[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
H.R. 4501, GUARANTEE OF A LEGITIMATE DEAL ACT, AND H.R. 2480, TRUTH IN
FUR LABELING ACT
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COMMERCE, TRADE,
AND CONSUMER PROTECTION
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
MAY 13, 2010
__________
Serial No. 111-123
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
----------
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COMMITTEE ON ENERGY AND COMMERCE
HENRY A. WAXMAN, California, Chairman
JOHN D. DINGELL, Michigan JOE BARTON, Texas
Chairman Emeritus Ranking Member
EDWARD J. MARKEY, Massachusetts RALPH M. HALL, Texas
RICK BOUCHER, Virginia FRED UPTON, Michigan
FRANK PALLONE, Jr., New Jersey CLIFF STEARNS, Florida
BART GORDON, Tennessee NATHAN DEAL, Georgia
BOBBY L. RUSH, Illinois ED WHITFIELD, Kentucky
ANNA G. ESHOO, California JOHN SHIMKUS, Illinois
BART STUPAK, Michigan JOHN B. SHADEGG, Arizona
ELIOT L. ENGEL, New York ROY BLUNT, Missouri
GENE GREEN, Texas STEVE BUYER, Indiana
DIANA DeGETTE, Colorado GEORGE RADANOVICH, California
Vice Chairman JOSEPH R. PITTS, Pennsylvania
LOIS CAPPS, California MARY BONO MACK, California
MICHAEL F. DOYLE, Pennsylvania GREG WALDEN, Oregon
JANE HARMAN, California LEE TERRY, Nebraska
TOM ALLEN, Maine MIKE ROGERS, Michigan
JANICE D. SCHAKOWSKY, Illinois SUE WILKINS MYRICK, North Carolina
CHARLES A. GONZALEZ, Texas JOHN SULLIVAN, Oklahoma
JAY INSLEE, Washington TIM MURPHY, Pennsylvania
TAMMY BALDWIN, Wisconsin MICHAEL C. BURGESS, Texas
MIKE ROSS, Arkansas MARSHA BLACKBURN, Tennessee
ANTHONY D. WEINER, New York PHIL GINGREY, Georgia
JIM MATHESON, Utah STEVE SCALISE, Louisiana
G.K. BUTTERFIELD, North Carolina
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana
DORIS O. MATSUI, California
DONNA M. CHRISTENSEN, Virgin
Islands
KATHY CASTOR, Florida
JOHN P. SARBANES, Maryland
CHRISTOPHER S. MURPHY, Connecticut
ZACHARY T. SPACE, Ohio
JERRY McNERNEY, California
BETTY SUTTON, Ohio
BRUCE L. BRALEY, Iowa
PETER WELCH, Vermont
Subcommittee on Commerce, Trade, and Consumer Protection
BOBBY L. RUSH, Illinois
Chairman
JANICE D. SCHAKOWSKY, Illinois CLIFF STEARNS, Florida
Vice Chair Ranking Member
JOHN P. SARBANES, Maryland RALPH M. HALL, Texas
BETTY SUTTON, Ohio ED WHITFIELD, Kentucky
FRANK PALLONE, Jr., New Jersey GEORGE RADANOVICH, California
BART GORDON, Tennessee JOSEPH R. PITTS, Pennsylvania
BART STUPAK, Michigan MARY BONO MACK, California
GENE GREEN, Texas LEE TERRY, Nebraska
CHARLES A. GONZALEZ, Texas MIKE ROGERS, Michigan
ANTHONY D. WEINER, New York SUE WILKINS MYRICK, North Carolina
JIM MATHESON, Utah MICHAEL C. BURGESS, Texas
G.K. BUTTERFIELD, North Carolina
JOHN BARROW, Georgia
DORIS O. MATSUI, California
KATHY CASTOR, Florida
ZACHARY T. SPACE, Ohio
BRUCE L. BRALEY, Iowa
DIANA DeGETTE, Colorado
JOHN D. DINGELL, Michigan (ex
officio)
C O N T E N T S
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Page
Hon. John Barrow, a Representative in Congress from the State of
Georgia, opening statement..................................... 1
Hon. Ed Whitfield, a Representative in Congress from the
Commonwealth of Kentucky, opening statement.................... 2
Prepared statement........................................... 3
Hon. Anthony D. Weiner, a Representative in Congress from the
State of New York, opening statement........................... 4
Hon. Robert E. Latta, a Representative in Congress from the State
of Ohio, opening statement..................................... 5
Hon. Steve Scalise, a Representative in Congress from the State
of Louisiana, opening statement................................ 5
Hon. Kathy Castor, a Representative in Congress from the State of
Florida, prepared statement.................................... 89
Hon. Joe Barton, a Representative in Congress from the State of
Texas, prepared statement...................................... 92
Witnesses
James A. Kohm, Associate Director, Division of Enforcement,
Bureau of Consumer Protection, Federal Trade Commission........ 9
Prepared statement........................................... 11
Charles Bell, Programs Director, Consumers Union................. 20
Prepared statement........................................... 22
Cecilia L. Gardner, Esq., President and CEO, Jewelers Vigilance
Committee...................................................... 35
Prepared statement........................................... 37
Michael Markarian, Chief Operating Officer, The Humane Society of
the United States.............................................. 46
Prepared statement........................................... 49
Answers to submitted questions............................... 96
Keith Kaplan, Executive Director, Fur Information Council of
America........................................................ 75
Prepared statement........................................... 77
Submitted Materials for the Record
Letter of May 3, 2010, from Green Bullion Financial Services, LLC
(Cash4Gold) to the Subcommittee................................ 94
Statement of the National Trappers Association................... 95
H.R. 4501, GUARANTEE OF A LEGITIMATE DEAL ACT, AND H.R. 2480, TRUTH IN
FUR LABELING ACT
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THURSDAY, MAY 13, 2010
House of Representatives,
Subcommittee on Commerce, Trade,
and Consumer Protection,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 1:27 p.m., in
Room 2322, Rayburn House Office Building, Hon. John Barrow
[member of the subcommittee] presiding.
Present: Representatives Weiner, Barrow, Whitfield,
Scalise, and Latta.
Also Present: Representative Moran of Virginia.
Staff Present: Michelle Ash, Chief Counsel; Timothy
Robinson, Counsel; Will Cusey, Special Assistant; Peter
Ketcham-Colwill, Special Assistant; Sarah Fisher, Special
Assistant; Daniel Hekier, Intern; Brian McCullough, Minority
Senior Professional Staff; Shannon Weinberg, Minority Counsel;
Sam Costello, Minority Legislative Assistant; and Robert
Frisby, Minority FTC Detailee.
OPENING STATEMENT OF HON. JOHN BARROW, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF GEORGIA
Mr. Barrow [presiding]. The subcommittee on Commerce,
Trade, and Consumer Protection will now come to order.
Today the subcommittee will consider two bills, H.R. 4501,
the Guarantee of a Legitimate Deal Act, introduced by
Representative Weiner; and H.R. 2480, the Truth in Fur Labeling
Act, introduced by Representatives Moran and Bono Mack.
Before I move forward with the hearing, I would like to ask
unanimous consent that the record be left open for 10
legislative days so that members may be able to revise and
extend their remarks. Without objection, Mr. Moran will sit in
as a member of the subcommittee for purposes of this hearing.
Today the subcommittee will hear testimony on two important
bills to protect and inform consumers. The first bill we will
consider is H.R. 4501, the Guarantee of a Legitimate Deal Act
of 2010, introduced by Representative Weiner on January 21,
2009, to acquire certain policies from businesses that purchase
precious metals from consumers and solicit such transactions
through an Internet Web site.
The bill would require online purchasers of precious metals
to wait until receiving an affirmative acceptance of the amount
offered before melting down a consumer's jewelry. Online
purchasers of precious metals will be required to promptly
return jewelry to the consumer if the consumer declines the
amount offered.
In addition, the bill will set a standard for the amount of
insurance provided by online purchasers of precious metals on
shipments of jewelry or precious metals.
With our second panel, we will consider H.R. 2480, the
Truth in Fur Labeling Act, introduced by Representatives Moran
and Bono Mack, on May 18, 2000. The bill would amend the Fur
Products Labeling Act to require all fur apparel to have
labels, not just those products valued at over $150. It would
also instruct the Federal Trade Commission to update its fur
products' name guide. H.R. 2480 is a bipartisan bill and
currently has 165 cosponsors. A companion bill, S. 1076, had
been introduced in the Senate.
At this time I will recognize the ranking member, Mr.
Whitfield, for 5 minutes to make an opening statement.
OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF KENTUCKY
Mr. Whitfield. Mr. Chairman, thank you very much. And I
want to thank the witnesses for being with us today.
As has been said, this is a hearing on H.R. 2480, the Truth
in Fur Labeling Act. I am one of the cosponsors of that
legislation--and I believe there are 165 cosponsors as of
today--introduced by Mr. Moran and Mrs. Bono Mack. This
legislation would amend the Fur Products Labeling Act to
provide the elimination of a current examination; also would
call for a review by the Federal Trade Commission of its fur
guidelines book and authority to revise such guidelines as
appropriate. It also provides authority for the States to enact
their own labeling requirements.
I do have some concerns about the effectiveness of a
Federal law if the States can require different labeling
requirements because of the problems in interstate commerce
that that sometimes causes, but I do look forward to the
testimony from all the interested parties today.
H.R. 4501, the Guarantee of a Legitimate Deal Act. The
intent of this legislation is to protect consumers who sell
precious metals to Internet-based purchasers. The most common
complaints are usually regarding the amount of cash value the
consumer receives and whether or not they have the ability to
reject the offer and get their items back if they decide to
cancel the transaction, and how easily is that accomplished?
I also have a few questions about whether or not this
legislation is broad enough and should it apply only to
Internet-based precious metal purchasers or should it go beyond
that?
So I look forward to the testimony today on this
legislation, and I yield back the balance of my time.
Mr. Barrow. I thank the gentleman from Kentucky for
yielding.
[The prepared statement of Mr. Whitfield follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Barrow. And the chair at this time recognizes Mr.
Weiner of New York for the purpose of making an opening
statement.
OPENING STATEMENT OF HON. ANTHONY D. WEINER, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF NEW YORK
Mr. Weiner. Thank you, Mr. Chairman. I appreciate the
witnesses and I appreciate my colleagues for being here.
Today we're going to have a hearing that was prompted by
the toxic combination of two things; that is, the downturn in
the economy and the ignorance of consumers about what their
rights are and what they can expect reasonably when they are
trying to sell their gold. It was prompted by complaints and
concerns about the largest company in the industry, Cash4Gold.
Cash4Gold pays about between 11 and 29 percent of the
market price for gold, effectively ripping off consumers. Their
return policies are deceptive and put all of the cards in the
hands of the business and none in the hands of consumers.
For example, if you don't accept an offer within 12 days,
it is considered accepted, the gold is melted down and you lose
your right. Obviously, consumers have no way to know when that
12 days begins or ends.
We also know that, for example, their return policies are
also stacked against consumers in a way that can only be called
fraudulent. A consumer that ensures their gold when it is
mailed finds that it is not insured when it is returned. And
the United States Postal Service recently conducted an
investigation that found over 1,300 losses associated with
Cash4Gold, and when they looked at each and every one of them,
they concluded that there were no irregularities on the part of
the Postal Service, leading them and me and the regular
consumer to conclude that losing their customers' gold is part
of their business model.
Now, we invited the CEO of the company to come here, and he
was told that he could not, because he was speaking at a
conference in San Diego. In fact, a brief look at the Internet,
which we do have access to here at the Energy and Commerce
Committee, showed that he did not speak today; he spoke
yesterday. A grand total of 76 different flight options were
available to him to be able to get here for as little as $169.
When asked if they would offer anyone else that would
explain some of these policies that led to investigations in so
many States and so many disgruntled consumers, they said no.
There apparently is no one that can speak for that company,
even though they have a public relations director who, until
recently, was a federally registered lobbyist.
Now, this is not just a random problem that we have. This
is an orchestrated effort by some businesses to take advantage,
as I said, of consumers. When asked about these complaints--and
there have been many of them--the Better Business Bureau gives
them a C-minus, which is not very good, Mr. Chairman. They
explained that, Oh, these are just our competitors trying to
cause problems.
We're going to find out today that, in fact, it's Cash4Gold
causing many problems for consumers.
Thank you, Mr. Chairman.
Mr. Barrow. I thank the gentleman.
And at this time the chair would recognize the gentleman
from Ohio for purposes of making an opening statement for 3
minutes, Mr. Latta.
OPENING STATEMENT OF HON. ROBERT E. LATTA, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OHIO
Mr. Latta. Thank you very much, Mr. Chairman and Ranking
Member Whitfield. Thanks very much for holding this hearing
today to discuss the issues surrounding the fraud with
Internet-based companies that appraise and purchase jewelry
directly from consumers through the mail.
I also look forward to hearing from our witnesses regarding
H.R. 2480, the Truth in Fur Labeling Act.
As with any bills that pass Congress we need to make sure
that our small businesses and consumers are protected, but we
must also look at the unintended consequences and make the
necessary corrections that might occur. The Federal Government
cannot continue to force more bureaucratic mandates on
businesses and consumers, further hindering economic growth and
job creation.
In regards to H.R. 2480, I have spoken with citizens from
Ohio who have very great concerns about the fur labeling bill
and the intentions behind it. You know, we all have to make
sure that we're truthful in our labeling, but we also have to
be careful about the consequences that may occur.
Being from Ohio, we've recently passed what was called
Issue 2 in 2009, which created the Ohio Livestock Care
Standards Board, because agriculture is the number one
contributor to Ohio's economy and Ohio farmers have cared for
flocks and herds for generations and provided people across
this country with safe quality and affordable food.
If Issue 2 had not been passed in the State of Ohio, and
again looking at what could happen as we look at these pieces
of legislation, what could happen is the amendments that could
have come up, if they had been adopted, someone--the State of
California would have put great burden on the hardworking
farmers across the State of Ohio and would have driven up costs
for eggs, meat, and dairy products.
So there are very many unintended consequences that can
happen, and we have to take these into consideration when
passing this legislation.
With that, I look forward to hearing from both panels this
afternoon, Mr. Chairman, and I yield back. Thank you very much.
Mr. Barrow. The chair thanks the gentleman for yielding.
At this time the chair will recognize, for purposes of
making an opening statement for not more than 3 minutes, the
gentleman from Louisiana, Mr. Scalise.
OPENING STATEMENT OF HON. STEVE SCALISE, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF LOUISIANA
Mr. Scalise. Thank you, Mr. Chairman. I appreciate your
holding this hearing.
Today we're examining two bills, H.R. 4501, the Guarantee
of a Legitimate Deal Act; and H.R. 2480, the Truth in Fur
Labeling Act.
First, I would like to discuss the GOLD Act. I am sure
we've all seen the advertisements and commercials for the mail-
in-gold industry, which include assurances that consumers will
get fairly compensated and will encounter a smooth transaction.
Unfortunately, reports have shown that this is not always the
case. Some consumers have been taken advantage of and have been
outright deceived.
The GOLD Act seeks to address these issues by regulating
Internet-based companies that appraise and purchase jewelry
directly from consumers through the mail. There are a few
issues with the bill that I think need to be discussed today,
such as the fact that this bill is only limited to online
companies. I hope this and other issues can be sorted out
through today's hearing.
The next bill, the Truth in Fur Labeling Act, seeks to
improve the accuracy of fur labeling. Current law requires that
fur product labels include certain information such as the name
of the animal that produced the fur, whether the product is
real fur, and the country of origin of any imported fur used in
the product.
Unfortunately, we've seen a few bad actors in the industry
that have not abided by these rules. I believe that consumers
are entitled to accurate and meaningful information regarding
the fur products they purchase, and our subcommittee must
ensure that transparency and accuracy exist in the marketplace.
Mr. Chairman, I look forward to hearing from our witnesses
on these bills, particularly on whether these bills are needed
for the goals both to be achieved, or whether the FTC has the
necessary authority to implement their provisions.
This subcommittee must continue to ensure that consumers
are protected, which means that we must debate and pass quality
legislation. But I believe that we must also place our focus on
the greater issues at hand. As our unemployment rate hovers
near 10 percent and our national debt continues to grow, I
think most Americans would much rather us focus this
committee's efforts on trying to find ways to improve the job
outlook in the private sector; and, instead, all they see is
more bad policies that focus on growing the Federal workforce
at the expense of our small businesses.
While government jobs and government spending continue to
grow exponentially, families and small businesses in our
districts are cutting back. While this Congress refuses to pass
a balanced budget or, for that matter, any budget, American
families are having to tighten their belts and make tough
decisions on how to keep their household budgets fiscally
responsible and manageable. I hope we finally start focusing on
those problems.
Thank you and I yield back.
Mr. Barrow. I thank the gentleman for yielding.
Mr. Barrow. We now move on to the introduction of the
witnesses for our first panel, but before I make the
introductions I would like to thank all of the witnesses for
taking time out of their busy schedules to appear before us
today.
First on my left is seated Mr. James Kohm, the Associate
Director of the Division of Enforcement with the Bureau of
Consumer Protection at the Federal Trade Commission. Next is
Mr. Charles Bell, who is Programs Director at the Consumers
Union. And on my right is Ms. Cecilia Gardner, who is the
President and CEO of the Jewelers Vigilance Committee.
It's the practice of this subcommittee to swear in all
witnesses. So I'd ask you to please stand and raise your right
hand.
[Witnesses sworn.]
Mr. Barrow. Please let the record reflect that the
witnesses have each answered in the affirmative.
STATEMENTS OF JAMES A. KOHM, ASSOCIATE DIRECTOR, DIVISION OF
ENFORCEMENT, BUREAU OF CONSUMER PROTECTION, FEDERAL TRADE
COMMISSION; CHARLES BELL, PROGRAMS DIRECTOR, CONSUMERS UNION;
CECILIA L. GARDNER, ESQ., PRESIDENT AND CEO, JEWELERS VIGILANCE
COMMITTEE
Mr. Barrow. Mr. Kohm, you're now recognized for 5 minutes
for the purposes of making an opening statement.
STATEMENT OF JAMES A. KOHM
Mr. Kohm. Thank you very much. Chairman Barrow, Ranking
Member Whitfield, and members of the committee, my names is
James Kohm. I am the Director of the Division----
Mr. Barrow. Mr. Kohm, there's a microphone in front of you
and what I'd ask you to do is bring it close to you. You can
move it around, manipulate it so it comes closer. It's a
directional mike. And make sure it's turned on.
Mr. Kohm. OK. It's on. Thank you. I apologize.
Chairman Barrow, Ranking Member Whitfield, and members of
the committee, my name is James Kohm. I am the Associate
Director of the Division of Enforcement in the Federal Federal
Trade Commission's Bureau of Consumer Protection. Let me begin
by noting that the views expressed in my written testimony
represent those of the Commission, while my oral testimony and
responses to your questions reflect only my own views and not
necessarily those of the Commission or any particular
commissioner.
Unfortunately, an increasing number of fraudulent operators
have recently sought to take advantage of the economic downturn
by preying on consumers in economic distress. The Commission is
meeting this challenge by spearheading multiple law enforcement
sweeps against operations that prey on financially strapped
consumers.
Most recently, the Federal Trade Commission announced
Operation Bottom Dollar, a multiagency crackdown on
organizations that fleeced unemployed consumers by taking their
money in exchange for jobs or job placement opportunities that
simply did not exist.
Additionally, since October of 2008, the Commission has led
four other law enforcement sweeps focused on protecting
consumers from foreclosure rescue scams, job opportunity scams,
deceptive get-rich-quick schemes, bogus government grant
schemes, phony debt reduction service schemes, and credit
repair scams.
Today I appreciate the opportunity to discuss H.R. 4501,
the Guarantee of a Legitimate Deal Act, a bill that also would
protect consumers from unscrupulous marketers during this
economic downturn. Most of the Commission's complaints about
``cash for gold'' companies relate to violations of the do-not-
call rule. However, the Commission has received a growing
number of complaints from consumers who send their gold jewelry
or other items to companies and then were dissatisfied with the
payments they received in exchange. When the consumers called
to get their gold back, the companies told them that they'd
already melted the gold and there was nothing they could do for
them.
The Commission has also received several complaints about
lost jewelry that was returned without adequate insurance.
The legislation before the committee would address both
these concerns. Specifically, the bill would require online
purchasers to afford consumers a right to consider and reject a
specific monetary offer before a merchant melts or otherwise
liquidates their precious metals, and would require purchasers
to adequately insure items they ship to consumers who decline
their offers.
Additionally, the legislation gives the Commission civil
penalty authority to ensure that the FTC can effectively
enforce the law.
The Commission, however, has three suggested corrections
that should help effectuate the purpose of the legislation:
First, the bill is currently limited to Internet sales. The
same practice that led to the legislation, however, could be
accomplished through telemarketing, direct mail, or television
or radio ads. The committee therefore may want to consider not
limiting the coverage to a single marketing avenue.
Second, if the committee decides to limit the bill's
coverage to Internet sales, we would suggest a slight amendment
to ensure that all such sales are actually covered.
Specifically, the bill covers those who maintain an Internet
Web site. An unscrupulous marketer may argue that it's not
covered because a third-party Web hosting company maintains
their site. The committee can resolve this issue by changing
the ``maintain'' language in the manner outlined in the
Commission's written testimony.
Finally, the Commission recommends that the committee
modify the bill to clarify that purchasers of precious metals
must make a firm offer to purchase the items for a specific
price. Otherwise an unscrupulous marketer could claim that its
vague offer to pay a good price or the best price is accepted
when consumers ship their items, thereby avoiding the intent of
the law altogether.
Thank you for providing the Commission an opportunity to
appear before the committee today to address this important
issue. I will be happy to answer any of your questions.
Mr. Barrow. Thank you Mr. Kohm.
[The prepared statement of Mr. Kohm follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Barrow Mr. Bell, you're now recognized for purposes of
making an opening statement.
STATEMENT OF CHARLES BELL
Mr. Bell. Chairman Barrow, Ranking Member Whitfield and
members of the committee, my name is Charles Bell. I am
Programs Director for Consumers Union, based in Yonkers, New
York. Thank you so much for the opportunity to testify today on
ways to protect consumers who respond to Internet and TV offers
to exchange precious metals for cash payments through the mail.
We commend you for holding this hearing to focus attention on
ways to protect consumers and encourage a safer marketplace.
Consumers Union is the independent nonprofit publisher of
Consumer Reports, ConsumerReports.org, and the Consumerist.com
blog, which empower consumers by informing and entertaining
them about the top consumer issues of the day. And as part of
our work, we regularly research and report on deceptive
practices and misleading practices that affect consumers. We
report on scams and frauds, both to alert consumers so they can
protect themselves, and to alert law enforcement agencies and
policymakers so they take action to directly curtail and stop
these unethical, deceptive, or fraudulent practices.
Over the last several years, Consumer Reports has
researched and reported about consumer problems related to cash
for precious metals services which we think are worthy of your
attention by your subcommittee.
Beginning in 2008, the Consumerist.com blog published a
series of articles and blog posts regarding cash for precious
metals services, including an in-depth investigative article
entitled ``The Article that Cash4Gold Doesn't Want You to
Read,'' on September 2, 2009, which is attached to our
testimony. And through research and investigative reporting,
the Consumerist uncovered a range of questionable practices
that raised concerns that consumers are being misled or
shortchanged by such services, many of which are heavily
promoted through TV ads and Internet.
Our overriding concern is that when financial circumstances
lead consumers to make the difficult decision to part with
their gold, silver, or other precious metals, items that may
have both economic and sentimental value, they should be
guaranteed a fair process.
A 2009 study by Consumer Reports, which we discuss in our
testimony, found that cash for precious metals services paid
between 11 percent and 29 percent of the day's market price for
gold, while local jewelers and pawn shops offered significantly
higher amounts. Based upon our research and the negative
experiences of a significant number of consumers, we believe
that additional consumer protections are very much needed to
create fair rules of the road for online cash-for-metal
services.
We generally do not recommend that consumers use such
heavily advertised services because the high expenses that
these companies spend for marketing make it unlikely that
consumers will receive fair economic value for their jewelry or
other items, and in general we think consumers would be better
off to take their jewelry or other items to several local
jewelers or pawn shops for appraisal and to solicit competing
offers from reputable companies or third-party buyers.
At the same time, however, we believe that consumers who do
decide to use online services need to have a fair chance to
negotiate a better offer and to promptly obtain the safe return
of their gold or precious metal, with appropriate insurance if
they decline that offer.
And so we would emphasize that consumers who choose to use
heavily advertised services will still be at risk of receiving
lower prices, but at least they will have a fair chance to
protect their interests and obtain a favorable offer within a
prescribed period after submitting the items for appraisal.
H.R. 4501, introduced by Representative Anthony Weiner,
contains strong pro-consumer provisions that would strengthen
consumer rights IN online cash-for-metals transactions and
create fair rules of the road to prevent understandings and
complaints. The bill would make it a crime to melt or
permanently destroy any proffered items of jewelry or precious
metal before the purchaser has received an affirmative
acceptance of the offer from the consumer.
H.R. 4501 would also require a fair return period for
consumers who submit precious metals for sale through the mail
or other delivery services. If consumers decide to reject the
offered price, they should be guaranteed the swift return of
their jewelry and proper insurance during shipment.
And as discussed, H.R. 4501 would also give the FTC strong
enforcement powers to ensure that these companies act favorably
and do not engage in deceptive marketing and sales practices.
These commonsense protections are consistent with both common
sense and what customers have a right to expect from this
relatively unique type of business.
As mentioned above, the remote, relatively anonymous nature
of the online mail-in cash-for-metals transaction introduces
new types of risks or uncertainty for the consumer. H.R. 4501
creates fair rules of the road to help address and minimize
these risks and clarify the channels of communication so both
the consumer and the purchaser have appropriate rules and
protocols to follow to minimize bad outcomes.
For these reasons Consumers Union strongly supports H.R.
4501 and urges its swift passage by the Congress.
Thank you very much for the opportunity to testify here
today about this critically important issue, and we thank you
for your efforts to protect consumers in these tough economic
times and look forward to working with you as you move forward
in addressing these issues.
Mr. Barrow. Thank you, Mr. Bell.
[The prepared statement of Mr. Bell follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Barrow. The chair now recognizes Ms. Gardner for up to
5 minutes for purposes of making an opening statement.
STATEMENT OF CECILIA L. GARDNER
Ms. Gardner. Thank you, Mr. Chairman, and thank you to both
yourself and to Ranking Member Whitfield for inviting me here
today. It's a pleasure to be here with you.
My name is Cecilia Gardner and I am the President, CEO and
General Counsel of the Jewelers Vigilance Committee, known as
the JVC, not the electronics company. I am here today
representing the organization and its members. It is a not-for-
profit trade association in the national jewelry industry.
We were formed in 1912 to provide self-regulation within
the industry and to facilitate compliance with the laws that
affect the jewelry trade through supplying information on our
Web site, presenting seminars, publications, newsletters,
articles and trade publications; and we also serve the industry
by receiving complaints regarding jewelry transactions and
mediating disputes between consumers and jewelers that arise
and--or between businesses.
Our members include retailers, suppliers, manufacturers,
wholesalers and gold-buying companies. I raise this because I
want to remind the committee--the subcommittee--that this is an
industry of small business. These are family--for the most
part, family-owned small businesses who of late have been
struggling with the economic downturn.
You can imagine how it has impacted the economic life of a
retail jewelry store. Jewelers at all levels of the industry
have been hurt by the economic crisis of the last years, and
that same crisis has driven up the cost of precious metals,
creating a consumer interest in selling gold primarily in the
form of unwanted jewelry.
Many companies have weathered the drop in jewelry demand
and managed to stay in business by buying gold from their
customers and then selling it to refiners. New companies and
business models have arisen, including gold-buying parties in
homes and Web sites, that invite consumers to mail in their
gold in exchange for money. For the most part, the purchase and
sale of gold has been a benefit both to the industry and to
consumers alike.
We have had in our organization since 2008 a special
category of membership for gold buyers, and we advise the
industry on the laws and regulations that govern the practice
of buying gold from consumers. This includes anti-money
laundering requirements pursuant to the USA PATRIOT Act, as
well as State and local laws regarding permits for second-hand
dealers, and, finally, regulations that address antifencing
laws which vary from jurisdiction to jurisdiction, but
generally require that gold buyers obtain identification from
sellers, keep purchased gold on their premises for a specific
length of time, and maintain accurate records.
We have received various complaints regarding the function
of gold, the activity of gold buying. And the most frequent
complaint that we get is that the amount of money paid for the
gold is insufficient. It's too low. Since these prices and the
offer is not regulated, it's a free, open market, there is
really very little we can do if the complaint just centers
around the price that was paid for the gold.
Another complaint that we often receive, frankly, is that
consumers mail in the gold to a company that they found online,
and then the company simply disappears. This is an outright
theft, a fraud, and we very often turn those complaints over to
law enforcement for action.
The JVC supports the goal of appropriate consumer
protection in all aspects of the jewelry industry, and our
interests are completely aligned with any effort to maintain a
fair marketplace and to prevent consumer exploitation.
To that end, we have reviewed the Guarantee of a Legitimate
Deal Act of 2009, and our members fully support it. I also
heard here today some suggested broadening of the coverage of
the bill and we would agree--we would support the broadening in
the sense that it would apply to purchasers who receive mailed-
in gold.
I also should note for the committee that there are places
in the United States where there is simply no alternative to--
to mailing in the gold. There are places in the United States
where there just is no easily accessible bricks-and-mortar pawn
shop or jewelry store or refiner that is willing to purchase
the gold from a consumer. So the mail-in function is something
that probably will still find a market in the United States.
Consumers should be presented with a good-faith offer and
not a fait accompli in the nature of a check for jewelry that
has already been destroyed. All of the provisions of the bill
that we read, the legislation that we see in this bill, seems
equally fair and sensible. Consumers should be ensured that
they are not going to be delayed in their efforts to further
shop their jewelry or harmed by inadequate insurance on a lost
return, and this legislation requires that care be taken in the
online purchase of gold, without creating an undue burden on
the buyer. One of our main----
Mr. Barrow. Ms. Gardner, in the interest of the time of the
other witnesses and the committee, can you please bring your
statement to a close so we can move on to the examination of--
--
Ms. Gardner. I will. I just want to mention that many of
our members who buy gold online or in the mail often wait until
their check is negotiated before they melt the gold, therefore
protecting the consumer in that way.
So thank you for the opportunity and I am sorry to have
gone over my time.
Mr. Barrow. Not at all. Thank you, Ms. Gardner.
[The prepared statement of Ms. Gardner follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Barrow. The committee now proceeds to an examination of
the witnesses by members of the committee. The chair recognizes
himself for 5 minutes for purposes of questioning the
witnesses. In the interest of a more thorough and sifting
examination of all of the issues raised by the legislation, the
chair is happy to yield his 5 minutes to the sponsor and the
author of this legislation, Mr. Weiner. Mr. Weiner, you're
recognized for 5 minutes.
Mr. Weiner. Thank you, Mr. Chairman. I thank all the
witnesses for their testimony, particularly Ms. Gardner, with
whom I have some history. We got to know each other some years
ago as our paths crossed in political life, and I am a big fan
of her husband as well, and I thank her for her service to the
citizens of New York.
Let me understand a little bit about the role that you're
here in, Ms. Gardner. The Jewelers Vigilant Committee, does it
include as a member--does it have as a member Green Bullion,
the company Green Bullion, or Cash4Gold, the business--the
active name of Cash4Gold, which is Green Bullion? Is that a
member organization of yours?
Ms. Gardner. Cash4Gold is in fact a member of the JVC, yes.
Mr. Weiner. What does it take to be kicked out? Is there a
standard--are there standards of conduct that are insisted
upon? I mean, I see some of your members are Movado Group and
GE Money and Patek Phillipe and Rolex, and in there is
Cash4Gold, a company that the post office says is stealing
people's stuff; that a review of the witnesses to your right
say is giving people as little as 11 percent of the market
price for gold. Is there a code of conduct that members of JVC
agree to comply with?
Ms. Gardner. Yes, there is. There is a 4-page document of
due process procedural steps in order to institute and succeed
to remove a member from the rolls of membership at the JVC.
Mr. Weiner. If you would provide the committee with that
document----
Ms. Gardner. Certainly.
Mr. Weiner [continuing]. It would be very helpful to us.
Can I ask, in your experience in representing the
organization as its general counsel, has there been another--is
there another entity that has 300-some-odd complaints against
it from the Better Business Bureau?
Ms. Gardner. Yes.
Mr. Weiner. Could you tell me which ones?
Ms. Gardner. No.
Mr. Weiner. For the purpose of future hearings, please
provide that for me.
Are there other members of your organization that have lost
their accreditation of the Better Business Bureau and told they
can't use their indicia in their advertising anymore?
Ms. Gardner. I am not aware of that.
Mr. Weiner. Are there any other organizations, to your
knowledge, that are members of your organization that have
behaved in the general way that Cash4Gold has, melting down
gold or with an arbitrary amount of time--you said in your
testimony, most of your members don't do that. Do you know of
others that do? Is that a common practice in your industry to
melt down gold before there has been an affirmative acceptance
of an offer by a customer?
Ms. Gardner. In the industry we have not received very many
complaints of that nature. In fact, we haven't received any.
Mr. Weiner. So Cash4Gold would be the only one?
Ms. Gardner. To be honest, Congressman, we haven't received
any complaints about Cash4Gold on that basis.
Mr. Weiner. On what basis have you received the most
complaints about Cash4Gold?
Ms. Gardner. That they don't pay very much for the gold.
Mr. Weiner. And do your other members who are--many of whom
I see don't engage in mail order. They are actual physical
places where you can go and take your gold. If you were going
to give advice to consumers on where they can get the best
service, where they can get the most accurate reflection, would
you recommend--would your organization recommend that it's
either/or; that you get an equal value if you mail it in than
if you bring it into a pawn shop or bring it into a jeweler?
Ms. Gardner. We don't recommend to consumers anything other
than go to a reputable jeweler. We--we recognize that, given
the complex marketplace for gold in the United States, that
there are outlets where a consumer can get better prices than
if they mail it into a mail-in buyer of gold. But not everybody
has access to those better outlets. Certainly a refiner, a
direct refiner, would give you a better deal.
Mr. Weiner. When you have access to a deal or not, when you
have access to alternatives or not, sometimes, Ms. Gardner, a
bad deal and a rip-off is just a rip-off? Like sometimes if
it's the only place you choose or you have five other options
and you choose that one, a rip-off is a rip-off.
When someone is getting 11 percent, which is what Consumer
Reports found in its research, it's hard to interpret that
absence of choice being a justification for a rip-off like
that, wouldn't you agree?
Ms. Gardner. I don't know how you're defining ``rip-off.''
I mean----
Mr. Weiner. Well, let's start with 11 percent. Is that a
rip-off, 11 percent----
Ms. Gardner. It's a lousy deal.
Mr. Weiner [continuing]. Eleven percent of the day's market
price for gold, a lousy deal----
Ms. Gardner. That is a lousy offer.
Mr. Weiner [continuing]. Or as we might say in Brooklyn, a
rip-off. So the question is----
Ms. Gardner. I am not from Brooklyn.
Mr. Weiner. We can't have everything, Ms. Gardner. But the
point is----
Ms. Gardner. I lived there for a while.
Mr. Weiner. But the point is the same; is that whether or
not there are many choices, no choices, one choice, a rip-off
is a rip-off. And Cash4Gold is engaged in systematic ripping
off of consumers. And what troubles me is your organization
seems to be giving them a cloak of legitimacy. And I am going
to take a look at the document that you suggested that you
have, to see if they--if they don't qualify for being kicked
out, I don't know who does.
Thank you, Mr. Chairman.
Mr. Barrow. I thank the gentleman for yielding.
I am pleased to recognize the gentleman from Kentucky for
purposes of questioning for up to 5 minutes. Mr. Whitfield.
Mr. Whitfield. Thank you, Mr. Chairman.
Thank you all for your testimony. It's my understanding
that all of you support the concept of this legislation; is
that correct?
Mr. Kohm. That's correct.
Mr. Bell. Yes, that's correct.
Ms. Gardner. Yes, that's correct.
Mr. Whitfield. OK. And all of you would agree that it could
be improved by, one, making it a little bit more broad than
just an entity that hosts a Web site in order to take care of
direct mail and marketing and so forth; is that correct?
Mr. Kohm. That's correct for the FTC, Congressman.
Mr. Bell. Yes. We would support the measures discussed by
Mr. Kohm as well. We think that would be a good enlargement of
the scope of the legislation.
Ms. Gardner. I have not discussed this particular concept
of broadening, since I've only heard it here today in this
room. You know, obviously I speak for the board of the JVC and
its members. I would have to go back, but I don't see why that
wouldn't make sense.
Mr. Whitfield. Well, I think all of us agree that this is
good legislation, and working with Mr. Weiner to make it even
more effective, I am sure he would be supportive of that as
well.
And all of you also want to require a step that the seller
would have to affirm the offer from the purchaser before the
meltdown; is that correct?
Mr. Kohm. That's correct. We think that there should be an
offer for a specific price that's accepted before there's any
meltdown.
Mr. Whitfield. And all of you agree with that?
Mr. Bell. Yes.
Mr. Whitfield. And then all of you do believe that the
insurance issue is something that needs to be addressed; if the
material is mailed back that there must be adequate insurance
in case it's lost?
Mr. Kohm. That's correct.
Mr. Bell. Yes.
Mr. Whitfield. Now, do we--I am sorry, Ms. Gardner.
Ms. Gardner. Yes.
Mr. Whitfield. OK. Do we need to be concerned about the
definition of ``precious metals,'' or does that need to be
addressed?
Mr. Kohm. Congressman, that doesn't seem to us to need to
be addressed. We'd have to see how that played out in the
marketplace.
Mr. Whitfield. Well, I want to thank you. You all have
given us some very good suggestions and I think it's a good
piece of legislation.
I yield back the balance of my time.
Mr. Barrow. I thank the gentleman for yielding.
The chair now recognizes Mr. Weiner of New York for
purposes of asking his allotted 5 minutes of questioning.
Mr. Weiner. Thank you, Mr. Chairman. I don't think I'll use
the full 5 minutes. The fact is most of the questions that
remain to be addressed should be addressed to Cash4Gold
directly. They've made a decision not to attend this hearing.
They've made a decision not to attend this hearing under the
pretense of something better to do. And I probably, if I were
they, would choose to avoid this hearing as well, because I
think it's further attention being called to the fact that the
way they function is truly exploitive of consumers.
I think that we are in a circular kind of situation that
consumers can find themselves caught up in. First, you've got
many advertisements tied to many news reports that now this is
the moment to buy gold, gold is going up. They then--those news
reports get mated with TV commercials very often, right after
those same news reports that say, find your gold, send it to
us, and we will give you a good price. Once they do that, the
experience of the consumer goes downhill from there.
Imagine that. They are finding that in large numbers, the
gold is being--they're getting paltry offers, and then if they
have the wherewithal to ask for that gold back, they're
finding, lo and behold, that it's already been melted down
because the 12-day limit that they had started ticking the
moment that their gold arrived, or the time it was mailed. No
one really knows. It's not very clear from the literature.
Then if they're lucky enough to have reached someone and
they said, OK, we will send it back to you, shockingly we're
finding that the Postal Service is getting all kinds of
complaints about lost gold coming from Cash4Gold, 1,300 loss
claims, so many so that the Postal Service does an
investigation and finds that--they draw the conclusion that
Cash4Gold didn't send it back. It didn't get lost. They just
chose not to. They find if they insure it sending it to
Cash4Gold, they happen to not insure it coming back, so then
suddenly the consumer is out.
When asked about these things, their defenders, and Ms.
Gardner is among them, say, Look, there's lots of different
ways to deal with gold. We provide something that others don't.
What they provide is a rip-off.
That is why I hope that we have an opportunity to have
Cash4Gold come back and answer some of these questions. I have
a feeling that barring a subpoena, which is probably something
they are going to see visited upon them in Florida and other
States around the country that are beginning these
investigations, they probably will choose not to.
They operate in that dark shadow, that corner of our
economy where people prey upon the most vulnerable. And I think
that after this hearing, I believe that some of the legitimate
members of the Jewelers Vigilance Committee will say, You know
what? We're tired of mopping up for these guys. These guys are
an embarrassment. These guys are not doing a service for
consumers. They're using our organization to help cleanse their
good name, and our skillful, talented witness, who has a
history of consumer protection, to help defend what essentially
is indefensible.
So we're going to pass this. We're going to try to take the
counsel of Mr. Whitfield and others and some of the witnesses
and broaden it further, and we're going to continue the
investigation. But we're not going to allow a bad economy,
people desperate for a few extra dollars, to think that if they
put their jewelry in an envelope, it's not effectively the same
as putting money in the envelope and just mailing it away.
I want to thank the chairman. I want to thank this
committee for holding this hearing. I have received assurances
from the chairman of the full committee and the chairman of the
subcommittee that we don't take kindly to the idea of witnesses
pretending to be hiding somewhere rather than testifying before
this committee, and so I am sure we will be revisiting it.
Thank you.
Mr. Barrow. I thank the gentleman for yielding. There being
no other members of the committee present for purposes of
questioning the members of the first panel, the chair will
excuse the members of the first panel with the thanks of the
chair.
Now I would like to call up the witnesses for our second
panel.
All right, I think we're ready to proceed with the
witnesses for the second panel.
Since Mr. Kohm has been kind enough to stay with us, I will
move on to introduce the rest of the members of this panel.
Seated to Mr. Kohm's left is Mr. Michael Markarian, the Chief
Operating Officer of the Humane Society of the United States.
On Mr. Markarian's left is Mr. Keith Kaplan, who is Executive
Director of the Fur Information Council of America.
As stated earlier, it's the practice of this subcommittee
to swear all witnesses. Since Mr. Kohm was sworn in on the
first panel, he's still under oath and there's no need for him
to be sworn again. So I will ask Mr. Markarian and Mr. Kaplan
to please rise and raise your right hand.
[Witnesses sworn.]
Mr. Barrow. The record will reflect that each of the
witnesses has answered in the affirmative.
STATEMENTS OF JAMES A. KOHM, ASSOCIATE DIRECTOR, DIVISION OF
ENFORCEMENT, BUREAU OF CONSUMER PROTECTION, FEDERAL TRADE
COMMISSION; MICHAEL MARKARIAN, CHIEF OPERATING OFFICER, THE
HUMANE SOCIETY OF THE UNITED STATES; AND KEITH KAPLAN,
EXECUTIVE DIRECTOR, FUR INFORMATION COUNCIL OF AMERICA
Mr. Barrow. Mr. Kohm, you're now recognized for 5 minutes
for purposes of making an opening statement.
Mr. Kohm. Thank you, Chairman Barrow, Ranking Member
Whitfield, and members of the committee. For the record, my
name is----
Mr. Barrow. Mr. Kohm, if you'll excuse me, as a courtesy to
a member who is sitting by unanimous consent today, I would
like to give Mr. Moran the opportunity to make an opening
statement, and then I will recognize you for the purposes of
making your opening statement and the other witnesses, if
that's OK with you.
Mr. Kohm. Absolutely.
Mr. Barrow. Thank you. The gentleman from Virginia is
recognized for purposes of making an opening statement not
longer than 5 minutes. Mr. Moran.
Mr. Moran of Virginia. Thank you, Mr. Chairman. I thank Mr.
Whitfield as well, the ranking member on this subcommittee. I
appreciate the opportunity to make an opening statement on a
bill that I think is well deserving of action by this
subcommittee.
The Fur Products Labeling Act, enacted in 1951, required
labels of fur products that indicated the name of the animal
whose fur was being used and the country of origin. The law,
however, allowed for the exemption of products containing a de
minimis amount of fur. Since 1998 the definition of ``de
minimis'' has been set by the Federal Trade Commission at $150.
In today's marketplace, with fur trim products rivaling
full-length fur garments in total sales, this exemption--in
fact, this interpretation exempts a significant percentage of
fur products. More than one out of every eight fur products
that are purchased create a situation where the consumer must
rely exclusively on information provided by sales staff or
product displays, neither of which may necessarily be reliable
so as to guide the consumer's purchasing decision.
This lack of clear and consistent information poses serious
problems for consumers who may have allergies to fur,
particularly to fur collars, which is oftentimes where that fur
is located on a garment. They may have ethical objections to
fur, or they may have concern about the animals, such as dogs
and cats that supply that fur.
The Truth in Fur Labeling Act that we are bringing up
before the subcommittee today would correct this problem by
removing the de minimis exemption and requiring labels on all
fur products, regardless of value, Mr. Chairman.
Now, let me head off any anticipated criticism. This is not
a solution in search of a problem. That's oftentimes a
criticism that is labeled at--that is thrown at much
legislation. This is not the case. The Humane Society of the
United States, as we know, a very credible national
organization, as well as a number of other national
organizations and media outlets, have conducted investigations
documenting the confusion that has been created by retail
personnel and consumers who buy fur products that lack labels.
The Humane Society, in fact, have found that in a number of
stores, 100 percent of supposedly faux fur was actually animal
fur. Too often retailers don't know what they're selling and
consumers don't know what they're buying, and that's what needs
to change.
I am pleased that there is a representative of the Fur
Manufacturers and Retailers here to testify today. I have read
your testimony and I appreciate the fact that the Fur
Information Council of America supports the underlying purpose
of this bill: to ensure consumers have the requisite knowledge
to make informed choices consistent with their medical beliefs
and their ethical beliefs as well. I should say, their medical
needs and their ethical beliefs.
I understand that FICA does have some concerns about
section 4 that simply restates current policy that currently
allows States to enact fur-labeling requirements in addition to
the FTC standards. I think those concerns are, in fact,
legitimate; and I'd be glad to work with FICA and the committee
to address this provision in order to ensure that the larger
public interest is served, because it is not intrinsic to the
purpose of the legislation. In fact, it simply restates current
policy, as I say.
More than anything else, this is a consumer protection
issue. I think the testimony will show that the right policy
for consumers is to remove the small-value exemption and
require all products containing fur to carry an accurate label.
Again I want to thank you, Mr. Chairman, and the entire
subcommittee for deciding to hold this hearing, and I look
forward to working with all of you to advance what I know you
will find to be commonsense legislation that I hope we can
advance as expeditiously as possible. And I thank you very much
for your indulgence, Mr. Chairman. Thank you.
Mr. Barrow. On the contrary, I thank the gentleman from
Virginia for his opening statement and I thank him for his
leadership on this issue.
Mr. Kohm, it is again your turn to make an opening
statement, this time on the Truth in Fur Labeling Act.
STATEMENT OF JAMES A. KOHM
Mr. Kohm. Thank you, Chairman Barrow, Ranking Member
Whitfield, and members of the committee. For the record again,
my name is James Kohm. I am the Associate Director of the
Division of Enforcement in the Federal Trade Commission's
Bureau of Consumer Protection.
Let me again note that the views expressed in my written
testimony represent those of the Commission, while my oral
testimony and responses to your questions reflect only my own
views and are not necessarily those of the Commission or any
particular commissioner.
I appreciate the opportunity today to discuss H.R. 2480,
which would effectively require the Commission to rescind the
fur rules exemption for garments with relatively small fur
value. Without this de minimis exemption, manufacturers will be
required to label all fur products, regardless of the fur's
value, with the animal name, country of origin, fur treatment,
a registered identification number, as well as other
information that is material to consumers' purchasing
decisions.
The Commission supports this legislation based on changes
in the marketplace. In 1952 the Commission exercised its
authority under the Fur Products Labeling Act to exempt
products containing a relatively small value of fur. At that
time, fur garments generally represented a large investment,
and consumers were primarily concerned that they received the
value that they were paying for; in other words, that they
actually received the type and quality of fur they purchased.
However, when the value--when the value of the fur was
small, for example, low-cost fur used in small quantities for
trim, consumers' need for this information was greatly reduced.
The Commission periodically reviews all its rules and guides to
ensure that they remain relevant and appropriate in a changing
marketplace.
The fur rules last underwent such a review in 1998. At that
time, the Fur Information Council of America submitted the only
comment regarding the de minimis exemption, seeking to increase
the amount of the exemption based on inflation. No other
commenters suggested--no commenters suggested repealing the
exemption at that time.
The marketplace, however, now appears to have changed
significantly. Many consumers remain concerned about the
quality of the fur products they purchase, but there appears to
be an increasing number of consumers who, for a variety of
reasons, would prefer not to purchase real fur, or who object
to certain types of fur even in small amounts.
Accurate labeling of all garments containing fur,
regardless of the fur's value, would help these consumers make
informed purchasing decisions. Given this change, the
Commission plans to explore rescinding its de minimis exemption
for fur labeling during its currently scheduled 2011 fur rule
review.
However, the FTC could only effectuate such a change after
establishing such a record and weighing the cost and benefits
of eliminating the exemption. If enacted, H.R. 2480 would
remove the Commission's authority to promulgate a de minimis
exemption, thereby providing the most efficient and expeditious
means of helping those consumers who wish to avoid fur products
or certain types of fur, while maintaining the labeling
framework for those consumers concerned about the type and
value of their fur purchases.
It goes without saying that if this legislation is enacted,
the Commission would move quickly to revise the fur rules to
comport with the new legal framework.
Thank you for providing the Commission an opportunity to
appear before the committee today to discuss the Truth in Fur
Labeling Act. I will be happy to answer any of your questions.
Mr. Barrow. Thank you, Mr. Kohm.
Mr. Markarian, you're now recognized for 5 minutes for
purposes of making an opening statement.
STATEMENT OF MICHAEL MARKARIAN
Mr. Markarian. Thank you, Mr. Chairman and Mr. Ranking
Member, and members of the subcommittee for holding this
hearing on this important issue and for inviting the Humane
Society of the United States here to testify. I want to thank
Congressman Moran for his tremendous leadership on this issue,
as well as Congresswoman Bono Mack and other members of the
subcommittee who are cosponsors of H.R. 2480.
We at the Humane Society of the United States strongly
support this legislation, which we essentially view as a much-
needed upgrading or updating of the Fur Products Labeling Act,
which was passed nearly 60 years ago and needs to be updated to
reflect the present market realities.
As we heard, when the Fur Products Labeling Act was passed
in the early 1950s, there was an exemption in the law for a
small quantity or value of fur, and in the last six decades the
industry has really changed quite remarkably in a number of
ways. There has been an increased use in fur trim where people
are no longer just seeking full-length fur coats or other
garments, but they're seeking parka jackets and sweaters and
vests and hats and gloves that are trimmed with small amounts
of fur.
We've also seen an increase in the quality of the synthetic
furs which are closer resembling real fur, and it makes it more
difficult for people to distinguish between real fur and fake
fur.
We have also seen manufacturing techniques where real
animal fur is dyed or sheared. If people see the fur trim on a
jacket that is pink or blue or orange, they may not associate
it with an animal, and they may not understand whether it's
real animal fur or faux fur.
And as the exemption is currently set at $150, which
applies to the value of the fur material on the jacket, it
allows for massive quantities of animal fur to be used without
being labeled. And based on approximate pelt prices after
tanning and dressing, the fur from 30 rabbits could be used at
$5 each per pelt, without requiring labeling; 25 ermines at $6
each; 15 muskrats at $10 each. The list goes on and on and on.
And many animals--the pelts from many animals could be used and
fall under that $150 threshold.
So we believe that this is creating major confusion in the
marketplace because people simply don't know what they are
getting. And the Humane Society of the United States has tested
dozens of jackets, many of which were advertised as fake fur,
and we found that they contained real animal fur.
We brought two posters to show the committee just two of
these examples. I wanted to point them out to you. The one on
the left is a Rocawear jacket, which was purchased at a store
called Demo. You can see the blowup of the label. It says that
it's polyester material; it says that it was made in China, but
it does not say anything about the fur trim. We had that fur
tested in a laboratory and concluded that it was fur from a
raccoon dog species.
The second example is a Burberry jacket which was purchased
online from the saks.com Web site. It was advertised online as
faux fur. And you can see when the consumer receives the jacket
in the mail, they look at the label. It talks about cotton, it
talks about polyester, it talks about some of the other
materials, but it does not say anything about the fur material.
We had that jacket tested and concluded that the fur trim was
rabbit fur. And when we disassembled the trim, it looked like
it was two individual rabbit pelts--and you can see a little
bit how they're sewn together in the middle of the garment.
But if those rabbit pelts were valued at $5 each and
there's $10 worth of fur trim on that jacket--a jacket which
costs hundreds of dollars--it fell below the exemption and did
not require labeling.
So we believe that if you don't have a label on the
individual garment, there is so much room for consumers to be
confused, and even for sales clerks in department stores to be
confused, because they're not furriers, they're not experts in
the material. But these are folks who work at department
stores, they have inventory cycling through, they have
customers trying on jackets and returning them to the wrong
racks, and it's very easy for people not to know what the
garments are made of unless there is a label attached to the
individual garment.
And we've, frankly, found sales clerks guessing in
department stores. When they don't have a label on the jacket
and consumers ask, What do you think this is made of, they say,
It's not real fur, it's fake. If it's real fur, they would say
real fur. Another clerk said I really don't think it's real
fur. Another said it's goose down, so it's warm; it would say
raccoon or rabbit, whatever. It doesn't say, I believe it's
acrylic, fake fur; I believe it's fake.
There is too much room for confusion, Mr. Chairman. We
believe this is a limited bill which gives consumers the
opportunity to make informed choices. It doesn't restrict the
trade in any fur, it doesn't restrict the methods of producing
fur, it gives consumers the information that they need.
We thank you for your time and look forward to working with
the committee on this bill.
Mr. Barrow. Thank you, Mr. Markarian.
[The prepared statement of Mr. Markarian follows:]
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Mr. Barrow. Mr. Kaplan, you are now recognized for 5
minutes for the purpose of making an opening statement.
STATEMENT OF KEITH KAPLAN
Mr. Kaplan. Thank you, Chairman Barrow, Ranking Member
Whitfield, and members of the subcommittee. Thank you for
inviting me to testify before you today.
My name is Keith Kaplan, and I am the Executive Director of
the Fur Information Council of America. We represent the
interests of over 1,100 fur retailers, fur manufacturers, fur
wholesalers, and fur designers, most of whom are in fact small
businesses.
I am pleased to be here today to present our views on H.R.
2480, the Truth in Fur Labeling Act.
As has been stated, the fur industry is already covered by
stringent labeling requirements under the Fur Products Labeling
Act. Enacted in 1951, this act and the regulations implemented
by the FTC require that fur product labeling provide a depth of
information about the product, including the correct name of
the fur type, whether the fur is bleached, dyed, or naturally
colored, and the country of origin, as well as other relevant
information. Similar information must be provided in connection
with any and all advertising and marketing of fur products.
This information provides consumers the detail they need to
make educated decisions regarding their purchase of a fur
product.
Our industry has supported and continues to support the
principles of transparency and dissemination of accurate
information that underlie this law, and FICA's members are
committed to compliance with the detailed requirements of this
regulation. As evidence, I would like to submit labels from
both single-unit and multi-unit retailers operating in a number
of States, and ask that they be submitted for the record.
Throughout the fur industry, our members understand the
consequences of a failure to comply, and have exhibited this
through nearly 60 years of practice. In the event of any
infraction, the FTC's enforcement authority in this area is
far-reaching and the legal tools available to it are
significant. Historically, the agency has never shied away from
using these tools to protect the consumer, and such has been
the case within our industry.
Consistent with our support for the principle of consumer
transparency, we support the removal of the small value
exemption of the Fur Products Labeling Act, with the result
that all fur products would now carry the same comprehensive
labeling.
However, Mr. Chairman, we do have significant concerns with
section 4 of the bill that's been presented which confers on
States, or, for that matter, any political subdivision such as
counties or towns, the right to adopt or enforce their own
labeling requirements for fur products that would likely differ
from or be more restrictive than existing Federal law.
This provision, which would impact the sale of all fur
products, would undermine the purpose of the current Federal
statutory regime which has protected consumers for almost 60
years. Indeed, the additional information that may result from
local requirements opens the door to extensive consumer
confusion and the potential for labeling to become a vehicle of
harassment in its own right.
Imagine in your own backyard that you visited Macy's in
downtown Washington, D.C., where you find or your wife finds a
fur garment you would like to purchase. Not having your size,
the salesperson locates the same garment in the correct size at
the Towson, Maryland store and they send it over to the
Washington, D.C. store. When you arrive to pick up your coat,
it looks identical, but the descriptive label now reads quite
differently. This is the kind of confusion that would be
created by section 4.
We're also concerned that the FTC's jurisdiction and
expertise will be undermined by local jurisdictions acting at
the behest of anti-fur advocates whose only interest is to
confuse consumers by disseminating false and misleading
information, thereby denying customers the opportunity to
really make informed choices.
We have already seen examples of this in recent efforts by
the HSUS, to link the use of Asiatic raccoon--a legitimately
traded fur product for over a century--to domestic dog in an
attempt to destroy the marketability of this product. In New
York last year, legislators passed a bill removing the small-
value exemption and requiring that all product carrier labels
specify it as real or faux fur.
Amidst confusion over the exact requirements and
specifications of this label on real fur products, our
representatives approached the New York State Attorney
General's Office. In the end, the Office informed us they could
provide no further direction on this issue. Without further
direction, our retailers were forced to create and affix their
own real-fur labels, at considerable time and expense without
any perceived benefit to the consumer. In fact, consumers are
asking retailers today why this real fur designation now
appears on an item they already understand as mink.
Allowing States and local jurisdictions to enact their own
fur-labeling regulations will likely lead to a significant
increase in similar activities across all 50 States by well-
funded, anti-fur advocates.
The primary purpose of the Fur Products Labeling Act was to
facilitate consumer comparisons among similar products,
providing consumers with all the relevant detail they would
require to make educated, informed, and confident decisions
before purchasing: apples-to-apples across all 50 States.
Divergent State requirements might seriously undermine this and
could lead to significant confusion among both consumers and
retailers.
Mr. Chairman and members of the committee, in your
consideration of this bill, I reinforce our support for the
removal of the small-value exemption, consistent with our
belief that consumers are entitled to complete, accurate, and
meaningful information to guide their purchase decisions. But I
urge you to please strike section 4 from this bill to ensure
that consumers remain protected from misleading, inaccurate, or
confusing labeling that may adversely affect their purchasing
decision process.
Thank you for your attention. I welcome any questions you
might have.
Mr. Barrow. Thank you, Mr. Kaplan.
[The prepared statement of Mr. Kaplan follows:]
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Mr. Barrow. We now proceed to an examination of the
witnesses by the members of the committee. The chair recognizes
himself for the purpose of questioning for up to 5 minutes.
Mr. Markarian, let's begin with you. I want to get some
idea of the scope and size of the universe of items that are
covered by this proposed legislation. I want to talk about the
significance of this.
With regard to all of the items that would be covered,
either those that just have a little fur in them or those that
consist entirely of fur, are there any major categories of
items that you can think of that would be covered by this
proposed change? For example, are they mostly gloves with fur
lining, or fur-trim hooded jackets? What are we talking about
here?
Mr. Markarian. Mr. Chairman, thank you for the question.
The Fur Products Labeling Act applies to wearing apparel,
so any clothing item that's made of fur. According to data that
was in the Federal Register last February, the FTC estimated
that 1,019,054 fur garments and fur-trimmed garments and fur
accessories were sold in the United States. About 87 percent of
those already require the labeling standard. Only 13 percent
fell below the $150 threshold, so they had fur material that
was below a $150 value. Thirteen percent of all fur garments
sold in the U.S. did not require the labeling.
So, essentially seven out of eight fur garments that are
sold in this country already require the labeling standard, the
standard that's been in place for almost 60 years. And this
legislation would bring the other one out of eight garments
into that same system, so there would be a consistent standard
across the board.
And with this one example I showed, the Burberry jacket,
the jacket itself cost about $800, but the value of the fur
trim we estimate was well below the $150 threshold, so that
type of jacket would not require labeling at this current time.
Mr. Barrow. Thank you.
As was the chair's practice in the case of the former
panel, I am pleased to yield the balance of my time to the
author and sponsor of this legislation, Mr. Moran.
Mr. Moran of Virginia. Chairman Barrow, I cannot thank you
enough. I appreciate your giving me this opportunity.
I understand that of the 13 percent we're talking about of
fur products that are either unlabeled or inaccurately labeled,
virtually all of them either come from China or Russia; a few,
perhaps, from Finland.
What I would like to do, perhaps I could ask the gentleman
representing the Fur Information Council, are you aware of any
American manufacturers who are attaching this unlabeled or
mislabeled fur as trimming on any garments, or is this
primarily foreign manufacturers who are shipping them here from
China or whatever?
Mr. Kaplan. I am not aware, sir. The labeling is attached
to the garment at the retail level, not at the manufacturing
level.
Mr. Moran of Virginia. I understand that; except that, of
those garments, my information is that none of the fur that
isn't labeled or inaccurately labeled, none of that is coming
from the United States. It doesn't affect any domestic
producers of fur.
Mr. Kaplan. I can't comment on that with certainty.
Mr. Moran of Virginia. Do any of the witnesses know that,
whether we would be affecting any American manufacturer?
Mr. Kohm. I do not, Congressman.
Mr. Moran of Virginia. Mr. Markarian.
Mr. Markarian. Congressman, any garment that had fur
material that was valued at less than $150 would require a
label. So whether it's made in the United States or abroad, it
would have to meet that same standard.
Our concern is that it's more difficult for consumers to
tell what the product might be, especially if it's coming from
China, where dogs and cats were killed for their fur. We did an
investigation on that in the 1990s, and Congress banned dog and
cat fur in 2000. But without a label on the garment, it may be
easier for those garments to slip into the country undetected.
And with an accurate and consistent label on the garment
itself, consumers will have more confidence that they know what
they're buying.
Mr. Moran of Virginia. Well, that's only partially what I
was getting at. I appreciate the answer. I know we have mink
farms here and we have other fur products that are grown
locally, but I'm not aware that any of the fur that is being
used for this purpose is actually being supplied by any
American suppliers.
I have a couple other questions with regard to section 4,
but I don't need to take the subcommittee's time now. I know
that the chair and Mr. Whitfield would like to ask questions,
too. Thank you very much, Mr. Chairman.
Mr. Barrow. I thank the gentleman. He will have another
opportunity to raise questions with the witnesses before the
end of the hearing.
The chair is now pleased to recognize the gentleman from
Kentucky, the ranking member, for the purpose of questioning
the witnesses for up to 5 minutes. Mr. Whitfield.
Mr. Whitfield. Thank you all for your testimony.
My understanding, it sounds like from your testimony, is
that everyone supports this legislation in concept, right, Mr.
Kohm? Right, Mr. Markarian? Right, Mr. Kaplan?
Mr. Kohm. Correct.
Mr. Whitfield. And the only area of potential for Mr.
Kaplan relates to the preemption issue, correct?
Mr. Kaplan. Yes, section 4.
Mr. Whitfield. OK. Now, Mr. Moran and Ms. Bono Mack are the
primary authors of this legislation. And so from my
perspective, I think it would be good to have Federal
preemption myself, because when you're involved in interstate
commerce, it is very difficult to try to meet the different
standards from different States. But that's something that we
can all explore and go from there on that.
It is sort of disturbing to me--I was looking at some of
this material that some of the major companies in the U.S.,
retailers, are selling things like domestic dog fur as faux fur
and wolf as faux fur and raccoon dog as faux fur, and so forth.
And of course, we do have a Federal law now that prohibits the
use of domestic dogs and cats for fur purposes, it's my
understanding. But to help me better understand this, the Fur
Products Labeling Act, is it the responsibility of the retailer
to put this label in, or is it the manufacturer? And if the fur
is coming from China, how do you verify what that fur really
is? Could someone help me understand that better?
Mr. Kohm. Well, it is the retailers' responsibility to have
an accurate label on their fur products.
Mr. Whitfield. OK. So under the Fur Products Labeling Act,
it is the retailer's responsibility. OK.
So when the manufacturer purchases this fur from China,
then what kind of verification do they receive from China as to
precisely what it is?
Mr. Markarian. Well, essentially, if it's the 13 percent
that do not require labeling under the current law, they're
trusting whatever the manufacturer tells them, or they're
making their own guesses about what the product might be.
We think it would better protect retailers if there is a
labeling requirement, because then they would have more
information on the garment itself about what type of fur was
used in that jacket.
Mr. Whitfield. But if it's the other 87 percent, Mr.
Markarian, how do you verify that the fur is what it's supposed
to be?
Mr. Markarian. My understanding is the retailers are
operating in good faith that the label that's on the garment is
accurate. And if they have reason to believe that it's
inaccurate, if they get a complaint from a customer they
suspect that something that says it is faux fur is really
animal fur, then they may look into it further and make
corrections. Many of the retailers did make corrections in
their stores when we brought these issues to their attention,
and they wanted to make sure that they were getting it right.
Mr. Whitfield. But the manufacturers would be importing
these furs into the country; is that right, Mr. Kaplan?
Mr. Kaplan. Yes. And I have to make clear, I speak for the
1,100 retailers and manufacturers and designers who primarily
are a bit of a different universe. You will find, if you go
into our retailer stores, that virtually all the product is
labeled. Virtually all of the product is of a value, although
some is not. But they have incurred this practice for over 60
years; they're used to the practice, it's not burdensome to
them.
Mr. Whitfield. And I just want to make sure that you
support this legislation, except this preemption is a problem.
Mr. Kaplan. With the exception of section 4, correct.
Mr. Whitfield. And just another question out of curiosity,
because I don't know a lot about this. But is there a
difference between an Asiatic raccoon and a raccoon dog, or are
they one and the same?
Mr. Markarian. It's different terms for the same species.
This is a species of animal that's native to Asia. It's a
member of the canine family. The Fur Products Name Guide lists
the species as Asiatic raccoon. We believe that that name may
be out of date. There is more scientific literature that uses
the term ``raccoon dog,'' and we hope that that that is
something the agency will take a look at.
Mr. Whitfield. That is why this legislation asks the agency
to revisit this whole issue.
Mr. Kohm. That's correct, Congressman. And this is an issue
that the agency would revisit anyway in its 2011 rule review.
Mr. Whitfield. Thank you, Mr. Chairman.
Mr. Barrow. I thank the gentleman for yielding.
As an acting member of this subcommittee, under a unanimous
consent agreement, I am pleased to recognize Mr. Moran for 5
minutes for questioning.
Mr. Moran of Virginia. Again, thank you so much, Mr.
Chairman.
With regard to section 4 that is under contention, it was
our intent simply to restate what we understood to be existing
law. If the committee chooses, they may want to consider simply
leaving it silent and not addressing that because we're not
trying to change State law, we are simply trying to pass this
legislation.
But with regard to other State laws, I don't know how they
differ. I don't know why the problem--personally, it's probably
ignorance on my part--but is it that New York and New Jersey
and Massachusetts, Wisconsin, and Delaware have more
restrictive labeling requirements?
And if that's the case, I would like to ask the gentleman
from the Council, do you comply with that? Is it a problem? I
would think if you have to comply in New York, then that's the
biggest market, so you would have to comply everyplace
consistently.
Mr. Kaplan. Within the six States that have passed fur-
labeling laws in the past 2 years, the focus of those laws, the
sole focus has been the removal of the small-value exemption.
And once again, as an industry trade association, we were in
support of and worked with the legislators, in fact, on the
language of those bills.
New York is the exception. They also had the additional
caveat of the real-fur label. And as I indicated in my
testimony, this had led to some degree of confusion. We've gone
to the Attorney General's Office to ask them about compliance.
It's an issue that they can't even respond on. And the net
effect has been confusion to consumers looking at a product
they know to be real fur and not understanding why suddenly
this additional label appeared; and it's burdensome to the
retailers simply because they don't know really what the label
is supposed to look like for compliance purposes. And the
Office of the Attorney General has not been able to tell us.
Mr. Moran of Virginia. Sounds like a New York problem.
Maybe Mr. Weiner could clarify that.
But would the FTC be able to clarify that, perhaps?
Mr. Kohm. Well, I'm not able to clarify what the rules are
in New York----
Mr. Moran of Virginia. No, I understand; but in terms of
the implementation of this.
Mr. Kohm. Well, with regard to section 4, you are correct,
Congressman, that the Fur Labeling Act and the fur rules are
silent as to preemption. And what that means as a legal matter
is that States can pass laws as long as they don't conflict
with the Federal law. So they can pass additional protections.
If the provision were stricken, that would be consistent with
the rest of the Fur Labeling Act. As it is, it's consistent as
well.
Mr. Moran of Virginia. OK. So we're not necessarily
imposing anything additional--any additional requirement. It's
simply restating what we understand to be the law.
Could you suggest what the Federal Trade Commission has
done to implement the Fur Products Labeling Act, what actions
you've taken to identify, correct, or prevent false
advertising? I have a suspicion that FTC, over the last few
years, has been less than aggressive, perhaps, particularly
with regard to the situation we're talking about with the faux
fur being mislabeled.
Mr Kohm. Well, Congressman, the FTC, as you know, is a
small agency with a very large mandate, and we have to deploy
our resources to get the biggest bang for the buck. In this
area we've been able to work with retailers, and we've done so
publicly with a number of retailers--Macy's, Neiman Marcus,
Saks, and a number of others--and found that they had
relatively small problems; in other words, there were small
numbers of coats. They were very willing to work with us and
improve their supply chain so that they weren't having
problems. And we've issued public closing letters to make sure
that the industry knows what the problem is. And we have been
able to address those concerns in a less resource-intensive way
in that manner.
Mr. Moran of Virginia. Well, that was very articulately
put. I think you're suggesting it's largely a matter of
prioritization of limited resources, but you've done what you
could with the major retailers.
Mr. Kohm. Everything is priority in resources, Congressman.
Mr. Moran of Virginia. I understand. But just to sum up,
obviously Mr. Markarian is aggressively in support of this
because it is consistent with an issue that the Humane Society
has identified and been working on for some years. The Federal
Trade Commission does support it, and the Fur Information
Council does not have a problem with it is what I gather.
Mr. Kaplan. With the exception of section 4.
Mr. Moran of Virginia. I understand. Which is a restatement
of current law.
Well, Mr. Chairman, thank you very much. Thank you for your
indulgence, thanks for having the hearing, and thank you for
your leadership.
Mr. Barrow. I thank the gentleman.
This concludes the time allowed for questioning the
witnesses by members present.
The chair will note that Mr. Kaplan asked to include a
letter in the record of these proceedings, and without
objection, it is so ordered.
[The information was unavailable at the time of printing.]
Mr. Barrow. The chair also asks unanimous consent to have a
letter from Cash4Gold to be inserted into the record.
Without objection, it is so ordered.
[The information appears at the conclusion of the hearing.]
Mr. Barrow. I would like to thank all the witnesses for
their testimony and for being here with us today.
There being no further business for the subcommittee, the
subcommittee stands adjourned.
[Whereupon, at 2:47 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
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