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October 11, 2012

Testimony of Sally Greenberg, Executive Director, National Consumers League, regarding the Consumer Protection Amendment Act of 2011 Bill 19-0581 (2011).
Committee on Public Services & Consumer Affairs
Chairperson Yvette Alexander
1350 Pennsylvania Avenue, NW Suite 6
Washington, DC  20004

Dear Chairperson Alexander:

The National Consumers League submits the following statement in support of the Act.

Statement of Interest

The National Consumers League (“NCL”), founded in 1899, is the nation’s oldest consumer organization.  The mission of the NCL is to promote fairness and economic justice for consumers and workers in the United States and abroad.    The NCL is a non-profit advocacy group which provides government, businesses, and other organizations with the individual’s perspective on concerns including, inter alia, child labor, workers rights, and other work place issues.  The NCL appears before legislatures, administrative agencies, and the courts across the country, advocating the enactment and vigorous enforcement of laws that effectively protect consumers and employees.  The NCL also educates the public in ways to avoid fraud in the marketplace through its National Fraud Center and seeks to increase awareness of and mobilize public resistance to unsavory, anti-consumer behavior.  For more than 100 years the NCL has worked to promote a fair marketplace for workers and consumers.  This was the reason for the NCL’s founding in 1899 and still guides it into its second century.

The Existing Enforcement Structure

Under the existing enforcement structure, consumer protection is provided by three types of entities:

1)         the Office of the Attorney General,

2)         the private bar, and

3)         public interest organizations.

Note, the consumer protection enforcement authority and budget of the Department of Consumer and Regulatory Affairs (DCRA) has been suspended since 1994 as a cost-saving measure.

Shortfalls in the Existing System

The NCL believes the following are shortcomings in the existing system for consumer protection enforcement which supports the passage The Consumer Protection Amendment Act of 2011:

  • Suspension of DCRA’s authority removed an important mechanism for halting unlawful trade practices,
  • The Consumer Fund §28-3911 (Act 19-98, § 9003(a)) in 2011 which received monies from private and public enforcement actions for future enforcement actions by the OAG, was eliminated.
  • The D.C. Court of Appeals decision in Grayson v. AT&T Corp.[1] prevents nonprofit organizations without traditional Article III standing from bringing suit on behalf of the general public to halt the continued use of unlawful trade practices, leaving a gap in enforcement which previously existed from the 2000 Amendments.
  • There is no regulation governing unit pricing in retail stores, leaving consumers without sufficient information to make informed purchases

Introduction

The Consumer Protection Amendment Act of 2011[2] is designed to strengthen protections given to consumers through the creation of additional illegal trade practices, the granting of standing to nonprofit organizations (without traditional Article III standing) to act on behalf of the general public, and the introduction of unit pricing.

Brief History of Consumer Enforcement in the District of Columbia

The DCRA Office of Compliance was established by statute in 1976 as the District’s “principal consumer protection agency.”[3]

The D.C. Council suspended DCRA enforcement of the Consumer Protection Procedures Act in 1994.[4] This was renewed in 1998[5] and 2000.[6] As of 2010, the DCRA’s Office of Consumer Protection has been discontinued due to these budgetary shortfalls.  The NCL believes that the long-term deprivation of enforcement resources from the DCRA, coupled with the elimination of the Consumer Fund, has financially impacted public enforcement of consumer protection laws.  As a result of this budgetary suspension, the CPPA is mainly enforced through private actions once a consumer has already suffered some type of injury.  This has left consumers with private remedial actions as their only recourse.  Without any significant proactive enforcement, consumers are largely left without protections from illegal trade practices until it is too late.

The private enforcement mechanism currently in place has many shortfalls that do not adequately protect consumers and is not a substitute for DCRA or OAG enforcement.  The current system does not allow consumers to pursue injunctive relief from practices that are ongoing but have not resulted in injury yet or from practices that have harmed others but not the plaintiff.  The Court of Appeals’ decision in Grayson established that the only persons that can bring suit to halt illegal trade practices are those who have already suffered an injury-in-fact.

Standing for Nonprofit Organizations

The D.C. Council passed the Consumer Protection Act of 2000, which included an amendment to the CPPA to allow public interest organizations and the private bar to bring suit for injunctive relief and disgorgement of illegal proceeds in the public interest.  Despite the clear language of the statute, and its legislative history, the District of Columbia Court of Appeals in Grayson held that the amendment did not reveal an explicit intent of the D.C. Council to eliminate the requirement that the plaintiff suffer an injury-in-fact to enjoy standing to bring a claim.  The court examined the legislative and drafting history of the amendments and determined that the D.C. Council did not clearly signal its intent to overturn the prudential standing requirements the Court had previously adopted.  This bill clearly seeks to provide such clarity.

The amendment to section 3905(k)(1)(B) and (C) here expresses the clear intent of the Council to grant nonprofit organizations standing under the CPPA without the need to suffer an injury-in-fact to itself or its members and to legislatively and partially overrule Grayson.  This is a necessary step because budget cuts have left the CPPA with diminished funding for government enforcement.  This amendment seeks to fill that void by authorizing nonprofits groups to pursue cases that normally would be prosecuted by the DCRA or OAG.  The U.S. District Court for the District of Columbia held that the National Consumers League (NCL) bringing suit as a private attorney general on behalf of the general public did not have Article III standing when it could not allege an individualized injury to itself or when it lacked organizational standing.[7] While the case was remanded back to D.C. Superior Court where standing was initially found, Grayson later mandated the suit’s dismissal prior to a resolution on the merits.

This stands in sharp contrast to a matter NCL prosecuted and resolved prior to the Court of Appeals’ issuance of Grayson. The NCL, brought suit on behalf of the general public against Kellogg Company for false advertising in relation to allegedly false health claims made on its cereal boxes.[8] This litigation resulted in a settlement agreement whereby Kellogg donated $200,000 to food based charities and programs and 8,000 cases of cereal (or approximately 100,000 boxes) to local D.C. food banks and charities.[9] In Ward 7 alone, this settlement benefited the following charities with food initiatives: Nehemiah's Food Pantry, First National Baptist Church, Incarnation Church St. Vincent; Pennsylvania Baptist Church and Food & Clothing Center of Ward 7.  Actions like this demonstrate the beneficial nature of permitting private attorney general claims to be prosecuted by nonprofit organizations.

This amendment explicitly allows suits brought by nonprofit organizations, when acting as private attorneys general, to proceed in D.C. Superior Court and provide necessary protections to the District’s consumers.  Section 3901(a)(14) defines nonprofit organizations in relation to federal nonprofit law under 26 U.S.C. § 501(c).  Other D.C. law regarding nonprofits reference federal law and there is no definition of nonprofits under the D.C. Code.[10] This ensures that the organizations allowed to bring suit without an injury-in-fact are doing so for the public benefit.

 

Clarifying the Definition of Consumer and Consumer Goods or Services

The amendment clarifies the definition of consumer when used as an adjective and brings it in line with the definition of consumer under the Magnusson-Moss Warranty Act.[11] That act similarly defines a consumer product as “any tangible personal property which is distributed in commerce and which is normally used for personal, family, or household purposes.”[12] Thus, the change seeks to include property that is not used exclusively for personal, family, or household purposes.  This eliminates the unintended consequence that consumer goods or services, which are typically used for consumer purposes, could fail to qualify for protections under the CPPA because of use for commercial purposes.

Additions to Unlawful Trade Practices

There are several proposed additions to section 3904 that are designed to provide improved protections for consumers against unscrupulous business practices:

“(f-1) Use innuendo or ambiguity as to a materials fact, which has a tendency to mislead”

Section 3904(f-1) prohibits the willful use in written representations of falsehood, innuendo, or ambiguity as to a material fact.  This language is borrowed from the Kansas Consumer Protection Act[13] and is similar to the Hawai’i Uniform Deceptive Trade Practices Act.[14] This prevents businesses from mischaracterizing their goods or services and preying on consumers who are expecting to receive something different.  Kansas courts clarify that the intent needed is intent to engage in the act, not intent to violate the statute.[15]

Representing that a transaction confers or involves rights, remedies, or obligations which it does not have or involve, or which are prohibited by law”

Section 3904(r)(6) adds an additional factor for courts to consider in determining whether a term or provision is unconscionable.  This language is similar to language found in the consumer protection statutes of Alaska,[16] California,[17] Tennessee,[18] Texas,[19] and Guam.[20] This strengthens consumers’ ability to receive the benefit of the bargain and disincentivizes merchants from attempting to trick consumers into believing they are going to receive something different than they are providing.  It also prevents merchants from including terms that cannot come into effect because they are prohibited by law.  Taken together, this subsection allows courts to police transactions to determine whether the merchant represented that the deal contained terms that will not take effect.

“(ii) Engage in any unfair business act or practice, which occurs when the practice:

(1) Offends established public policy or when the practice is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers, and the practice is not outweighed by countervailing benefits to consumers; or (2) Threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition.”

Section 3904(ff) prohibits merchants from engaging in unfair acts or practices, which are defined as occurring in two circumstances.  Subsection (1) prohibits acts that offend established public policy, or are immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers.  This language originates with an FTC rule prohibiting certain advertisements that neither violate laws nor are deceptive but nonetheless are unfair.[21] The language has been adopted by courts in analyzing consumer statutes in Hawaii,[22] Louisiana,[23] Massachusetts,[24] and North Carolina[25] as a way to define an unfair trade practices.  Oklahoma uses the phrase to statutorily define an unfair trade practice.[26] The proposed bill also contains a provision that these prohibited practices must not be outweighed by countervailing benefits to consumers.  This produces a balancing effect in which only those practices that have an ultimate negative impact on consumers are prohibited.[27]

Subsection (2) polices unfair competition amongst merchants because of the negative impact they have on consumers.  This subsection also applies to practices that otherwise significantly harm or threaten to harm competition.  Taken together, these practices harm consumers by undermining competitive markets.  This language originated in California case law that interpreted the state’s Unfair Competition Law.[28]

Unit Pricing

Unit pricing provides the price of goods based on cost per unit of measure.  It is calculated by dividing the price of the product by an accepted unit of measurement depending on the type of product (e.g., grams, liters) and provides an intensive price.  The proposed language is based off a model act created by the National Conference of Weights and Measures and is supported by the Department of Commerce’s National Institute of Standards and Technology.[29] Three quarters of all grocery shoppers rely on unit pricing to make comparisons, according to the Food Marketing Institute, an industry trade association. It should be noted that many industry trade associations worked with NIST to create the model act.

As of August 2011, there are nineteen states and two territories that have adopted unit pricing.[30] This includes D.C.’s sister jurisdiction Maryland.[31] We have spoken with a member of the Division of Consumer Protection of Maryland’s Office of the Attorney General and found that there have been no enforcement actions within the state since its introduction of a similar law.  This demonstrates that unit pricing laws are easily implemented and compliance is easy to maintain.

Unit pricing allows customers to compare value between different brands, different sized packages, different package types, and different products.[32] It allows consumers to identify the best value and use one consistent measure to sort through various package sizes, brands, and substitute products.  It also provides an indicator of relative quality among different brands.  Unit pricing places the focus on the pricing of the product rather than the brand name.  It also reduces the need for excessive packaging that can prove deceptive.

Unit pricing also benefits retailers by promoting sales and private label products, which are often less costly than a brand name product, and helps reduce pricing errors.  With a uniform unit pricing system consumers can also compare prices of the same product between stores.  This will benefit businesses by providing a way to showcase that they have the lowest prices and best value.  Unit pricing is consistent with the goals of the federal Fair Packaging and Labeling Act that informed consumers are a crucial component of the market.[33] Unit pricing provides information to consumers that allow them to make a more educated purchase decision and promotes healthy competition among businesses.

Creating a uniform system for unit pricing eliminates inconsistencies that arise through voluntary use.  Many stores voluntarily provide unit pricing, but this is done in an inconsistent manner, including using different units of measurement for similar products or only selectively providing unit pricing for only certain brands in product category.  A survey done by NCL found that unit pricing is not done uniformly in D.C.[34] Among the seven stores surveyed that had voluntarily provide unit pricing, NCL found that each store had a different labeling system, there was wide variation in the units used, and many pricing calculations were incorrect.  This can mislead consumers when comparing products or if they compare prices between stores.  Instituting a uniform unit pricing system will eliminate this confusion by mandating consistent and accurate labels for all products and stores.

CONCLUSION

For these reasons, the NCL supports The Consumer Protection Amendment Act of 2011 and urges its passage.

 

________________

Sally Greenberg

Executive Director

National Consumers League

 


[1] 15 A.3d 319 (D.C. 2011) (en banc).

[2] B19-581 (2011).

[3] D.C. Code § 28-3902(a) (2012).

[4] Multiyear Budget Spending Reduction and Support Emergency Act of 1994, Act 10-389, § 808, 42 D.C. Reg. 229-30 (Jan. 13, 1995).

[5] Consumer Protection Amendment Act of 1998, Act 12-399, § 1403 (suspending enforcement through 2000).

[6] Consumer Protection Act of 2000, Act 13-375, § 1402 (suspending enforcement through 2002).

[7] The Nat’l Consumers League v. Gen. Mills, Inc., 680 F. Supp. 2d 132, 134-36 (D.D.C. 2010).

[8] The Nat’l Consumers League v. Kellogg Company, No. 2009 CA005211 B (D.C. Super. Ct.)

[9] The allegedly false statements were also halted by other litigation.

[10] See, e.g., D.C. Code §§ 2-1210.01(7), 42-2801(8), 42-3601(1), 47-3505(a), 47-857.11(1), § 51-103(h).  The sections on incorporated nonprofits and unincorporated nonprofits associations do not contain a definition of a nonprofit.  See D.C. Code §§ 29-101.02, 29-1102(5).

[11] 15 U.S.C. § 2301(1) (2006).

[12] Id. The language also mirrors the U.C.C. definition of consumer goods, defined as “goods that are used or bought for use primarily for personal, household, or family purposes.”  D.C. Code § 28:9-102(a)(23).

[13] Kan. Stat. Ann. § 50-626(b)(2).

[14] HRS § 481A–3(a)(12) (catchall clause stating that “any other conduct which similarly creates a likelihood of confusion or of misunderstanding” is a deceptive trade practice).

[15] York v. InTrust Bank, N.A., 962 P.2d 405, 421 (Kan. 1998).

[16] Alaska Stat. § 45.50.471(b)(14).

[17] Cal. Civ. Code § 1770(a)(14)

[18] Tenn. Code Ann. § 47-18-104(b)(12).

[19] Tex. Bus. & Com. Code Ann. § 17.46(b)(12).

[20] 5 Guam Code Ann. § 32201(b)(12).

[21] 29 Fed. Reg. 8324, 8355 (July 2, 1964); see FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 244 n.5 (U.S. 1972).

[22] Balthazar v. Verizon Haw., Inc., 123 P.3d 194, 202 (Haw. 2005).

[23] Monroe Med. Clinic, Inc. v. Hosp. Corp. of Am., 622 So.2d 760, 781 (La. Ct. App. 1993).

[24] Mass. Farm Bureau Fed’n, Inc. v. Blue Cross of Mass., Inc., 532 N.E.2d 660, 664 (Mass. 1989).

[25] John v. Phoenix Mut. Life Ins. Co., 266 S.E.2d 610, 621 (N.C. 1980).

[26] Okla. Stat. tit. 15, § 752(14).

[27] Camacho v. Auto. Club of S. Cal., 48 Cal. Rptr. 3d 770, 779 (Ct. App. 2006).

[28] Cel-Tech Commc’ns, Inc. v. L.A.Cellular Tel. Co., 973 P.2d 527, 544 (Cal. 1999).

[29] National Institute of Standards and Technology, NIST Handbook 130:  Uniform Law and Regulations in the Areas of Legal Metrology and Engine Fuel Quality as Adopted by the 96th National Conference on Weights and Measures 2011, at 135-40 (2012), available at http://www.nist.gov/pml/wmd/pubs/upload/2012-h130-final2.pdf.

[30] National Institute of Standards and Technology, NIST Handbook 130:  Uniform Law and Regulations in the Areas of Legal Metrology and Engine Fuel Quality as Adopted by the 96th National Conference on Weights and Measures 2011, at 10-13 (2012), available at http://www.nist.gov/pml/wmd/pubs/upload/2012-h130-final2.pdf.

[31] Md. Code Ann., Com. Law § 14-101 to -107.

[32] See Hans R. Isakson & Alex R. Maurizi, The Consumer Economics of Unit Pricing, 10 J. Marketing Res. 277 (1973); Vincent-Wayne Mitchell et al., Consumer Awareness, Understanding and Usage of Unit Pricing, 14 Brit. J. Mgmt. 173 (2003); Kent B. Monroe & Peter J. LaPlace, What Are the Benefits of Unit Pricing?, J. Marketing, July 1972, at 16.

[33] 15 U.S.C. § 1451 (2006).

[34] National Consumers League, The Case for Unit Pricing:  Benefits of Reliable, Standard Food Labeling.