Sunday Forum; Consumer Protection Agency Hearings

But it was not. But it was not. This year we have two consumer protection agency bills before the committee. One is the bill which is back for the third time which has been used by Senator River Cafe and sells Mr. Javits Mr. Percy and a number of other sponsors. But there is another bill and that has been introduced by Senator Allen Senator. So we'll let you listen to Senator Reed because now. In August 1970 the Federal Power Commission established an optional pricing girl for new supplies of natural gas. Which may result in higher gas prices to consumers. When the FTC was

considering this rule for the consumers. In December 1972 the eventual cancellation of Youth and Family. When the CIA was considering this action spoke of the consumers. In February 1973 with a price of the Fed record high levels. The Department of Agriculture advised Turkey farmers to reduce production in the latter half of the 1973. When the Department was considering this recommendation who spoke to the consumers. These examples are just a few of the thousands of actions that government takes each year. Which directly affect the economic health and safety interests of consumers and yet in almost all of them the answer is that no one represents a consumer interest because there is no consumer protection agency. This year we're beginning early so that there will be adequate time. Consider this

bill. And complete action on it one way or another in 1973. And it is my hope personally that we will finally have a consumer protection agency to speak for the consumer next year. Senator Allen would you like to make an opening statement. Mr. Chairman for the third time in as many Congresses. We meet again to hear testimony on the creation of a consumer protection agency. An independent unit with a primary mission of advocating the interests of consumers. We're all in agreement that the interests of consumers are important. And worthy of protection. There are differences among us as to how best to protect these interests. A consumer protection agency failed in the Senate last year because of those differences.

One hopes not to see such a failure again. I was one of those who could not in good conscience support last year's CPA. Bill or some of the last seven or seven before. It distressed me not being able to support one of the leading consumer protection proposals of the 90 second Congress. But I sincerely felt then as I do now about 7 0 7. That the bill would do harm to the public interest. I pondered on it over the last year. And concluded that perhaps we had been fighting. Over a solution so long. But we have forgotten their original problem that this is. The real problem is this. How do we assure that the interests of

consumers are given due consideration in decision making. I'm convinced that the answer to this problem does not lie in creating one federal agency to attack on behalf of the consumers. I'm convinced that the answer to this problem. Does not lie in granting a new agency all of the rights of a regulatory agency and none of its responsibilities. I'm convinced the consumer protection agency can be an effective advocate without overreaching powers. Conferred upon. Regulatory agencies. Such as Bennett Sparkman pharma. And I have entered a CPA which we feel but such a responsible agency. Bell is 11 16

and it is so it is. I look forward to these hearings but I regret very much that ministration. And it is not represented here at this time. As you may remember from last year I'm particularly concerned with the potential effect consumer protection agency on the efficient functioning of its fellow federal agents. I hope that these hearings will not be allowed to lapse until we have heard from the administration. And if Representative federal agencies in whose proceedings a CPA might appear. Thank you very much Senator precinct. Chairman. What we're trying to get across is that there needs to be within the government itself an advocate for consumers who can say with force and effectiveness no more no more unsafe school busses and

infant cribs to in effect of flu vaccines and flammable sleepwear children and I particularly like to say to my colleague from Alabama who I have the highest regard for. I think the battle is to whether there is going to be a consumer protection agency is over I think there is such unanimity of opinion even from among the most ardent opponents of principles on years ago that now it's just a question as to what that agency is going to do and what power is it's going to have. Rather than deal in the field of Syria I have a song done to myself as a single senator but I would consider the role of the administrator of the consumer protection agency for the last several years. I have taken on case after case after case I'm in the midst now. Being the advocate for improved safety in school busses and in prolonged and detailed negotiations the director of the department of deo t the secretary of transportation.

I am doing nothing any different than the administrator would have to do. I have no more clout I don't think than the administrator is given under the bill that we have right here he can be a party. He can try to influence but he is not a regulator he cannot issue orders under the bill it has been voted out of this committee last year in the bill that Senator Rev across Senator Javits myself Senator Moss Magnussen and Senator Cook have put in as the principal sponsor is together with a total of 30 of our colleagues. I have tried to follow through and see what could be done to rectify what I consider to be an injustice to the consumer in certain cases. And so that as we proceed in these hearings I'll try to give us many specific illustrations of what I have encountered in trying to move industry and industrialists many of whom have been lifelong friends of mine in

industry to recognize and appreciate the fact that the strength of this economy is the fact that it is a consumer oriented economy not oriented to protect the producers and that we do need a strong advocate within government to get many of these regulatory agencies that have become creatures of the industries that they are supposed to regulate. You know the first thing an industry does. When they see a regulatory agency established just to try to move in and get their people imbedded in that agency and to try to move honestly is there one of the toughest job I've tried to experience to get them to actually undertake and exercise the authority that they have and that we presume they have because by law we've given it to them a consumer protection agency is necessary to get the existing federal aid is to do the job for which they were created. Absolutely. I won't take the time but if I could go through

the details of what I am now going through and just getting safety in school buses. We were an awful lot about school bussing. It's a favorite subject the distinguished senator from Alabama. But I think we have no difference of opinion. The school buses ought to be safe to transport the 40 percent 43 percent of all US schoolchildren transported today. And they are on our age the way children are killed and maimed and injured year after year in unsafe school buses when the power to issue those regulations exists in the OT and callously for some reason or other I can't explain it. They simply have not used the power that we have by law given them and it takes an advocate someone fighting for the for the schoolchild to make certain that we do issue regulations and standards. Yesterday this committee's. Turned over to me which I released to the Senate in the press. The fact that cancerous causing

substances and seed were going into almost all livestock. This memorandum which was an internal memorandum back in September 1970 was sort of put in a dark closet in 1971. We called attention to this problem to Secretary Harden of the Agricultural Department. So here we had a situation prevailing between FDA and the Department of Agriculture concerning cancers causing substances going to livestock which has an impact upon every person who consumes food in this country. And yet this lapse between agencies are the bureaucracy between agencies kept this under the sheet so to speak for a matter of three two or three years. Our first witness today is Commissioner Herbert as Denin bird the insurance commissioner for the state of Pennsylvania.

I'm here today to endorse Senate bill 7 0 7 which you are considering only yesterday the Nixon administration came up with the answer to higher food prices. Eat less. Some might think this will eliminate the need for a consumer protection agency. The next an administration can now tell the public to spend less and thus avoid the problems of the marketplace. But the public that spends less will have more to say and it will then run into similar or more serious problems in the area of finance savings and investment in insurance. So despite the Nixon administration's novel solution of the problem high food prices we're still going to need a consumer protection agency. Now everyone doesn't need a consumer protection agency. For example the insurance industry doesn't need an inch. A consumer protection agency when any government agency is about to make a decision involving insurance whether it be at the federal state or local level the insurance in the industry lobbyist like locusts darken the skies and descend on the decision makers. I've been insurance commissioner Pennsylvania for two years and I've yet to

see an expert technician representing a consumer group. Yet every day in my insurance department Pennsylvanian every other there are dozens of insurance lobbyists that appear to present a point of view of the insurance industry. This is true of both formal and informal proceedings and what it means is that the industry's point of view is always heard and that the consumer's point of view is rarely if ever heard. In fact we typically have to go out and recruit consumers to testify at our hearings in order to get their point of view. As a matter of fact the companies don't even have to send their one and a half million employees or their three hundred billion dollars to any insurance department or government agency to present their point of view. Forty percent of the insurance commissioners today come right out of the insurance industry as do a large number of insurance department employees. And where do they go for their jobs when they're done. About 40 percent or more go right back to work for the insurance industry. Recently the former insurance commissioner of New York California Pennsylvania Illinois and Missouri to

mention just a few went back to work for the insurance industry after concluding their term. And of course this is the rule rather than the exception. We've had a recent example of the kind of performance which some regulatory agencies give at the federal level right here in the District of Columbia. The insurance department of the District of Columbia which of course is the federal agency is now attempting to suppress a shopper's guide which we published about a year ago in which you continue to publish this shoppers guide as disease is on life insurance and it's designed to show the public that there are cost variations from lowest to highest cost company of three hundred twenty four percent or more. And of course the public generally does not have this kind of information. So the insurance commissioner the superintendent of insurance is his official title of the District of Columbia is now attempting to suppress the publication of this guy. And he's written the publisher here in the district that's a distributor. That and told him that the distribution of this guide violates the insurance laws of the District of Columbia.

I say that too is often the rule rather than the exception in the performance of regulatory agency. Just curious if I may interrupt what did the publisher tell the insurance commissioner of the District of Columbia. Well I think he told them in very polite language to go to hell. But I think it's kind of incredible but I don't think it's surprising I think this represents the typical point of view. Apparently the insurance commissioner of the District of Columbia thinks it's defamatory to tell the truth about an insurance company. And he also thinks it's an incomplete comparison because it doesn't cover every conceivable case. Now of course if you put out a guide that covered every conceivable case the guide would probably be the size of the Library of Congress. So what he's really trying to do is make it impossible to give the public the facts. Let me give you one other recent example of how cozy the regulatory agencies are with the insurance industry. Recently Ronald Reagan had to appoint an insurance commission in California so he named

Gleason L. Payne who had worked in the insurance industry for 27 years and was president of a company. Now where did the former insurance commissioner go Richards the bard he went to an insurance law firm. He's now on the board of directors of the beneficial insurance group. He's a partner of herb or Debbie a calm back the president's lawyer a recent Watergate fame. He also served as the chairman of the insurance industry committee that Tookie came up with a position on no fault. Now I might say incidentally that the insurance industry doesn't need much of a CPA either because it's actually written most of the insurance laws in addition to administering them. I might mention a few other groups that I've had experience with recently that also don't need a consumer protection agency. The trial lawyers don't need a consumer protection agency. Whenever an old law is debated or considered by any agency they come out of the woodwork like cockroaches. They pour money of course into the campaigns of every legislator and of course they have a pious pronouncements of the American Bar Association as well as the outright fraud of some groups of

trial lawyers to enable them to present their point of view to any government agency. There is another group that doesn't need a consumer protection agency. If you make heavy political contributions of course you typically don't need a consumer protection agency. Now incidentally I'm not trying to be political I'm trying to be factual. But as one exercise you might take a look at Mr Nixon's leading campaign contributors at the top of the last is Clement Stone at two point one million dollars. Who runs the Combined Insurance Company. Number two on the list are the melons of course who control general run insurance company they get two million dollars. Other people on the list that come to the come out quite obviously are Samuel showmen of national general that controls a great American insurance company and a quarter of a million sols Steinberg which controls lease go which in turn controlled reliance at a quarter of a million Sam and Charles Wyly who control the Gulf insurance company. And this of course is not to mention such stellar insurance stars as I TNT which controls a billion dollar Hartford and the camper Insurance Group which is also a notable

contributor to Mr. Nixon's campaign funds. Now I don't know what you can buy for 2 million dollars but I know at the state level it's sometimes possible to buy a point of view or a politician for much less. So it's quite obvious that the insurance industry is going to have influence in the next administration far beyond what any consumer group could ever hope to muster. And for proof of that you might look at the position taken by the Nixon administration on almost every insurance question that's come before that. For example no fault catastrophe insurance for flood health insurance life insurance reform. I know of no major insurance issue in which the next administration has done anything but side with the insurance industry. And I know of no major issue on which the Nixon administration has sided with what I would call a consumer point of view. So this brings us to the question of who needs the Consumer Protection Agency. I'd say only the public the consumers who make up what is truly a silent majority. They pay their taxes and typically get sold out by regulatory agencies and other

government agencies. It's no wonder that the public has lost confidence in government it's something of a consumer product that really doesn't deliver in the public interest it takes care of the special interest groups and almost no one else. Now President Nixon has said that we expect too much from government. I would say that if if the government could do for the public what it does for example for ID and T there would be no complaints at all about government. Government has enormous power. Every regulatory agency has enormous power to protect the public. If it simply starts to protect the public rather than shelter and protect and coddle the industry it's supposed to regulate. So I would say that the consumer protection agency is long viewed as a as long is a long needed countervailing consumer power. Some of criticized the consumer protection agency as a reckless attack on due process. My reply to that would be that we really don't have due process today. Our present system is lacking in due process because typically only one point of view is

represented and that's typically the point of view of the regulated industry or the special interest group. Now Senator urban and criticizing the version of the Consumer Protection Agency. 7 0 7 Senate bill 7 0 7 he said quote. In short the bill is based on the theory that every businessman in the United States sits up all night scheming about how he can cheat as customers and that all consumers are a bunch of idiotic nitwits who ought to be put under bureaucratic guard because they can't manage their own affairs. I think there is ample evidence. That some business men do stay up all night dreaming about how they can cheat customs. For example we recently were involved in the investigation of mail order health insurance and we found that there was a good deal of evidence that some of these business men apparently do stay up all night dreaming about how to cheat customers for example a union fidelity life insurance company advertise that have the highest financial rating of a certain insurance rating service when it in fact have the lowest rating.

This same company advertised in one of its ads it was recommended by Dunn's insurance invent an insurance rating service. We asked Dunst to explain its methods of rating insurance companies and they simply replied that we're going out of business shortly. So we never did find out how that particular company arrived at its recommendations of insurance companies. In fact when I became insurance commissioner I of course found that there is a law regulating such unfair trade practices but it had never been specifically enforced in a formal proceeding against any company due to the in the knowledge of the people that were in that apartment at the time. So the novelty of actually enforcing the insurance laws against the industry actually shocked them. I might say if you want other evidence that some businessmen may perhaps be staying up all night dreaming about how to take the public you might look at some of the astounding achievements of some of our car manufacturers. For example General Motors has managed to create a car in which it cost $20 to replace a 60 cent light

bulb and all of the major auto manufactures still use radiator ornaments which are considered a hazard because they could impale a pedestrian. They still use these ornaments in the year 973 they not only use them but they become the symbol of quality for the top of the line on such cars as Cadillac and imperial. Now Senator urban has also said that every consumer apparently is not a nit wit so we don't need a consumer protection agency. Now I don't think every consumer is a net wit. But I will say that the consumer is completely lost and you almost have to be a Philadelphia lawyer in The Wizard of Oz even to present a complaint to a federal regulatory agency. I'll give you a couple of examples out of my own recent experience. Back in October I was on a scheduled airline and there were clear safety violations because the it was a small airplane and they let the passengers stack their luggage in the aisle of the airplane. So I wrote the Federal Aviation Administration on October 25th and complained about this and they kind of

tried to pass it off they said well this is this is really a shame but we're going to tell everybody to try harder and do look at this kind of look for this kind of violation. So I had to write them say three separate letters over a five month period to even get a Federal Aviation Administration to start to investigate this specific violate I can tell you no different than Congress from the senators the FAA doesn't pay attention anybody. Well that's good that's good to know I noticed. It's reassuring to the public to see that Congress and senators get diddled around by the president the same way the public is so. I guess that's democracy. I've had other experiences with federal agencies only last week I walked into the Federal Aviation Agency in Baltimore and they didn't even want to receive the complaint they said well you have to take it to Washington. Our experience with other government agencies has been about the same. For example in the early stages of phase one of the wage price worries I found that the insurance industry was down here to having all kinds of conferences with the secretary Connelly and of course when I tried

to make an appointment with Secretary Connally to discuss the application of the wage price freeze to insurance I wasn't even able to get through to his forty fifth assistant. And unfortunately that's par for the course in dealing with the federal agencies because you're right two years Senator. No I gave up. I decided that my efforts could be used more efficiently in Pennsylvania. We finally just told the wage price freeze people that they can administer the freeze that we don't want to have anything to do with it because they were just impossible to communicate with. And we have a same runaround that you get when we ask for information for example from Medicare. We've had Medicare come back and say well we can't give you this because it's subject to an executive privilege so we can sympathize with the plight of the United States Congress. In other words things are so bad that it takes a government agency to assist to assert a complaint against another government agency another one of Senator Ervin's classic statements about this bill as it will be legislating government

tax finds. My reply to this is that government agencies are probably too kind and polite to each other right now and a little friendly friction is probably in order. We find that we get better protection of the consumer when we have different agencies pushing each other a little. For example in Pennsylvania the Department of Health the Department of Welfare and the insurance department are all involved in the regulation of the health delivery system and we find that the public is better protected when these departments at patiently give each other a push to shut up. I don't think it's necessarily a cat bite but I think some of the piece of the regulatory agencies is not healthy. Sen. Ervin has also said that this bill would be creating a box to put in the federal henhouse. I think special interest groups already have herds of wolves and foxes in the federal Ham House and the consumers in title of Fox are to snapping on his behalf. Finally senator Irvin has said that the power of the Consumer Protection Agency to participate in the billions of federal decisions will no doubt result in considerable difficulties for the

existing aging. CS First of all if it's a difficulty to get a consumer point of view across I'd say it's the right kind of difficulty for a regulatory agency. But in fact I think a consumer protection agency would in fact help the regulatory agencies. I find that one of my difficulties as a regulator is that I only get one side of every story. I get the insurance industry always their point of view their experts their technicians. They can afford to spend any sum send any number of representatives prepare any kind of study take any case to court take any case to an administrative proceeding and the consumer is never there so it actually it's like a judge only hears one side of the case. And this is all too much the rule rather than it than the exception. Before other government agencies. So I would say that the sweet piece of many agency determinations has not always been in the public interest. It has been the peace of the graveyard for the consumer. We can use some wave making and boat rocking by a consumer protection agency. Call it a federal Circus Maximus as does Senator Allen. Call it a government catfight as does Senator

Irving. Call it an administrative guerrilla war as does Senator Allen. But maybe it's about time we get the consumer side and the industry view before regulatory agencies and other government agencies. If it takes a war a fighter a circus to do this so be it. You feel though that the insurance buying public consumer and insurance industry is protected is adequately protected. The services of your department. No I don't think so. First of all we're dealing with a situation in which the insurance industry has had it in its own way since April of 1873. They have essentially called all the shots they have written all the laws they've controlled essentially what happened including the Typically the appointment of the insurance commissioner. So I think it would take a long long time even in Pennsylvania before we can redress the balance I'll just give you one example. We're just getting into the area of readability of

policies in which we're going to apply a formula and actually require that a policy be readable. Now many of them are actually and literally more difficult to read in Einstein's basic work on relativity. But this is going to it'll take five or ten years Duff great all these policies if we would reject them all the day because they're not this sufficiently readable. We put the companies out of business. So it's going to be a gradual process. And that's only one area. There are many areas which we haven't even scratched because we've been so caught up in the immediate crisis the problem of mail order health insurance problem no fault auto insurance the problem of Blue Cross rate increases and reform of the health delivery system. So there are all kinds of critical areas which I can't even touch. And if I'm if I'm insurance commissioner 10 years I probably will be able to get around. There's such a backlog of consumer abuses and I think the insurance industry is no different than others. In fact I suspect there are some industries which are which are actually work. I would suspect that banking regulations probably worsen insurance regulation. But it it doesn't surface as a public

issue and therefore it's been neglected. When I walk to services would you feel that. A consumer protection administrator at the kid could run to your department. I think he could be a consumer advocate in any of our proceedings formal or informal. I think I would and I basically endorse 7 0 7 I think all of the provisions would contribute to better performance of a state agency such as the Pennsylvania insurance department and I would welcome his intervention. I mean you know I'm on ice as I say I see insurance experts and lobbyist all the time. They're here today. A lot of the same ones I see up in the Harrisburg. They're all over the place. When we have a hearing they show up in the manse in the consumer is not there and typically the consumer doesn't have the experts really to present his point of view. That's one of the problems as I say I've never seen in two years as insurance commissioner I've never seen an expert technician

representing a consumer group. And yet every day if you go to the Pennsylvania insurance department or any other insurance department in any formal or informal proceeding you see the insurance industry there and all over the place you go to it. If you go to a convention of the National Association of Insurance Commissioners you'll see more insurance lobbyist than you will insurance regulators. I once said that the ratio is 10 to one and I was immediately corrected I think by the insurance commissioner of Colorado. He said the ratio was only three to one. But at any rate there's a tremendous imbalance in there. The insurance regulator and I think every other regulator is desperately in need of help. Well I'm sure that no matter how many number you're there wouldn't have any influence on you sure that the consumer as you represent would have nothing to fear but those of a lobbyist. No I think they would have a different point of view we certainly can't develop all the evidence or all the

facts or all the points of view it's impossible we don't have adequate investigative stance. My staff is only two hundred thirty six and they're tied up with a lot of data a day activities. We have virtually no budget for basic research. I think any consumer advocate that was prodding us would be useful and I find even the day that can ask consumers get more involved and start asking questions that improves your regulation because basically a regulator is trying to stand in the middle and you go all you everyone's case impartially. But he's basically just getting the case of the insurance industry. It would be just like a judge you had to try a case and there was only one attorney there. It puts the judge the judge is much better off in an adversary proceeding which is basically what these regulatory agencies are. If you have both points of view represented him it makes his job easier and I think it assures a sounder decision.

You don't think then that the consumer would be properly protected if. The role of the administrator should be limited to furnish you with facts and giving you advise and pointing out the various facts or rounding the case and giving you the information Hugh needed to make a proper decision. You rather he be parted to the proceeding or would you rather he merely serve you in the past. I think we'd be better off if we could do more than present facts and perhaps a brief for the court. I think he can do a better job protecting the interest of the consumer if he can for example intervene as a formal party present evidence to take appeals because he's just presenting information for example here and that may do no good at all. It goes up on appeal and he hasn't managed to get the evidence that he needs into the record. So I think you know it. It might make it the typical regulators going to say you know it's going to make his job difficult

and he may balk. It's much easier to drift along and have the industry there and be able to do almost anything you want and really not get both sides and that's it. But I think you'll get better results if you are pushed from both sides. I think any you know any judge will tell you the most difficult thing you can have before him as a case in which one attorney is much better than the other or someone is represented by an attorney in the other party. And yet Typically we have this adversarial proceeding before all regulatory agencies and essentially there's only one party represented. This is true of great hearings for the foreign insurance department or before you tell any commission. Well one good thing to start some heads rolling on the part of the law in the box and I would have no problem with heads rolling. I could give you a long list ahead. I think our role right now starting right at the top but I won't

name names. But I well say that you still even if even if the government starts to serve the public interest rather than special interest groups when that day finally arrives maybe a thousand years from now even then I think you're going to need the equivalent of a consumer protection agency because there are other reasons why a regulatory agency tends to take the industry's point of view. For example even though I was completely dedicated the fact of the matter is that I still have to deal with the insurance industry all the time. There are always swarming in to see them. After all I regulate the insurance industry and I I naturally get their point of view more than that of the consumers. So there's always I think a great deal of bias in any regulatory agency. Now it's really outrageous that the influence of the insurance industry on the insurance departments or the influence of the airline industry say on the CHP or the FAA. It's ridiculous. But even under ideal circumstances I think you just don't want that other point of view. Thank you very much Richard Vandenberg for being with us.

The next with us will be Professor Rice. Mr. Chairman members of the committee I'm David Rice I'm a professor of law at Boston University School of Law. I was originally intending to come here to represent my personal views but I'm also a public member pointed by the governor of Massachusetts to the consumers Council of Massachusetts and the council has also asked me to indicate that my views that I represent here today be those of the council as well. My experience in. About seven years of working in this area of teaching and research focusing on administration of consumer laws and consumer remedies now buttressed by what I think is some practical experience with consumers Council lead me to strongly support seven old Senate 7 0 7. The need for representation I believe is fairly clearly made by a presentation such as commissioner dent in Berks the critical

fact. Is that the agencies established by federal and state legislation to administer federal and state laws. Are built on an adversary model in which the independent decision maker decides issues sometimes broad sometimes narrow. After hearing a presentation of a full range of a number of points of view I conceive that the CPA as a consumer protection agency provisions of Title 2 are designed to realize that model perhaps for the first time in matters affecting the interests of consumers. Today we have basically one point of view that's represented because it is very expensive to go before an agency and to produce not only information through lawyers but through experts

through persons who have a special background in an area. Consumers cannot afford to do this but yet this does not mean that consumer interests are interests that have no economic value. It means that individual consumers marginally cannot afford this and that we need some form of participation to represent that interest. The effective direct or surrogate representation of consumers is in the gradient that we have supplied in Massachusetts in the consumer's Council and I think that our experience is somewhat instructive. Prior to this year there had been no intervention under the consumer's counsel statute in Massachusetts even though since 1963 the statute has authorized intervention by the council and any other agency proceedings in the state affecting the interests of consumers. This year we have intervened in several matters for a rate increase application cases such as the telephone rate case the electric rate case

the gas rate case. We've also intervened in the proceedings to approve the contract between Blue Cross and Blue Shield and the Massachusetts Hospital Association. What was the factor this into the well the fact of this intervention is really realized in two areas at this point. One is in insurance rebates in the no fault area. Automobile insurance where in fact the experience the actuarial experience indicated substantial overcharge. Under the new no fault program the consumer's Council representation of the consumer point of view was critical. According to the commissioner of insurance in Massachusetts to the determination in that case to order a refund of millions of dollars to the consumers of Massachusetts in the BlueCross BlueShield case the rate setting commission that never before had an active representation of the consumer point of view before it.

Two contracts that were preliminarily offered for approval by the commission were rejected because the consumer's council position on seven or eight points reflecting the consumer interest including cost utilization review the use of extended care health facilities instead of General Hospital facilities for persons in recuperative stages but not in immediate or acute situations where costing a great deal of money. Those provisions were persistently resisted by the Massachusetts hospital associations. They ultimately became a part of the contract and BlueCross BlueShield the rate setting Commission have both said that it was due to the consumer's Council and its intervention in active participation that these things happen and that their prediction is that this will have a dampening effect on

the rising hospital costs in Massachusetts and that this will be a model in fact for contracts throughout the rest of the nation merely because somebody was in there actively pitching advocating the interest of consumers. Where it never been done before. Now there is a question that's been raised constantly about 7 0 Senate 7 0 7 as to how one goes about defining the interest of consumers. I think this needs to be addressed in the context of looking at intervention or participation short of intervention as bringing to fruition the adversarial concept. First I don't perceive that the acetic self-appointed myopic caricature that is painted of the consumer advocate by some of the critics is the kind of person that's going to be the administrator and I'm addressing my comment really as

opposed to the article that is authored by Professor Ralph Winter which is a well-known criticism in this particular legislation. But second I think I interrupt Senator Allen did raise a point with the commission a dead and buried that in many cases the consumer interest is conflicting. How does the consumer advocate come to that conclusion as to which consumer interest he should represent. Well I readily concede that there may be conflict between cost and safety or in the pipeline example or in the export import and tariff provisions. It seems to me that there is conflict in all agency decision making that every regulator must make some choices and then inherently that's going to happen here. It's going to mean

that some interests are going to not be actively represented. There is no compulsion upon the agency to take the consumer advocates point of view. I mean it's a point I want to but that isn't necessarily going to be adopted because we advocate. Your point is particularly well taken because the adversary model posits that points of view will be raised and fully presented and argued before an independent decision maker. Who is the head of the agency in which the matter is pending. And the independent decision maker then makes his own decision based upon the total record that's been put before him. What do you foresee the possibility of a real consumer advocate presenting the examiner or the agency with the arguments on both sides. A full exposition of the issues involved and the pros and cons of those issues you see this is a possibility. I see that it's possible. I don't think that it's absolutely necessary.

And is it necessary but do you say this is as a matter of fairness where you've got a complicated matter representing both points of view and I think Senator Allen's point is well taken. What should be the duty under those circumstances of a public advocate. I think the public advocate for instance and school bus safety could go in and advocate very particularly a program of regulation and indicate as I think you're suggesting what the cost in terms of dollars might be for that program of regulation saying that nevertheless I think the benefits here warrant the cost expenditure and in that sense present both points of view from cost versus benefit safety versus dollar. What I mean and provide that information I think you would be. Fairly discharging his duties in doing that I don't think

that fairness and the advocacy model imports that he be single minded and unbalanced in his approach. There's no more perceptive man in the center of the United States than my distinguished colleague from Alabama and he really is. But to Mr Denham Byrd two cases which points to part of the problem. First the Alaska pipeline. Now this country does face an energy crisis and an energy shortage. That's one point of view that has an impact on every consumer. Then you do have the problem of the environment which represent another point of view. Then the question of trade the question of cheaper goods to the consumer on the basis of in part and then there's a consumer as the employee the question does this it does not does us not lose a

job with the console going out let's say those two cases I mean my feeling is that the consumer advocate would run from both those cases. But the point but the about the question put by Senator Allen's a fair one. What do you see as a duty of a consumer advocate in both those cases. I mean I hope Senator Allen doesn't mind me pressing the cases that he is a very good kid though I mean I'm trying to. It is a question a case for against a position but the point is raise and they deserve it and they're just right there is an answer. Imagining myself in the position of the advocate and having great pressure to intervene in one of these cases or to participate. I think that the only thing that I could fairly do when I took a count of my total constituency being consumers would be to present.

All of the major interests that consumers might have. And to express my judgment as the administrator representing consumers as to what was in the final analysis the predominating interest what where the balance ought to be struck. But to present for the record. The evidence that demonstrated the major interests of consumers so that the decision in fact could be made on a record which was complete. Well the cars to see the problem you have here is very obvious that President Nixon would not appoint Mr. Denton Berg is because the head of the Consumer Protection Agency. But he might go up and take a look at you. I mean Governor Sargent is a Republican a very able governor of Massachusetts he is placed you. You're a professor of law at Boston University. In this position and you're the type of man the president would be looking for.

I'm trying to figure what goes through the mind of a man like you when you're presented with this problem of course what you have here to a great extent is a problem that would prompt both cases presented by. Alan would probably subject to congressional action. And I don't think they would ever get to that stage. Certainly the trade bill that Congress will wrestle with will definitely be involved on the question of tariffs quotas and all the matters subject to trade. Many of the decisions will either be by the president with authority delegated to the president when it comes the Alaska pipeline Unquestionably this to deal with the Circuit Court of Appeals decision. Congress is going to have to wrestle with one of these days so that will be a decision made by Congress in both these cases but still Senator Allen has pointed up

a basic problem that may not involve congressional action that an agency will have to wrestle with and where the consumer's interest are really fairly divided. And if there's a lapse in this bill and that isn't protected I appreciate Senator Allen raising that and this is what. That's why I am pressing Senator Allen's question to Mr. Dan averred with you because you're in a position now of being a governor sergeant's consumer counsel. You may be the type of man that would be in this job and how would you approach it. Do you think that you would have the responsibility of a full briefing on both sides of this issue. Well let me suggest this. First I think we are dealing with the case that's at the edge but it's a legitimate case. It's a it's an important questions but it's a questions on the edge in the middle that either are the really the bothersome ones and that's very legitimate for Senator

Allen to raise these questions and I'd like the answers myself. Well I think we're on the same track in the same sense. I don't think it's necessary that the advocate represent as is suggested by some of the commentaries on the bill. What is the specific interest of consumers in this particular case. Because that gets you into the problem of. Trying to determine. In balance what is the particular interest. I think in the case in which there is a fairly even balance. But it's important in the eyes of the administrator that there be some participation on behalf of consumers. Then I think it's entirely appropriate and perhaps the only appropriate thing to do is to make clear that the balance is one which is not easily made between the pipeline vs. no

pipeline. That these are the interests that exist that in the judgment of the administrator that this nevertheless is what he advocates on balance so that it's clear to the agency decision maker that what the administrators ultimate resolution in his own mind is. But in fairness to his constituency in fairness to the concept. I see it entirely appropriate and perhaps. It would be would be remiss if he did not represent what he considered to be what the balance is what the range of interests were where the balance was very close. I don't want to speak for Senator Allen but what obviously bothers other senators like Senator Allen and I recognize their complete sincerity even though they may disagree with me. There'd be no question and Senator Allen's mind it was a question if it was a problem raised by Senator Percy that could manufacturers are using

improper slots and that someone should come in and make sure that whoever manufactures baby cribs manufacture a crib that's completely safe. But what bothers men I send there Allan and Senator Ervin are these close cases which are substantive I mean they're not small cases so they are matters of substance. And that's why I keep pressing you so far. How how we should address ourselves to that that problem. Perhaps there ought to be provision indicating that the administrator need not define a specific position but that he can fairly represent to any agency representative what the range of competing consumer interests are in a situation where he feels that the interests are relatively equal. I submit that it is essential that he be able to do at least that because the consumer

point of view must be represented. In other words it would you give the consumer advocate the specific authority to in the event there are substantive consumers interest on two sides of a question. And that if he does intervene that he should have the duty to present to whatever agency involved the full range of alternatives and the arguments bar against. Because after all there has to be a decision made and you're not going to do it by having a referendum or a Gallup poll to determine what the various consumers may think that somebody has to make decisions on these close cases and it's usually they the agency or whoever is responsible for the regulations. Clearly the agency is the decision maker. The second level decision maker is the

administrator and deciding which interest to represent. I submit that in a true adversary model in most cases even if the administrator took an extreme position one can come out first on industry rebuttal. To indicate what other interests may exist even for other consumers that the nature of the advocacy adversary model is such that not every dimension of every interest does in fact go into the record. But the purpose of revitalizing the adversary or the broadly adversary model is to have the decision makers look at a whole range of the interests that are involved rather than just the interests of industry lobbyist industry lawyers representing one point of view. I think it entirely appropriate and I'm not quite sure how else to respond to

the difficult case question. That within this model that the administrator not have to be viewed as somebody who is attacking the agency or somebody who is attacking industry but that he be viewed as somebody who is trying in his role as a government official. To bring responsible balanced fully considered decision making to bear on critical issues. And in that situation I think as we've done in the consumer's council with for instance the Blue Cross Blue Shield contract we have come in and that case and we presented some evidence on some close questions in terms of cost utilization review that indicated that you could go one way or the other although. We strongly favored the utilization review in an after the fact manner rather than in looking

over the Dr shoulder manner as he was performing the services. I think that it was accepted. I think the objective of Senator Javits Center Percy and myself we don't conceive of this consumer advocate as just being a prosecutor. There are obvious cases of fraud and there are obvious cases of wrongdoing that he should address himself but we look at this person as being helpful for the consumer as well. And if we're not clear this legislation in making that point we certainly want to do so. The senator you think I thoroughly agree with Senator rep a cop as a matter of fact he isn't the prosecutor atoll. There's nothing he can do except invoke us and that's our intention. And I don't know ever Pete something we've said both of us. Senator Percy said many times we are both very competent business lawyers. I had very large fees from the top corporations long before I was a senator. And I wish to assure a business. A center of a car feels the same

way. But our best expertise as going into this is if we represent an event. Thank you. I think it should be pointed out for the record that the staff of this committee and the individual senators on this committee have made ourselves available to every point of view. Industry Associations attorneys representatives to raise their individual fares and problems whether Sino sounded a jab at Senator Percy and myself and I stabs have given untold hours of our time to make sure that we have a fair bill. None of us are here to hang anybody. None of us are here to do American business in. What we want is a sense of balance and a sense of fairness. So there will be the voice of the consumer in every level of our government. And then of course Senate was Senator Javits his proposal that to assit with the fullest extent possible.

We encourage and help state agencies such as yours. And that's why this committee adopted Senator Jaba suggestion concerning grants and assistance to various state agencies it would be our hope that the state agencies could do it all. But unfortunately there are many problems across state lines and a so vast they're beyond the purview of any single state agency where even a state as large as in New York and Massachusetts to handle a problem national in scope. I may I say to the other members on the panel please don't hesitate to interrupt and ask questions as we go along. I think I'd be much help more helpful so send around the center a child a Senator Javits any time if I might just briefly because I think the earmarks of the sensitivity to fairness appear all the way through this bill. The focus is on participation with intervention as a form of participation to be used basically as a last resort.

The limitations imposed upon. The ability to delay. That is so weird seem to me to be oriented toward fairness and expeditious decision making in the administrative agencies. The main thrust is to have more information in the formal record and formal decision making so that it decision maker can on the total record make a decision which takes into account a full range of interests. A full range of facts. The same is true in this in a different sense when you're talking about the informal decision making. The limitations there again are such that they're oriented toward fairness to everyone minimisation of delay. I don't see this bill at all as a bill which is after the agencies or a bill which is after the industries because they're bad. It's a bill which is oriented

toward making a process work better. So let's get the FULL of the same thing. That is something rotten up the branch so to speak. Just thinking in the federal agency but you seem to have a different view. Well in some cases it may take a good hard shot to get some decision maker or some agency to take into account the consumer interest. I think the notion of if the agencies were doing their job right and in a dedicated and zealous fashion would still be a need consumer protection agency I believe in my experience that there would be the chairman of the Department of Public Utilities in Massachusetts the chairman of the insurance department and the chairman of the rate setting Commission have all indicated that despite

their concern for the consumer interests or interests that were involved. That this interest is not effectively represented with without somebody who has some resources and some power to intervene into actively and persistently represent the interest of consumers to present all of the evidence that is relevant to a different side of the case than they've been hearing for years and years and years. Senator I think Senator Allen this raise a very important point do you have specific cases and massive examples of Massachusetts where that has applied. Yes indeed. I mean would you be good enough to send us examples of Massachusetts experience where the intervention too far the other point of view has been important and welcomed by the agency with the responsibility of supervision. Yes I can send you. Some summaries that will provide information about

those proceedings and the positions taken even by the Commissioners who had those particular agencies. That is important and may I also ask you because time will be running out that if I submit some written questions what'd be an imposition on you have you will give us the answers to some of those written questions Professor. I'd be delighted to because I would like to see this bill. Thank you. Cleared up and I want to ask is I understand your feeling is that the nature of Senator Chiles the flight of the model itself the way it's set up with the decision making powers that that's why you need almost an adversary proceedings or competent representation on both sides so that the agency can make a sound decision. Yes clearly my feeling is if you had a court no matter how good the judge was if you had a lawyer that was considerably more skilled on one side

you perhaps would have a wrong result no matter how good the judge was if you had a tremendous outweighing of the caliber capabilities of the lawyers on the side. That is exactly the point I proceed from. All right that if if the legislation is proceeding along that grounds and that's what we're trying to do then we should not be trying to harass the businessman or anyone it comes before the job and the agencies and in many instances there are entirely proper in what they're doing. It just happens that their voice outweighs any other voice because it's not represented. That is correct. I don't allege that decisions made by agencies are all wrong. I'm saying that the consumer interest ought to be represented so that we can be sure that decisions are the best decisions right. It should not be the effect of our legislation or intent to

harass or make it impossible for industry people to be able to carry on their function. I know there are to be many cases where the administrator decides that it's not necessary to participate in an agency proceeding because industry and the regulator are proceeding in a perfectly satisfactory way. Well I think one of the great concerns of this type legislation raises with the businessman who is sincere who is doing his job as is hard enough for him through the red tape in the regulation that he has to do to carry out today that's to perform his function which in many instances is to provide an addition to a profit for himself and certainly we build our country on that situation but also to serve the public and to present his whatever he says his service is at a cost that the consumer can afford to pay. He's just going to be harassed to death by this kind of legislation is going to prevent

him from carrying out his function. Now I wanted to just ask you specifically in Massachusetts and your experience what have been the effects of your of the intervention of the Consumer Council. What kind of hardships have they worked on the business community and how do they view how is it now the Consumer Council by the business community. I think in the intervention cases I must be frank and say that the utility companies are not very happy about having us in the case at all. And it in fact has contributed to some delay because the right applications have just not gone through uncontested. But there are some very critical issues that have never been raised before the agencies that indeed must be raised at some point in time.

On behalf of consumers privately some of these people will concede that yes we've really had it very good for a long time. Because we've not had to respond. To questions from consumers about our rate applications. There has been a delay that's resulted but we have a very good working relationship with some other business organizations. Our job is to represent consumers so we don't try to strike the balance between business and industry. We introduced for an example. We also introduced legislation a bill that would establish a fund system for the payment of very small claims. With an opportunity for the consumer to bring a complaint the complaint to be forwarded to a merchant with a period of time for a response and then an independent decision to be made by the claims office or a lobbyist who are one of the can be a retail merchants associations. Initially I was going

to oppose that because they thought it was a terribly radical idea. He went and talked to some of his members and his members said hey wait go talk to the council because that's a good idea from a point of view of cost efficiency in the settlement of complaints. And in that sense we do work with industry and we've had conferences with them on this bill. We've had conferences with them on nutritional ingredient and ingredient labeling and we don't perceive ourselves as the attackers of industry because industry is somehow this terrible great monolith that is out to take every last dime from consumers and give them nothing back. Thank you. So they act as Senator Allen needs to win which is what other states have agencies comparable to yours.

Rhode Island has an agency which is. Empowered to act under a bill it's almost identical to ours. I can't detail what other states I know there are so there are many states in which there are consumers councils but I. I would have to get back to some of my notes back in my office to determine which ones in fact have the power to intervene. How long have you been operating since 1983. So you've had 10 years experience. About 18 months two years really because an insurance case came along earlier. But in the last 18 months we've done most of our work in addition to the specific examples. Would you please be good enough to send us a copy of your last and your report detailing the work you've done. Certainly.

Would you mind if your entire statement went into the record as read. And so Senator Allen we've got General De here and I would hope we could have his testimony this morning too. I was going to suggest that if there weren't any further questions that I just submit the statement for the record setting the record for as read Senator Javits you had to leave has a prepared statement which will go to the record to be over at the opening of the hearing. And so to ask a question to pressurize you say your agent can intervene once a decision is made by the regulatory agency in which the proceedings before which you intervene has made its decision. Do you have the right to appeal that decision. Yes we would have the right to obtain judicial review on standards that are equally applicable to any party to the proceedings and that is basically agency

compliance with procedural requirements. And the question of whether there is substantial evidence to support the decision will in effect then you become just another party representing the party is involved for that purpose we intervene in effect as counsel for consumers. One if you had an opportunity to read the bill that the I introduced with sponsorship of the scientists I'm 60 I have read the bill I haven't had a chance to thoroughly study all of its provisions but you have read 7 0 7 and made a good study of that. Yes I have read seven or seven. I'd like to call you particular attention to. Section here Section 7 be one. Which gives this agency.

It would seem to me that our community had to go on something of a fishing expedition with millions of American citizens because it gives them the authority to require our Any person engaged in a trade business or industry which substantially affects interstate commerce and whose activities he determines. Ice administrator may substantially affect an important interest of consumers by General a specific order setting forth with particularity the consuming interest involved and purposes which information is sought to with him a report or answers in writing to specific questions concerning such activities and related information. I want to talk to you for a purpose. Harus my provisional right so sir.

I think it can serve many useful purposes in terms of determining what measures are taken. Specifically because of the orientation of this section toward specifics for the protection of babies in cribs for instance what measures specifically are taken by a particular industry. I can see in all of the areas in which there may be a consumer interest involved that the survey to acquire information about product safety product efficacy could be something that was a legitimate area and not a harassing area. You would not feel that this would give administrative authority to question the millions of people about any alleged consumer. Andrew said he might get a dreama and who would

who would be to say that he couldn't require it. He seemed to be a law unto himself. He does have initially a broad power here but it is severely limited in terms of the kinds of ways in which he can proceed. He can only proceed in effect by what amounts to a written in derogatory stating specific questions and he can only do so when their interests substantially it affects an important interest of consumers. I fear that looking at this as it is something he can do willy nilly imports to the advocate to the administrator. You know a lack of judgment or a lack of sense of responsibility but would you tell him how you might appeal to them in a decision or will it in a decision that he might make. Would you tell him how I feel. Anyone could appeal.

So this is the willynilly decision you've made Mr. Administrator. You've got no right to do that. By what method we're talking about appealing other orders about what method can appeal be taken from to you your word will in the decisions of the administrator. So quite clearly the easiest way to do it would be to refuse to comply with the order. To bring the matter into a federal district court and to demonstrate to the court that in fact that the answering of the Enter aka Tory is not relevant. And it is and it is unnecessary and it's excessively burdensome this is a precise protection of that section against the harassment by an administrator who is being irresponsible. Where is the provision for that. It didn't have a it didn't have a consumer interested in. It certainly could have a consumer interest but a district court may find in section 2 0 7 be that even though the order was

valid. That the interest that the information need not be produced because as I quote on page 24 in lines 5 and 6 that the interactive jury would be unnecessarily or excessively burdensome. Whether you think that a citizen you'll have to go into federal court every time they think it's right to require him to go into federal court every time he gets a letter from the administrators will answer this question I have a thousand questions now because I really don't think that every letter that will come from an administrator will ask a thousand questions and require that you go into court to fight it. I think that by and large you can assume good faith on the part of an administrator and responsibility because he is somebody who's going to be appointed by the president with the advice and consent of this body. When and if he dies exceed by

becoming overzealous the intent of this action then there is the safeguard of this matter being able to be dealt with in a district court by somebody who believes that he's being unfairly dealt with by the administrator. When this is allowed the administrator for example to send the question to a newspaper reporter that might have information dealing with consumer interest and under this Supreme Court decision. Would it not be possible for administrative to require the new man to depose the sources of his information. I would assume that is not the intent of this section in its reference to trade in business or industry as opposed to an individual newspaper reporter. If that is something which you think might be read into the section that I very strongly urge that because of my feelings about the press situation

that there be a specific provision made in this bill which would protect the sources of a newspaper reporter doing traditional investigative reporting you'd like to shield all the news reporters from Haresh month by month. Right Is that right. Well I don't think it's really necessary under the language of this section I'm just maybe stating my own personal point that the shield provision is something that ought to exist here if that's what you think isn't left or brought within this section. Take a man like Ralph Nader who made charges about the lack of safety is certain. Basing his information. Information given him. He didn't get out of himself. Based on the information given him I would not be possible

for the administrators say when I hear is a legitimate concern when an issue is lack of Safety and Motor Vehicles. Now Mr Nader you have information here. Would that not bar a man Nader is a consumer interest. Would that not require him to come in and devote his sources again under the language of the section I don't believe so and it's a reference to a trade business or industry which substantially in or effects interstate commerce. The definitions of the act. The Supreme Court has ruled that a hamburger stand is in interstate commerce. I think that rule that a manufacturer was an interstate commerce and that anything having to do with that industry was affecting interstate commerce. Well we may have you know friends of inter-related it was either this is a trade business or

industry affecting interstate commerce if you look at the total phrase I do not conceive of this is really being the intent of section 2 0 7 big question what Tintin is what does it. Well I. You know my construction when they hold my my interpretation say that it does not allow that certain roads are paved with good intentions. One thing that I notice you spoke of is there were two echelons of the agency and under the agency that mother strayed from a practical point of view the administrator is aged. Oh indeed in terms of exercising the authority of the powers given to the agency he is he is agents in other words not to mention somebody exercising supervision and control over him which seem to be the impression I got

from you talking about an agency and under the agency of the administration. Oh I think maybe we're at we have a bit of a misunderstanding that I'm talking about the administrator of the Consumer Protection Agency as intervene or or participate or in a Food and Drug Administration proceeding. I'm saying that there are two echelons there. Because the administrator does not come in as a super agency in that sense he comes in as a party subject to all the rules of procedure and all the substantive and focus of the proceedings as created by the Food and Drug Administration in the Food and Drug Administration is the decision maker. Totally independent of the administrator of the Consumer Protection Agency. Maybe that's where we're at. Well now if you if this bill does

pass giving the. CPA and advocacy powers would it be your fault that. It would be called into mashed uses to help your council blow the consumer protection rules. Are y'all not a good enough job without any help from Washington. We could use a lot of help. We operate on a budget. Of a hundred sixty thousand dollars. We are now fighting three major rate increase cases. The least of which is costing us thirty five thousand dollars in which the utility happens to be expanding somewhere in the order of five hundred fifty thousand dollars on the other side. And you can rapidly see that our budget disappears. Why did you take note if you read the bill of the provision providing for grants to them.

Yes I did note that in my written statement. But there are matters I think in which it's essential. Perhaps that the administrator be able to go to state agencies where state agencies have jurisdiction to make a decision and to say there is a consumer interest here that's broader than that which exists just in your state. And we would like you to take that into account. I think that would be highly desirable. And we read in the paper that the president may put a freeze on retail food prices. This would be something it would come up before the cost of living Council. Certainly a very definite consumer interest involved here. Would you anticipate that this would be a proper role for the agency to intervene in

and point out that the prices should be no free. So that should be a freeze. What would be your fault along that line as to the role that the agency would take in putting freezes on prices. I think that the agency ought to be able to participate in those. Proceedings. Let me say I don't say intervene to the same extent that any other interest including that of industry or. Or agriculture industry ought to be able to represent their positions before the cost of living Council. Well. Son wants to regulate farm products is a consumer. I don't farm products. And I'm a consumer. Suspects and boll would like to see a freeze on

retail food prices to get we'd be together there but on the other we would not be together and both be consumers as consumers where we'd like see the freeze on retail prices and they are the grocers and the farmers and other consumers would not like to see that when the sun Ribicoff and I might call on the agency to take our side and the others would take their side. We're all consumers. Now where would they where would the consumer light in a case like that. Well one of the first things that you have to do in a case like that is to determine whether your difference is over. If your difference reflects a difference in a position you take from your consumer point of view or because it represents a difference of opinion in terms of your view of agricultural policy perhaps

viewing the finder and an ad as a producer rather than as a consumer. Well we all consumers and all have to buy food. Well the suggestion I making is that. Every interest in that sense if you're being so broad is a consumer interest because everybody is a consumer. Well I think you have to do is to determine. What issues in a case or in a proceeding are issues which you can properly characterize as ones. That are the Consumer Dimensions of my person in terms of my interests which are of my interests in terms of my position as a faculty member at Boston University who has other kinds of interests that may be counter to my interests as a consumer and then. To decide on those things that are

consumer interest what interest you're going to represent. If the balance is a close balance I think I find myself in a position of saying that in fairness to the decision maker as well as in fairness to consumers the administrator ought to indicate what that balance is and how close it is and on what facts that balance exist in the process of presenting what the position of the administrator is in exercise of his judgment as the advocate went out of that translate out into saying that. To put a freeze on price. I kind of got lost. Well I'm I'm not I suppose I'm not trying to resolve that particular question but respond to the example of this I suppose my vertical I consume energy. It is very important. It is a very important consumer interest I agree with both of you that there ought to be a freeze on retail prices

because I haven't really studied the depth of it I'm not sure what I do at the level I wanted to. My distinguished colleague will heal for a second. The consumer advocate would look at the Senate vote of seventy two to nine against my position and I don't imagine he'd intervene on my side. Well I'm saying a couple of minutes ago and now I think that the administrator must make a decision as to the representation of consumer interest knowing full well that the ultimate policy decision on the total record is going to be made by the cost of living Council or by the Food and Drug Administration or by the FAA. It's entirely likely then the administration in making his decisions as to what phase of the consumer end receipts going to push might make a whole lot of consumers unhappy as it is possibility could make some many consumers unhappy in any particular case in some cases

as many as high of the consumers in the particular area. I suppose that's conceivable Yeah. Thank you very much you have been very helpful and I would appreciate your forwarding the material we requested the staff will write you a letter so to confirm what we've been discussing here. Thank you very much you have been very helpful. Next Within this is Professor Robert Pitofsky of New York University Law School the former director of the Consumer Protection Division of the Federal Trade Commission. I strongly support the creation of an independent consumer protection agency with broad powers to intervene in other agency proceedings to protect the public interest. I can testify on the basis of my experience that the consumer sooner interest is indeed fragmented and under represented as compared to business

representation is within the bureaucratic process. Indeed it seems to me that there's an extraordinary imbalance between. The pressure's advice. An argument that the average bureaucrat receives from business representatives as compared to consumer representatives. Now this isn't true on high visibility. Non-technical issues. For example on such questions as whether there ought to be a health warning in print advertising of cigarettes or whether there ought to be a ban on phosphate detergents we heard from quite a wide range of consumer advocates regularly and effectively. But as the issues become more technical and as the questions are slightly less visible in the public mind. I would estimate that the ratio of business lobbying as compared to consumer

lobbying is on the order of 100 to 1 1. That's a rough a sort of estimate but I believe that's the case and I look to the creation of an agency like this as a technique designed to correct that extreme imbalance. Let me just take one example of an area of FTC enforcement in which this imbalance is most pronounced. The commission over the last several years has been charged by Congress with enforcement of a series of regulations dealing with flammable fabrics and the result of a finding by the commission that a particular style of fabric is flammable can have drastic consequences for particular country companies or for the industry generally. I saw in my office and I think Commissioner saw in their office literally school hours of Representative trade associations individual companies Chamber of Commerce representatives trying to influence the

commission either to modify its enforcement efforts grass grant specific exemptions in special circumstances change a sampling plan change its standards a flammability. And I want to add that I saw nothing wrong with people being there to do that. Fact of the matter is that the commission profited from the facts and the arguments that these representatives submitted. But. Another fact is that I cannot remember a single instance in which any consumer advocate was even aware that this particular controversy was going on in the halls and offices of the FCC. I can list and I have in my prepared statement many other kinds of issues like that the scope for example of the proposed ban on the holder in due course doctrine which gets into very technical questions of whether or not credit cards for example are really

credit transactions in the ordinary meaning of the word. The provisions for warranty requirements on the furniture fabrics interpretations by the commission of the very technical provisions of truth in lending and Fair Credit Reporting in all of these areas and others that I've set out in my prepared statement highly technical questions lawyers questions are rarely discussed in the public press and so far as I could see overwhelmingly advocated by business representatives and rarely touched upon by consumer representatives. Now in following these hearings I realize that several arguments have been made in opposition to the position that I've taken I'd like deal with one or two of them first. I understand that it frequently has been argued that it's somehow inappropriate or illogical

for a single government representative to speak for the consumers interests because the consumer interest is not monolithic and in fact is an Umbrello which covers the need that many different groups of consumers with different issues with different interests. I don't I don't believe that that's an argument that validly undermines the notion of a consumer protection agency for several reasons. First in most consumer issues that I saw at the Federal Trade Commission there was no underlying conflict and all consumers were hearty much on the same side in desiring and needing a certain form of protection. For example I don't believe there's any consumer interest that favors false advertising deceptive advertising and hence an aggressive and active program at the FTC to eradicate false advertising can only serve all consumers

interest. I might add. It can only serve business and advertising interests as well. I see no conflict in circumstances in which product hazards are eliminated at no additional additional cost in the production process. I see no conflict among consumers interests to have disclosed the health hazards with respect to cigarettes. In all these areas the consumer interest really is close to monolithic even where it is not. It seems to me that a consumer advocate can do what business advocates do when their own clients have slightly conflicting positions. For example I have heard excellent presentation by representatives of the GM eg Grocery Manufacturers Association Chamber of Commerce trade associations for flat fabric manufacturers and yet among their clients there are conflicting interests as between for example those

that did not important those that did those that were principally manufacturers as opposed to those that were principally distributors. It seems to me that the Department of Commerce when it testifies on legislation before the Congress has got to take into account the fact that business is interest is not monolithic in all of these situations and advocate tries to determine the policy which best serves the broadest range of interests of his clients and where that cannot be done. He tries to reconcile conflicting interests. I've listed in my prepared testimony a large number of other instances in which at the FTC the consumer advocate. If he cannot intervene in informal proceedings will have no powers to intervene at all. Finally it seems to me that it's exactly in these informal situations which are not on a record where there's little public consequence to a decision not

to proceed. And where often in the past we know that regulatory agencies have performed less than adequately that. It would be useful to have a consumer advocate participation not to displace the agencies because as I've indicated in my testimony I think this bill should be tailored so as to prevent that but to make the agencies more effective and more enlightened in their regulatory mission. Thank you. Now the next witness is president and chief executive officer of the Grocery Manufacturers of America a company that I believe by Richard Layton special counsel. Thank you Mr. Chairman. My name is George Michael witness on the right and G.M. a special counsel is Richard J Leighton we appear before you in

support of a federal consumer advocacy unit. We're here today on behalf of the Grocery Manufacturers of America. Since the board of directors resolution in January 1970 GMAC has supported the concept of creating a federal consumer advocacy unit. We support the creation of an independent consumer protection agency or virtually any other new or existing unit before that for the purpose of advocating consumer interests in the deliberation of the other federal agencies and we believe that such a unit should be in part to advocate the interest of the consumer in the formalized proceedings on their federal agencies. Likewise we believe that the CPA or whatever unit is created should also advocate and a cake consumer interest in court proceedings. Policy resolution the Grocery Manufacturers of America on the issues before this joint subcommittee contain four parts first of all DMA

supports the creation of a federal consumer advocacy Union. The unit provided however that such a unit is not placed within the Department of Justice or in any similar location where serious conflicts of legal interest would result. Secondly GMAC supports the granting of a federal consumer advice advocacy units of faith with sufficient powers to assist other agencies and courts in their attempts to give due consideration to the consumer interest through the present taken of oral or written views that are based upon information in the advocacy and his position. DNA however opposes granting any such advocacy unit powers to attack the government of which it is a part and urges prudence in the formulation of advocacy powers which might result in the disruption of efficient governmental functioning. DNA supports the granny and granny no such a power granting

such a consumer advocacy unit the right to request and disseminate information of importance to the consumer. Provided that such authority is subject to the safeguards designed to protect adequately the legitimate interests of business and to preserve the public's right to choose products and services free from undue governmental influence. Lastly supports average to coordinate federal consumer programs to resolve differences among agencies in the administration of consumer programs and further promote the understanding of the governmental consultation. Excuse me understanding by governmental consultation with the business community through business representation on consumer advisory councils and similarly efforts of the two proposals. This joint subcommittee is considering S11 60 is consistent with this policy resolution and we therefore support it 7 0 7 is modified. According to the policy. We

could also support it. My testimony will concern itself with the general application of GM a policy to the two CPA proposals before you at this time. Mr. Layton discussed the major legal issues raised by a 7 0 7 an S11 60. If you notice the charge Senator first should a federal consumer advocacy unit be created. A 7 0 7 say yes to Levon 60 say yes and my organization's policy says yes. Should a state be a be allowed to advocate and advocate the interests of consumers in formal proceedings and by the way can seize a 7 0 7 say yes yes 11 60 say yes and our policy said yes. Should a CPA be empowered to course they divulge in some trade secrets and other confidential information as 7 0 7 says yes and as 11 7 11 60 says no and the GM made policy

would say no. Well it should a state be a be allowed to be a prosecutor. Our party in a fiber proceedings as 7 0 7 says yes as 11 60 says no. And our policy would say no. Should a CPA be empowered to advocate advocate the interests of the consumer in informal activities of the federal agencies by policy or excuse me. S. 7 0 7 says yes as 11 60 says no. And our DMA policy would say no. Sex for the CPA be empowered to advocate the interests of consumers and court proceedings as 7 0 7 says yes as 11 60 says yes and our GMAT policy says yes and 7 if you're a CPA be allowed to seek to overthrow final decisions of other federal agencies as 7 0 7 says yes S11 60 says no.

And the GMAT policy says no DMA supports those provisions of both bills which grant the CPA the power to advocate the interests of the consumers in court proceedings. But in such court proceedings however GMH favors granting the CPA the status of amicus curiae right as of right. In summary Mr. Chairman GMAC supports the creation of a consumer advocate. Cuter. The final decision of either agency. Mr. Light will discuss these cars in more detail. The question before the Congress it would seem to GM A is not whether there should or should not be a federal consumer advocate. It should be it would seem to us that the real issue is what are the

appropriate initial advocacy powers for such a special interest agency. As 7 0 7 is based on the premise that a CPA must be created to attack other federal agencies in the name of the consumer. GM A does not believe that this kind of negative government is in the best interest of consumers or the federal agencies charged with their protection. As 11 60 on the other hand is based on the promise that the CPA should assess other federal agencies to give due consideration to consumers. DMA favors the concepts of consumer protection. Yes 11 16. I now would like to turn our test testimony over to counsel Mr Richard. Yes Mr. Chairman I've just been asked to summarize the summary of the summary Jex and your entire statements are going to record as you read. Thank you very much.

What I would like to do the. Charts I believe some of those charts happen to be in your testimony this is a duplicate of what you've got to test yet here maybe but not so what is it you into. Thank you I see four issues that are of the 4 issues let me just talk about two and the rest are in my statement and I think to do this one of the points that perhaps has been treated rather lightly is what are we really talking about as a universe for federal agency advocacy. This has come down to what are the really the real gut issue here is whether or not the CPA should have had a party right. And what are we really talking about when we when we say that I have a chart on page five of my testimony which is reproduced up here in living color. And.

Both bills cover both cover the same types of proceedings in the so-called formalized area. This is Section 2 0 3. A senator Ribicoff bill a 7 0 7 and Section 103 and of Senator Allen's bill as 11 60. So they're talking about the same scope. Different powers in some of the proceedings only and here is the kicker in the so-called formalized proceedings where you have the you know the usual Administrative Procedure Act. Right down. You really only have two types two general types of proceedings rulemaking and adjudication. And these can be broken in two ways. But it's important to know that is to distinguish the difference between the two. Rulemaking is of far more importance to consumers. And the reason is this. It's of general applicability. It's a it's prospective in nature and it's far more numerous as far as Agency proceedings. I have a I think I have a slight difference with professor. The task I haven't had a chance to

to check. I think he has discounted too easily some of the FTC proceedings he says that 90 percent of these as you know FTC rulemaking proceedings would be covered by the sections I think a lot of them would say are packaging and labeling and things like that. Rulemaking differs from adjudication in major respect one adjudication is primarily retrospective or concerned with present rights. It is usually of far more specific implacability sometimes only applying to one person and one company and there are far fewer of these and due process requires in these since they very often involve the prospect of a sanction of sums our due process requires far greater safeguards. For example in all of the adjudication is covered by either bill they will be conducted on the record after an opportunity for hearing. Due to cations include licensing well making includes right making are now let's go to the chart find out this chart by the way is an estimate

based on my own developed data the data is I will say right now and acknowledge the data is from the United. From the administrative conference as we try to update it with a an article by Professor Hamilton. Perhaps the committee would like to get into this area I think this is very close to what the present situation is now I can't guarantee it. In this orange colored area here you have what is called notice and comment rule making and that. I estimate as being over 90 percent of the proceedings that will be covered the federal agency proceedings here. GM has no problem with either Bill. And this is the most important area to consumers these are you. Are you for packaging and labeling regulations these are your safety standards. Coming from the from the new safety commission here you have Senator Percy of late has been and perhaps rightly so complaining about the widths of between slabs of baby cribs and said the CPI could get action here.

This is the type of proceeding you will get standards. And what do you do in these proceedings under the under Senate Ribicoff bill you would be an amicus curiae. That's all. What you do is there's a proposal named in the Federal Register. Somebody comments either orally or if at a hearing like this a legislative hearing no cross-examination or FLARM far more frequently you just comment in writing. Senator Allen's bill is more powerful in this area. It would not only have your initial comment but since the CPA is designed to assist the form agency you would have sort of a the last word after all comments are and you can make a final word based upon this this massive comment. Now this red wedge here what we would estimate is somewhere under 9 percent is the key area. These are proceedings on the record of which there were a few are rulemaking. Professor Pitofsky mentioned that these rulemaking proceedings are

quite cumbersome go on for years and years and years yes they did. They were the closest thing I've seen analogized to them is a Japanese movie they just do it this way. Human emotion that goes on for five or six years fairly in significant numbers but they may be significant subjects one or two of them I believe over the past 10 12 years FDA has had something like 10 days. They're somewhat infrequent adjudications on the record. Here you have the way FDA FTC does its business. Very significant but now here. 11:6 differs from a 7 0 7 in major respect. You have the same approach comes in makes an oral statement gets out does not get involved in this discovery that Professor the task is concerned about. And when all of the evidence is in it makes its final comment. Let's look at what would happen under as 7 0 7 though it comes in as a full part. In FTC you already have a party there it starts off with a party called a respondent he's a businessman and he

does have the rights of a party. Cross-examination a subpoena writes things like this. But he would not be there were not for the fact that he was invited. You also have another party the FTC complaint counsel he's called a prosecutor. His job to impose a sanction on the businessmen FTC I I guess disagree with Professor to ask the FTC has never allowed a consumer group in as a party the suit case they came in as limited intervenor to avoid this situation because if you allow the CBA to immunize a party you're allowing the CPA to have the same rights as the FTC complaint counsel. That is a second prosecutor. What you're going to have here is a horse race. And this is what we're trying to avoid yet without ruining the integrity of the proceeding is a proceeding required to be decided on the record so how do you do that. We like the Allen approach which is all right let them make the comments for the record initially monitor it if you will review the record. And then when all of this is over make another comment. For the record. We think that handles the situation

adequately and we don't think all of this is this discovery especially the discovery provided for in S 7 0 7 is necessary. The second point I'd like to cover is the question of appeal. Judicial review should the CPA have the right to seek judicial review of other agencies especially as provided in S 7 0 7 it is not provided in this letter. Sixty seven 07 has a rather unique provision. Automatic standing. It says in that bill the CPA shall have standing to seek review. Somewhat different from other statutes which says that an agency may seek judicial review that is as I read it. It could be intended I don't know if it's intended but I think legislative history to make it clear you may be intending that the court has no say as to whether or not it indeed does have standing. Looks like you're conferring automatic standing on it and I would I would suggest that may be a matter for legislative history. These hearing a consumer protection agency legislation are being held jointly by the Government Operations Committee and Commerce Committee a consumer protection agency

legislation has been before the Senate and the house for about six years. It has passed the House in the night. Second Congress passed the Senate minority first Congress but it is not so far managed to pass both houses in the same Congress and therefore go to conference and presumably come back for a final up or down vote on whether or not there will be a consumer protection agency. The consumer protection agency failed to reach a vote in the Senate last year partly because it's a complicated departure from the normal operating procedures of federal agents. The Consumer Protection Agency would not regulate but it would appear in proceedings before federal agencies where the consumer has an interest in its broadest draft version the bill gives the consumer protection agency advocates the power to intervene in informal meetings between agency personnel and representatives of the industry that that agency regulates. An informal meeting might be anything from an office visit to a telephone call. At its most limited. The Consumer Protection

Agency advocate has the power to appear as a friend of the court when proceedings by an agency against an industry have reached that stage but not before. Presumably the final draft will end up somewhere between the two possibilities but that issue just what the consumer advocates rights to intervene. That's the principal issue. Basically the proponents of wide intervention powers will fall in behind Senator Bill. If you'd like to read that bill you can request it by its number 7 0 7 like the airplane from your senator or the Government Operations Committee or for a faster response by sending a self-addressed mailing label and a note requesting 7 0 7 to the Senate documents room. Opponents of wide intervenor powers believe that there is a need for the consumer's point of view to be event before federal agencies but believe that that should happen with within limits placed on when under formal or informal proceedings and as what. As a party or a friend of the court. And in the instances where the

consumer protection protection agency advocate appears that position has been expressed in a bill introduced by Senator Allen of Alabama and the number of that bill is 1 1 6 0 0 0 which might also be interesting reading. Again you can get it in the Senate documents room the Government Operations Committee the Commerce Committee or you can write your own senator forward. You've been listening to hearings on the consumer protection. Agency legislation which had been held jointly in the Senate by the Government Operations Committee in the Commerce Committee. Senators from both committees who were present this morning to hear witnesses testify on this bill were chairman Abraham of Connecticut Senator Allen of Alabama. Senator Corzine of Illinois senator Chiles of Florida Senator Javits of New York and Senator muste of Utah technical director for this broadcast has been Gary Henderson. And the program has been made possible with funds provided by the cooperation for Public Broadcasting. I'm Linda Wertheimer and this is NPR National Public Radio.

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