this type of rulemaking authority, but rather than go through the litigation necessary to establish it, I think an expression from Congress that we have it would be very effective for use to handle the kind of product information problems that consumers have today.

The second major objective, I guess, of S. 3201 is to create a new authority in the Department of Justice to proceed against frauds and deceptions. I am heartily in favor of as many resources as possible in the consumer protection field. Therefore, I think that to bring the Department of Justice into this will add to those resources; and in principle I am in favor of it.

However, my problem is that the listing of the practices which the Department of Justice would be authorized to proceed against are not those practices which in fact it should be authorized to proceed against. You have heard Commissioner Elman this morning and other people have talked about the hard-core frauds as one of the problems confronting consumers.

Now, nowhere in S. 3201 do I see any description of any practices that I would regard as falling into the hard core fraud area. Indeed, S. 3201 expressly eliminates credit transactions. It is in the credit field that we have had the most brutal and most poignant deceptions and frauds against consumers. The passing off of the retail installment contract as an order or a receipt; the execution of these contracts in blank and filling them in later; the kind of confession-of-judgment clauses that you see boilerplated in the contract. These are the things that have in fact robbed the low-income consumer of hard earned savings. Nowhere are these mentioned in S. 3201.

I will not go through the other omissions, but I have listed them in my statement, the kind of hard core frauds that are nowhere in S. 3201 and yet are the very ones that-if the Department of Justice receives this authorization, together with the FBI and their greater expertise in the criminal area are the ones they ought to be going after. The only things they are authorized to go after are the kinds of ordinary civil administrative deceptions which the Federal Trade Commission is well equipped and has the experience to proceed against.

In the area of class actions, again, I think it is a useful tool to add to the consumer's arsenal, to have a class action. But I do not myself put any great reliance on the class action as being any great panacea for the consumer's problems in the marketplace.

The ordinary consumer is fearful of litigation. The ordinary consumer transaction is much too small to warrant litigation. And the class action is an effort to pool those together. But from the individual consumer's point of view, are they going to go through the time and the energy and the nervousness, if you will, of participating in a lawsuit?

So, although I think a class action is a good thing and that Congress should pass such a provision, I do not think we should think we have done a tremendous amount after we have done it. It is just one more tool that is necessary.

But I certainly agree with Senator Tydings that to put the class action in the context of simply following up on a government suit is a very useless device, and I think it is almost a put-on on the consumer. Unless the consumer can sue independently of government, I think we have done very little.

The Government can in fact collect some of these funds and create funds and direct respondents to notify consumers of fraud. We can do this within our own powers. The real value of the class action suit is to enable the consumers to proceed against those frauds that bother them, whether the Government agencies have thought those were in the public interest or not. So that I would hope that S. 3201's class action provision will be amended to enable the consumer to bring that independent of any Government action.

Now coming to the consumer remedies in terms of self-help, the class action is fine for those types of consumer frauds where the consumer will in fact go through the problem of litigation. But I think consumers need something that will be more useful to them, and that is some type of informal grievance mechanism, something that does not have all the trappings of the law.

I think in Europe you find complaint boards which are created with industry and consumer members, where a consumer can simply go before it and bring the fur coat that was ruined in the dry cleaning, or whatever the problem is, in a rather informal proceeding, and have their grievance resolved without any kind of legal panoply.

It is difficult to get industry to appreciate the need for this. I have made a lot of speeches along this line.

But I have a feeling that the Congress could perhaps create an incentive for industry to create these boards if, when you draft your class action bill, you make it a prerequisite for a consumer to have exhausted its rights before such a complaint board if it exists. This I think would create an incentive for industry to establish these boards as a means of trying to avoid the class action suit in the areas where the industry could well say, "Gentlemen, if they had told us, we would have resolved it."

I think a lot of industry people will testify that so many grievances will be brought to them via litigation which they would have solved on their own. We have to create an incentive for industry to do this, and I think something like the exhaustion of administrative remedies-if you build this into the class action, you might well create the kind of boards I think the consumers need.

In addition to that kind of grievance board, I think that we should consider and provide for some kind of mediation services. This is something that has troubled me as a Commissioner. I would get a letter from a consumer saying, "My refrigerator door fell off." I am tempted to write the Westinghouse-if that happens to be the company-president saying, "Look, the Commission has no jurisdiction but I am sure you would want to know about the complaint," an effort to sort of get the complaint to the horse's mouth. I have held off because I think as a Commissioner it is probably improper. No matter how much I would disclaim it, it would be taken as some kind of bringing of police power of the Commission behind that lady's grievance, so I have not done it. But I am troubled that consumers need somebody to intervene on their behalf. Louis Lefkowitz does it in New York. He has sort of a mediation service.

So I have been thinking that it would be possible for the Congress to authorize the Commission to set up a mediation service quite separate from the investigation, prosecutory staff, which would be attached to our field offices which would in a sense be an ombudsman, if you will, somebody who will call the business up and say, "We have this complaint. What is your side of it?" It would function somewhat like the Federal Mediation Service does in labor disputes.

So I throw that out. I have not yet been able to pursue it in my own thinking any further than this, but I throw it out as another thing I think consumers need today.

Now coming to the sanction part of S. 3201, here they authorize the Commission to have injunctive power. Again, I think injunctive power for all deceptions would be a useful tool for the Commission; but again I do not entertain any notion that this is going to resolve the Commission's problems in trying to get effective protection for

consumers.

Why? Because although I agree with Commissioner Elman and Mrs. Knauer that people are beginning now to look at business practice deceptions as crime in certain areas, the ordinary court just does not look at the businessman's activity as criminal.

By the same token, if the Commission walks in and asks for the court to enjoin what on its face is an ordinary business practice, on the Commission's say-so that they are going to prove it was deceptive and that deception does not show on its face, I am very doubtful any court is going to give us that injunction. So I do not think the injunctive tool is going to solve all our problems, although I want to make it clear I think it is a useful tool to have in the arsenal. But I do not think we are going to use it very often or that it will be granted very

often.

I do think that what we need are stronger sanctions. A cease-anddesist order is not enough to create the kind of deterrent that one needs so that in fact business will police itself, because no agency, State or Federal, can police violations of law. What you depend on is for the community to police itself. But in order for a community to police itself, you have to have effective sanctions.

I think we ought to have money damages. We ought to be able to levy money fines for initial violations of the law as well as for violations of orders. I do not believe on the order violation that we should

have to go as we do now-to the Department of Justice to bring our civil penalty actions. I think this is unnecessary. It makes two groups of lawyers having to look at the same kind of situation and facts. I think that we ought to be empowered to either ourselves levy money damages or, if that has some problems because of our administrative character, that we should have the authority to recommend and seek money fines in a court. We should hold the hearing; we should make the necessary findings of violations; we should issue cease and desist orders; and if we wanted to add a money fine, we could make a recommendation on that and go into court and get it levied. So

solve any problems you might have because of our administrative

nature.

On the things that S. 3201 does not do-and I will run through them quickly because I have developed them in my statement-the area of performance standards. I do not think the Commission is equipped, has the expertise, or should have any standards-making authority. I think the Department of Commerce is the logical body to have that.

But I think that in a general consumer bill that you are considering, I think you should consider including provisions for standards-making authority, and I would like to run down the essentials that I see for that kind of authorization.

First I think that the Department of Commerce should have the authority to initiate the proceedings. Now, whether they ask industry to formulate voluntary standards in the first instance or do it themselves, I think they should have both authorities.

But I think that the role of consumers in standards-making is very important. Up to now, consumers really, although they have had representatives in standards proceedings, they really have not had a meaningful opportunity to participate. Consumers ought to have the right to petition for a particular standard to be adopted.

I think the Federal Trade Commission would be the body that could handle that petition, investigate the need, make findings as to whether there is a need for standards for the consumer interest or not.

Second, I think that the standards-making body-and I think it probably would in most instances be the industry group consumers ought to be able to participate in those proceedings and they should have a right of appeal from them on the ground that the standard does not sufficiently protect the consumer interest.

This has not been had before. We have had consumer participation but no right of the consumer to petition that "this really does not help me at all."

My own feeling is, again, that the Federal Trade Commission could handle that appeal; but it could be you do not want to build too many agencies in it and you would like it to go to the Department of Commerce. But there should be a provision of this sort.

The third aspect of any standards authority I think should be a provision for a fund to be created and a panel of consumer experts to be established. One of the major problems when one deals in the consumer field is the constant question, "Who is the consumer?"

Certainly a housewife does not know anything about standards making; but there are consumer experts in the country and I think that the Department of Commerce in its standards-making activities. should create panels of consumer representatives and a fund to finance