Administrative Interpretations, General Policy Statements, and Enforcement Policy Statements

FEDERAL TRADE COMMISSION

16 CFR Part 14

Administrative Interpretations, General Policy Statements, and

Enforcement Policy Statements

agency: Federal Trade Commission.

action: Final amendments to interpretations and policy statements.

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summary: The Federal Trade Commission (``Commission'') is rescinding

certain unnecessary or superfluous interpretations and policy

statements in the Administrative Interpretations, General Policy

Statements, and Enforcement Policy Statements (``Interpretations and

Policy Statements'') and revising one policy statement to bring it up

to date.

effective date: August 15, 1995.

addresses: Requests for copies of this notice should be sent to the

Federal Trade Commission, Public Reference Branch, Room 130, Sixth

Street and Pennsylvania Avenue, NW., Washington, DC 20580.

for further information contact: Kent C. Howerton, Attorney, Federal

Trade Commission, Bureau of Consumer Protection, Division of

Enforcement, Room S-4302, Sixth Street and Pennsylvania Avenue NW.,

Washington, DC 20580, (202) 326-3013.

SUPPLEMENTARY INFORMATION:

I. Background

As a part of its ongoing program to review all of its mandatory

rules and voluntary guides, the Commission has determined to amend 16

CFR part 14, Administrative Interpretations, General Policy Statements,

and Enforcement Policy Statements (``Interpretations and Policy

Statements'').\1\ In this notice, the Commission announces its

determinations to repeal Secs. 14.2, 14.4, 14.7, 14.11 and 14.17, and

to revise Sec. 14.16.\2\ As explained below, the Commission is

rescinding certain interpretations, guidelines and policy statements

that are unnecessary, superfluous or obsolete and revising one policy

statement to reflect current law and policy. Sections 14.9, 14.12 and

14.15 remain in effect and are not

[[Page 42032]]

affected by the amendments described in this notice.

\1\ Part 14 of title 16 of the Code of Federal Regulations is

not a comprehensive record of all the Commission's formal

interpretations, guides, and policy statements. The Commission's

Office of General Counsel is currently working on a project to make

other such materials more readily available to the public.

\2\ This matter has been designated as file number P954215 in

the Commission's records.

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The Commission is not seeking public comment on these amendments to

repeal Secs. 14.2, 14.4, 14.7, 14.11 and 14.17, and to revise

Sec. 14.16. These interpretations, guidelines and policy statements are

not regulations, only interpretative guides and general statements of

policy. Therefore, the Commission does not need to seek public comment

before repealing or revising them.\3\ Further, because the Commission's

determinations to repeal or revise these interpretations, guidelines

and policy statements are based upon changes in the law and

regulations, the existence of other laws, regulations or legal

decisions, facts concerning current industry practices that do not

appear to be in controversy, or current Commission policy, public

comment is not likely to aid the Commission significantly in making

these determinations. The amendments become effective upon publication

in the Federal Register.

\3\ See section 553(b)(A) of the Administrative Procedure Act,

15 U.S.C. 553(b)(A).

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II. Sections Revised or Repealed

A. Section 14.2

Section 14.2 states that it is not the Commission's policy to

consider the use of the word ``tile'' in the designation of non-ceramic

products to be false and misleading, provided that either the true

composition of such products or the fact that they are not ceramic

products is plainly disclosed. The Commission issued this policy

statement in 1950 as guidance to industry and to amend certain

stipulations covering specific companies that the Commission published

between 1937 and 1945.

The Commission has no reason to believe that sellers of non-ceramic

tile products currently fail to disclose the composition of their

products or misrepresent their composition. In any event, the

Commission can prosecute misrepresentations of product composition, or

the failure to disclose, prior to sale, information that is material to

a consumer's purchasing decision, as unfair or deceptive acts or

practices under section 5 of the FTC Act, 15 U.S.C. 45.

For these reasons, the Commission has determined that Sec. 14.2 is

unnecessary and superfluous.

B. Section 14.4

Section 14.4 contains the Commission's interpretation of the

requirements of section 5 of the FTC Act concerning yarn and fabric

that contain metallically weighted silk fiber. The Commission issued

this interpretation in 1960 to supplement the fiber identification

requirements of the Textile Fiber Products Identification Act

(``Textile Act''), 15 U.S.C. 70, and the rules and regulations issued

under the Textile Act.\4\

\4\ See Rules and regulations under the Textile Fiber Products

Identification Act, 16 CFR part 303.

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Specifically Sec. 14.4 states that the fiber identification

required by the Textile Act shall be immediately accompanied by a clear

and non-deceptive disclosure that the silk fiber present is weighted,

along with the percentage of the total weight of the silk fiber content

in its finished state that the weighting represents. Section 14.4

further states that the disclosure shall appear on the same label that

contains the fiber identification required by the Textile Act, and the

rules and regulations issued under it, and in immediate conjunction

with any representation in advertisements, sales promotional

literature, or invoices that relates to fiber content.

During at least the past 15 years, the Commission has not been

aware of any problems concerning the sale of ``metallically weighted

silk'' yarn and fabric products. In any event, the Commission can

prosecute misrepresentations concerning ``metallically weighted silk''

products, or the failure to disclose, prior to sale, information that

is material to a consumer's purchasing decision, as unfair or deceptive

acts or practices under section 5 of the FTC Act.

For these reasons, the Commission has determined that Sec. 14.4 is

unnecessary and superfluous.

C. Section 14.7

Section 14.7 contains interpretations of legal requirements

concerning the payment by industry members of so-called ``push money.''

\5\ These interpretations, which the Commission issued in 1962,

prohibit industry members from providing anything of value to a

salesperson employed by a customer of the industry member as inducement

to obtain greater effort in promoting the resale of the industry

member's products when: (i) The agreement or payment is made ``without

the knowledge and consent of the salesperson's employer,'' (ii) the

benefit to the salesperson or customer is dependent on lottery; (iii)

``any provision of the agreement or understanding requires or

contemplates practices or a course of conduct unduly and intentionally

hampering the sales of products of competitors * * *;'' (iv) ``the

effect may be to substantially lessen competition or tend to create a

monopoly;'' or (v) ``similar payments are not accorded to salespersons

of competing customers on proportionally equal terms in compliance with

sections 2 (d) and (e) of the Clayton Act,'' 15 U.S.C. 13 (d) and (e).

\5\ Section 14.7 is, in all substantive respects, identical to

Sec. 248.8 of the Commission's Guides for the Beauty and Barber

Equipment and Supplies Industry (``Beauty/Barber Guides''), 16 CFR

part 248. For the same reasons the Commission has determined to

eliminate section 14.7, it has determined that Sec. 248.8 of the

Beauty/Barber Guides also should be eliminated. The Commission is

publishing its determination concerning Sec. 248.8 in a separate

notice.

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To the extent that the interpretations prohibit industry members

from surreptitiously compensating employees of their customers in

exchange for greater effort on the part of those employees, they

address commercial bribery, which may be prohibited under section 2(c)

of the Clayton Act, 15 U.S.C. 13(c), and is proscribed by many state

criminal statutes.\6\ To the extent that they prohibit bonus plans

dependent on lottery, they address business conduct which may be

proscribed by section 5 of the FTC Act and by state statutes relating

to lotteries and similar promotions.\7\ To the extent the

interpretations require payments to salespersons of competing customers

to be on proportionally equal terms, they restate general principles of

competition law that are set forth in section 2 of the Clayton Act and

the Guides for Advertising Allowances and Other Merchandising Payments

and Services (``Fred Meyer Guides''), 16 CFR part 240.

\6\ See e.g., Cal. Penal Code sec. 641.3 et seq. (Deering 1995);

Ill. Rev. Stat., Ch. 38, para. 29A-1 (1995); N.Y. Penal Law sec.

180.00 (McKinney 1976).

\7\ See e.g., Tex. Penal Code sec. 32.42 (West 1995); Cal. Bus.

& Prof. Code sec. 17539.1 (Deering 1995); Cal. Penal Code sec. 319

et seq. (Deering 1995).

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For these reasons, the Commission has determined that Sec. 14.7 is

unnecessary and superfluous.

D. Section 14.11

Section 14.11, which the Commission issued in 1979, contains

guidelines designed to prevent deception and to advise manufacturers

and dealers of motor vehicles built for use upon public highways about

how they can avoid violating the FTC Act. These vehicles include truck

chassis and incomplete vehicles used in building motor homes. The

Commission issued the guidelines because it was concerned about

misleading practices some manufacturers had used to identify the model

years of heavy duty trucks and other vehicles whose features changed

little from year to year.

[[Page 42033]]

After it issued the guidelines, the Commission accepted consent

agreements with most of the manufacturers of those heavy duty trucks

and other vehicles.\8\ The consent agreements provide adequate guidance

for manufacturers of such vehicles and others concerning how to avoid

violating the FTC Act regarding a vehicle's model year.

\8\ See Mack Trucks, Inc., 94 F.T.C. 236 (1979); Chrysler Motors

Corp., 94 F.T.C. 245 (1979); Ford Motor Company, 94 F.T.C. 254

(1979); Paccar. Inc., 94 F.T.C. 263 (1979); White Motor Corp., 94

F.T.C. 272 (1979); and International Harvester 94 F.T.C. 281 (1979).

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For these reasons, the Commission has determined that Sec. 14.11 is

unnecessary and superfluous.

E. Section 14.16

Section 14.16 contains interpretations, published in 1982,

concerning the compliance responsibilities under the Truth-in-Lending

Simplification and Reform Act of 1980, Pub. L. 96-221, 94 Stat. 168,

and the revisions of Regulation Z, 12 CFR part 226, that were published

by the Federal Reserve Board in 1981, 46 FR 20848, for those creditors

and advertisers subject to final cease and desist orders issued by the

Commission prior to April 1, 1981 that require compliance with

provisions of the original Turth-In-Lending Act (``TILA''), 15 U.S.C.

1601 et seq., and prior Regulation Z. This section, therefore, applies

Congress' simplification of TILA to pre-existing orders issued by the

Commission that compel compliance with the TILA and Regulation Z.

The Commission believes that the current language in Sec. 14.16

might be interpreted to freeze orders enacted prior to April 1, 1981 to

the requirements of the TILA and Regulation Z as of April 1, 1981, and

not to allow or require parties subject to Commission orders to meet

the requirements of subsequent amendments to the TILA and Regulation Z.

It is not the Commission's intent that section 14.16 have this effect.

For this reason, the Commission has determined to revise Sec. 14.16 to

state clearly that the Commission will interpret TILA and Regulation Z

provisions of all orders consistent with the current requirements of

the TILA and Regulation Z, and with any subsequent amendments to the

TILA and Regulation Z.

Further, Secs. 1416(b)(1) and (b)(2) specify enforcement

responsibilities during a transition period in 1981 and 1982. Because

these sections no longer are relevant, the Commission has determined to

delete these provisions, and to renumber and revise the remainder of

Sec. 14.16(b).

F. Section 14.17

Section 14.17 contains an explanation of the Commission's policy

concerning questions that are relevant when the Commission decides

whether to initiate an enforcement action under the trade regulation

rule regarding Disclosure Requirements and Prohibitions Concerning

Franchising and Business Opportunity Ventures (``Franchise Rule''), 16

CFR part 436. The Commission, however, has investigated and filed in

court the vast bulk of its Franchise Rule enforcement actions since it

published this Franchise Rule enforcement protocol in 1984. Thus, the

protocol does not reflect, fully and accurately, the Commission's

present enforcement policy. Moreover, the Commission currently is

reviewing the Franchise Rule under its ongoing regulatory review

program.\9\

\9\ Request for comments, 60 FR 17656 (April 7, 1995).

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For these reasons, the Commission repeals Sec. 14.17. The

Commission will consider whether it is necessary to issue an updated

version of the protocol to reflect current law, fact and policy after

it completes its regulatory review of the Franchise Rule.

Authority: 15 U.S.C. 41-58.

List of Subjects in 16 CFR Part 14

Advertising, motor vehicles, silk, textiles, trade practices,

truth-in-lending.

Text of Amendments

Accordingly, under the authority of 15 U.S.C. 41-58, the Commission

amends 16 CFR part 14 as follows:

PART 14--ADMINISTRATIVE INTERPRETATIONS, GENERAL POLICY STATEMENTS,

AND ENFORCEMENT POLICY STATEMENTS

1. Sections 14.2, 14.4, 14.7, 14.11 and 14.17 are removed.

2. Section 14.16 is revised to read as follows:

14.16 Interpretation of Truth-in-Lending Orders consistent with

amendments to the Truth-in-Lending Act and Regulation Z.

Introduction

The Federal Trade Commission (FTC) has determined that there is a

need to clarify the compliance responsibilities under the Truth-in-

Lending Act (TILA) (Title I, Consumer Credit Protection Act, 15 U.S.C.

1601 et seq.), as amended by the Truth-in-Lending Simplification and

Reform Act of 1980 (Pub. L. 96-221, 94 Stat. 168), and under revised

Regulation Z (12 CFR part 226, 46 FR 20848), and subsequent amendments

to the TILA and Regulation Z, of those creditors and advertisers who

are subject to final cease and desist orders that require compliance

with provisions of the Truth-in-Lending statute or Regulation Z.

Clarification is necessary because the Truth-in-Lending Simplification

and Reform Act and revised Regulation Z significantly relaxed prior

Truth-in-Lending requirements on which provisions of numerous

outstanding orders were based. The Policy Statement provides that the

Commission will interpret and enforce Truth-in-Lending provisions of

all orders so as to impose no greater or different disclosure

obligations on creditors and advertisers named in such orders than are

required generally of creditors and advertisers under the TILA and

Regulation Z, and subsequent amendments to the TILA and Regulation Z.

Policy Statement

(a) All cease and desist orders issued by the FTC that require

compliance with provisions of the Truth-in-Lending Act and Regulation Z

(12 CFR part 226) will be interpreted and enforced consistent with the

amendments to the TILA incorporated by the Truth-in-Lending

Simplification and Reform Act of 1980, and the revision of Regulation Z

implementing the same, promulgated on April 1, 1981 by the Board of

Governors of the Federal Reserve System (46 FR 20848), and by

subsequent amendments to the TILA and Regulation Z. Likewise, the

Federal Reserve Board staff commentary to revised Regulation Z (46 FR

50288, October 9, 1981), and subsequent revisions to the Federal

Reserve Board staff commentary to Regulation Z, will be considered in

interpreting the requirements of existing orders.

(b) After an amendment to Regulation Z becomes effective,

compliance with the revised credit disclosure requirements will be

considered compliance with the existing order, and:

(1) To the extent that revised Regulation Z deletes disclosure

requirements imposed by any Commission order, compliance with these

requirements will no longer be required; however,

(2) To the extent that revised Regulation Z imposes additional

disclosure or format requirements, a failure to comply with the added

requirements will be considered a violation of the TILA.

(c) A creditor or advertiser must continue to comply with all

provisions

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of the order which do not relate to Truth-in-Lending Act requirements

or are unaffected by Regulation Z. These provisions are not affected by

this policy statement and will remain in full force and effect.

Staff Clarifications

The Commission intends that this Enforcement Policy Statement

obviate the need for any creditor or advertiser to file a petition to

reopen and modify any affected order under section 2.51 of the

Commission's rules of practice (16 CFR 2.51). However, the Commission

recognizes that the policy statement may not provide clear guidance to

every creditor or advertiser under order. The staff of the Division of

Enforcement, Bureau of Consumer Protection, will respond to written

requests for clarification of any order affected by this policy

statement.

By direction of the Commission.

Donald S. Clark,

Secretary.

Statement of Commissioner Mary L. Azcuenaga Concurring in 16 CFR Part

14, Matter No. P954215; Repeal of Mail Order Insurance Guides, Matter

No. P954903; Repeal of Guides Re: Debt Collection, Matter No. P954809;

and Free Film Guide Review, Matter No. P959101

In a flurry of deregulation, the Commission today repeals or

substantially revises several Commission guides and other

interpretive rules.\1\ The Commission does so without seeking public

comment. I have long supported the general goal of repealing or

revising unnecessary, outdated, or unduly burdensome legislative and

interpretive rules, and I agree that the repeal or revision of these

particular guides and interpretive rules appears reasonable.

Nevertheless, I cannot agree with the Commission's decision not to

seek public comment before making these changes.

\1\ Administrative Interpretations, General Policy Statements,

and Enforcement Policy Statements, 16 CFR part 14; Guides for the

Mail Order Insurance Industry, 16 CFR part 234; Guides Against Debt

Collection Deception, 16 CFR part 237; and Guide Against Deceptive

Use of the Word ``Free'' in Connection With the Sale of Photographic

Film and Film Processing Services, 16 CFR part 242.

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Although it is not required to do so under the Administrative

Procedure Act, 5 U.S.C. 553(b)(A), the Commission traditionally has

sought public comment before issuing, revising, or repealing its

guides and other interpretive rules. More specifically, the

Commission adopted a policy in 1992 of reviewing each of its guides

at least once every ten years and issuing a request for public

comment as part of this review. See FTC Operating Manual ch. 8.3.8.

The Commission decided to seek public comment on issues such as: (1)

The economic impact of and continuing need for the guide; (2)

changes that should be made in the guide to minimize any adverse

economic effect; (3) any possible conflict between the guide and any

federal, state, or local laws; and (4) the effect on the guide of

technological, economic, or other industry changes, if any, since

the guide was promulgated.

Id. The Commission has sought public comment and has posed these

questions concerning a number of guides since adopting its

procedures for regulatory review in 1992.\2\

\2\ See, e.g., Requests for Comments Concerning Guides for the

Hosiery Industry, 59 FR 18004 (Apr. 15, 1994); Request for Comment

Concerning Guides for the Feather and Down Products Industry, 59 FR

18006 (Apr. 15, 1994).

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Notwithstanding its long-standing, general practice of seeking

public comment and its specific policy of seeking public comment as

part of its regulatory review process, the Commission has chosen not

to seek public comment before repealing or revising these guides and

interpretive rules. Why not? Has the Commission changed its view

about the potential value of public comment? Perhaps the Commission

knows all the answers, but then again, perhaps not. Although

reasonable arguments can be made for repeal or revision of these

guides and interpretive rules, public comment still might prove to

be beneficial.

In addition, the relatively short period of time that would be

required for public comment should not be problematic. The

Commission has not addressed any of these guides or interpretive

rules in the last ten years. Indeed, it has not addressed some of

them for thirty years or more. For example, the Commission

apparently has not addressed the interpretive rule concerning the

use of the word ``tile'' in designation of non-ceramic products

since it was issued in 1950.\3\ The continued existence of these

guides and interpretive rules during a brief public comment period

surely would cause no harm because they are not binding and because,

arguably, they are obsolete. I seriously question the need to act so

precipitously as to preclude the opportunity for public comment.\4\

\3\ 16 CFR 14.2.

\4\ Unfortunately, seeking public comment would not permit the

Commission to count the repeal and revision of these guides and

interpretive rules in its tally of completed actions in the

Regulatory Reinvention Initiative Report that will be sent to the

President on August 1, 1995, but perhaps that harm could be

mitigated by reporting to the President that the Commission is

seeking public comment concerning repeal or revision.

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In 1992, the Commission announced a careful, measured approach

for reviewing its guides and interpretive rules, and public comment

has been an important part of that process. Incorporating public

comment into the review is appropriate and sensible. Although I have

voted in favor of repealing or revising these guides and

interpretive rules, I strongly would have preferred that the

Commission seek public comment before doing so.

[FR Doc. 95-19926 Filed 8-14-95; 8:45 am]

BILLING CODE 6750-01-M