and "close-out sales," and sales indicating "50% off" or stated dollar savings where these figures are not based either on the seller's regular selling prices or on prices customary in the community for the goods or services. Giant Food, Inc. v. FTC, 332 F.2d 977 (CA D.C. 1963) 1963 Trade Cases ¶ 70,810 (FTC Dkt. 7773); Ed Hamilton Furs, Inc. et al., 51 FTC 186 (1954).

(9) Representing that goods or services are those of another, knowing they are not; and (11) Knowingly representing that goods or services have sponsorship, approval, origin, characteristics of safety or performance, ingredients, uses, benefits or quantities that they do not have, or that person has a sponsorship, approval, status, affiliation, or connection that he does not have . -Both these prohibitions could deal with the practice of fraudulently using actual trade symbols or deceptive simulations on goods, in the first case those of recognized brand-name producers (FTC v. Balme, 23 F.2d 615 (2 Cir. 1928) (FTC Dkt. 764)) and in the second those of known testing organizations or other recognized authorities. Erickson v. FTC, 1959 Trade Cases ¶ 69, 527, 272 F.2d 318 (7 Cir. 1959) (FTC Dkt. 6499). The first could also cover, among other things, the practice of undisclosed substitution of a different product from the one the customer has chosen. Globe Readers Service Inc. v. FTC, 285 F.2d 692 (7 Cir. 1961) 1960 Trade Cases ¶ 69, 890 (FTC Dkt. 7490). The second would cover a wide variety of misrepresentations about goods, services, and the persons involved in handling them, provided however that these statements are more specific than mere general "puffery" by the seller. Nesick Industries, Inc. v. FTC, 1960 Trade Cases 169, 625. 278 F.2d 337 (7 Cir. 1960) (FTC Dkt. 6779).

(3) Stating that services, replacements or repairs are needed with knowledge that they are not; and (10) Failing to return or refund a deposit or advance payment for goods not delivered or services not rendered, when no default or further obligation of the person making such deposit or advance payment exists.-No $5 FTC Act cases are readily found which are squarely analogous with these situations. These are instances of bare-faced dishonesty, whereas §5 offenses against consumers usually involve at least some element of deception. In any event, the first would cover the current widespread complaints against servicemen-TV repairmen and auto mechanics, for example for making unneeded expensive repairs on appliances and equipment. The second could cover situations where the customer encounters undue delays in refunding following cancellation of a purchase after failure of delivery at the promised time or delay in delivery beyond a reasonable time after acceptance of the order. As with (4) above, it could also cover situations where a seller may take advantage of the customer's ignorance of the law, by representing that no legal obligation to refund exists under the circumstances of the transaction.

These eleven proscribed practices were not designed to provide an all-inclusive list of frauds or unfair or deceptive practices in the consumer protection field. Situations not covered could include those excluded by the terms of section 201 itself and a variety of others determined by the FTC in specific cases to be within the terms of Section 5 of the Federal Trade Commission Act. For example, the bill limits the prohibitions to situations where the action of the seller is deliberate, showing actual or presumptive knowledge of falsity of representations or a reckless disregard for the truth. Again, the bill specifically excludes situations involving the sale of securities or interests in securities or the provision of credit. In addition, if it could be shown that a breach of warranty was not related to the forms of misrepresentation described in this bill, such a breach of warranty would not be covered.

However, in an Act providing injunctive powers and subsequent civil remedies to consumers it was not felt desirable or practicable to attempt an inclusive coverage of all practices adversely affecting consumers, either by exhaustive itemization or use of general language which might make application unclear. It was felt best at this time to devise a list of clearly-defined specific practices which have both substantial adverse effects on consumers and are well known by merchants and others to be unfair and deceptive practices under Section 5 of the FTC Act, as developed by the Commission. If after enactment of S. 3201 Consumer Protection Division investigations should identify other specific practices which are found to be sufficiently widespread and to have a substantial impact on consumers, the annual reports of the Attorney General required under section 209 of the Act would provide an appropriate vehicle for bringing them to the attention of Congress for its consideration of amendatory legislation.

Sincerely yours,

RICHARD W. MCLAREN. Assistant Attorney General, Antitrust Division.

39-278-70-pt. 1-3

Senator Moss. We are pleased to have Senator Prouty sitting with us this morning.

You did not hear the direct testimony, but you may have some questions or comments you would like to make, Senator Prouty. Senator PROUTY. Thank you, Mr. Chairman.

I am sorry I was not present when Mrs. Knauer and Mr. McLaren made their statements, but I shall read them with a great deal of interest.

I am not a member of the Consumer Subcommittee, but I do feel it is dealing with questions of great importance to the people of the country, and so I was happy to have an opportunity to be here.

Mrs. Knauer, as one who has been very eminent in the field of consumer protection at the State level, what do you think of the premise that local consumer frauds only affecting interstate commerce can be best handled by the State and local communities?

Mrs. KNAUER. Well, my experience in Pennsylvania proved that once that crooked operator crossed the State line, he was out of our jurisdiction.

Most of the class action provisions in the various states are merely a patchwork where they exist at all. I always cite New York and California as having basically the same class action law; but the courts in New York have ruled in the narrowest definition of that act in New York; whereas in California it is a class action that is, I believe, wide open.

But the thrust of the administration bill is to give equal remedy to all consumers in America, to spell out a new approach to consumer protection in this area as outlined in this bill so that people, regardless of where they lived, would have this new consumer protection.

Senator PROUTY. Did the consumer protection agency which you headed in Pennsylvania rely much on the findings of the FTC? More importantly did it get any real assistance from the FTC?

Mrs. KNAUER. We had a lot of assistance in a good many instances in advice and definitions. But I understand that most of the cases we referred to them, of course, bogged down in their overload, so that I believe that action has not even been initiated in those cases that I referred up to 2 years ago.

Senator PROUTY. When a consumer fraud is detected, either by the local, State, or Federal Government, what is the greatest problem that faces the consumer protection agency? Is it getting knowledge of the fact that a fraudulent practice exists to the consumer?

Mrs. KNAUER. Let me say, Senator, that many of the States do not have adequate consumer protection laws. Our office is currently engaged in a codification of all consumer protection laws, working with the National Association of Attorneys and others, hoping to make available this information as a central resource so when they seek to improve their local laws, they will have this help to which they can refer.

But the thrust of this bill is to give this new consumer protection that will be equal for all citizens at the Federal level.

I think a great deal has to be done in the individual States, not only to set up consumer protection bureaus-there are 33, I believe, on the list, but only half a dozen are truly effective because most of them are understaffed, underfinanced and, of course, without the hard core of consumer law to enable them to be truly effective. Our office is engaged in trying to encourage that in all the States.

Senator PROUTY. Senator Javits and I have introduced S. 861, which provides grants-in-aid for the establishment of consumer programs at the State levels. What is your attitude concerning the merits of S. 861? Mrs. KNAUER. The administration has not taken an official position on that bill, to my knowledge. We have not been asked to testify on it. I personally think it is an excellent step in the right direction. Senator PROUTY. Thank you. I hoped you would say that.

Senator Moss. Thank you, Mrs. Knauer and Mr. McLaren. Because of the pressure of time, we will not ask more questions. I am sure that if we have further questions, you will be glad to respond in writing if we send them down to you.

Thank you. We appreciate your testimony.

We will now hear from the Honorable Paul Rand Dixon, Chairman of the Federal Trade Commission.

Commissioner Dixon, we are glad to have you back here before our subcommittee. We are pleased to have you, Mr. Chairman, and we look forward to your testimony here-primarily on S. 3201; but as I indicated, both S. 2246 and S. 3092 are before us, if you have any comments to make on them.

STATEMENT OF HON. PAUL RAND DIXON, CHAIRMAN, FEDERAL TRADE COMMISSION, WASHINGTON, D.C.; ACCOMPANIED BY JOHN V. BUFFINGTON, GENERAL COUNSEL, FEDERAL TRADE COMMISSION

Mr. DIXON. Thank you, Mr. Chairman. With me is Mr. John V. Buffington, the General Counsel of the Federal Trade Commission. Senator Moss. We are glad you are here. Welcome, Mr. Buffington. Mr. DIXON. I have some different thoughts, Mr. Chairman. I thank you for the opportunity to appear before this distinguished committee to express my views on S. 3201, a bill which has been introduced as part of the President's consumer protection program. There is agreement among our people that consumer rights must be recognized and protected. Our marketing economy has long concentrated solely on the movement of goods from maker to user. The result has been an imbalance of privileges and laws favoring the businessman over the consumer. Now, popular feeling demands a readjustment to correct this imbalance. Consumerism-as the President recently stated-is a healthy development and is here to stay.

We at the Commission have been interested in consumerism long before it became popular, and I am proud to state that we have contributed substantially to its present healthy condition.

The views I express here today are my own. My colleagues at the Commission will favor you with their views tomorrow. I expect that our views will differ; differences of opinion between us seem to be the rule rather than the exception these days. Our views will no doubt fully explore all possible consequences of this proposed legislation. Since this bill involves several different ideas or proposals, I will deal with each one in the order in which they appear in the bill.

Section 101 would amend section 5 of the Federal Trade Commission Act by changing the words "in commerce" to "affecting commerce." This would substantially enlarge the jurisdiction of the Commission. Since the Supreme Court's decision in Federal Trade

Commission v. Bunte Brothers, Inc., 312 U.S. 349 (1941), the law has been clear that the Commission's authority to proceed against unfair methods of competition, and unfair or deceptive acts or practices is limited to those occurring in interstate comerce. You would not believe that from reading the ABA report, but that is the law, whether they like it or not.

This amendment would change this and give the Commission jurisdiction over myriads of local businesses if their activities affect interstate commerce.

What I am about to say, Mr. Chairman, may surprise you. Now, I am not in favor of this amendment. I am not in favor of enlarging the Commission's jurisdiction at this time. I realize this position is contrary to views I have expressed at an earlier time on other occasions. I have given this matter serious thought, however. I have struggled with my inner emotions, understandably tugging in opposite directions on this question. But I have reached the conclusion that this is not the time to enlarge the Commission's jurisdiction. My reasons are simple.

I am reminded that many, many times I have been before committees of Congress and they say, "Mr. Chairman, what could the Congress do to make your job easier?"

You can change the words "in commerce" to "affect commerce," but please do not do it unless you give me authority to put the employees in to do it and the money to hire them. Please do not do it unless you do that.

Since 1965, with my encouragement, the Commission has commenced a program of cooperation with the States. And I wish Senator Prouty had stayed. Our idea was to encourage local governments to solve local consumer problems. The States have responded nobly to our

overtures.

Twenty-eight States have adopted laws generally similar to the Federal Trade Commission Act. In five of the States, the law reads exactly like the Federal Trade Commission Act, prohibiting use of "unfair methods of competition and unfair or deceptive acts or practices" in the conduct of any trade or commerce. These States are Hawaii, Washington, Vermont, Massachusetts, and North Carolina. The other 23 have slightly different laws which achieve approximately the same results, at least with regard to preventing consumer deception. They are: Alaska, Arizona, California, Colorado, Connecticut, Delaware, Illinois, Iowa, Kansas, Maryland, Michigan, Minnesota, Missouri, New Jersey, New Mexico, New York, North Dakota, Oregon, Pennsylvania, Rhode Island, South Dakota, Texas, and Wisconsin.

Seven additional States have set up a consumer fraud bureau, a consumer complaints clearinghouse, or a study committee to determine the need for new legislation. These are Arkansas, Florida, Kentucky, Maine, Ohio, my home State of Tennessee, and West Virginia. These States are presently considering strengthening their laws to more closely resemble the Federal Trade Commission Act. Thus, it can be said that 35 of the States have taken decisive action toward protecting consumers from deception and preventing unfair practices in the marketplace. We are hopeful that other States will take similar action in the near future.

I think without doubt this activity by the States will go a long way toward not only protecting consumers, but promoting peace and

tranquillity in our country, and harmonious relations between the people in all walks of life.

Our State cooperation program has been so successful that the Commission is initiating a program of cooperation and coordination with local governmental offices in the major metropolitan trading areas.

I propose, therefore, that the work of the Federal Trade Commission be reoriented. Our goal should be to restrict our activity to that of a Federal agency coping with Federal problems while encouraging local leaders in State, city, and county governments to solve their local problems locally. The Federal Government should enter into true partnership with local governments at all levels to aid them in the enforcement of their laws, to offer help on their problems, to furnish expertise, and to enable them to successfully handle these problems. I firmly believe that local consumer problems can best be solved by local governments.

Instead of authorizing the Commission to get involved in local problems and that is exactly what we are talking about. You are talking about which way you are going in this country; whether you are going to follow the traditional American dream with the division of State, local, and Federal, or whether you are going to encourage that great monolithic Government to solve all problems. That is what we are talking about.

Now, instead of authorizing the Commission to get involved in local problems, I propose that Congress offer financial assistance to local governments to help finance their consumer protection activities. That is what Senator Prouty made mention of. I know that proposals of this nature are pending before the Congress at this time and I endorse the principle because I believe consumer protection work can be most effective at this level.

The expenses of local governments in their antitrust and consumer protection efforts probably exceed those which Congress has authorized at the Federal level. Their commitments have strained their budgets. I would propose a consumer protection funding program which would assist States in financing their antitrust and consumer protection work. Funds advanced would be repayable from proceeds of actions brought. And, as I will cover in detail later, I propose making Federal Trade Commission decisions and orders available to local governments on the same basis as court decrees.

I can think of no earthly reason why Congress does not have faith in the Federal Trade Commission that it created. Rather than have one district judge, they put in a panel of five; and yet you will not even give the decisions of that panel of five the same dignity of the decision of one judge.

I think a continuing program of local law enforcement will be more effective than enlarging the jurisdiction of the Commission.

I see other problems with enlarging the Commission's jurisdiction to include local law violations. It would substantially increase the burden on our already overburdened staff. About the only matters which we have been able to gracefully decline in the past have been complaints which did not involve interstate commerce.

Congress very carefully, when they gave this Federal Trade Commission the broadest of all power to proceed against-what-unfair methods of competition or unfair or deceptive acts or practices-they very carefully must have realized what a grant of authority that was;