The Future of Consumer Protection Regulation

Michael B. Mazis, The American University
ABSTRACT - The purpose of this paper is to provide a perspective on consumer protection regulation in the 1980's. In the course of this discussion, seven allegedly deadly sins of consumer protection are discussed. While there is some truth to each of these "deadly sins", they are not true to the degree suggested by critics of consumer regulation.
[ to cite ]:
Michael B. Mazis (1981) ,"The Future of Consumer Protection Regulation", in NA - Advances in Consumer Research Volume 08, eds. Kent B. Monroe, Ann Abor, MI : Association for Consumer Research, Pages: 455-457.

Advances in Consumer Research Volume 8, 1981      Pages 455-457

THE FUTURE OF CONSUMER PROTECTION REGULATION

Michael B. Mazis, The American University

ABSTRACT -

The purpose of this paper is to provide a perspective on consumer protection regulation in the 1980's. In the course of this discussion, seven allegedly deadly sins of consumer protection are discussed. While there is some truth to each of these "deadly sins", they are not true to the degree suggested by critics of consumer regulation.

ATTENTION ABOUT WHAT TO REGULATE

There has been considerable criticism that consumer protection regulation has followed a scattergun approach in determining the areas selected for regulation. Often, the logic underlying selection of target sectors for government involvement is unknown to even well-informed observers. There appears to be over-regulation in some areas and, contrary to the belief of many business persons, there is likely under-regulation in other areas. The 1980's will see several important shifts in consumer protection regulatory activity.

First, there will he a substantial shift away from advertising regulation toward regulation in other areas. Recent FTC budgets show a substantial decrease in expenditures for advertising activities, with little emphasis on new rule-making activities. The FTC, known as the Tyrannosaurus Rex of regulatory agencies, is likely to show much more discretion in promulating new investigations and enacting additional rules over the next decade. The agency is quite aware that many of its advertising initiatives have been ill-advised both on substantive and on political grounds.

Most of the food advertising rule has been scraped and it can be anticipated that very little of this ambitious undertaking will be enacted into final regulation. The children's advertising rule is currently in hibernation and it is unlikely to appear in a form resembling the original proposal. The FTC's over-the-counter drug rule is likely to be discarded.

Second, there will be a substantial increase in de-regulatory activities both from the FTC and HHS. Various restrictions against professional service proliferation, such as not alloying franchises and advertising, will be under serious attack by consumer protection regulators. These efforts will be met with resistance on the part of the Supreme Court, which has supported state restrictions, which bar professional service expansion. The Court has followed a "states' rights" position in overturning a major portion of the FTC's eyeglasses rule. It is unclear at this time whether the Court will allow federal agencies to preempt state law. As a result, there is likely to be a shift to additional effort at the state and local level to overturn regulatory activities which further the profession and harm the consumer. This emphasis on state and local regulation follows the shift in media patterns resulting from cable T.V. expansion and more localized T.V. programming which coincides with more careful targeting by advertisers. As a result, much of the battleground of advertising regulation may shift from the national arena to more localized efforts.

It should be noted that this emphasis on deregulatory activity or free choice may face a counter-cyclical trend. At this point, the pendulum is swinging against free choice in certain areas. For example, motorcycle helmet law repeal has resulted in an enormous increase in accidental deaths. Therefore, in the latter part of the decade there is likely to be additional concern for the consumer's health and safety.

Third, there is likely to he an emphasis on cost or pocketbook issues. In housing, there will be increased pressures by homeowners for warranties. Pressures will build on insurance companies for cost disclosures and there will be serious attempts to provide greater opportunities for alternative providers, such as banks, to sell insurance at a lower cost.

Fourth, there will continue to be a major emphasis on health and safety regulation, especially involving uncontrollable risks. Consumers believe that where information can be supplied through labeling, they are able to control risks and, therefore, product bans are unnecessary. For example, nitrate and saccharin bans are unacceptable to many consumers since they choose to decide whether they wish to be risk-takers or risk-avoiders. On the other hand, when risk cannot be controlled by the consumer, there will continue to be significant regulatory activity. For example, new laws have been passed regulating infant formula and FDA has been given additional regulatory authority in this area. FDA recently enacted patient package insert regulations which provide for additional information to be given to consumers about prescription drugs. This regulation has met with little public controversy. Efforts to protect the water supply, which involves an uncontrollable risk, will come under increased scrutiny by consumer protection regulators in the coming decade.

Finally, there will be increased concern about product liability. For example, the Supreme Court has permitted victims of the cancer-causing drug DES to sue all major DES manufacturers for damages even if the victims cannot identify the specific company that sold them the drug. Under this ruling, a company may be made to pay for damages it never caused to someone who may never have consumed the product. To escape liability the firm must prove that it could not have made the product that caused the injury. This approach departs dramatically from conventional legal practice, which generally requires a showing of direct responsibility before damages can be awarded.

This increase in product liability awards has two important consequences. First, it may reduce the need for the Consumer Product Safety Commission (CPSC) to take action since products liability cases can serve as an important deterrent to manufacturers producing unsafe products. This does not mean that CPSC is likely to be eliminated in the near future; however, the agency will find it difficult to undertake new initiatives. Second, these large awards may cause increased pressures to restrict product liability awards. Similar pressures have been noticed in the medical malpractice area.

CHOICE OF HOW TO REGULATE

In the past, there has been an emphasis by consumer protection regulators on product bans. However, public resistance has encouraged regulators to move away from this form of regulatory activity. One major turning point involved public resistance against seat belt interlock systems, which was followed by a public outcry against proposed Laetrille and saccharin bans. A few years ago, FDA routinely passed "death sentences" against entire product categories. The cranberry crop was doomed one year because some of it was contaminated by a dangerous insecticide. Cyclamates were banned on the basis of a handful of reports indicating that it might be a carcinogen when used in small amounts over a long time period. New processes for manufacturing high protein fish flour at greatly reduced costs were rejected because they ground up the entire fish, complete with waste matter.

There is likely to be a shift towards informational approaches as opposed to bans. However, during the decade, questions will be reined about whether consumers can absorb all the information presented, understand the information and use the information in decision making. For example, can consumers understand DOT's complex tire rating system? Several studies have shown the futility of FTC's detailed food advertising disclosures in advertising. Can consumers understand complicated rink information such as is available based on animal testing? Questions will be raised about the processibility of the information disseminated through government regulation.

There will also be a shift from rule making to case-by-case adjudication to avoid the political pressure imposed by legislative vetoes over proposed regulation. The battle over legislative vetoes is likely to persist over the next several years. As Elliot Levitas one of the leaders of the legislative vetoes has suggested, "We are returning to the people the control over these regulations and at the same time we have sensitized the "bureaucracy". However Stanley Cohen from Advertising Age has suggested, "It will enable powerful interests to affect the regulatory process in secret, behind the closed doors of individual committees and in individual members' offices." As the decade begins, the proponents of legislative vetoes appear to be winning the war. However the increased burden on Congress to cope with the extensive lobbying will eliminate additional pressures for legislative veto efforts towards the end of the decade.

Finally, there will be increased emphasis on enforcing current regulations rather than on initiating new regulations. While this is a welcome change for many people, there may be negative effects. Regulators will be content to develop a scorecard of politically safe enforcement actions, which may represent little consumer gain, but may create the illusion of regulator victories.

SENSITIVITY TO POLITICAL PRESSURES AND TO THE POLITICAL PROCESS

There is a serious question as to whether regulators' alleged insensitivity to political pressures is a sin or virtue. As the decade begins we are witnessing an end to truly independent regulatory agencies, since they are becoming increasing politicized. We note the specter of the FTC Chairman Michael Pertschuk being "roasted" on the Hill rather than serving in his role as an independent commissioner. During the decade, regulatory agencies will develop increased sensitivity to political pressures. On the other hand, these pressures may create management difficulties, such as have been observed at the Department of Energy, since little time will exist for long-range planning. Agencies will engage in more sophisticated "lobbying," although formal lobbying efforts on the Hill are prohibited. Congressional staffs will he given information about key issues and the regulatory agency will be "positioned" as merely acting as the servant of Congressional committees who will demand that the agency initiate an investigation. Regulatory agencies will play the role of feeding ideas to legislative staffs who will hold hearings and "pressure" agencies to respond to public needs.

In addition, regulatory agencies will become more innovative in generating public pressure for needed reforms. Investigative television shows, such as Sixty Minutes or 20/20 are always seeking to expose a consumer fraud or report on an issue of general consumer interest. Regulatory agencies will become more sophisticated in using the media to further regulatory activity by generating public pressure for regulatory action.

Position of Business in Regulatory Proceedings

Business interests have reacted to what they believe in the inherent unfairness of the regulatory process. Many business persona feel that they are convicted through publicity even if they are found innocent of any wrongdoing. They charge the system is run by people who are unfamiliar and unsympathetic to the business point of view. They frequently note that the regulatory process is not conducive to outside views since agencies appear to have made a decision before the process starts.

In the 1980's, regulators will be more open to the views of business groups, due to the increased power of the business point of view in Congress. There will be attempts at joint research among business and government, although many of these efforts will fail to produce an acceptable product. Business and government legal staffs counsel against undertaking joint research activity. However, the courts will more carefully scrutinize agency rule-making, which will result in government regulators paying increased attention to evaluating low-cost alternatives proposed by business groups.

STUDY OF HOW MARKETS OPERATE

Regulatory agencies will show increased understanding of business activities and evidence less myopia in promulgating new rules. There will be an increased use of academics and MBA's in regulatory agencies. However, there will continue to be domination by a single perspective at regulatory agencies. For example, lawyers will continue to dominate FTC proceedings; physicians will control FDA activities; and engineers will dominate the activities of DOE, CPSP and DOT.

There will be increased contact between business and regulatory groups, which will facilitate a greater understanding of market activity. However, there will be great difficulty arriving at mutual understandings because both business and government groups will continue to have an incentive for conflict rather than cooperation. The Washington representatives on the business side and the legal staff on the government side both have an interest in maintaining conflict.

The real breakthrough in cooperative activity will come from pressures by U.S. industry to be competitive with foreign competition. As a result, regulators will be forced to work with business interests in order to meet the threat of foreign competition. We have already seen changes in the automobile industry, with EPA and DOE working more closely with the automobile companies. In the anti-trust area there will be increased pressures to allow large firms, especially in the communications field, to meet world-wide competition.

The greatest area of cooperation will be in consumer education. Industry quality standards, such as the homeowner warranty program, will proliferate. These efforts, which have been tried by Japan and Sweden, will be tried in the United States as consumers seek more value from products.

There will be less detailed and more flexible rule-making by regulatory agencies, which reflects a greater confidence and understanding of business. There will be much more emphasis on performance standards, which monitor actual output, rather than on design standards.

ECONOMIC ANALYSIS

In the past, there has been little economic analysis to determine if a rule is needed and to discover if a regulation is effective. There have been many proposals for increased economic analysis of proposed regulations. At present, these regulatory analysis proposals are not taken seriously by regulatory agencies. These efforts are viewed as a chore to be undertaken after regulation is developed and a regulatory analysis is developed to justify the regulation. However, as additional economists are hired by government agencies to perform regulatory analyses, economists will develop increased power. They will be able to veto regulations because it can be claimed that a regulation cannot be justified economically. However, economists will have great difficulty in undertaking new initiatives, except in the deregulation area. The economist will serve as a brake on regulatory activity and will tend to be reactive as opposed to proactive.

USE OF CONSUMER BEHAVIOR THEORY AND RESEARCH

There will be great increases in regulatory agency research budgets, primarily in the evaluation and regulatory analysis areas. However, these funds can be used to support a variety of consumer projects. Overall, there will be more sophisticated government research. However, there will be little basic research into information processing and other important areas, since most of the research will continue to concern applied efforts.

SUMMARY

Overall, regulators will be more prudent in their choice of what to regulate. Greatest attention will he devoted to situations where markets have failed or aren't working properly. Deregulation will be emphasized as opposed to regulation. Services will come under greater scrutiny. Information remedies will be used rather than product or advertising bans. However, the problem of too much detailed information on product labels and in advertising will be an increasing problem as the decade of the 1980's concludes.

There will be greater sensitivity to political realities; however, this will be accompanied by a loss of independence by regulatory agencies who will be under increasing Congressional scrutiny. There will be increased cooperation between government and business groups, resulting largely from enhanced power of business groups with Congress. There will be increased use of economic analysis and consumer research. However, these fields will tend to be reactive rather than proactive. Economics, as a result of its greater theoretical grounding, will exert far mere impact than consumer behavior research. However, consumer researchers will continue to exercise an increasingly important role. There is a difficult road ahead for consumer protection regulation, but regulators will become more prudent and perhaps more successful in their regulatory efforts.

----------------------------------------