Amicus Curiae Brief — National Petroleum Refiners Ass'n v. Federal Trade Commission

ES REIS REIS YEN TUR EEN ONE Ee BE eee

NOV ao 1973

No. 73-806

Prerenel RICAN, 27. OLE

—-

———

IN THE

Supreme Couwt of the United States

OcToBER TERM, 1973

NATIONAL PETROLEUM REFINERS ASSOCIATION, ET AL.,

Petitioners,

Vv.

FEDERAL TRADE COMMISSION, ET AL., Respondents

BRIEF ON BEHALF OF

THE AMERICAN BANKERS ASSOCIATION

AS AMICUS CURIAE IN SUPPORT OF

PETITION FOR WRIT OF CERTIORARI

MATTHEW HALE

General Counsel

The American Bankers

Association

1120 Connecticut Avenue,

N.W.

Washington, D.C. 20036

Attorney for Amicus Curiae

November 30, 1973

Press or Byron S. ADAMS PRINTING, Inc., WASHINGTON, D. C.

DAE PLR PE NIE en eee

.

Page

eT ie vac ceuecuncewewhonne 1

Interest of Amicus Curiae ...............cc cee eceee 2

The Significance of the Decision of the Court of

Appeals that the FTC has Authority to Issue

SN I Sins cence sean adewdecusnaee 6

The Congress Needs a Definitive Ruling Now ........ 13

SE i. ve ode xkd c55sns cokes kindack¥eseescdtecs 15

LIST OF CITATIONS

CASES:

Bristol-Myers Co. v. FTC, 284 F.Supp. 745 (D.D.C.

1968), aff’d in pertinent part, 424 F.2d 935 (D.C.

Cir. 1970), cert. denied, 400 U.S. 824 (1970) .... 7

Lever Bros. v. FTC, 325 F.Supp. 371 (D. Me.

BS Tide ME CENERS CWEREGEY a eA OEE Rees eae

Mourning v. Family Publications Services, Inc., 411

SE SUS x + chr Ov dedeadecenicesexieeuens 11

StaTuTES—F EDERAL:

Cigarette Labeling and Advertising Act, 15 U.S.C.

See, Oe es Ue CNTs 6 esc ccscsecevasesess 8

Fair Packaging and Labeling Act, 15 U.S.C. §§ 1451

i ee es SO NOES 6.55.00 00 cds cds ivescenss

Federal Trade Commission Act, 15 U.S.C. §§ 41 ff,

38 Stat. 717 (1914), 52 Stat. 111 (1938). ...... 1, 3, 6-7

12, 14

Oe ee as 1, 3, 6,7

NE SO ee Se eee 12

Flammable Fabrics Act, 15 U.S.C. §§ 1191 ff., 67 Stat.

| errr rrr rrr rr rer rey yee 6, 11

Index Continued

Page

Fur Products Labeling Act, 15 U.S.C. § 69, 65 Stat.

ME EE nto hah uC eeaucs ben kwtk oauee cee ceed 6, 11

Interstate Commerce Act, 49 U.S.C. §§ 1 ff., 24 Stat.

DORN cc coon erated eeeceuneeoenecesesece se 7

National Bank Act, 12 U.S.C. §§ 21 ff., 13 Stat. 99

GRR eat ges ho Pong mtn oe 9 aa a Apa ee RAN 2

Securities Act of 1933, 15 U.S.C. §§ 77a ff., 26 Stat.

ae as ca cacao Pa eNG base eae Kae 9

Sherman Anti-Trust Act, 15 U.S.C. §§ 1 ff., 26 Stat.

ee oC ee ee sate he hteke 8

Truth in Lending Act, 15 U.S.C. §§ 1601 ff., 82 Stat.

ET ae ie c knee ccd anne ea Nas 9, 11-12, 14

EE errr ere err err e 11

i Pe oa sauna eka ae ae OCR EN eee eaN 12

oe og sans Geka seh aeaeeeaeans 12

Se EE. -Ccida chad bec nunaes beecueesese 8

StaTuTES—StTaTE:

Calif. Civil Code:

Retail Installment Sales Act, §§ 1804.1, 1804.2,

McC oe Olea eeeicleleuyeauerenecs tse es 5

Automobile Sales Finance Act, §§ 2983.5,

DE ore tells veer aru geCehee ene sery et 5

pee SN, OPT hu ooo 6 hice Kaeo seek seve 5

D.C. Code, Consumer Credit Protection Act, §§ 28-

ES Sa kcawensec ceskeu sy cesuah ener cevens 5

Uniform Commercial Code ........ccsscccccscescocs 4,10

Uniform Consumer Credit Code, National Conference

of Commissioners on Uniform State Laws,

approved by the American Bar Association,

po rer rr Tyrer rr ree 5

Colorado Rev. Stat. § 73-1-101;

Idaho Laws 1971, Ch. 299;

fi

Index Continued lii

Page

Indiana Code of 1971 § 19-21-101;

Oklahoma Laws 1969, Title 14A §1-101;

Utah Code Annotated, Ch. 9;

Wyoming Code Annotated, §§ 40-1-101 to 40-9-103.

Brus, HEARINGS, AND REPORTS:

Consumer Product Warranties—FTC Improvements:

S. 986, 92d Cong., 1st Sess., February 25,1971... 14

H.R. 4809, 92d Cong., 1st Sess., February 23, 1971 14

H.R. 20, 93d Cong., Ist Sess., January 3, 1973. .3, 9-10

and

H.R. 5021, 93d Cong., Ist Sess., March 1, 1973:

Hearings before the Subcommittee on Com-

merce and Finance of the House Committee

on Interstate and Foreign Commerce, Serial

No. 93-17, at 80, 88, March 19, 1973 ....... 3, 10

S. 356, 98d Cong., Ist Sess., January 12, 1973. .9, 13-14

S. Rep. No. 93-151, May 14, 1973 ............ 13

S. Rep. No. 93-280, June 28, 1973 ........... 14

119 Cong. Ree. 16421 (daily ed., September

BED ukcsceteinse vans cs Cesnsaarunen 14

HLR. 7917, 93d Cong., 1st Sess., May 17, 1973. .9, 13-14

Fair Credit Billing:

S. 2101, 93d Cong., Ist Sess., June 28, 1973 ...... 5,9

119 Cong. Ree. $14403 (daily ed., July 23,1973) 5

Hearings before a Subcommittee of the House Com-

mittee on Appropriations on Agriculture—En-

vironmental and Consumer Protection Appropria-

tions for 1974, 93d Cong., 1st Sess., Part 6,

Consumer Programs, at 926 ...........ccecee: 10

Index Continued

Page

REGULATIONS:

FTC Rules of Practice

Be ee Se Sa ED ed cicbscacdncestucncencue 6

FTC Trade Regulation Rules (16 C.F.R. §§ 400-429

Cigarette Labeling, 16 C.F.R. § 408 (superseded

2 Bf oe.) MR ees Renee 8

Games of Chance in the Food Retailing and Gaso-

line Industries, 16 C.F.R. § 419 ............ 8

Mailing of Unsolicited Credit Cards, 16 C.F.R.

§ 421, 35 Fed. Reg. 4614 (superseded by 15

es ee ED cactecutusuadeneavanacusoen 8

Octane Posting, 16 C.F.R. § 422 ............... 1-2,8

2 err 1

SP SU SGD ov dckaccdecuseacasecbaches 2

Fe ES EE Wa awdeoeatacesaaeunenod 2

Pe PE NEE. coucncebeorececcscsncces 2

Door-to-Door Sales, 16 C.F.R. § 429 (effective date

OS: TP GI ncn ssalschelesecesasucuss &

Proposed FTC Trade Regulation Rules

Sale of Franchises, 36 Fed. Reg. 21607, 22187 .... 8

Preservation of Buyers’ Claims and Defenses in

Consumer Installment Sales ............ 3-6, 8, 10

36 Fed. Reg. 1211, 6592, and 7865 ........... 4

Re Fe SO UD wsdcovacsencesaadisecaseuaus +

MISCELLANEOUS:

SS Tae Wetinas Romer Ge ccc cccessckcisccucces 5

FTC Press Release dated July 17, 1973 .............. 8-9

Report of the National Commission on Consumer

gS, Rr ee 14

fe RE TE [> I OT Re ge PR Sr Gee MS EE IE IESG GA POOL IRE 1 EE

IN THE

Supreme Court of the United States

OcrToBEeR TERM, 1973

No. 73-806

NATIONAL PETROLEUM REFINERS ASSOCIATION, ET AL.

. . ?

Petitioners,

V.

FepERAL TRADE CoMMISSION, ET AL., Respondents

BRIEF ON BEHALF OF

THE AMERICAN BANKERS ASSOCIATION

AS AMICUS CURIAE IN SUPPORT OF

PETITION FOR WRIT OF CERTIORARI

GENERAL STATEMENT

On June 30, 1969, the Federal Trade Commission

(FTC) published a proposed Trade Regulation Rule

(34 Fed. Reg. 12449) declaring that failure to post

octane numbers on gasoline pumps at service stations

would be an ‘‘unfair method of competition”? and a

‘*deceptive act or practice’? within the meaning of

section 5 of the Federal Trade Commission Act (15

U.S.C. §45). Following hearings and the sub-

PPE Oe, EPEC TON

2

mission of comments by interested parties, and is-

suance of a revised Rule (36 Fed. Reg. 354, December

30, 1970), later postponed (36 Fed. Reg. 7309), a

substantially revised Octane Posting Rule was issued

on December 16, 1971, to be effective March 15, 1972

(36 Fed. Reg. 23871).

This case was instituted on March 29, 1971 by two

trade associations and 34 gasoline refining companies

in order to test the authority of the FTC to promulgate

legislative rules such as the Octane Posting Rule. The

District Court for the District of Columbia granted

plaintiffs’ motion for summary judgment on April 4,

1972 (340 F.Supp. 1343). The Court of Appeals for

the District of Columbia, on June 27, 1973, reversed the

District Court, holding that the FTC has power to

issue such legislative rules (482 F.2d 672).

The plaintiffs have petitioned this Court for a writ

of certiorari, filed November 20, 1973. The American

Bankers Association submits this brief as amicus

curiae in support of the request for review of the

decision of the Court of Appeals. Consent of the

Government and of the petitioners has been obtained

by letters dated November 14, 1973.

INTEREST OF AMICUS CURIAE

The American Bankers Association is a_ trade

association having as its members some 13,500 banks.

About 4,500 of these banks are national banking as-

sociations, chartered, examined, and supervised by

the Comptroller of the Currency under the National

Bank Act, and about 9,000 are State banks chartered

under the banking codes of the several States and

examined and supervised both by the appropriate

State banking supervisory officials and, in most cases,

3

also either by the Beard of Governors of the Federal

Reserve System (in the case of State member banks)

or by the Federal Deposit Insurance Corporation (in

the case of State nonmember insured banks).

Even though expressly exempted from the FTC

Act (15 U.S.C. § 45 (a) (6) ), banks can be substantially

affected by rules of the Federal Trade Commission. *

For example, in 1971 the FTC published a proposed

Trade Regulation Rule entitled ‘Preservation of

1In a statement supplied by the FTC for the record after its

testimony had been completed at the 1973 hearings on the Con-

sumer Product Warranties—FTC Improvements bills, the FTC

has taken an extremely narrow view of the exemption for banks.

Opinion as to Whether Rulemaking Extends to

Financial Institutions

In providing the Commission jurisdiction over unfair

methods of competition and unfair or deceptive act or prac-

tices in commerce, Section 5 of the Federal Trade Commission

Act excepts ‘‘banks’’ and a number of other specific categories

of business from the Commission’s enforcement authority

under that section. No exception is made by Section 5 for

financial institutions other than banks.

The Commission believes, however, that it would clearly

defeat the policy and provisions of the Act to hold that the

exemption accorded to banks must be construed to embrace

even those activities which lie outside the sphere of a bank’s

essential functions and are not incidental to those functions.

We believe, therefore, that our rules of general application do

extend to activities which are carried on by banks in common

with other types of business institutions. (Hearings before

the Subcommittee on Commerce and Finance of the House

Committee on Interstate and Foreign Commerce, on H.R. 20

and H.R. 5021, 93d Cong., Ist Sess., Serial No. 93-17, at 80,

March 19, 1973.)

This Association, of course, disagrees completely with this novel

interpretation. While the scope of the exemption for banks is

not relevant to this ease, the position taken by the FTC in its

opinion gives the members of this Association an additional basis

for interest in the authority of the FTC to issue legislative rules.

4

Buyers’ Claims and Defenses in Consumer Installment

Sales’’ (36 Fed. Reg. 1211, 6592, and 7865, January 26,

April 7, and 27, 1971; 37 Fed. Reg. 892, January 5,

1973), which would have abolished the holder in due

course doctrine and waiver of defense provisions in

consumer installment obligations and credit card

agreements. This Association, the Consumer Bankers

Association, and the two major bank card associations

—Interbank Card Association and National Bank-

Americard, Ine.—filed a total of five statements at

various stages of this proceeding, objecting to the

proposed rule on several grounds including the

argument that the FTC has no authority to issue legis-

lative rules.

The proposed rule would prohibit merchants from

aequiring from customers any obligations subject to

the holder in due course doctrine or any credit card

obligations based on an agreement between the card

issuer and the ecard holder which contained a waiver

of defense provision. While this rule on its face

applies only to the relations between merchants and

their customers, the effect on the banks which have

been financing these transactions by the purchase of

consumer paper or through bank ecard systems is

direct and substantial. The proposal would cut

across the complex and highly integrated network of

State laws applicable to bank transactions, including

the Uniform Commercial Code, and it would require

substantial alterations to bank card arrangements,

possibly to the extent of making bank card systems

unworkable.? The FTC has not yet taken final

action on this rule.

2 Many States have enacted statutes restricting the effectiveness

of the holder in due course doctrine in consumer transactions and

waiver of defense provision in credit card agreements (see, for

id PIE GRE TEL AES III CBS OS Sie

5

The importance of consumer credit to the nation’s

economy, as well as to consumers, may be seen from

the following table.

CREDIT OUTSTANDING TO INDIVIDUALS

($ Billions)

—_ Consumer Credit Outstanding 7 <aoe bt

End Installment Noninstallment Total Outstanding

1939 4.5 2.7 7.2 16.3

1945 2.5 3.2 3.7 18.6

1955 28.9 9.9 38.8 88.2

1965 71.3 19.0 90.3 212.9

1970 101.2 25.6 126.8 280.2

1971 109.5 27.7 137.2 307.8

1972 127.3 30.2 157.5 346.1

Source: Federal Reserve Board

The rule on Preservation of Buyers’ Claims and

Defenses would affect consumer transactions. The

rulemaking authority of the FTC, as interpreted by

the Court of Appeals, would apply equally to industrial

and commercial activities of all sorts (other than those

of the exempted concerns), and indirect effects on

example, Calif. Civil Code § 1747.90, § 1804.1, 2, § 1810.7, and

§ 2983.5, 7; D. C. Code §$28-3807-3809). The National Conference

of Commissioners on Uniform State Laws spent years in drafting

the Uniform Consumer Credit Code, approved by the Conference

and the American Bar Association in 1968, in an effort to present a

balanced and integrated proposal for the reform of consumer credit

laws, including restrictions on the holder in due course and waiver

of defense doctrines. This Code has been adopted in six States

(28 The Business Lawyer 641, footnote 6). The Senate on July 23,

1973, passed S. 2101, 93d Congress, which would impose restrictions

on waiver of defense provisions in credit card transactions (119

Cong. Rece., p. $14403, daily ed., July 23, 1973).

DEE SE LOS NG OEY PRO ee QE I 5

PASSA ‘ rex

_ :

6

banks and other exempt industries can be expected as

in the case of that Rule.

Accordingly, in spite of the exemption for banks

expressly provided in the FTC Act, the banks which

are members of this Association have a real and sub-

stantial interest in the question of the authority of

the FTC to issue legislative rules.

THE SIGNIFICANCE OF THE DECISION OF THE COURT

OF APPEALS THAT THE FTC HAS AUTHORITY TO

ISSUE LEGISLATIVE RULES

Up until some 10 years ago the FTC limited its

enforcement activities under the FTC Act to quasi-

judicial proceedings, directed at individual concerns,

on the basis of specific charges, responses, and

adversary hearings, as expressly provided in section

5 of the Act. *

In 1962 the FTC formally announced that it would

undertake rulemaking proceedings and would issue

Trade Regulation Rules, which it is now clear would

be generally applicable and would have the force and

effect of law (27 Fed. Reg. 4636, 4796).

In this case for the first time since the creation of

the FTC the courts are faced with the question

3 The FTC was specifically granted authority to issue rules and

regulations under several statutes which declared that misbranding

or false labeling of certain products was an unfair method of com-

petition and an unfair and deceptive act or practice and therefore

unlawful under the FTC Act, and which authorized FTC to spell

out in rules what was correct and what was false labeling: for

example, the Fur Products Labeling Act, 15 U.S.C. § 69 (1951) ; the

Flammable Fabries Act, 15 U.S.C. §§ 1191 ff. (1953) ; and the Fair

Packaging and Labeling Act, 15 U.S.C. §§ 1451 ff. (1966).

———

eee

7

whether the FTC Act permits this new departure from

its original practice. ‘

Section 5 of the FTC Act, as enacted in 1914,

declared ‘‘unfair methods of competition in com-

merce’’ unlawful, and authorized the FTC to prevent

persons, partnerships, or corporations, except banks

and common earriers subject to the Interstate Com-

meree Act, from using such methods; it also directed

the FTC to initiate a proceeding against any such

person, partnership or corporation which it has reason

to believe is or has been using ‘‘any unfair method of

competition’’ (38 Stat. 717). In 1938 the section was

amended by adding to the proscribed activities ‘‘ unfair

or deceptive acts or practices’? and any ‘‘unfair or

deceptive act or practice’? (52 Stat. 111). The

exemption for banks and common earriers has been

broadened to inelude certain regulated air carriers

and certain regulated packers and stockyards.

The field of authority of the FTC covers the entire

sweep of the commerce clause, with these very limited

exceptions. The FTC’s power within this field is

equally broad—to prevent ‘‘any unfair method of

competition’’, or any ‘‘unfair or deceptive act or

practice’’.

The authority to institute specific quasi-judicial pro-

ceedings against unfair methods of competition under

this authority is a powerful instrument, which was

felt to be necessary in 1914 because formal judicial

*In Bristol-Myers Co. v. FTC, 284 F.Supp. 745 (D.D.C. 1968),

aff’d in pertinent part, 424 F.2d 935 (D.C. Cir. 1970), cert. denied,

400 U.S. 824 (1970); and Lever Bros. v. FTC, 325 F.Supp. 371

(D. Me. 1971), the courts refused to enjoin proceedings preliminary

to the issuance of Trade Regulation Rules, because the proposed

rules, prior to promulgation, were not ripe for adjudication.

BE FB OE POO POI RTL POSES III PEI BEL ORLA NE O

8

proceedings under the Sherman Anti-Trust Act had

not accomplished all that the Congress felt was needed.

Its effectiveness was increased in 1938, when unfair or

deceptive practices were also prohibited.

To transform the FTC’s authority to conduct these

case-by-case quasi-judicial proceedings into a dele-

gation of Congressional legislative authority to issue

legislative rules covering virtually the entire field of

commerce and any unfair method of competition and

any unfair or deceptive act or practice is a major step,

with inealeulable effects on the nation’s economy, on

Congressional responsibilities, and on Federal-State

relationships.

The extraordinary scope of the authority claimed,

and its virtually limitless effect on the nation’s

economy and on the Federal system of government,

may be judged by a few examples of the kinds of

situations where the FTC has already asserted that the

authority would permit them to act: cigarette labeling

(16 C.F.R. § 408, superseded by 15 U.S.C. § 1331);

games of chance in the food retailing and gasoline

industries (16 C.F.R. § 419); mailing unsolicited

credit ecards (16 C.F.R. § 421, superseded by 15 U.S.C.

§ 1642); Cooling Off Period for Door-to-Door Sales

(16 C.F.R. § 429, effective date to be announced) ; the

proposed rule on Preservation of Buyers’ Claims and

Defenses in Consumer Installment Sales, discussed

above; a proposed rule on the sale of franchises (36

Fed. Reg. 21607, 22187) ; and the Octane Posting Rule

involved in the present case (16 C.F.R. § 422). (For

other examples, see 16 C.F.R. §§ 400-429.)

The FTC has made it clear, in a press release issued

July 17, 1973 announcing a realignment of its Bureau

9

of Consumer Protection, that it plans to make full

use of this rulemaking authority:

In view of the recent Court of Appeals’ de-

cision in the Octane trade regulation rule pro-

ceeding, a main thrust of the Bureau’s work

should be a definitional one—further fleshing out

the meaning of ‘‘unfairness’’ and ‘‘deception.”’

Effective use of our rulemaking authority is

absolutely essential to carry out this assignment.

Since rulemaking is so essential to the work

of the entire Bureau, the separate division which

has handled it exclusively has been eliminated

and instead the various operating divisions will

be responsible for developing rules. This will

give all Bureau attorneys the option to proceed

either by rulemaking or by litigation in the areas

where they have developed substantive expertise.

The authority claimed by the FTC to issue legis-

lative rules covering any unfair method of competition

and any unfair or deceptive acts or practices in com-

meree would appear to enable the FTC to regulate

almost all of the economy of the United States. It

would enable the FTC to take over a substantial part

of Congressional responsibilities—for example, it

would seem that most disclosure provisions in the

Truth in Lending Act (15 U.S.C. §§ 1601 ff.) and

the Securities Act of 1933 (15 U.S.C. §§ 77a ff.), and

many provisions of pending bills, for example, the

Fair Credit Billing bill (S. 2101, 98d Congress), and

the Consumer Product Warranties bills (S. 356, H. R.

20, H.R. 7917, 93d Congress) might well have been or

could be issued as Trade Regulation Rules under the

FTC’s assertion of authority.

In addition it would seem that the authority claimed

by the FTC would enable it to negate or supersede

eee

10

many State laws. The proposal on Preservation of

Buyers’ Claims and Defenses would supersede parts

of the Uniform Commercial Code. It has been

suggested that the FTC might issue rules concerning

the interest practices of lending institutions, presum-

ably superseding State usury statutes. °

The FTC has reported to the House Appropriations

Committee, in its budget request for FY 1974, that it

is making a study of the debtor-creditor relationship,

including the fairness of such remedies as blanket

security interests, repossessions, deficiency judgments,

wage assignments, cognovit notes, and acceleration

clauses. The FTC went on to indicate that it might

issue rules covering the field of creditors’ remedies

and other aspects of consumer contracts.

If the Commission’s rulemaking authority is

reinstated, the results of this study will be utilized

to assist in the development of a model retail

installment contract. Such a contract could be

mandated throughout the industry as a trade

regulation rule... .°

Whatever may be thought of the merits of these

proposals—and this Association has supported many

legislative proposals in this field—it seems clear that

a delegation to an agency which would enable it to

undertake such a broad program of regulation of the

economy, which would enable it to take over such

substantial Congressional functions, and which would

5 Hearings before the Subcommittee on Commerce and Finance

of the House Committee on Interstate and Foreign Commerce, on

H.R. 20 and H.R. 5021, 93d Cong., 1st Sess., Serial No. 93-17, at

88, Mareh 19, 1973.

® Hearings before a Subcommittee of the House Committee on

Appropriations on Agriculture—Environmental and Consumer

Protection Appropriations for 1974, 98d Congress, 1st Session,

Part 6, Consumer Programs, at 926.

11

enable it to supersede such a large body of State legis-

lation, would have the gravest consequences both to

our economy and to our system of government.

Unlike the authority delegated to the FTC to issue

rules filling in the gaps and defining terms within the

framework of fairly detailed and specific statutes like

the Fur Products Labeling Act and the Flammable

Fabrics Act, the broad and sweeping authority asserted

by the FTC is the kind of legislative authority vested

in the Congress and the State legislatures by the

Federal and State constitutions. The issues are true

legislative issues, involving conflicting public interests

of substantial moment, which under the Constitution

have been and should be decided by legislatures elected

by and responsible to the voter.

Such a major delegation of legislative authority

from the Congress to an agency, if such powers can

constitutionally be delegated, should be conferred in

the clearest and most explicit terms; it should not be

inferred from ambiguous provisions in statutes.

Earlier this year this Court considered the Federal

Reserve Board’s authority to issue legislative rules

under the Truth in Lending Act in Mourning v.

Family Publications Services, Inc., 411 U.S. 356

(1973), and upheld the rule involved. The Truth in

Lending Act covers a limited sphere of activity—

principally the disclosure of certain information about

consumer credit—and it contains explicit and detailed

statutory provisions covering much of the field.

Nevertheless, the Committee reports and floor dis-

cussions of the bill make it abundantly clear that legis-

lative rulemaking authority within the specific

framework of the Act was considered essential.

Section 105 of the Act, accordingly, contains a very

broad and very specific provision requiring the Board

12

to prescribe regulations to carry out the purposes of

the Act, with express authorization for such

classifications, differentiations, or other provisions,

and for such adjustments and exceptions, as in the

judgment of the Board may be necessary or proper

to effectuate the purposes of the Act, to prevent cir-

cumvention or evasion or to facilitate compliance.

The provisions for administrative enforcement in

section 108 apply clearly to any requirements imposed

under the Act, and section 112 provides criminal

penalties for a creditor who gives false or inaccurate

information or who fails to provide information ‘‘he is

required to disclose under the provisions of this title or

any regulation issued thereunder.”’ The distinction

between the Board’s legislative rules and the pro-

eedural rules of other agencies is emphasized in

subsection 108(d), which provides that the authority

of the Board to issue regulations does not impair the

authority of any of the enforeement agencies ‘‘to

make rules respecting its own procedures in enforcing

compliance with requirements imposed under this

title’’.

The limited provision in section 6 of the FTC Act

authorizing the FTC to classify corporations and to

make rules and regulations for the purpose of carrying

out the provisions of the Act, included as the seventh

paragraph in a section concerning investigations,

reporting, and other housekeeping matters, contrasts

sharply with the broad and explicit rulemaking

authority granted to the Federal Reserve Board con-

tained in the Truth in Lending Act. The clear intent

in the legislative history of the Truth in Lending Act

to authorize the Board to issue substantive rules con-

trasts just as sharply with the negative legislative

history of the FTC Act.

13

THE CONGRESS NEEDS A DEFINITIVE RULING NOW

A review of the decision of the Court of Appeals

by this Court as to the authority of the FTC would

eliminate the confusion and uncertainty which is

apparent in the legislative proceedings of the current

Congress.

On September 12, 1973 the Senate passed a bill,

S. 356, 93d Congress, from which the Senate Com-

merce Committee struck a provision authorizing the

FTC to issue legislative rules, under limited and

restricted conditions. The FTC requested this

change in the belief that the Court of Appeals would

decide in this case that the FTC already had the

authority without statutory limitations or restrictions

(Senate Report No. 93-151, pp. 57-58). The Com-

mittee Report does not mention the deletion of the

rulemaking provision, and it gives no indication

whether the members of the Committee who deleted

the provision shared the FTC’s hope, or whether they

did not want to grant this authority to the FTC, or

whether they were anxious to pass the product war-

ranty provisions of the bill and leave the decision on

the rulemaking authority of the FTC to the courts or

to later Congressional action."

The Committee on Interstate and Foreign Com-

merce of the House of Representatives, on the other

hand, is considering a bill, H.R. 7917, 93d Congress,

7 Reprinting the FTC’s letter in Committee Report No. 93-151

might suggest approval of the position taken in the letter. How-

ever, the following sentence, at page 9 of the same Report, appears

to be a much stronger suggestion that the Senate Commerce Com-

mittee does not think the FTC has legislative rulemaking authority :

‘‘Thus the sole enforcement weapon available to the FTC to

police the vast majority of consumer frauds, deception, and

cheating has been the cease and desist order.”’

|

14

containing a provision similar to the provision deleted

from S. 356, which would specifically authorize the

FTC to issue substantive rules, under limited terms

and conditions.*

Controversy over similar proposals to grant rule-

making authority to FTC was a significant factor in

the failure of the 92d Congress to enact a Consumer

Product Warranties bill (see S. 986 and H.R. 4809,

92d Congress).

Until the Congress has a clear and definitive state-

ment from this Court as to whether the FTC already

has legislative rulemaking authority under the ex-

isting FTC Act, it cannot legislate rationally in this

field. A legislator who votes for S. 356 cannot know

whether this vote is a vote for unrestricted legislative

rulemaking authority for the FTC or a vote against any

legislative rulemaking authority at allin the FTC. A

legislator who votes for H.R. 7917 cannot know whether

this vote is a vote to grant limited legislative rule-

making authority to the FTC or a vote to restrict ex-

8 A New Title III was added to S. 356 by the Senate Committee

on Banking, Housing and Urban Affairs in lieu of section 212 as

reported in the Commerce Committee. This would give the Federal

Reserve Board rulemaking authority with respect to unfair or

deceptive practices of depository financial institutions, with enforce-

ment delegated to the five supervisory agencies (S. Rep. No. 93-

280). This Association supported this proposal, in the light of

the limited area affected and in the light of the record of the

Board’s imaginative yet restrained rulemaking under the Truth

in Lending Act (Report of the National Commission on Con-

sumer Finance, December 1972, at 57). S. 356 was passed by the

Senate on September 12, 1973 (119 Cong. Ree. $16421, daily ed.,

September 12, 1973). A similar provision was added to H.R. 7917

in the Subcommittee on Commerce and Finance of the House Com-

mittee on Interstate and Foreign Commerce before the bill was

reported to the full Committee on November 12, 1973.

15

isting unlimited legislative rulemaking authority al-

ready in the FTC.

A clear and definitive statement of the effect of

present law would enable the Congress to write into

the new legislation whatever provisions it considers

necessary to carry out its legislative policies.

CONCLUSION

In view of the vital issue raised by the decision of

the Court of Appeals—the sweeping delegation of

legislative rulemaking authority, with incalculable

effects on Congressional responsibility, on Federal-

State relationships, and on commercial activities in

general and on banking in particular—The American

Bankers Association urges this Court to grant the

petition for a writ of certiorari.

Respectfully submitted,

MaTTHEW HALE

General Counsel

The American Bankers

Association

1120 Connecticut Avenue,

N.W.

Washington, D.C. 20036

Attorney for Amicus Curiae

November 30, 1973