3. S. 3201 FAILS TO PROVIDE OTHER ESSENTIAL CONSUMER PROTECTION REMEDIES

A. Standards Authority

S. 3201. contains no provisions respecting the development of product or performance standards necessary to enable consumers to participate more effectively in the marketplace. I do not believe that the Commission has the expertise to undertake to initiate or formulate standards. It does have the authority and expertise to make findings as to the need for standards. I believe it also has the expertise to resolve disputes as to whether a standard unreasonably restrains trade or is being abused to this end.

S. 3201 should be amended so as to provide the requisite standards making authority and machinery as follows:

1. The Department of Commerce should be authorized to designate products for which definitional or performance standards should be formulated, to request industry to initiate standards proceedings or to do so itself, and to promulgate such standards as it approves;

2. The role of consumers in this standards making procedure should be carefully spelled out as follows:

(a) Consumers to have the right, either directly or through an Office of Consumer Affairs if one is established, to petition for particular standards to be developed and the Federal Trade Commission to have express authority to investigate and make findings as to the necessity of particular types of standards; (b) Consumers to have the right to be represented in the standards formulation stage whether conducted by industry or government-and to appeal to the Federal Trade Commission from any industry standards-making decision on the ground of the inadequacy of the standard to protect consumers' interests;

(c) Consumers to have the right to petition the Department of Commerce for an amendment or modification of any standard ultimately promulgated on the ground of its inadequacy to protect consumers' interests;

3. In order to make consumer participation in standards making realistic and practicable, the Department of Commerce should be authorized to establish panels of consumer standards-making experts upon nomination of consumers and to establish funds to finance (a) the participation of consumer representatives in standards making proceedings and (b) the preparation by consumers of petitions and appeals papers.

B. Consumer Educational, Informational and Research Programs

S. 3201 should be amended to provide for the establishment of a research fund to be administered by the FTC or HEW or by an office of Consumer Affairs if one is established to be used for the following purposes:

(a) to finance consumer research projects by law schools or other institutions respecting such matters as consumer law, consumer behavorial and motivational patterns and attitudes towards various deceptions, and marketplace satisfactions, credit eligibility standards employed by business and credit experience of low income debtors, the need for legislative solutions for consumer problems such as the feasibility of a government guarantee for installment credit extensions, and the like.

(b) to provide training and materials for consumer protection and educational specialists as part of a community service consumer project, local legal aid group or state or local consumer protection office;

(c) to provide educational and informational programs and materials (for all media) to appraise consumers of their rights, of local community sources of available consumer aid and of other types of marketing information, consumer economic data and information about frauds and deceptions.

(d) to devise methods to measure the specific areas of deception of greatest concern to consumers and the effectiveness of various types of government actions and programs designed to protect consumers from frauds and deceptions (information v. enforcement, industrywide v. case by case approach, etc.).

2. In order to respond to consumers' needs for education and information, S. 3201 should be amended to provide for the creation by the Commission of Citizen Advice Centers in localities where no comparable federal or state facility exists in order to service consumers' needs in these areas and to give consumers information on their rights and available remedies.

Senator Moss. All right, Commissioner Nicholson, we have you as the "tail-end Charlie" now, and we are very happy to have you. We do not want yo cut yourself down any more than need be, because we are sure it Dortant; but if you can summarize to some degree, we will be gra

STATEMENT OF HON. JAMES M. NICHOLSON, FORMER COMMISSIONER, FEDERAL TRADE COMMISSION, WASHINGTON, D.C.

Mr. NICHOLSON. Mr. Chairman, Senator Pearson, I am honored and pleased to be here today.

I would remind you, however, that for the last 16 days I have been "Mister," so apparently I am the citizen witness of these hearings.

I have been here and listened to the seven witnesses and read the statements that they have prepared, and I have thought to myself about the other bills pending before the Congress, both on the House side and here in the Senate, relating to consumers and their problems, and the solution of those problems.

I think there is a tell-tag bill that Congressman Rosenthal has, the class action proposals outlined by Senator Tydings-which I think you are cosponsor of, Senator Moss-the proposals for the creation of a Department of Consumer Affairs, amendments to the Truth in Packaging Act, creation of a statutory office of consumer affairs out of Mrs. Knauer's present office, the warantee-guarantee bill that I think is also one of yours, Senator; the independent consumer council bill, which of course is yours, Senator, and Senator Hart's; the funding bill for State agencies Senator Prouty referred to yesterday-that I think he and Senator Javits are supporting-all of these bills deal with the problems of the consumer, and then with the structures of the solution of those problems.

These hearings today are focusing upon S. 3201, which is one of the structural bills, and you have heard the conflicting points of view with respect to this legislation, the amendment of the Federal Trade Commission Act with respect to our jurisdiction, whether it ought to be "in commerce" as it is now, or amended to expand into "affecting commerce"-I have my own views on that. You have heard differing views from the Commissioners and from the other witnesses.

I think one thing that I would feel rather strongly about at this point is that the Federal Trade Commission is not, and I do not think could ever be suited to be the consumer agency on the main streets of this country. I do not think any Federal agency can do that adequately. And if it is the intent of this bill, by changing it to "affecting commerce" to increase the pressure and the activity of the Commission in that area, then I think it does a disservice to the public interest.

I think, however, what the President had in mind with respect to this and I am not privy, frankly, we are on opposite sides of the aisle but I think what he may have had in mind in this is enabling the Commission to conduct the sorts of pilot or demonstration projects that were suggested in the ABA commission examination of the Federal Trade Commission. They recommended we ought to set up in a number of different cities in this country demonstration-pilot type projects that might well become vehicles for effective local and State action; and with that amendment we would be more readily able to set up that kind of pilot project, and I think in that respect and with that purpose in mind, that is a good provision of this bill.

The preliminary injunction phase you have heard some different remarks on. I thought the suggestion of Comissioner Elman-with respect to the creation of the independent General Counsel of the Commission who could make these sorts of prosecutorial decisions and not involve the Commission in problems of prejudgment in the seeking of preliminary injunctions-was a very thoughtful suggestion.

The schedule of frauds Mr. McLaren testified represented 85 percent of the volume of cases of the Commission. I would say that if this is true of the historical volume of cases, that might not be the best selection, and I think that the evidence was pretty strong and the testimony was pretty strong that that is not what ought to be done.

I concur with what I think most others do, that the creation of a consumer division within the Department of Justice has a useful purpose. Private action, of course, of some kind has got to come sooner or later to relieve Government and the bureaucracy which, at whatever level, is somewhat removed and insensitive to the immediate needs of people.

One of the most creative provisions of this bill and one I would like to take off on just a little bit-with some further suggestions I would like to make—is the provision for an annual report to Congress. So far as I am aware, in any of the pending consumer legislation that has been adopted, there has been no such provision.

I think, and I strongly urge, that before we get into extensive structural changes of consumer enforcement programs, this committee or this committee in combination with the Federal Trade Commission or the House committee or Mrs. Knauer's office, or whatever might best suit the purpose, ought to do a quick and expeditious study of the enforcement of existing legislation to see what the cost-benefit ratios are, where is it effective and where is it weak. Where do we get the results that the bills have promised to the citizens and the consumers of this country? And where is it failing to get them?

I think from this kind of a study the committee could deal with this bill in a way that would assure a greater likelihood of success in whatever structural systems this committee might adopt.

The goal of consumer protection is to provide for a free, fair and safe market in which the consumer can intelligently choose products and evaluate their costs. And it seems to me that all of the existing legislation ought to be examined from that point of view, and new legislation in the consumer protection area ought to be evaluated from that point of view.

I think the suggestion of Commissioner Jones here this morning with respect to the mediation service is a very thoughtful one. I am more inclined to think that something like the Independent Consumer Council is perhaps going to be more effective. But it seems to me that, except in areas like the warranty-guarantee bill, where the problem is clearly recognized and something has got to be done about it, when this committee begins to examine what ought to be done structurally with the consumer protection program and what additional problems ought to be solved, we can look and learn a great deal from the existing laws on the books.

We can also learn quite a bit, in my opinion, about the problems from the testimony given before this committee, before House committees, and the 9 days of hearings which the Federal Trade Commission conducted, and which are available now in print, some 350 pages. In addition to that, there are 109 written submissions by a broad spectrum of people: business, labor, consumers, those who purport to speak for consumers and those who do speak for consumers, Congressmen, Senators. There is a vast volume of valuable and thoughtful information.

I am not saying-you know, the answer always is to create a commission-"Let's study this problem for a couple of years." I do not think they can wait that long. I think we must have more prompt action.

But it seems to me that any action that is taken ought to be thoughtfully enacted in view of past experience and, therefore, I think that it would serve the public interest well if this sort of study could be made in an expeditious way so that the legislation that does come out of this committee will have a higher degree of likelihood of success than we might have had with less thoughtfully considered bills.

Thank you, sir.

Senator Moss. Thank you very much, Mr. Nicholson, for your testimony here and your comments on the bills.

As you counted off, there are many consumer bills now being introduced, and perhaps this underlines what was said by one of the earlier witnesses-I think it was Commissioner Elman-we have done this piecemeal, and it is time that we viewed the overall structure and tried to decide how we could fit the whole thing together now.

But your counsel is we have a great deal on the books and we ought to see how that has worked and is working?

Mr. NICHOLSON. And where it can be helped, too, Senator.

Senator Moss. And where it can be improved and utilized fully. So I appreciate your comments. Your experience on the Commission gives us information that we are trying to get before the committee, and so you have been very helpful, too.

Do you have any questions?

Senator PEARSON. I have no questions. Thank you very much.
Senator Moss. Thank you.

I do appreciate all of the witnesses this morning. You have cooperated with us very well, and we have made our deadline, or very close to it, so I will be able to get over there in time for the vote when the bell rings.

I think what has come out here is what we are all so conscious ofthat there is a very great need now in the consumer field.

I guess Mrs. Knauer's quote is going to be classical. She used such eloquent language; saying "Now is the time; the time for rhetoric is past and the time for action is here."

You have been very helpful. You have brought us comment and suggestion and criticism on the language of the bills before us.

I believe that the administration program is unclear on some points, as you have pointed out. It may be inadequate in the protection that it offers to consumers. It is, however, a first step and we will work in the committee in the next month-and-a-half to see what we can do to fashion a bill that grants adequate protection and an adequate means of administering consumer protection laws.

We are going to reconvene this subcommittee on the 3d, 4th, and 5th of February, when we will go in depth into some of these issues that you have helped us now to get into perspective. We hope that some of you will come back and join with us, perhaps, when we reconvene. We are now in recess.

(Whereupon, at 12:10 p.m., the hearing was adjourned, subject to the call of the Chair.)