The MacNeil/Lehrer Report; Curbing the FTC

[Tease]

JIM LEHRER [voice-over]: Federal Trade Commission Chairman James Miller wants limits put on the powers of his agency, limits Ralph Nader says will cripple the FTC's effectiveness as a protector of consumer rights.

[Titles]

LEHRER: Good evening. It's most unusual for the head of a federal agency to ask Congress for less authority rather than more, but that's what James Miller, chairman of the Federal Trade Commission did today. He told a Senate subcommittee the FTC's power now to police advertising and business practices is unlimited. He urged new legislation that would set limits by better defining what constitutes an unfair or deceptive practice because the current law, which expires in September, has been abused by FTC and its staff. He cited several examples of what he called the FTC's wasteful pursuit of trivial harm, including action against a milk producer for claiming milk was good for everyone without noting some people are allergic to milk. Consumer advocates and other critics don't like Mr. Miller's changes or much else he has said and done since being chosen last fall by President Reagan to head the FTC. Michael Pertschuk, his Carter-administration predecessor as chairman, who is still on the FTC, said today the Miller proposals would introduce great uncertainty and confusion into the FTC's role. Others claim it would bog the FTCdown in a mass of lawsuits and thus accomplish the real Miller-Reagan goal -- to render the agency ineffective. Tonight, if, why and how to change the FTC.Robert MacNeil is off; Charlayne Hunter-Gault is in New York. Charlayne?

CHARLAYNE HUNTER-GAULT: Jim, the Federal Trade Commission has been charged with policing unfair and deceptive business practices for more than 40 years, but it was not until the early '70s that the watchdog anency began earning a reputation for aggressive consumer activism. It started cracking down on high-pressure sales tactics, imposed a cooling-off period on door-to-door sales to allow consumers three days to back out. The agency also ordered advertisers to substantiate claims that they made about their products, and banned debt collectors from harassing those who owed them money. But in the late '70s the agency ran into trouble from some members of Congress who felt it had gone too far. For example, the FTC's initiatives to ban TV advertising aimed at children and to regulate the funeral-home industry were among the things that helped create a backlash. One result was Congress voted itself the right to veto FTC regulations. Another result was that it attracted the attention of Candidate Reagan who during the presidential campaign cited the FTC as one example of a federal agency gone haywire. Jim?

LEHRER: Mr. Reagan's appointment of James Miller to head the FTC was in keeping with that belief. An economist, Mr. Miller has long been associated with the move to cut back on government regulation. He headed the Reagan transition team on the FTC and later was executive director of the White House task force on regulatory relief before being chosen FTC chairman. Mr. Chairman, how would narrowing the definition of "deceptive and unfair" change things for the better?

JAMES MILLER: Well, I think it would change things for the better, but let me say first, the reason I testified today -- the first reason I testified was to get the FTC reauthorized. If we don't get reauthorized by September we go out of business. Secondly, I think it's important that the FTC have the requisite tools to do its job. We can issue cease-and-desist orders, but they are automatically stayed. And in fact, over the last several years they have been stayed an average of 29 months in the courts. The third reason for testifying is to help stave off special-interest exemptions. Sort of the game in town today is for an industry who is concerned about the FTC to get a special-interest exemption from FTC authorization. The most controversial proposal that I made today was to have Congress define what the commission's authority is. And I think by having Congress define more clearly what the agency's authority is, it would first make it easier for the agency to be reauthorized. It would make it easier also for the commission -- for Congress to stave off these special-interest exemptions.

LEHRER: Excuse me. There is no danger that the FTC is not going to be reauthorized, is there?

Mr. MILLER: Well, it came very close to that under the last reauthorization and in fact, Congress physically closed the agency down for a day during that period of time. But I think by having Congress carefully define what the agency should do and what the agency should not do, it means that we'll be able to do a better job. It means that we will insist on truthful advertising and being very effective there.We will go after nuts and bolts consumer issues. Trying to eliminate fraud and deception. It means that we'll be able to stop mergers that hurt competition. I think that we can do a better job. Quite the contrary to what Mr. Pertschuk was alleged to have said today, I think it would reduce uncertainty. There's no more uncertainty than can be generated by having a group of five unelected officials with extraordinarily broad powers without the requisite guidance from Congress. I think we ought to be avoiding social engineering. I think we ought to be increasing the accountability of the Federal Trade Commission to Congress and to the American people.

LEHRER: Of all of the abuses that you believe the FTC has committed in the recent past -- social engineering abuses or otherwise -- which would you cite as the worst?

Mr. MILLER: Well, there are a number of things that the commission has done. It has spent $30 million and six years of work -- $30 million of taxpayers' money going after the cereal industry, and it cost consumers much more than that because the companies had to defend against that. It went after the automobile industry, shutting its eyes to the fact that we have a great deal of competition from imported cars, and also the fact that the industry is in considerable amount of distress. In a national nanny-ism, in a way, it went after children's advertising. I think that parents like myself should be the ones making the determination of what children watch and how they are to view those things. Also there is an extraordinarily broad discretion that the commission has, and let me just give you a couple of things that Commissioner Pertschuk proposed while he was chairman. He proposed that the FTC be involved in preventing companies from hiring illegal aliens. He proposed that the Federal Trade Commission force companies to take consumer activists and environmentalists on their boards of directors, and he also suggested the FTC go after companies for cheating on taxes. It seems to me that that's beyond the range of what the Federal Trade Commission really is about.

LEHRER: All right, briefly, in your ideal world, what kind of agency should the FTC be? What should its priorities be?

Mr. MILLER: The Federal Trade Commission should be a lean and mean agency --

LEHRER: Lean and mean to whom?

Mr. MILLER: Lean and mean, enforcing the law against fraud and deception and carrying out its responsibility to prevent mergers that hurt competition, that hurt comsumers. It should be an agency that prevents other antitrust violations that hurt consumers. And I think the kinds of proposals that I advanced today in terms of asking Congress to define more clearly the agency's authority and responsibilities would go to that point.

LEHRER: Thank you. Charlayne?

HUNTER-GAULT: Now to one of the people who doesn't like what Mr. Miller is doing with the FTC. He is Ralph Nader, the man generally credited with starting the consumer movement in the United States. He is also founder of numerous consumer groups, including the umbrella organization, Public Citizen. Mr. Nader is currently working on a book about the top 100 officials in the Reagan administration that includes a chapter on Mr. Miller. Mr. Nader, what are you writing about Mr. Miller in your book?

RALPH NADER: Well, I think it's clear from Mr. Miller's decisions, both in the White House before he came to the Federal Trade Commission and while chairman of this supposed consumer-protection agency, it is the thrust of his decisions to cripple the law-enforcement process as it applies to corporate fraud and deception and unfair business practices. Everything that he does, everything that hesays is very consistent. He wants to put handcuffs on the federal cop that's supposed to police the corporate beat.

HUNTER-GAULT: The FTC?

Mr. NADER: The FTC. And he is asking Congress, for example, to do things so extreme -- like handcuff the commission's use of the principles of deception and unfairness -- that even many business organizations are horrified --

HUNTER-GAULT: Well --

Mr. NADER: -- by what he's trying to do. Really, because the FTC exists not only to help consumers but to shield the honest and scrupulous business firm and business person from deceptive, fraudulent practices by the unscrupulous.

HUNTER-GAULT: Okay, you mentioned the definition of what constitutes unfairness and deceptive practices. I mean, why wouldn't it be better to have a clearly defined, spelled-out definition so that everybody knew what everybody was talking about?

Mr. NADER: First of all, the definitions now have been worked on by hundreds of court cases so that the meaning is quite clear.Even a representative of the Chamber of Commerce in Washington said that the meaning of "deception" is pretty clear now, and they didn't want any change in it. Secondly, Chairman Miller wants to require incredible burdens of proof on the Federal Trade Commission that are only suitable for criminal laws. These are not criminal laws that the Federal Trade Commission is administering or enforcing. They are laws that require deceptive ads to be taken off the marketplace. There is no criminal penalty, no jail term whatsoever. The thrust of his testimony today before Congress would be to require the Federal Trade Commission to go through a torturous red-tape pathway that would, in effect, allow the deceptive or unfair practice to continue ad infinitum without being taken off the marketplace. For example, under his proposals, down would go efforts to require companies to substantiate their ads, which even General Foods thinks is a good idea.Down would go the product-defect program, which has already brought back to consumers in just three cases involving Ford, Honda and Chrysler $130 million -- which is more than twice the budget of the entire Federal Trade Commission. The product-defect program in effect says that any company that fails to disclose to a customer defects in cars -- like fenders that rust -- has to reimburse the customer for the repair or repair the product directly. These are just illustrations.Under his proposal an advertiser could urge children to get on their bike and drive down the middle of the highway, which is a very hazardous technique, and not be stopped.

HUNTER-GAULT: Right. I --

Mr. NADER: Cigarette advertising warning would never have been allowed under Chairman Miller's proposal.

HUNTER-GAULT: Okay, I think I get the drift of your concern there. How do you respond to Mr. Miller's charge that the FTC itself was engaged in social engineering and went way beyond the range of its responsibility, policing trivial harm?

Mr. NADER: Several ways. First of all, his references to former Chairman Pertschuk were references to speeches where Mr. Perschuk was talking, not in terms of what the FTC should rule, but just his opinions on corporate crime and corporate power in the first place. Secondly, and most importantly, I challenge Mr. Miller to show us and show the American people one fair and prudent business practice that the FTC in the last 20 years has stopped under its definition of deception. Thirdly, it's a matter -- difference of opinion. Mr. Miller believes that corporations should be free to exploit little children with deceptive ads encouraging them to nag their parents to buy food that isn't good for them and other products. I think that the Federal Trade Commission, under the unfairness rule -- not the way he wants to change it, but under the way it's been built up over years of judicial interpretation -- should have some curbs on an open attack on five-, six-, seven-year-old children who are very susceptible to very clever and damaging commercial advertising.

HUNGER-GAULT: All right. Jim?

LEHRER: Mr. Miller, Mr. Nader has just challenged you to cite an example where a fair and prudent business practice was --

Mr. NADER: Was stopped by the FTC --

LEHRER: Stopped by the FTC in an unwarranted way.

Mr. MILLER: Okay. First, let me say --

Mr. NADER: In the last 20 years.

Mr. MILLER: There you go again, Ralph. I think you don't have the facts right.With respect to ad substantiation, the ad substantiation would survive. That program would survive under the proposals that I made. The product-defects program would also survive under the proposals that I made. Children's -- advertising showing children riding bikes in the middle of the highway -- those would come off the air under the program that I suggested. The question of cigarettes is one the commission has not yet voted upon, has not yet decided upon. But that, too, is something that the commission could choose to go either way depending on the ultimate effects upon consumers. But in terms of the business objections, Ralph, you know that it's not necessary to have business -- for something to be right even though it is opposed by business. Something that I have advocated for several years has been airline deregulation and trucking deregulation. As a matter of fact, most people don't know it, but I once served on the board of advisers of one of Ralph's organizations -- the Aviation Consumer Action Project -- and I advocated airline deregulation at a time when airlines were very much opposed to that, and I wrote a book about it. I also wrote about --

Mr. NADER: I haven't seen you challenge the resurgence of the international air transport airline cartel for transatlantic flights.

Mr. MILLER: Well, I have.

LEHRER: Gentlemen, we are not going to talk about airline deregulation here tonight.

Mr. MILLER: All right. The same thing is true. But let me get -- the same thing is true of trucking. Because the industry might oppose it is not a reason that it shouldn't go forward. By the way, on the question of the Chamber of Commerce, they have a proposal on the Hill to restrain the deception issue, quite to the contrary of what Mr. Nader said.

LEHRER: Let's go back --

Mr. MILLER: Could I meet his challenge with respect to a deception? There have been a number of cases where the Federal Trade Commission has clamped down on ads which I think would communicate information to people. When the Chevy Vega came out, Road and Track magazine said that that was the best-handling car ever produced in America.General Motors then put that information in their ads, that according to Road and Track magazine it's the best-handling car. The Federal Trade Commission made them take that ad off of the air because they said that that was deceptive because they couldn't prove that it was the best --

LEHRER: Chevrolet couldn't prove --

Mr. MILLER: That's right.

Mr. NADER: It's perfectly reasonable. If a company says to customers, "This is a terrific handling car," and they can't substantiate it, then why should they be allowed to continue with the ad?

LEHRER: But they were quoting Road and Track magazine.

Mr. NADER: Road and Track magazine, first of all, is not substantiation of the ad. They have to carry the burden of Road and Track magazine's recommendation.

Mr. MILLER: But this was --

Mr. NADER: Quite apart from the fact that Road and Track is virtually owned by the auto companies.

LEHRER: Okay. Obviously we've got a difference of opinion; we're not going to resolve that. But you heard what he said on the -- he says that the companies' substantiation claims on advertising will continue under his proposal, the product-defect program will continue. You've just misread his proposals.

Mr. NADER: Not at all. As a matter of fact, what he's saying is that when the Federal Trade Commission police have handcuffs on them and chains to their feet, they're still free to go after these things. They're still free to do it. He puts so much baggage on the Federal Trade Commission. Let me give you an illustration. He has a proposal where the Federal Trade Commission could not move against deceptive practices and unfair business practices unless the commission can show that a reasonable consumer would not be misled. Which means that if most consumers aren't misled, but elderly people are misled, little children are misled, people who happen to be -- you see?

Mr. MILLER: That is not true. That is not what I proposed. What I proposed is that a reasonable-consumer test -- but I also clearly articulated this morning in testimony before the Congress that there should be a special provision for vulnerable groups. For example, if a pharmaceutical manufacturer advertised that they had a miracle cure for cancer, a lot of very elderly people might, suffering of cancer, might be gullible and buy the cure. We would go after that.

Mr. NADER: Now we're going to nail him. Watch. Now let me ask you a question.

LEHRER: Prepare to be nailed.

Mr. NADER: You said you would go after them, but you also said that you would have to prove that the drug company intended to deceive these vulnerable people. It wasn't enough that the government would only have to prove that the product was deceptively sold. And to try to prove intent in a statute that is only a civil statute is a monstrosity and a way to totally handcuff the legitimate law-enforcement process, the application of civil law and order to corporate fraud and deception.

Mr. MILLER: Well, my reading of the law is different, and my proposal is different. Under my proposal one could go after such a pharmaceutical company without having to prove beyond a shadow of a doubt that the company knew in fact that the product was no miracle cure.

Mr. NADER: But you would have to prove intent, though. It's right in your testimony.

Mr. MILLER: Well, the way that it is worded is to try to get at the cases of vulnerable groups by pointing to the company and showing that it in fact knew that the ad was false.

LEHRER: As it is now -- well, as is practiced now by the FTC, the FTC does not now have to prove intent, right? In other words, they have to just prove or judge that a particular ad or a particular thing is fraudulent or deceptive or unfair, correct?

Mr. MILLER: That's right, and that yields, though, some substantial anomalies from what I think the public interest requires. And I think it means that the Federal Trade Commission too often wastes taxpayers' money. For example, a manufacturer of some nylon socks said, "Our socks last forever." So the Federal Trade Commission says, "Prove that nylon socks last forever." Well, you probably had, and many of your viewers probably have had, nylon socks. You eventually throw them away because they don't wear out, you know. They get old and are not quite as spiffy looking as before. Why should we be spending taxpayers' money to go after that sort of claim?

LEHRER: Why should we?

Mr. NADER: See, that has nothing to do with the restrictions and the handcuffs he wants to put on the Federal Trade Commission. For example, puffery in ads is usually exempt from any kind of law enforcement action.

Mr. MILLER: But this is a case the Federal Trade Commission did bring.

Mr. NADER: But if this company tells people that if they buy these stockings it's going to last for a lifetime, and they can't substantiate it, why should that ad be allowed on the air? Because it isn't true.It's false.

Mr. MILLER: Well, you've got to ask whether it makes sense to spend taxpayers' money to go after that sort of thing.

LEHRER: Charlayne's got some questions she's got to ask.

HUNTER-GAULT: Mr. Miller, the consumer activists, including Mr. Nader, have charged that the real purpose of all of this is to render the agency ineffective. Is that the case?

Mr. MILLER: No, it's not. That's not the case at all. I firmly believe the Federal Trade Commission has a role to play in nuts-and-bolts consumer-protection issues. It has a role to play, sharing with the Justice Department the public enforcement of the antitrust laws. I plan to see that that's carried out. Some people said, you know, that really my intent is to shut the agency down. I had a wonderful job over at the White House, and I wouldn't have come to the Federal Trade Commission if that were my only goal.

Mr. NADER: You're shutting the regional offices down.

Mr. MILLER: Well, we --

Mr. NADER: Which would bring the FTC closer to the people.

Mr. MILLER: The Federal Trade Commission has a number of regional offices. Several commission members believe, in fact the majority of the commission has voted to close four of those regional offices. These were commissioners that were appointed by presidents Ford, Carter and Reagan.

HUNTER-GAULT: Why are the offices being closed?

Mr. MILLER: Well, we have -- we have less resources to deal with. We also find that the regional offices are a problem from the management of the agency. Also, pursuant to the President's program of federalism, the idea is to take advantage now of the mushrooming consumer protection and antitrust programs at the state and local levels, not that we need the tentacles of the federal government reaching out into every nook and cranny of our country.

HUNTER-GAULT: There's a tentacle reaching out behind you.

Mr. NADER: No.Let me just say, what he didn't tell you was that there are a lot of state laws, called "baby FTC laws" which will also be weakened automatically because of their provisions, because they reflect the wordings of the national Federal Trade Commission law. It's really amazing for an administration that's dedicated to federalism to close down regional offices in places around the country which are the eyes and ears of the agency, which get complaints from small businesses who are subjected to predatory competition, which try to help people in the local areas. Amazing. I mean, it just shows you that the real intent of Chairman Miller is to cripple the agency. He's pushing for a sharp reduction in his budget; it's already operating 25% in real terms lower than fiscal 1978. Its total budget is what the Pentagon spends in about 2 1/2 hours, and it's supposed to police a $2 1/2-trillion economy against monopolistic practices, fraud and deception.

HUNTER-GAULT: Well, would you say that it'd be better for the agency to be out of business, functioning under the changes the Commissioner is proposing?

Mr. NADER: It will just be gasping for breath, but it will be appearing to the public under his chairmanship as if he's looking out for it -- the public -- trying to save them money. What we need is not a weaker Federal Trade Commission, but strengthened authority, strengthened investigative powers, and strengthened determination -- which he cannot supply because he doesn't believe in law and order against corporate fraud.

HUNTER-GAULT: Chairman Miller, can we really expect business to regulate itself without the government looking over its shoulder?

Mr. MILLER: Well, what we must keep in mind, Charlayne, is that the Federal Trade Commission is an important player in this drama, but not the only player. I think we should rely on industry self-regulation where it is possible, and use our leverage to be a catalyst if we can in trying to ensure that goes about.

HUNTER-GAULT: Now, what do you mean specifically by that? I mean, what exactly will be the role of the Federal Trade Commission with respect to business regulating itself in these areas?

Mr. MILLER: Take for example, Charlayne, advertising. The Better Business Bureau has a program policing advertising to make sure it's not false and deceptive. The networks have a program. There are a lot of programs like this. We want to make sure that we help and support those programs, not try to take the place of those programs. I'm afraid, though, Mr. Nader has played a little footloose and fancy free with the data. The Federal Trade Commission had a budget of $70.8 million in fiscal year 1981; we're currently operating on $68.8 million in a continuing resolution.And how that's a 24% reduction, I don't know.

Mr. NADER: Because you didn't hear what I said. If we compared to '78 -- fiscal year '78 in real terms, taking into account inflation.

LEHRER: Gentlemen, we're out of time. I'm glad we got all this resolved tonight. Thank you both for being with us, and good night, Charlayne.

HUNTER-GAULT: Good night, Jim.

LEHRER: And we'll see you tomorrow night. I'm Jim Lehrer. Thank you and good night.