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The original documents are located in Box 21, folder "1975/01/04 S356 Product Warranties
and Federal Trade Commission Act Amendments (1)" of the White House Records Office:
Legislation Case Files at the Gerald R. Ford Presidential Library.
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photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
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Digitized from Box 21 of the White House Records Office Legislation Case Files at the Gerald R. Ford Presidential Library
ACTION
THE WHITE HOUSE
's NAC. & Nbr
WASHINGTON
LAST DAY: January 4
January 3, 1975
Posted
1/4/75
MEMORANDUM FOR THE PRESIDENT
FROM:
KEN COLE
SUBJECT:
Enrolled Bill S. 356 -- Product Warranties
and Federal Trade Commission Act Amendments
BACKGROUND
S. 356 combines two distinct legislative actions: Title I,
dealing with consumer product warranties, which the Adminis-
tration supports; and Title II, providing numerous amendments
to the Federal Trade Commission Act, many of which were
drafted in conference without Administration consultation,
which the Administration opposes. Both Justice and the FTC
have reservations about Title II, and Justice is strongly
advocating a veto.
The major concern of the Department of Justice is the indepen-
dent litigation authority granted to the FTC, not only in
Federal District Courts but also in the Supreme Court (should
they disagree with the Solicitor General). Justice's point,
which is very clearly developed in the proposed memorandum of
disapproval at Tab B, is that the Attorney General has and must
continue to control all Government litigation.
Additional information is provided in Paul O'Neill's Enrolled
Bill report (Tab A).
CURRENT SITUATION
S. 356 presents the question of whether it is more important
to have acceptable consumer product warranty legislation signed
into law or to protect the litigating control of your Depart-
ment of Justice. Since giving FTC separate litigation authority
is one of many instances (albeit an extreme instance) of the
dilution of the authority of the Department of Justice over
Government litigation, one alternative would be to direct the
Department of Justice to prepare comprehensive legislation
which would amend this and other acts to restore to the Depart-
ment of Justice full control over Government litigation.
GERALD FORD LIBRARY
- 2 -
Baroody indicates that Mel Laird, and several national retail
corporations have called to urge approval, fearing much worse
legislation next year. But the business community is essen-
tially split on the issue.
OPTIONS
1. Sign the bill and direct Justice to prepare comprehensive
litigation legislation.
PRO: Would codify acceptable consumer product warranties
legislation, and still signal your intention to
protect government litigation authority.
CON: Would further dilute authority of the Department of
Justice over Government litigation.
2. Withhold approval from the bill and issue the attached
memorandum of disapproval.
PRO: Would clearly signal the Congress your intention
to restore to the Department of Justice control
over Government litigation.
CON: Would sacrifice an acceptable consumer product
warranty bill over a largely academic and complex
litigation theory, and would run the risk of much
more liberal legislation next year.
RECOMMENDATIONS:
Areeda
Disapproval
Baroody
Approval
Cole
Approval
Friedersdorf
Disapproval
O'Neill
Disapproval
AGENCY RECOMMENDATIONS:
Department of Justice
Disapproval (Memorandum of
disapproval attached)
Department of Commerce
No objection
Board of Governors of the
Federal Reserve System
No objection
Department of the Treasury
No objection
National Credit Union
Administration
No objection
Administrative Conference
of the United States
No objection (section 202)
- 3 -
Federal Trade Commission
Approval
Council of Economic Advisers
Approval
Department of Health, Education
and Welfare
Approval
Federal Deposit Insurance
Corporation
Approval
Federal Home Loan Bank Board
Approval
Department of Agriculture
Defers to FTC
Administrative Office of the
United States Courts
No recommendation
DECISION: S. 356
1. Sign
2. Pocket Veto
(Tab C)
(Sign Memorandum
of Disapproval
at Tab B)
THE WHITE HOUSE
WASHINGTON
January 3, 1975
TELEPHONE NOTE FOR DR
Senator Stevens called today re S356 (Warranty Bill).
He is hoping that before it goes to the President,
someone will read it very carefully and also call
Jim Broyhill on it.
He feels it is the best possible bill we can get
under present circumstances.
Stevens can be reached on 224-1021. I told him
I would pass the message to you.
kathie
GERAU N. FORD FORWARY
And Jim Bryhill - -
for it.
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
DEC 31 1974
MEMORANDUM FOR THE PRESIDENT
Subject: Enrolled Bill S. 356 - Product warranties and Federal
Trade Commission Act amendments
Sponsors - Sen. Magnuson (D) Washington and Sen. Moss
(D) Utah
Last Day for Action
January 4, 1975 - Saturday
Purpose
Provides disclosure standards for written consumer product war-
ranties against defect or malfunction; defines Federal content
standards for such warranties; establishes consumer remedies for
breach of warranty or service contract obligations; and grants
the Federal Trade Commission expanded authority in carrying out
its consumer protection activities.
Agency Recommendations
Office of Management and Budget
Disapproval (Memorandum
of disapproval attached)
Department of Justice
Disapproval (Memorandum
of disapproval attached)
Department of Commerce
No objection
Board of Governors of the Federal
Reserve System
No objection (Informally
Department of the Treasury
No objection
National Credit Union Administration
No objection
Administrative Conference of the
United States
No objection (section 202)
Federal Trade Commission
Approval
Council of Economic Advisers
Approval
Department of Health, Education and
Welfare
Approval
Federal Deposit Insurance Corporation
Approval
Federal Home Loan Bank Board
Approval
Department of Agriculture
Defers to FTC
Administrative Office of the United
States Courts
No recommendation
2
Discussion
The enrolled bill consists of two parts: Title I, dealing with
consumer product warranties; and Title II, providing numerous
amendments to the Federal Trade Commission Act ("the Act").
During the development of this legislation, various executive
agencies (principally the Federal Trade Commission (FTC), Justice
and Treasury Departments) reported or testified to the Congress
on a number of provisions which were identical or similar to
those in the enrolled bill.
The provisions of Title I had been before the Congress for
several years; were supported by the Administration in written
reports and testimony before the Commerce Committees of both
Houses; and in their enrolled form incorporate most of the
Administration's proposals for amendments.
Title II contains numerous provisions which were drafted in
conference, without the benefit of full consideration and informed
discussion by the Administration and Commerce Committees. Two of
the agencies most concerned with this legislation (i.e., the
FTC and Department of Justice) have expressed substantial concern
with Title II as enrolled, and Justice recommends that the bill
be disapproved.
Title I - Consumer Product Warranties
S. 356 would not require that written warranties be provided on
any consumer products, but such warranties as are given by sup-
pliers would be subject to Title I of the bill. The most
important provisions of Title I are as follows:
-- A consumer product is defined as any tangible
personal property distributed in commerce and
normally used for personal, family, or house-
hold purposes. (Section 101)
-- The FTC would be authorized to prescribe rules
providing for disclosure of the terms and con-
ditions of written warranties on consumer
products. These provisions would be limited
to consumer products costing more than $5.00.
(Section 102)
-- The FTC would be denied authority to prescribe the
duration of written warranties or to require any
product to be warranted. (Section 102 (b) (1))
3
-- Suppliers of consumer products costing more than
$10 would be required to designate their war-
ranties as either "full" or "limited" warranties.
Under a "full" warranty, the warrantor would be
required to remedy product defects or malfunc-
tion within a reasonable time and without charge.
A supplier offering a written warranty would be
prohibited from disclaiming his implied war-
ranties, although the duration of implied
warranties could be limited somewhat in certain
circumstances. Purchasers could elect either
a refund or replacement if the product continued
to be defective or to malfunction after a rea-
sonable number of attempts were made to correct
it. (Sections 103 and 104)
-- The FTC would be required to prescribe regula-
tions governing any informal dispute settlement
procedure which is incorporated in the terms of
a warranty. Warrantors could make initial resort
to such a procedure a precondition to lawsuits.
(Section 110 (a))
----- Either the FTC or the Attorney General could bring
court actions on its own initiative to restrain
warrantors from making deceptive warranties or
violating any prohibition of Title I. (Section
110 (c))
-- Any consumer who is damaged by a supplier's viola-
tion of Title I could bring suit for damages and
other legal and equitable relief if (a) the claim
were at least $25 and not more than $50,000, and
(b) the warrantor had been given a reasonable
opportunity to cure the breach involved. (Section
110 (d) and (e) )
-- Consumer class actions also would be permitted if
there were at least 100 named plaintiffs and
warrantors had been given a reasonable opportunity
to cure the breach involved. (Section 110 (d) (2) )
-- Consumers who prevailed in court actions could be
awarded compensation for their costs, including
attorneys' fees. (Section 110 (d) (2))
4
Title II - Federal Trade Commission Act Amendments
The basic provisions of Title II are as follows:
-- The FTC's jurisdiction would be expanded from
acts and practices "in" commerce to those "in
or affecting" commerce. (Section 201)
-- Procedures would be established for FTC issuance
of substantive rules defining unfair or deceptive
acts or practices under section 5 of the Act.
This FTC rulemaking authority would apply to
all entities in or affecting commerce, except
banks. In addition to following its present
rulemaking procedures which are prescribed by
5 U.S.C. 553, Title II would direct the FTC to
devise procedures for informal hearings, on a
public record, with opportunity for oral presen-
tation and limited cross-examination when the
FTC finds issues of disputed fact which it is
necessary to resolve. (Section 202)
-- Within sixty days after any substantive rule of
the FTC takes effect, the Federal Reserve Board
(FRB) would be required to issue substantially
similar regulations applicable to banks (but not
other financial institutions such as savings and
loan associations or credit unions, which would
be subject to FTC's rulemaking authority). This
requirement would be waived whenever the FRB
found that banks were not engaging in unfair or
deceptive practices or that the "implementation
of similar regulations with respect to banks would
seriously conflict with essential monetary and
payments systems policies of the Board." (Section
202 (f) )
Compliance with the FRB's rules would be enforced
by the Comptroller of the Currency, the FRB, and
the Federal Deposit Insurance Corporation (FDIC)
with regard to the banks over which they have
regulatory jurisdiction. (Section 202 (f) )
BEFRED
5
Each of these bank supervisory agencies would
be required (a) to establish a separate division
of consumer affairs to handle complaints and
carry out the enforcement responsibilities
pertaining to banks under Title II; and (b) to
report annually to the Congress concerning their
activities in this regard. (Section 202 (f) )
Judicial review of final rules in appropriate
circuit courts of appeals would be provided for,
generally incorporating the standards under
section 706 (2) of the Administrative Procedure
Act, except that any rule could be held unlawful
if the court found that the FTC's action "is not
supported by substantial evidence in the rule-
making record
taken as a whole.'
(Section
202 (e) )
-- The FTC would be empowered to provide compensation
for reasonable attorneys' and expert witnesses'
fees and other costs of participating in rule-
making proceedings, to any person representing an
interest which is deemed necessary for a fair
determination of the proceeding but who cannot
afford the cost of participation. (Section 202 (h) )
-- The FTC's authority to obtain information would
be broadened to cover persons and partnerships
as well as corporations. (Section 203)
The FTC would be granted exclusive authority to
appear in its own name through its own legal repre-
sentatives and to supervise the litigation in civil
actions when seeking injunctions, pursuing consumer
redress, participating in judicial review proceed-
ings concerning FTC rules or cease and desist orders,
or enforcing subpoenas. This authority would not
preclude the Attorney General from intervening on
behalf of the U.S. in these actions or any appeal
thereof. Under existing law, the FTC could represent
itself in such actions only if the Attorney General
did not agree to represent the FTC within 10 days
after FTC's written notification. (Section 204)
-- In any other civil action involving the Act, the
FTC could represent itself only if the agency
gives written notification and undertakes to
consult with the Attorney General and the latter
6
fails within 45 days to initiate, defend, or inter-
vene in such action. Under existing law, Justice
Department has 10 rather than 45 days within which
to make its evaluation. (Section 204)
-- The FTC could conduct litigation in the Supreme
Court in any case where the FTC represented itself
in the lower courts if the Solicitor General does
not agree to represent the FTC within 60 days after
the lower court decision, upon receiving an FTC
request to do so, which must be made to him within
10 days of that decision. If the Solicitor General
elects to represent the FTC, he "may not agree to
any settlement, compromise, or dismissal of such
action, or confess error in the Supreme Court with
respect to such action, unless the Commission
concurs." (Section 204)
-- The FTC's authority to enforce its administrative
orders in the Federal courts would be strengthened.
Under existing law, the FTC may initiate civil
actions for knowing violations of its substantive
rules and cease and desist orders; however, an
alleged violator of such orders is subject to civil
action only if named in the order. Under S. 356,
any violator who has actual knowledge that his act
or practice is unfair or deceptive would be subject
to a maximum civil penalty of $10,000 per violation --
whether or not he is subject to the order on which
the civil action is based. If the defendant is
not subject to the order relied upon, any issues of
fact against him must be tried de novo by the court
in order to satisfy due process requirements.
(Section 205)
-- The FTC would be empowered to bring action for
consumer redress of violations of its rules and
orders in Federal courts. Authorized relief would
be limited only by the nature of the injury and
by the remedial powers of the courts. However,
punitive or exemplary damages would be unauthorized.
According to the conference report on S. 356, it is
intended that FTC actions for consumer redress would
not bar private actions for redress. (Section 206)
-- For the overall operation of the FTC, S. 356 would
authorize appropriations not to exceed $42 million
for fiscal year 1975; $46 million for fiscal year
1976; $50 million for fiscal year 1977; and such
sums as the Congress may authorize for subsequent
fiscal years. (Section 207)
7
Problems expressed by agencies
In their views letters on the enrolled bill, several agencies
expressed concern with various provisions of Title II as
follows:
FTC rulemaking procedures (section 202) - The FTC considers
the procedures governing issuance of substantive rules to be
unnecessary and undesirable.
FRB rulemaking authority over banks (section 202 (f) ) - The
Federal Home Loan Bank Board (FHLBB) and the National Credit
Union Administration (NCUA) believe that federally insured
savings and loan associations and credit unions, respectively,
should be subject to the rulemaking authority of the FRB
(similar to the treatment accorded to banks under S. 356)
rather than that of FTC.
Throughout the development of this legislation, the Administra-
tion was on record with the same position as stated by the
FHLBB and NCUA on the grounds that depository institutions
serving the same consumers should not be subject to the
possibility of varying regulations.
Control of litigation (section 204) - The Justice Department
strongly opposes the provisions of S. 356 for FTC self-
representation in the courts, on the grounds that:
"
its provisions appear to authorize the Com-
mission to litigate a matter over the protests of
the Attorney General. With respect to FTC litigation,
the Attorney General would be relegated to the role
of an automaton--a role that no professional attorney
can, in good conscience, accept. To require the Attorney
General's historic duty to exercise his professional
judgment whether a particular matter should be liti-
gated to be controlled by the whims of his client, in
this case the FTC, is not only unfair to the client
but effectively deprives the Attorney General of the
necessary supervision and control of Government
litigation."
Civil penalties for knowing violations (section 205) - Justice
states:
"Whether this section can be constitutionally
applied against a defendant who is not subject
to the cease and desist order relied upon may
depend upon his right to litigate the alleged
8
unfairness or deception of his act or practice.
Since he will not have had notice or opportunity
to defend his practice in an administrative pro-
ceeding against someone else, due process would
seem to require he have the right to litigate
all issues before the court. We also fear that
the imposition upon the Government of proof of
knowledge of wrongdoing against one subject to a
cease and desist order, a burden not imposed by
Section 5 (1) of the existing law, will make
traditional civil penalty enforcement of Com-
mission orders more difficult."
Scope of Title I Applicability (section 101) - Commerce,
Justice, and FTC all agree in oral discussion that the en-
rolled bill might be interpreted to apply to third-party
endorsers--in addition to suppliers--who warrant products
which they, themselves, do not manufacture, distribute or
otherwise deal in directly. Good Housekeeping is a third-
party endorser, and they are seriously concerned that
Title I would have a detrimental effect on their business.
Conclusion
We believe that section 204 would seriously impair the Attorney
General's control of litigation, particularly with respect to
Supreme Court cases, and by itself warrants disapproval of the
bill. A proposed memorandum of disapproval, based upon a draft
submitted by Justice, is attached for your consideration.
Director
Enclosures
BOARD OF GOVERNORS
OF
OF THE
BOARDOF
FEDERAL RESERVE SYSTEM
OF
THE
SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
FEDERAL
RESERVE
TO THE BOARD
December 26, 1974
Mr. William D. Skidmore
Chief, Business-General
Government Branch
Office of Management and Budget
New Executive Office Building
Room 7220
17th Street and Pennsylvania Avenue, N. W.
Washington, D. C. 20503
Dear Mr. Skidmore:
This letter is in response to your request for the views
of the Federal Reserve Board on Enrolled Bill S. 356.
As we advised Mr. W. H. Rommel's office (Mrs. Yuille) by
telephone on December 24, 1974, the staff of the Federal Reserve
Board has no objections or comments concerning this proposal.
Very truly yours,
Assistant Secretary of the Board
MEMORANDUM OF DISAPPROVAL
It is with great reluctance that I withhold my
approval from S. 356, which deals with consumer product
warranties and amendments to the Federal Trade Commission
Act.
This bill would provide disclosure standards for
written consumer product warranties against defect or
malfunction; define Federal content standards for such
warranties; establish consumer remedies for breach of
warranty or service contract obligations; and grant the
FTC expanded authority in carrying out its consumer pro-
tection activities.
My reluctance stems from the recognition that the
Congress, and especially Senators Magnuson and Moss, have
in this bill attempted to deal with the product warranty
abuses which so plague our consuming public. I support
this effort wholeheartedly. However, the Attorney General
has advised me, and I agree, that the provisions of this
bill which wrest from the Attorney General his traditional
control of Government litigation particularly before the
Supreme Court of the United States would have significant
adverse impact on the Government's ability to present its
position in court in a uniform and consistent manner.
A principal purpose of the Department of Justice is
to insure that the Attorney General can effectively control
Government litigation. This control is required by the
need to insure that Government agencies do not take
inconsistent legal positions in the Federal courts and
that important legal issues are presented to appellate
courts with the best possible case as a vehicle.
2
Judge Learned Hand recognized the need for giving
this country's chief legal officer, the Attorney General,
control of Government litigation when he wrote: "The
Attorney General has powers of 'general superintendence
and direction' over district attorneys
and may
directly intervene to 'conduct and argue any case in any
court of the United States'
Thus, he may displace
district attorneys in their own suits, dismiss or compromise
them, institute those which they decline to press. No
such system is capable of operation unless his powers are
exclusive, or if the Departments may institute suits which
he cannot control. His powers must be coextensive with his
duties." Sutherland V. International Insurance Co., 43 F.2d
969, 970 (2d Cir. 1930).
Chief Justice Warren Burger has written: "It is the
unanimous view of the Justices that it would be unwise to
dilute the authority of the Solicitor General as to Supreme
Court jurisdiction in cases arising within the Executive
Branch and independent agencies." (See 1972 Hearings on the
Study of the Securities Industry Before the Subcommittee on
Commerce and Finance of the House Committee on Interstate
and Foreign Commerce 92d Cong., 1st Sess., ser 92-37b, pt. 3,
at 1809)
There are additional problems with S. 356. The prescribed
rulemaking procedures are inflexible and burdensome, and would
actually impede the FTC's ability to protect the American
consumer against unfair or deceptive practices. Moreover, the
bill would provide an inconsistent allocation of rulemaking
authority over the various types of financial institutions,
unwisely subjecting them and the consumers they serve to a
maze of varying and disparate standards. Finally, FTC's en-
forcement authority over the administrative orders which it
3
issues would be expanded in a manner which could impose an
additional burden on the courts and make traditional civil
penalty enforcement of such orders more difficult.
By withholding my approval from this bill, I hope to
signal to the Congress my determination that our legal
system, which must expand to keep pace with the expanding
rights of our citizenry, do so in an organized and respon-
sible fashion. This Administration will be pleased to work
with the 94th Congress toward early enactment of meaningful
warranty protection legislation.
THE WHITE HOUSE,
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
1
WASHINGTON, D.C. 20503
6:30pm.
DEC 31 1974
MEMORANDUM FOR THE PRESIDENT
Subject: Enrolled Bill S. 356 - Product warranties and Federal
Trade Commission Act amendments
Sponsors - Sen. Magnuson (D) Washington and Sen. Moss
(D) Utah
Last Day for Action
January 4, 1975 - Saturday
Purpose
Provides disclosure standards for written consumer product war-
ranties against defect or malfunction; defines Federal content
standards for such warranties; establishes consumer remedies for
breach of warranty or service contract obligations; and grants
the Federal Trade Commission expanded authority in carrying out
its consumer protection activities.
Agency Recommendations
Office of Management and Budget
Disapproval (Memorandum
of disapproval attached)
Department of Justice
Disapproval (Memorandum
of disapproval attached)
Department of Commerce
No objection
Board of Governors of the Federal
Reserve System
No objection (Informally
Department of the Treasury
No objection
National Credit Union Administration
No objection
Administrative Conference of the
United States
No objection (section 202)
Federal Trade Commission
Approval
Council of Economic Advisers
Approval
Department of Health, Education and
Welfare
Approval
Federal Deposit Insurance Corporation
Approval
Federal Home Loan Bank Board
Approval
Department of Agriculture
Defers to FTC
Administrative Office of the United
States Courts
No recommendation
Shepara
MEMORANDUM OF DISAPPROVAL
Areeds agree
It is with great reluctance that I withhold my approval from
S. 356, which deals with consumer product warranties and amendments
to the Federal Trade Commission Act.
This bill would provide disclosure standards for written
consumer product warranties against defect or malfunction; define
Federal content standards for such warranties; establish con-
sumer remedies for breach of warranty or service contract obliga-
tions; and grant the FTC expanded authority in carrying out its
consumer protection activities.
My reluctance stems from the recognition that the Congress,
Suprome Hosth Inted that
and especially Senators Magnuson and Moss, have in this bill
attempted to deal with the product warranty abuses which so plague
our consuming public. I support this effort wholeheartedly. How-
ever, the Attorney General has advised me, and I agree, that the
provisions of this bill which wrest from the Attorney General his
would
traditional control of Government litigation/have significant ad-
verse impact on the Government's ability to present its position
in court in a uniform and consistent manner.
to more
The Department of Justice was established in 1070 for the
I
a
principal purpose of insuring that the Attorney General could can
effectively control Government litigation. This control is
required by the need to insure that Government agencies do not
take inconsistent legal positions in the Federal courts and
that important legal issues are presented to appellate courts
with the best possible case as a vehicle.
Judge Learned Hand recognized the need for giving this
country's chief legal officer, the Attorney General, control
of Government litigation when he wrote: "The Attorney General
has powers of 'general superintendence and direction' over
- 2 -
district attorneys. and may directly intervene to 'conduct
and argue any case in any court of the United States'
Thus
he may displace district attorneys in their own suits, dismiss
or compromise them, institute those which they decline to press.
No such system is capable of operation unless his powers are
exclusive, or if the Departments may institute suits which he
cannot control. His powers must be coextensive with his
duties." Sutherland V. International Insurance Co., 43 F. 2d
969, 970 (2d Cir. 1930).
Chief Justice Warren Burger has written: "It is the
unanimous view of the Justices that it would be unwise to dilute
the authority of the Solicitor General. as to Supreme Court
jurisdiction.in cases arising within the Executive Branch and
1972
independent agencies. (seed Hearings on the Study of the
Securities Industry Before the Subcommittee on Commerce and
Finance of the House Committee on Interstate and Foreign Commerce
92d Cong., 1st Sess., ser 92-37b, pt. 3, at 1809 (met).
There are additional problems with S. 356. The prescribed
rulemaking procedures are inflexible and burdensome, and would
actually impede the FTC's ability to protect the American con-
sumer against unfair or deceptive practices. Moreover, the bill
would provide an inconsistent allocation of rulemaking authority
over the various types of financial institutions, unwisely sub-
jecting them and the consumers they serve to a maze of varying
and disparate standards. Finally, FTC's enforcement authority
over the administrative orders which it issues would be expanded
in a manner which could impose an additional burden on the
courts and make traditional civil penalty enforcement of such
orders more difficult.
- 3 -
By withholding my approval from this bill, I hope to signal
to the Congress my determination that our expanding legal
system, which must expand to keep pace with the expanding rights
dos in an organized and registration
of our citizenry, not expand in chaotic or haphazard fashion.
At the same time, the Administration will be pleased happy to work with
This
C
the 94th Congress toward early enactment of meaningful warranty
protection legislation.
THE WHITE HOUSE
January , 1975
THE WHITE HOUSE
ACTION MEMORANDUM
WASHINGTON
LOG NO.: 936
Date: January 1, 1974
Time:
11:00 p.m.
FOR ACTION:
Jim Cavanaugh
CC (for information): Warren Hendriks
Max Friedersdorf veto
Jerry Jones
Phil Areeda we -comments
Jack Marsh
Paul Theis
on statemt
Geoff SHepard
FROM THE STAFF SECRETARY
DUE: Date: Tuesday, January 2
Time: noon
SUBJECT:
Enrolled Bill S. 356 - Product warranties and Federal
Trade Commission Act amendments
ACTION REQUESTED:
For Necessary Action
For Your Recommendations
Prepare Agenda and Brief
Draft Reply
For Your Comments
Draft Remarks
REMARKS:
Please return to Judy JOhnston, Ground Floor West Wing
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
delay in submitting the required material, please
K. R. COLE, JR.
telephone the Staff Secretary immediately.
For the President
THE WHITE HOUSE
WASHINGTON
1/2/75
MEMORANDUM FOR:
WARREN HENDRIKS
FROM:
MAX L. FRIEDERSDORF
VL
SUBJECT:
Action Memorandum - Log No. 936
Enrolled Bill S. 356 - Product warranties
and Federal Trade Commission Act
amendments
The Office of Legislative Affairs concurs with the Agencies
that the enrolled bill should be VETOED.
Attachments
THE WHITE HOUSE
ACTION MEMORANDUM
WASHINGTON
LOG NO.: 936
Date:
Time:
January 1, 1974
11:00 a.m.
FOR ACTION:
Jim Cavanaugh
CC (for information): Warren Hendriks
Max Friedersdorf
Jerry Jones
Phil Areeda
Jack Marsh
Paul Theis
Geoff Shepard
FROM THE STAFF SECRETARY
DUE: Date:
Thursday, January 2
Time: noon
SUBJECT:
Enrolled Bill S. 356 - Product warranties and Federal
Trade Commission Act amendments
ACTION REQUESTED:
For Necessary Action
For Your Recommendations
Prepare Agenda AND Brinf
Draft Reply
For Your Comments
Draft Remarks
REMARKS:
Please return to Judy JOhnston, Ground Floor West Wing
1) Veto hould be goften with w
2) enphass Message on central of Itegation Burger quate
Suppline count, using
P. Aved
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
Warren X. Hendriks
delay in submitting the required material, please
For the President
telephone the Staff Secretary immediately.
the
ASSISTANT ATTORNEY GENERAL
LEGISLATIVE AFFAIRS
Department of Justice
Washington, D.C. 20530
2
4
Honorable Roy L. Ash
Director, Office of Management
and Budget
Washington, D. C. 20503
Dear Mr. Ash:
In compliance with your request, I have examined a
facsimile of the enrolled bill, S. 356, the proposed Magnuson-
Moss Warranty--Federal Trade Commission Improvement Act.
Our comments are directed primarily to title II
of the bill, which make major revisions in the authority of
the Federal Trade Commission in the area of consumer pro-
tection, and its ability to represent itself in Federal
courts, including the Supreme Court. Title I, which addresses
consumer product warranties, has been before the Congress for
several years, has been supported by the Department in earlier
comments, and has been enacted to take into account most of
our previous objections and suggestions.
Basically, title I seeks to improve the adequacy of
disclosure and performance under consumer product warranties
by establishing federal minimum standards for warranties
(Section 104), and providing that any warranty designated by
the warrantor as a "full warranty" must meet those standards.
One failing to do so must be conspicuously designated as
"limited". (Section 102). One offering a written warranty
may not disclaim implied warranties, though duration of such
implied warranties may be limited to a reasonable duration in
certain circumstances. (Section 108).
Many of the standards for disclosure and performance
are stated in general terms; the Commission must flesh them
out by rulemaking. Violations of the statute and Commission
interpretive and substantive rules may be violations of section
5 of the FTC Act, and may give rise to private actions,
including class actions over which Federal district courts
shall have jurisdiction pursuant to section 110, but the
availability of private relief is limited by requirements
that informal settlement procedures, to be established
pursuant to Commission regulation, be exhausted before suit
is filed.
REVOLUTION
1776-1978
- 2 -
Important protections to competition in the marketing
of consumer products are provided by specific denial to the
Commission of authority to prescribe the duration of written
warranties or to require any product to be warranted (section
102 (b) (1) (B) (2) ) and a prohibition on conditioning any warranty
upon the consumer using a designated brand of product or
service in connection with the warrantied product unless the
Commission specifically approves such requirement as essential
to the functioning of the warrantied product (section 102 (c)
Title II, which deals with "Federal Trade Commission
Improvements" contains major departures from existing law.
Unfortunately, in our view, these innovations were drafted
in conference, without the benefit of careful consideration
and informed discussion, and are not always marked by clarity
of draftsmanship. Because of the limited time available to
consider the results, and our uncertainty as to Congressional
intent as to some aspects, the comments offered here are
tentative.
Section 202 of the bill defines rulemaking procedures
to be used exclusively by the Commission in fashioning inter-
pretive or substantive rules defining unfair or deceptive acts
or practices pursuant to section 5 of the Act. Any rulemaking
the Commission may undertake with respect to unfair methods of
competition is reserved to existing Commission rulemaking
authority pursuant to section 6 of the Act. Section 202 of
the bill establishes a format for notice, comment and hearing
explicitly grounded in the formal rulemaking procedures of
5 U.S.C. 553, but further directs the Commission to devise
procedures for informal hearings, on a public record, with
opportunity for oral presentation and limited cross-examination
when the Commission finds issues of disputed fact which can
best be resolved in this manner. This hybrid procedure seeks
to balance the need, in appropriate situations, for adversary
inquiry with the public interest in expeditious consideration
of administrative proceedings. The extent to which this com-
promise is effective will depend upon the Commission's
implementation of its discretion to fashion procedures
appropriate to particular rules and issues.
The Department of Justice is most concerned with
section 204 of the bill, which would amend section 16 of the
Federal Trade Commission Act to authorize the Commission to
control the litigation of the following types of actions:
section 13 actions relating to injunctive relief, section 19
suits relating to consumer redress, judicial reviews of
Commission rules and section 5 cease and desist orders, and
- 3 -
actions under section 9 relating to subpena enforcement.
Apparently all other litigation under the Act could be con-
ducted by the Commission if the Attorney General has failed
to commence, defend, or intervene in an action within 45 days
after receiving a Commission request to do SO. If the
Commission does represent itself, it "shall inform the
Attorney General of the exercise of such authority and such
exercise shall not preclude the Attorney General from
intervening on behalf of the United States in such action and
any appeal of such action as may be otherwise provided by
law."
Proposed section 16 (a) (3) of the Act would authorize
the Commission to conduct litigation in the Supreme Court in
any case in which the Commission represented itself below if
the Solicitor General does not agree to represent the Commission
within 60 days after the lower court decision, after receiving
a Commission request to do so, which must be made to him within
10 days of that decision. If the Solicitor General elects to
represent the Commission before the Supreme Court he "may not
agree to any settlement, compromise, or dismissal of such
action, or confess error in the Supreme Court with respect to
such action, unless the Commission concurs. "
Even construing the ambiguities of proposed section
16 in favor of this Department, its provisions appear to
authorize the Commission to litigate a matter over the protests
of the Attorney General. With respect to FTC litigation, the
Attorney General would be relegated to the role of an automaton--
a role that no professional attorney can, in good conscience,
accept. To require the Attorney General's historic duty to
exercise his professional judgment whether a particular matter
should be litigated to be controlled by the whims of his client,
in this case the FTC, is not only unfair to the client but
effectively deprives the Attorney General of the necessary
supervision and control of Government litigation.
The reasons why this and previous administrations
as well as the Congress have centralized control of Government
litigation within the Department of Justice are, I am sure,
familiar to you. Suffice it to say that any legislation which
gives the Attorney General something less than complete control
over the in-court litigating position of a Government agency
is unacceptable to this Department.
Finally, the bill would significantly extend the
authority of the Commission to enforce its administrative
orders in the Federal courts. Presently the Commission,
upon detecting an unfair or deceptive practice, must first
obtain an administrative cease and desist order. Only
- 4 -
if that order is violated may it be enforced in the Federal
courts through a civil penalty action. Section 205 of the
bill creates a new class of civil penalty actions for
"knowing violations" of substantive rules and cease and
desist orders. The Commission may seek civil penalties
for violations of substantive rules defining unfair or
deceptive practices if the defendant had actual knowledge
or knowledge fairly implied on the basis of objective cir-
cumstances that his act was unfair or deceptive and prohibited
by the rule. Civil penalty action may be based upon a final
cease and desist order against one, whether or not subject
to that order, who has actual knowledge that his act or
practice is unfair or deceptive and unlawful. In the
latter circumstance, if the defendant is not subject to
the order relied upon, issues of fact against such defendant
must be tried de novo by the court.
Whether this section can be constitutionally applied
against a defendant who is not subject to the cease and
desist order relied upon may depend upon his right to litigate
the alleged unfairness or deception of his act or practice.
Since he will not have had notice or opportunity to defend his
practice in an administrative proceeding against someone else,
due process would seem to require he have the right to litigate
all issues before the court. We also fear that the imposition
upon the Government of proof of knowledge of wrongdoing against
one subject to a cease and desist order, a burden not imposed
by Section 5 (1) of the existing law, will make traditional
civil penalty enforcement of Commission orders more difficult.
By Section 206 of the bill, the Commission is
empowered to seek consumer redress of violations of its acts
and orders in Federal courts. The Commission may sue for
restitution, rescission, and other forms of equitable relief,
or for damages on behalf of consumers, for acts or practices
which give rise to a suit based upon a final order need not be
subsequent acts in violation thereof, but the same acts or
practices upon which the Commission based its adjudicative
proceeding. If the Commission proceeding was litigated, the
Commission's findings of fact are made conclusive on the
court, unless the Commission has provided otherwise in its
final order.
This is a major departure from the prospective
enforcement authority vested in the Commission under present
law. We think it nonetheless a desirable one, in an appropriate
case, and we are pleased that discretion to grant consumer
- 5 -
redress is vested in the courts, not the agency. Because
we view this as a significant and powerful law enforcement
tool, however, we deplore the Congress' decision, in
section 204, to give the Commission exclusive authority
to bring and litigate these cases by its own attorneys.
We note also that the standard of proof applicable
to these cases is a novel one: the Commission must establish
that the act or practice is one "which a reasonable man would
have known under the circumstances was dishonest or fraudulent."
We assume this is intended to be a demanding standard, as
it should be where such far-reaching relief is contemplated,
but we are unaware of precedent which will materially assist
in its definition by the courts.
In spite of what we regard as a commendable attempt
by the Congress to correct the abuses of consumer product
warranties, it is our unreserved recommendation that this
bill not receive Executive approval. As we have described
above, the section 204 intrusion on the Attorney General's
litigating responsibilities is completely unacceptable to
this Department. A proposed veto message is attached.
Sincerely,
W. Vincent Rakestraw
Assistant Attorney General
MEMORANDUM OF DISAPPROVAL
It is with great reluctance that I withhold my approval
from S. 356, the Magnuson-Moss Warranty--Federal Trade Commission
Improvement bill.
My reluctance stems from the recognition that the Congress,
and especially Senators Magnuson and Moss, have in this bill
attempted to deal with the product warranty abuses which so
plague our consuming public. However the Attorney General has
advised me, and I agree, that the provisions of this bill which
wrest from the Attorney General his traditional control of
Government litigation have significant adverse impact on the
Government's ability to present its position in court in a
uniform and consistent manner.
The Department of Justice wasestablished in 1870 for
the principal purpose of insuring that the Attorney General
could effectively control Government litigation. This control
is required by the need to insure that Government agencies do
not take inconsistent legal positions in the Federal courts and
that important legal issues are presented to appellate courts
with the best possible case as a vehicle.
Judge Learned Hand recognized the need for giving this
country's chief legal officer, the Attorney General, control
of Government litigation when he wrote: "The Attorney General
has powers of 'general superintendence and direction' over
district attorneys
and may directly intervene to 'conduct
and argue any case in any court of the United States
Thus
he may displace district attorneys in their own suits, dismiss
or compromise them, institute those which they decline to press.
No such system is capable of operation unless his powers are
exclusive, or if the Departmentsmay institute suits which he
cannot control. His powers must be coextensive with his duties."
Sutherland V. International Insurance Co., 43 F.2d 969, 970
(2d Cir. 1930).
Chief Justice Warren Burger has written: "It is the
unanimous view of the Justices that it would be unwise to
dilute the authority of the Solicitor General as to Supreme
Court jurisdiction in cases arising within the Executive Branch
and independent agencies." See, Hearings on the Study of the
-2-
Securities Industry Before the Subcommittee on Commerce and
Finance of the House Committee on Interstate and Foreign
Commerce, 92d Cong., 1st Sess., ser 92-37b, pt. 3, at 1809 (1972).
By withholding my approval from this bill, I hope to
signal to the Congress my determination that our expanding
legal system, which must expand to keep pace with the expanding
rights of our citizenry, not expand in chaotic or haphazard
fashion. Such an orderly development requires that Government
litigation be conducted under the supervision of the Attorney
General and that S. 356 not be approved.
DEPARTMENT OF COMMERCE
THE UNDER SECRETARY OF COMMERCE
Washington, D.C. 20230
UNITED STATES OF AMERICA
DEC 26 1974
Honorable Roy L. Ash
Director, Office of Management
and Budget
Washington, D. C. 20503
Attention: Assistant Director for Legislative Reference
Dear Mr. Ash:
This is in reply to your request for the views of this Department
concerning S. 356, an enrolled enactment
"To provide minimum disclosure standards for written
consumer product warranties; to define minimum
Federal content standards for such warranties; to
amend the Federal Trade Commission Act in order
to improve its consumer protection activities; and
for other purposes, 11
to be cited as the "Magnuson-Moss Warranty- Federal Trade
Commission Improvement Act".
This Department would have no objection to approval by the President
of S. 356.
Enactment of this legislation will not involve any increase in the
budgetary requirements of this Department.
Sincerely,
John K Tator John K. Tabor
OF
THE TREASURY BHL DEPARTMENT
THE GENERAL COUNSEL OF THE TREASURY
WASHINGTON, D.C. 20220
1789
DEC 23 1974
Director, Office of Management and Budget
Executive Office of the President
Washington, D.C. 20503
Attention: Assistant Director for Legislative
Reference
Sir:
Your office has asked for the views of this Department
on the enrolled enactment of S. 356, "Magnuson-Moss Warranty -
Federal Trade Commission Improvement Act."
The enrolled enactment would prescribe disclosure and
designation standards for written warranties, define Federal
content standards for full warranties and establish meaningful
consumer remedies for breach of warranty or service contract
obligations. It would vest rulemaking authority in the
Federal Trade Commission, except insofar as banks are concerned.
Under section 202(a) of the enrolled enactment, the
Federal Reserve Board would be required to prescribe regulations
applicable to banks to prevent unfair or deceptive consumer acts
and practices. Compliance with these regulations would be enforced
by the Comptroller of the Currency, the Federal Reserve Board
and the Federal Deposit Insurance Corporation with respect to
the banks over which they have regulatory jurisdiction. Each
bank supervisory agency would be required to establish a separate
division of consumer affairs to carry out its responsibilities
under the enrolled enactment and to report annually to the Congress.
The Department would have no objection to a recommendation
that the enrolled enactment be approved by the President.
Sincerely yours,
Richard
General Counsel
CREDIT UNION
UNITED
ATOMA
NATIONAL CREDIT UNION ADMINISTRATION
Washington, D.C. 20456
GC/JLO:eor
Office of General Counsel
December 23, 1974
Mr. W. H. Rommel
Assistant Director for Legislative Reference
Office of Management and Budget
Executive Office of the President
Washington, D. C. 20503
Dear Mr. Rommel:
This will acknowledge receipt of your request of December 20, 1974,
for our views and recommendations on enrolled bills S. 356 and H.R. 12113.
With respect to S. 356, although we are disappointed that credit
unions were not included along with banks under the regulatory commands
of the Federal Reserve Board in order to avoid disparate treatment among
competitors in the financial marketplace, we raise no objection to the
subject enrolled bill.
As regards H.R. 12113, we also raise no objection to the subject
enrolled bill.
Sincerely yours,
John 1. Ostry
JOHN L. OSTBY
General Counsel
ADMINISTRATIVE CONFERENCE OF THE UNITED STATES
2120 L STREET, N.W., SUITE 500
WASHINGTON, D.C. 20037
OFFICE OF
December 24, 1974
THE CHAIRMAN
Mr. W. H. Rommel
Assistant Director
for Legislative Reference
Office of Management and Budget
Washington, D.C. 20503
Dear Mr. Rommel:
This is in response to your memorandum of December 20, requesting
our comments on enrolled bill S.356, the Magnuson-Moss Warranty-Federal
Trade Commission Improvement Act.
We shall limit our comments to section 202 of the bill, dealing with
rulemaking by the Federal Trade Commission. Section 202 would add a new
section 18 to the Federal Trade Commission Act, prescribing procedures
which the Commission must follow in adopting rules which define with
specificity acts or practices which are unfair or deceptive acts or
practices in or affecting commerce. Briefly stated, section 18(b) would
require that when prescribing such a rule the Commission must not only
publish a notice of proposed rulemaking and permit interested persons to
submit written comment (the ordinary rulemaking procedure prescribed by
the Administrative Procedure Act, 5 U.S.C. §553), but the Commission must
also provide an opportunity for an "informal" hearing under the procedures
set out in subsection (c). Such procedures include opportunity for oral
presentation and, where "the Commission determines that there are disputed
issues of material fact it is necessary to resolve," an opportunity to
present rebuttal submissions and to conduct cross-examination. Rules
promulgated under section 18 (a) (1) (B) would be subject to judicial review
in the United States Courts of Appeals, and could be set aside if not
supported by substantial evidence in the rulemaking record * * * taken as
a whole."
When this bill was sent to the House-Senate Conference, we commented,
in response to requests from Chairman Magnuson and Chairman Staggers, on
section 18, as passed by the House. A copy of Chairman Anthony's letter
is enclosed.
In our judgment section 18, as contained in the enrolled bill, is a
considerable improvement over the version we criticized and, indeed, appears
to meet our most serious objections.
First, the special rulemaking procedures will apply only to legislative
rules and not to interpretive rules and general statements of policy.
Furthermore, the terminology criticized on page 4 of our enclosed letter has
been deleted.
Mr. W. H. Rommel
- 2 -
December 24, 1974
Second, section 18 mandates oral argument, whereas under section 553
the holding of such oral proceedings is discretionary with the agency.
The Administrative Conference's Recommendation 72-5 urges that legislation
not mandate procedural steps beyond those required by section 553, except
for "special reason." This departure from section 553 minima in the present
legislation, however, is not a major one and can probably be justified in
the interest of full deliberation where time, typically, is not of the essence.
Third, although section 18 still requires, in addition to oral argument,
the opportunity, under certain conditions, for rebuttal and cross-examination,
the Commission's authority to control the length and direction of the proceeding
is considerably increased over that contained in the earlier version. Notably,
the Commission may require that cross-examination be conducted by the presiding
officer rather than by the participants themselves. In addition, and, perhaps,
most significantly, the Conference report states that opportunity for rebuttal
and cross-examination are required only on issues of specific fact and not on
issues of legislative fact. If the courts look to the Conference report as
an authoritative interpretation of the statutory phrase "disputed issues of
material fact," the problem of the Commission bogging down in excessive trial-
type procedures is greatly reduced. Since consideration of many, if not most
proposed rules of general applicability involves exclusively questions of
legislative fact, the Commission would often be able to dispense with cross-
examination entirely. (However, the consequences of improperly denying or
limiting cross-examination are severe ($18(e) (3) (B) and are likely to cause
the Commission to act with extreme caution in exercising its authority to
direct the course of the proceeding.)
Fourth, although the standard for judicial review (§18(e) (3)) still
includes the "substantial evidence" test, contrary to the recommendation in
Paragraph 4 of our Recommendation 74-4, the House-Senate Conference Report
emphasizes that substantial evidence review applies only to "disputed issues
of material fact" and not to "findings or determinations of legislative
fact." This is consistent with the interpretation which some courts are
at present giving to analogous statutory provisions for judicial review of
agency rules, see Industrial Union Department V. Hodgson, 499 F.2d 467,
474-75 (D.C. Cir. 1974); Amoco Oil Co. V. EPA, 501 F.2d 722, 740 (D.C. Cir.
1974). If this judicial trend persists, we believe the substantial evidence
provision of section 18 will not create unmanageable problems.
Fifth, there is retained ($18(g)) a procedure for seeking exemptions from
rules adopted under subsection (a) (1) (B), but the procedural requirements in
the earlier version for disposing of such requests (criticized on page 3
of our letter) have been eliminated.
Mr. W. H. Rommel
- 3 -
December 24, 1974
In sum, while we would have preferred a shorter and simpler rulemaking
provision, on analysis, section 18 appears generally consistent with our
Recommendation 72-5 and only mildly inconsistent with Recommendation 74-4.
We note that section 202(d) directs the Administrative Conference to
conduct a study and evaluation of the rulemaking procedures under section 18.
We shall, of course, be glad to comply, assuming that there will be an adequate
base of experience for such a study.
Sincerely yours,
Juchard K. Beg
Richard K. Berg
Executive Secretary
Enclosures
ADMINISTRATIVE CONFERENCE OF THE UNITED STATES
2120 L STREET. N.W., SUITE 500
WASHINGTON, D.C. 20037
OFFICE OF
October 7, 1974
THE CHAIRMAN
Honorable Warren G. Magnuson
Chairman
Senate Committee on Commerce
5202 New Senate Office Building
Washington, D. C. 20510
Dear Mr. Chairman:
You have requested our views on the proposed section 18 of the Federal Trade
Commission Act as set forth in section 202 (a) of H.R. 7917.
The provisions of section 18, which would govern rulemaking by the Federal
Trade Commission, are violative of the principles set forth in two recent formal
recommendations of the Administrative Conference, Recommendation 72-5, Procedures
for the Adoption of Rules of General Applicability and Recommendation 74-4,
Preenforcement Judicial Review of Rules of General Applicability. I enclose copies
of both recommendations.
I.
Recommendation 72-5 is directed to a problem we perceive in the recent tendency
of Congress to prescribe more elaborate procedures for the making of rules of
general applicability than the notice-and-comment procedures required by the
Administrative Procedure Act, 5 U.S.C. $553. In particular, the recommendation
warns against encumbering such rulemaking by requiring trial-type procedures --
presentation of testimony under oath, cross-exanination, etc. -- because such
formal and intensive scrutiny of particular facts is seldom suited to the resolution
of the broader issues on which the formulation of rules depends.
Subsection (a) (2) of the proposed amendment would govern Federal Trade
Commission procedures for adopting rules defining with specificity acts or
practices which are unfair or deceptive and within the scope of section (a) (1)
of the Federal Trade Commission Act. In addition to requiring the opportunity for
written and oral comment on all such rules, the subsection would require trial-type
procedures in all rulemaking proceedings in which there are "disputed issues
of material fact". In the abstract, such a procedural requirement may seem entirely
reasonable; but the problem is that although we may think of the word "fact" as
applying to a very specific, particularized datum, it applies just as well to
much more general phenomena. It is an "issue of fact" whether a particular company
has engaged in an act which constitutes an unfair labor practice under the
National Labor Relations Act. But it is also an "issue of fact" whether consumers
Honorable Warren G. Magnuson
- 2 -
October 7, 1974
are often endangered by unsafe products which could be rendered harmless. The
latter type of "fact" is sometimes referred to as a "legislative fact". It was
the factual basis for the determination the Congress made when it enacted the
Consumer Product Safety Act -- after legislative hearings, which were not, of
course, governed by trial-type procedures.
Agencies also often deal with legislative facts; and usually do so when
engaged in making rules of general applicability. It is as inappropriate and
unrealistic there, as it is in legislative hearings, to apply a procedural
technique designed for the resolution of particularized factual disputes rather
than for the establishment of general factual conclusions. The reason is well
explained in the case of WBEN, Inc., V. United States, 396 F.2d 601 (2d Cir. 1968),
cert. denied, 89 S. Ct. 238 (1968), involving the adoption of a rule by the Federal
Communications Commission revising the respective broadcasting rights of daytime
and fulltine radio stations. The court rejected the contention that the FCC
should have held a separate evidentiary hearing with respect to each broadcaster
who claimed that his existing license would be modified by the new rule. It said
(396 F.2d at 618)
"Adjudicatory hearings serve an important function when
the agency bases its decision on the peculiar situation of
individual parties who know more about this than anyone
else. But when, as here, a new policy is based upon the
general characteristics of an industry, rational decision
is not furthered by requiring the agency to lose itself in an
excursion into detail that too often obscures fundamental
issues rather than clarifies them."
In those instances in which this distinction has been lost sight of, the
result has usually been palpable impairment of the rulemaking process. The Food
and Drug Administration is recuired to use trial-type techniques for much of its
general rulemaking pertaining to standards for food products. No proceeding
subject to this requirement has been completed in less than two years; two have
taken more than ten years; a hearing transcript of over 7,700 pages has been
devoted exclusively to the question whether peanut butter should consist of
87-1/2 percent or 90 percent peanuts.
In short, when trial-type procedures have been required for rulemaking of
general applicability, they have tended to produce a virtual paralysis of the
administrative process. I see no reason to expect a more satisfactory result in
this case. The "material facts" which the FTC will have to consider in its rule-
making under subsection 18 (a) (2) include innumerable legislative facts - such
as whether a particular abuse is "in fact" a widespread problem in a particular
industry, or whether a certain regulatory requirement would "in fact" contravene
legitimate business practices. It is doubtful that the FTC will be able to make
such determinations in any number if trial-type procedures are imposed.
Of course, in particular FTC rulemaking proceedings certain issues of "specific
fact" may arise -- and if they could be identified in advance, it might be desirable
for Congress to require trial-type procedures for them. But such prior identification
of the appropriate issues is seldom possible, since they hinge so much upon the nature
Honorable Warren G. Magnuson
- 3 -
October 7, 1974
of the particular rule under consideration and the contested points that arise in
the particular proceeding. Ordinarily, the agency must be accorded discretion
to apply trial-type procedures in the appropriate instances that appear as a
particular rulemaking unfolds. This is the course urged upon the agencies by
Conference Recommendation 72-5; it might also be urged by the present legislation.
But imposing trial-type procedures indiscriminately upon all issues of material fact
may prove tantamount to eliminating the rulemaking authority entirely.
I believe that there is no single current issue of administrative procedure
on which the experts -- in private practice, in the agencies and in the law schools --
are more in accord than the proposition set forth above: that trial-type procedures
should not be applied across-the-board to the making of rules of general applicability.
II.
The provisions of section 18 (a) (3), governing judicial review of Commission
rules, are inconsistent with Conference Recommendation 74-4. Section 18 (a) (3) (c)
provides that a Commission rule "shall not be affirmed unless * * * supported by
substantial evidence in the record taken as a whole." Use of the "substantial
evidence" test as a standard for judicial review of rules of general applicability
invites confusion regarding the proper scope and nature of such review. As it is
generally understood, the substantial evidence criterion serves the sole function
of testing whether evidence is sufficient to support agency findings of fact.
The substantial evidence standard is properly applied to specific agency factual
determinations required to be made on an administrative record. But it is ill-suited
if not meaningless as applied to the complicated mixture of fact, judgment, prediction,
and compromise which properly underlies an agency decision to issue a rule of general
applicability. For this reason the Conference urges in paragraphs 3 and 4 of Rec-
ommendation 74-4 that the appropriate standard for review of such a rule is whether
the rule is "arbitrary, capricious [or] an abuse of discretion." Where such a
1/An added disincentive to rulemaking is the requirement in section 18(c) that
the Commission, in passing upon applications for exemptions, observe substantially
the same cumbersome procedures as were followed in the original adoption of the rule.
Particularly inappropriate, in my view, is the provision in section 18 (c) (4) that
on judicial review the Commission's denial of an exemption not be upheld unless
"supported by subscantial evidence." I see no reason why the Commission, having
adopted a valid rule, should have the burden of demonstrating by evidence why its
application to a person concededly within its terms should not be waived. The
likely result of section 18 (c) is that even after a rule is adopted the Commission
will be tied up indefinitely in subsidiary administrative and judicial proceedings
involving substantially the same issues as the rulemaking proceeding was intended
to resolve.
Honorable Warren G. Magnuson
- 4 -
October 7, 1974
rule is attacked on the ground that an asserted factual basis does not support
it or that a necessary factual foundation is lacking, this standard requires the
reviewing court to decide, in light of the information before it * * * whether
the agency's conclusions concerning the significance of factual information can
be said to be rationally supported."
III.
Still another difficulty which I have with section 18 is its repeated departure
from the terminology of the Administrative Procedure Act (APA), and its minor
and confusing variation of the requirements which the APA imposes. Some of
these divergences seem inadvertent, others deliberate. They all contribute to
a balkanization of administrative practice which appears to be an accelerating
trend, and which if continued will result in a body of law that is unnecessarily
specialized, arcane and confusing to the public, to the practicing bar and
even to the courts.
Section 18 (a) (1), for example, provides that, for those rules subject
to the procedures of section 18 (a) (2), the Commission may issue only "procedural,
administrative, and advisory rules." The terms "administrative rules" and "advisory
rules" are not contained in the APA, nor do they, to my knowledge, have any generally
understood meaning. Unless the phrase "procedural, administrative and advisory
rules" includes everything contained within the APA phrase "interpretative rules,
general statements of policy
[and] rules of agency organization, procedure,
or practice,' subsection 18 (a) (1) apparently prevents the FTC from acting by rule
in some areas where agencies generally may do SO.
Another example of an unfortunate and confusing departure from standard
terminology is contained in section 18 (a) (2) (A), which requires that the promulgation
of a final rule be accompanied by "a statement of basis and purpose based on the
information and comments compiled" in the rulemaking proceeding. The APA merely
requires "a concise general statement
[of the rule's] basis and purpose."
This difference in terminology is doubtless intentional, but in departing from
the well understood provisions of the APA, it leaves unanswered a number of questions,
such as: Is the rule invalid if the statement relies on any material not adduced
at the hearing? If so, is the corollary that the agency must spread on the record
all the information on which it relies? And is it consistent to require that the
statement be based only on the information and comments brought forth in the
rulemaking proceeding, when on judicial review the agency may justify its action
by other material (see section 18 (a) (3) (A)) ?
I am sure that the drafters of the present proposals fully intend at least
some of the departures from standard APA terminology and treatment. Where that is
not so, I would urge that conforming changes be made to facilitate agency and court
application of this new legislation. But where the departures are intentional,
there is raised the more important question whether the Congress intends to abandon
the principle of a relatively uniform, standardized administrative procedure
set forth in the Administrative Procedure Act. While occasional variations in
certain instances may be consistent with that principle, the departures contained
in the present legislation do not seem justified by any peculiarities of the
regulatory program involved.
Honorable Warren G. Magnuson
- 5 -
October 7, 1974
The provisions of 7917 which I have discussed seem to represent a
current trend. In recent years, there has been a visible and steady erosion of
standardized administrative practice, through individualized provisions contained
in new pieces of regulatory legislation where no real reason for individualized
treatment exists. While absolute standardization, of course, is not desirable,
the basic principle of a uniform administrative practice, with only such variations
as operational differences justify, serves several important values. It is
indispensible to the retention of an administrative system that can be fathomed
by the general public and penetrated by lawyers who are not specialists in
narrow fields of Federal practice. It is helpful to the courts in their review of
agency action, facilitating the development of overall principles of judicial review
and enabling the creation of a body of case law that can serve as precedent in
more than one limited field. Finally, and perhaps most important, an allegiance
to a standard body of procedural principles such as that contained within the
AFA has great advantages in the legislative process. The procedural provisions
of major substantive legislation are understandably not the portions to which
the Congress devotes its closest attention; and the comments it receives from
both the agencies and the private sector are inclined to dwell upon the extent,
rather than the manner, of the regulation that is to be imposed. It is generally
desirable, then, for the Congress to adhere to the judgments it made when procedure
itself was the center of its attention rather than merely the incidental accom-
paniment of a substantive program under examination. Those judgments are likely
to be significantly more sound than the procedural innovations which may be
confected, often hastily, with each new piece of substantive legislation.
I do not suggest that the procedural framework of the APA established in
1946 leaves no room for improvement. But it is clear to me that if the standards
set in 1946 are no longer adequate, they should be changed through revision of
the Administrative Procedure Act. Piece-meal, haphazard revision within the
context of substantive legislation will in my view do more harm to the system as
a whole than good to the particular program under consideration.
If there is any further assistance my office can provide, I hope you will
advise me.
Sincerely yours,
Robert A. Anthony
Chairman
Enclosures
ADMINISTRATIVE CONFERENCE OF THE UNITED STATES
NEW EXECUTIVE OFFICE BUILDING
WASHINGTON, D.C. 20506
OFFICE OF
THE CHAIRMAN
RECOMMENDATION 72-5: Procedures for Adoption
of Rules of General Applicability
Adopted December 14, 1972
The Administrative Procedure Act, 5 U.S.C. $ 553 (1970), provides
simple, flexible and efficient procedure for rulemaking, including
publication of a notice of proposed rulemaking in the Federal Register,
opportunity for submission of written comments, and opportunity in
the discretion of the agency for oral presentation. This notice-and-
comment rulemaking procedure is extensively used and on the whole has
worked well. Each agency is of course free to provide additional
procedural protection to private parties in any proceeding.
There are statutes that require procedures in addition to
those required by § 553. Some require opportunity for oral argument,
some require agency consultation with advisory committees, and some
require trial-type procedure.
The Administrative Conference believes that statutory requirements
going beyond those of § 553 should not be imposed in absence of special
reasons for doing so, because the propriety of additional procedures is
usually best determined by the agency in the light of the needs of
particular rulemaking proceedings. The Administrative Conference
emphatically believes that trial-type procedures should never be required
for rulemaking except to resolve issues of specific fact.
Recommendation
1. This recommendation applies only to rules of general applica-
bility and not to rules of particular applicability, only to substantive
rules and not to procedural rules, only to legislative rules and not to
interpretative rules, and only to rulemaking governed by § 553 and not
to rulemaking excepted from the requirements of § 553.
2. In future grants of rulemaking authority to administrative
agencies, Congress ordinarily should not impose mandatory procedural
requirements other than those required by 5 U.S.C. § 553, except that
when it has special reason to do so, it may appropriately require
opportunity for oral argument, agency consultation with an advisory
committee, or trial-type hearings on issues of specific fact.
-2-
3. Congress should never require trial-type procedures for
resolving questions of policy or of broad or general fact. Ordinarily
it should not require such procedures for making rules of general
applicability, except that it may sometimes appropriately require
such procedures for resolving issues of specific fact. Existing
statutes imposing a requirement of trial-type procedures for rulemaking
of general applicability should be reexamined in light of these
principles.
4. A study of proceedings conducted by the Food and Drug Adminis-
tration pursuant to § 701 (e) of the Federal Food, Drug and Cosmetic
Act, 21 U.S.C. § 371 (e) (1970), has demonstrated that that section
should be amended so as to make clear that trial-type hearings are not
required except on issues of specific fact.
5. Each agency should decide in the light of the circumstances
of particular proceedings whether or not to provide procedural
protections going beyond those of $ 553, such as opportunity for
oral argument, agency consultation with an advisory committee,
opportunity for parties to comment on each other's written or oral
submissions, a public-meeting type of hearing, or trial-type hearing
for issues of specific fact.
ADMINISTRATIVE CONFERENCE OF THE UNITED STATES
2120 L STREET, N.W., SUITE 500
WASHINGTON, D.C. 20037
OFFICE OF
THE CHAIRMAN
RECOMMENDATION 74-4: PRRENFORCEMENT JUDICIAL REVIEW
OF RULES OF GENERAL APPLICABILITY
(Adopted May 30-31, 1974)
With increasing frequency, rules of general applicability adopted
by agencies informally pursuant to 5 U.S.C. §553 are being reviewed by
the courts directly, before they are applied to particular persons in
adjudicative proceedings. Such review may be by courts of appeal under
statutes, mostly older statutes, providing generally for judicial review
of orders of specific agencies, or under recent statutes providing
specifically for the direct review of rules issued by new agencies or
by newly created authority. The district courts also review rules
directly in the exercise of their power under the Administrative Procedure
Act to review agency action not otherwise reviewable.
The trend toward immediate review of agency rules has been accompanied
by confusion over the appropriate scope and standard of review. In
particular, conceptual and practical difficulties have arisen from the
use by Congress and the courts of phrases such as "hearing," "record"
and "substantial evidence on the record as a whole," traditionally
associated with review of orders entered after a formal evidentiary
hearing, in the new and different context of preenforcement review of
agency rules adopted informally.
This recommendation, addressed to Congress, the Judicial Conference
and the agencies, seeks to dispel the confusion by (1) stating what adminis-
trative materials should be included in the record on review and (2) clari-
fying the standards for reviewing the adequacy of the factual basis and
rationality of rules. The recommendation accepts the present pattern of
preenforcement review of rules and does not call for either more or less
of such review. Nor does it suggest that any particular procedures
should be followed by agencies in adopting rules.
Recommendation
1. In the absence of a specific statutory requirement to the contrary,
the following are the administrative materials that should be before a court
for its use in evaluating, on preenforcement judicial review, the factual
basis for rules adopted pursuant to informal procedures prescribed in
5 U.S.C. $553: (1) the notice of proposed rulemaking and any documents
referred to therein; (2) comments and other documents submitted by interested
persons; (3) any transcripts of oral presentations made in the course of
BERALD
-2-
the rulemaking; (4) factual information not included in the foregoing that
was considered by the authority responsible for promulgation of the rule
or that is proffered by the agency as pertinent to the rule; (5) reports of
any advisory committees; and (6) the agency's concise general statement or
final order and any documents referred to therein. / References to the
"record" or "whole record" in statutes pertaining to judicial review of rules
adopted under Section 553 should be construed as references to the foregoing
in the absence of a legislative intent to the contrary. The Conference does
not assume that the reviewing court should invariably be confined to the fore-
going materials in evaluating the factual basis for the rule.
2. The term "substantial evidence on the record as a whole," or
comparable language, in statutes authorizing judicial review should not,
in and of itself, be taken by agencies or courts as implying that any
particular procedures must be followed by the agency whose actions are
subject to the statute and, in particular, should not be taken as a
legislative prescription that in rulemaking agencies must follow procedures
in addition to those specified in 5 U.S.C. $553.
3. The appropriate standard for determining whether a rule of general
applicability adopted after informal rulemaking rests on an adequate
foundation is stated in 5 U.S.C. $706(2) (A), which provides that a reviewing
court must set aside action found to be "arbitrary, capricious [or] an abuse
of discretion." Where such a rule is attacked on the ground that an asserted
factual basis does not support it or that a necessary factual foundation is
lacking, this standard requires a reviewing court to decide, in light of
the information before it (including the administrative materials described
in paragraph 1), whether the agency's conclusions concerning the significance
of factual information can be said to be rationally supported.
4. Statutes providing for judicial review of rules adopted after
informal rulemaking should refer only to the standards for review of such
rules set forth in 5 U.S.C. $706, including the "arbitrary, capricious,
[or] abuse of discretion" standard of Section 706(2) (A) (but not including the
"substantial evidence" standard of Section 706(2) (E), which by its terms
is inapplicable to such rules). Properly applied, those standards are
adequate to ensure appropriate judicial scrutiny of rules adopted informally.
Judicial review statutes that speak in terms of review according to the
standard of "substantial evidence" should be construed as establishing a
standard of review over informal rulemaking comparable to that set forth
in Section 706 (2) (A), unless a contrary intent clearly appears.
/ The court may of course limit its consideration to those materials that
parties cite. Whether the agency may withhold from the parties to the
judicial review proceeding or the court on the ground of confidentiality
any materials otherwise called for is left by the recommendation to be
decided under existing law.
Recommendation 74-4
Separate Statement of Malcolm S. Mason
The debate on this Recommendation demonstrates that there are
large differences of fundamental approach on many interrelated under-
lying issues. Under these circumstances, Professor Verkuil's paper,
the Committee study, and the Conference debate have served a useful
purpose in calling attention, in this influential forum, to the need
for further thought on these matters. They do not, however, lay a
rational foundation for a specific, formal, intricately constructed
Recommendation, which purports to carry the authority of the Adminis-
trative Conference. Here the real disagreements have been hidden by
the parliamentary process; that can only be harmful. This kind of
rush to recommend is something I think the Conference should scrupu-
lously avoid.
FEDERAL TRADE COMMISSION
WASHINGTON, D. C. 20580
OFFICE OF THE CHAIRMAN
The Honorable Roy L. Ash
Director, Office of Management and Budget
Executive Office of the President
Washington, D.C. 20503
Dear Mr. Ash:
This is in response to your request for the views
of the Federal Trade Commission upon Enrolled Bill
S. 356, 93d Congress, 2d Session, the Magnuson-Moss
Warranty-Federal Trade Commission Improvement Act.
Title I of S. 356 prescribes disclosure and
designation standards for written warranties, defines
Federal content standards for full warranties and
establishes consumer remedies for breach of warranty
or service contract obligations.
Title II of the bill, "Federal Trade Commission
Improvement," would affect the powers of the Commission
in several ways. First, Section 201 would expand the
Commission's jurisdiction from acts and practices "in
commerce" to acts and practices "in or affecting commerce."
Section 202 establishes rulemaking procedures for
the issuance of substantive rules for unfair or deceptive
acts or practices in or affecting commerce under
Section 5 (a) (1) of the Federal Trade Commission Act.
In addition to following its present rulemaking procedures
which are prescribed by Section 553 of Title 5 of the
United States Code, the Commission would be required to
publish a notice of proposed rulemaking stating with
particularity the reason for the proposed rule; allow
interested persons to submit written data, views and
arguments; provide an opportunity for an informal
hearing; and promulgate, if appropriate, a final rule
based on the matter in the rulemaking record together
with a statement of basis and purpose. If the
Commission determines that there are disputed issues
of material fact that it is necessary to resolve,
The Honorable Roy L. Ash
-2-
any interested person could present rebuttal submissions
and conduct (or have conducted) such cross-examination
of persons as the Commission determines to be appropriate
and to be required for a full and true disclosure with
respect to such issues.
Review of Commission rules would be in the United
States Circuit Courts of Appeals and the court could
hold unlawful and set aside the rule on any ground
specified in subparagraphs (A), (B), (C), (D) of Section
706 (2) of Title 5 of the United States Code or if the
court found that the Commission's action "is not
supported by substantial evidence in the rulemaking
record
taken as a whole." In addition, the Court
could set aside the rule if it found that a Commission
determination that the petitioner "is not entitled to
conduct cross-examination or make rebuttal submission"
or a Commission ruling "limiting the petitioner's
cross-examination or rebuttal submission" has "precluded
disclosure of disputed material facts which was necessary
for fair determination by the Commission for the rule-
making proceeding taken as a whole."
Section 203 would expand the Commission's authority
to obtain information by amending Sections 6, 9 and 10
of the Federal Trade Commission Act to apply to persons
and partnerships as well as corporations.
Section 204 would replace Section 5 (m) of the
Federal Trade Commission Act, modifying and clarifying the
Commission's authority to represent itself in court
proceedings. This section grants the Commission authority
to appear in its own name through its own attorneys when
seeking injunctions, pursuing consumer redress,
participating in judicial review proceedings, or enforcing
subpoenas and other such report requirements. These
provisions do not significantly change existing law, and
they are consistent with actual and current
practice. In other civil actions, the Commission could
appear in its own name through its own attorneys only
if the Commission gives written notification and undertakes
to consult with the Attorney General and, thereafter,
the Attorney General fails within 45 days after receiving
such notification to commence, defend, or intervene in,
such action. Under current law, the Department of Justice
has 10 days rather than 45 within which to make its
evaluation. With respect to Supreme Court cases, the
The Honorable Roy L. Ash
-3-
Attorney General would have the right to represent the
Commission before the Supreme Court. If he refused to
appeal or file a petition for certiorari, the Commission
could represent itself through its own attorneys in the
Supreme Court. In the Commission's view, this provision
clarifies an authority currently resident in Section 5 (m)
of the Act.
Section 205 of the bill would authorize the Commission
to commence civil actions to recover civil penalties
for knowing violations of the Federal Trade Commission Act.
Finally, Section 206 would authorize the Commission
to seek consumer redress in United States District Courts
against any person who violates a substantive trade
regulation rule or who engages in conduct which results
in a final Commission cease-and-desist order if the
Commission satisfies the court that the act or practice
to which the cease-and-desist order relates is one
which "a reasonable man would have known under the
circumstances was dishonest or fraudulent
"
The Commission is concerned that the rulemaking
procedures of Section 202 are undesirable and unnecessary.
We would clearly have preferred that they not be adopted.
However, other provisions of the bill would naturally
enhance the authority of the Commission and enable the
Commission to serve American consumers. We recommend
that the bill be signed into law.
In accordance with Circular No. A-19 Revised, a
cost estimate prepared by staff is enclosed.
By direction of the Commission.
Lewis A. Engman
Chairman
Enclosure
COST ESTIMATE
General Counsel's Office
Increased costs made necessary by S. 356 in the
operations of the Office of General Counsel are already
included in that Office's FY 76 budget request now
pending before OMB.
Bureau of Consumer Protection
The Bureau of Consumer Protection estimates that
passage of the new law, S. 356, will increase manpower
and operating costs approximately $455,000 in FY 75
and $960,000 in FY 76.
The provision providing grants totalling up to
$1,000,000 per annum for advocacy in rulemaking
proceedings, would, if fully implemented, require an
additional $500,000 in FY 75 and an additional $1,000,000
in FY 76.
THE CHAIRMAN OF THE
COUNCIL OF ECONOMIC ADVISERS
WASHINGTON
December 26, 1974
Dear Mr. Rommel:
This is in response to your request for the views of the
Council of Economic Advisers on S. 356 - - The Magnuson-Moss
Warranty - - Federal Trade Commission Improvement Act.
I recommend that the President sign the bill. It will improve
the quality of the information available to consumers in a manner
that will not impose undue costs on sellers. Hence, on balance, it
will tend to enhance economic efficiency and well being.
Alax Sincerely yours,
Alan Greenspan
Mr. Wilfred H. Rommel
Assistant Director for Legislative Reference
Office of Management and Budget
Washington, D. C.
AMERICANA REVOLUTION
1776-1976
THE WHITE HOUSE
WASHINGTON
December 24, 1974
MEMORANDUM
TO:
WILFRED H. ROMMEL
Assistant Director for
Legislative Reference
Office of Management and Budget
Attention: Mrs. Garziglia
FROM:
VIRGINIA H. KNAUER
Theodore Wilson
Special Assistant to the President
for Consumer Affairs
SUBJECT: Enrolled Bill, S. 356, "Magnuson-Moss Warranty
--Federal Trade Commission Improvement Act"
This is in response to your request for a report on S. 356,
an enrolled bill "To provide minimum disclosure standards
for written consumer product warranties; to define minimum
Federal content standards for such warranties; to amend the
Federal Trade Commission Act in order to improve its con-
sumer protection activities; and for other purposes."
Title I of the bill, Consumer Product Warranties, would
provide consumers with forthright and unambiguous information
as to the extent that suppliers will back their wares and
would reverse the practice that has almost become an
institution today with some suppliers providing warranties
which take away more than they give. Title I also enables
the consumer economically to pursue his own remedies when
there is a breach of a warranty on service contract
obligation.
Title II, Federal Trade Commission Improvements, introduces
several amendments into the Federal Trade Commission Act.
Wilfred H. Rommel
Page 2
While I question the desirability of Section 202, Rulemaking,
in my view Title II should generally enhance the ability of
the Federal Trade Commission to carry out its consumer
protection and enforcement responsibilities.
Accordingly I recommend that the bill be approved.
EDIC
FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, D.C. 20429
OFFICE OF THE CHAIRMAN
December 26, 1974
Honorable Roy L. Ash
Director
Office of Management and Budget
Executive Office of the President
Washington, D. C. 20503
Dear Mr. Ash:
By enrolled bill request dated December 20, 1974, your Office
requested our views and recommendations on S. 356, 93d Congress,
an enrolled bill to be cited as the "Magnuson-Moss Warranty -
Federal Trade Commission Improvement Act."
Title I of the enrolled bill sets certain Federal standards with
respect to terms and disclosures which must be contained in consumer
product warranties. Title II of the enrolled bill makes a number of
amendments to the Federal Trade Commission Act (15 U.S.C. 41 et seq.).
We assume that our views and recommendations have been solicited with
regard to section 202 of the bill. That section, in part, authorizes
the Board of Governors of the Federal Reserve System to define by
regulation unfair trade practices of banks. The Federal Reserve is
required to issue regulations for banks which are substantially similar
to FTC unfair trade practice regulations, unless it finds that any such
regulation conflicts with monetary policy or is inapplicable to banks
and publishes this finding within 60 days. The bill also requires each
Federal bank regulatory agency to establish a Consumer Affairs Division
for enforcement of the Federal Reserve regulations and to report to the
Congress annually on that Division's activities.
The approach taken by the enrolled bill on the matter of unfair trade
rules affecting banks is essentially similar to the approach suggested
in our May 11, 1973 letter to Chairman Sparkman of the Senate Committee
on Banking, Housing and Urban Affairs (copy enclosed). Accordingly,
the Corporation recommends that the President approve S. 356.
Sincerely,
Fank Wille
Frank Wille
Chairman
Enclosure
FEDERAL DEPOSIT INSURANCE CORPORATION, Washington. D.C. 20429
OFFICE OF THE GENERAL COUNSEL
MAY 11 1973
Honorable John J. Sparkman
Chairman
Committee on Banking, Housing
and Urban Affairs
United States Senate
Washington, D. C. 20510
Dear Mr. Chairman:
This refers to your April 11, 1973 letter requesting our views in
connection with S. 356 as marked up by the Senate Commerce Committee.
As pointed out in your letter, section 212 of the bill, which represents
a proposal you and Senator Tower made in a letter dated April 3, 1973 to
Chairman Magnuson of the Senate Commerce Committee, would give the Federal
Trade Commission substantive rulemaking jurisdiction over banks in the
unfair trade practice area. That section would require the FTC to
delegate to the Federal bank regulatory agencies the authority to enforce
FTC rules in this area with respect to banks, except that the FTC could
require any such agency to redelegate its enforcement authority to the
FTC if after a public hearing the FTC found such redelegation to be
necessary in order to prevent financial institutions from using unfair
or deceptive practices. As also noted in your letter, former section 206
granting the FTC general substantive rulemaking authority in the unfair
trade practice area has been deleted from the bill at the FTC's request,
because the Commission believes that pending litigation will confirm its
substantive rulemaking power in this area in broader terms than would
obtain if former section 206 were to be enacted.
Because of the unique character of the banking business and the special
expertise which the Federal bank regulatory agencies have developed over
the years in regulating the banking industry, we believe that explicitly
conferring unfair trade practice jurisdiction on these agencies would
clearly be a more appropriate way of establishing a comprehensive and
integrated regulatory framework for policing unfair or deceptive practices
that may be engaged in from time to time by certain banks, than granting
Honorable John J. Sparkman
-2-
comparable jurisdiction to the FTC. Following the model established
by the Truth in Lending Act, we would recommend that Congress designate
one of the Federal bank regulatory agencies to issue the substantive
rules in the unfair trade practice area which would apply to all
federally insured banks, with authority to enforce such rules being
granted to all of the Federal bank regulatory agencies in respect of
the institutions which they regularly examine. In exercising this
legislative rulemaking power, the designated bank regulatory agency
could be required to consult with the FTC for the purpose of avoiding
the issuance of rules applicable to banks which would conflict with
similar rules which the FTC (assuming it obtains such authority) has
issued or contemplates issuing in the nonbanking area.
If the Congress should, however, grant to the FTC rulemaking power
over banks, we would have particular difficulty with the mandatory
redelegation provisions in S. 356 which authorize the FTC in effect
to publicly indict a Federal bank regulatory agency for alleged
failure to carry out what would be a statutory duty of such agency
under the bill, namely to enforce compliance with FTC unfair trade
practice rules that would apply to banks. If enacted, this provision
would seem to constitute an implicit recognition by Congress that the
Federal bank regulatory agencies might not faithfully discharge a
congressional directive and, therefore, must be policed by a sister
Federal agency, the FTC. We reject this assumption. We believe that
the Federal bank regulatory agencies can and will faithfully execute
any duty Congress may confer on them and that such agencies should be
accountable to the President and Congress and not to another independent
agency.
Finally, we concur in the tentative opinion stated in your letter that
section 212 (b) of the revised S. 356 would give the FTC legislative
rulemaking authority over banks, whereas the Commission does not
presently appear to have, and under the bill would not be granted,
similar rulemaking authority over nonbank businesses now within its
jurisdiction. The Corporation would oppose such a result since it
does not believe the banking industry should be singled out for such
legislation.
Sincerely,
(Signed) Fronk Wills
Frank Wille
Chairman
LR
HOME
LOAN
FEDERAL HOME LOAN BANK BOARD
BANK
WASHINGTON. D.C. 20552
FEDERAL HOME LOAN BANK
FEDERA
BORKD
SYSTEM
320 FIRST STREET N.W.
FEDERAL HOME LOAN
MORTGAGE CORPORATION
FEDERAL SAVINGS & LOAN
INSURANCE CORPORATION
OFFICE OF
GENERAL COUNSEL
December 23, 1974
Mr. Wilfred H. Rommel
Assistant Director for
Legislative Reference
Office of Management and Budget
Washington, D. C. 20503
Attention: Mrs. Garziglia
Dear Mr. Rommel:
This is in response to your request of December 20, 1974
for the views and recommendations of the Bank Board regarding
enrolled bill S. 356, the "Magnuson-Moss Warranty - Federal
Trade Commission Improvement Act."
The Bank Board's major concern with this bill, as it was
finally adopted by Congress, is the fact that Federally regu-
lated savings and loan associations are not afforded treatment
comparable to that given the other Federally regulated financial
institutions. It is the Board's view that institutions subject
to our supervision should be regulated in the area of consumer
protection by the Federal Reserve Board and this agency rather
than by the FTC. This would put all Federally regulated, competing
financial institutions on the same footing. It is our understanding
that this has been the position of the FTC and the Administration
as well.
However, S. 356 appears to De an otherwise meritorious
bill, and the Bank Board would recommend Presidential approval
of the legislation. Due to the apparent haste of the final
Congressional consideration of the bill, we do not believe
that the Congress has reached a fixed conclusion on this issue,
and it is our intention to propose to the 94th Congress an appro-
priate amendment to rectify the problem created by the incon-
sistent allocation of rulemaking and enforcement authority
over the various types of financial institutions.
Sincerely,
Henry Humy 2udy Henry L. Judy
Deputy General Dudy Counsel
hR
STATES DEPARTMENTO
DEPARTMENT OF AGRICULTURE
OFFICE OF THE SECRETARY
WASHINGTON, D. C. 20250
December 24, 1974
Honorable Roy L. Ash
Director, Office of Management
and Budget
Washington, D. C. 20503
Dear Mr. Ash:
This is in reply to your request for a report on the enrolled
enactment S. 356, "To provide minimum disclosure standards for
written consumer product warranties; to define minimum Federal
content standards for such warranties; to amend the Federal
Trade Commission Act in order to improve its consumer pro-
tection activities; and for other purposes."
This Department defers to the Federal Trade Commission since
this bill does not directly affect the operations of the
Department.
Sincerely,
J. Phil Campbell
Acting Secretary
ADMINISTRATIVE OFFICE OF THE
UNITED STATES COURTS
SUPREME COURT BUILDING
WASHINGTON, D.C. 20544
ROWLAND F. KIRKS
DIRECTOR
December 23, 1974
WILLIAM E. FOLEY
DEPUTY DIRECTOR
W. .H. Rommel
Assistant Director for
Legislative Reference
Office of Management and Budget
Washington, D. C.
Dear Mr. Rommel:
This will acknowledge receipt of your memorandum
transmitting for our views and recommendations enrolled
bill S. 356, an act "To provide minimum disclosure
standards for written consumer product warranties; to
define minimum Federal content standards for such
warranties; to amend the Federal Trade Commission Act in
order to improve its consumer protection activities; and
for other purposes."
Although this enrolled bill has not been submitted
to the Judicial Conference for comment it is the type of
legislation in which the Conference normally defers as a
matter of legislative policy to the Congress but urges
that the Congress consider the impact of the legislation
upon the federal court system. In the circumstances no
recommendation is made concerning Executive approval.
Sincerely,
Luice William Deputy - Director E. S. Foley Feeg
THE WHITE HOUSE
ACTION MEMORANDUM
WASHINGTON
LOG NO.: 936
Date:
Time:
January 1, 1974
11:00 a.m.
FOR ACTION:
Jim Cavanaugh
cc (for information:
Warren Hendriks
Max Friedersdorf
Jerry Jones
Phil Areeda
Paul Theis
-
Jack Marsh
Geoff Shepard
FROM THE STAFF SECRETARY
DUE: Date:
Thursday, January 2
Time: Noon
SUBJECT:
Enrolled Bill S. 356 - Product warranties - Federal
Trade Commission Act amendments
ACTION REQUESTED:
For Necessary Action
For Your R mendations
Prepare Agonda and Print
nones Repl
For Your Comments
Draft Ren
REMARKS:
Please return to Judy JOhnston, Ground Floor W.
ing
1974 DEC 2 AM 8 27
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED
If you have any questions or if you anticipate a
War
Hendriks -
delay in submitting the required material, please
Fo
President
telephone the Staff Secretary immediately.
Shepard
MEMORANDUM OF DISAPPROVAL
Areeda agree
It is with great reluctance that I withhold my approval from
S. 356, which deals with consumer product warranties and amendments
to the Federal Trade Commission Act.
This bill would provide disclosure standards for written
consumer product warranties against defect or malfunction; define
Federal content standards for such warranties; establish con-
sumer remedies for breach of warranty or service contract obliga-
tions; and grant the FTC expanded authority in carrying out its
consumer protection activities.
My reluctance stems from the recognition that the Congress,
particulary you the
and especially Senators Magnuson and Moss, have in this bill
attempted to deal with the product warranty abuses which so plague
our consuming public. I support this effort wholeheartedly. How-
ever, the Attorney General has advised me, and I agree, that the
provisions of this bill which wrest from the Attorney General his
would
traditional control of Government litigation/have significant ad-
verse impact on the Government's ability to present its position
in court in a uniform and consistent manner.
to
moure
The Department of Justice was established in 1070 for the
a
principal purpose of insuring that the Attorney General could can
effectively control Government litigation. This control is
required by the need to insure that Government agencies do not
take inconsistent legal positions in the Federal courts and
that important legal issues are presented to appellate courts
with the best possible case as a vehicle.
Judge Learned Hand recognized the need for giving this
country's chief legal officer, the Attorney General, control
of Government litigation when he wrote: "The Attorney General
has powers of 'general superintendence and direction' over
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district attorneys.. and may directly intervene to 'conduct
and argue any case in any court of the United States' ....
Thus
he may displace district attorneys in their own suits, dismiss
or compromise them, institute those which they decline to press.
No such system is capable of operation unless his powers are
exclusive, or if the Departments may institute suits which he
cannot control. His powers must be coextensive with his
duties." Sutherland V. International Insurance Co., 43 F. 2d
969, 970 (2d Cir. 1930).
Chief Justice Warren Burger has written: "It is the
unanimous view of the Justices that it would be unwise to dilute
the authority of the Solicitor General as to Supreme Court
jurisdiction in cases arising within the Executive Branch and
1972
independent agencies.' See Hearings on the Study of the
Securities Industry Before the Subcommittee on Commerce and
Finance of the House Committee on Interstate and Foreign Commerce
92d Cong., 1st Sess., ser 92-37b, pt. 3, at 1809 [
There are additional problems with S. 356. The prescribed
rulemaking procedures are inflexible and burdensome, and would
actually impede the FTC's ability to protect the American con-
sumer against unfair or deceptive practices. Moreover, the bill
would provide an inconsistent allocation of rulemaking authority
over the various types of financial institutions, unwisely sub-
jecting them and the consumers they serve to a maze of varying
and disparate standards. Finally, FTC's enforcement authority
/
over the administrative orders which it issues would be expanded
in a manner which could impose an additional burden on the
courts and make traditional civil penalty enforcement of such
orders more difficult.
- 3 -
By withholding my approval from this bill, I hope to signal
to the Congress my determination that our expending legal
system, which must expand to keep pace with the expanding rights
A
of our citizenry, not expand in chaotic or) haphazard fashion.
do so in an organized and requirements
At the some time, the Administration will be pleased happy to work with
Then
0
the 94th Congress toward early enactment of meaningful warranty
protection legislation.
THE WHITE HOUSE
January , 1975