[Federal Register Volume 60, Number 157 (Tuesday, August 15, 1995)]
[Rules and Regulations]
[Pages 42031-42034]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19926]



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FEDERAL TRADE COMMISSION

16 CFR Part 14


Administrative Interpretations, General Policy Statements, and 
Enforcement Policy Statements

agency: Federal Trade Commission.

action: Final amendments to interpretations and policy statements.

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summary: The Federal Trade Commission (``Commission'') is rescinding 
certain unnecessary or superfluous interpretations and policy 
statements in the Administrative Interpretations, General Policy 
Statements, and Enforcement Policy Statements (``Interpretations and 
Policy Statements'') and revising one policy statement to bring it up 
to date.

effective date: August 15, 1995.

addresses: Requests for copies of this notice should be sent to the 
Federal Trade Commission, Public Reference Branch, Room 130, Sixth 
Street and Pennsylvania Avenue, NW., Washington, DC 20580.

for further information contact: Kent C. Howerton, Attorney, Federal 
Trade Commission, Bureau of Consumer Protection, Division of 
Enforcement, Room S-4302, Sixth Street and Pennsylvania Avenue NW., 
Washington, DC 20580, (202) 326-3013.

SUPPLEMENTARY INFORMATION:

I. Background

    As a part of its ongoing program to review all of its mandatory 
rules and voluntary guides, the Commission has determined to amend 16 
CFR part 14, Administrative Interpretations, General Policy Statements, 
and Enforcement Policy Statements (``Interpretations and Policy 
Statements'').\1\ In this notice, the Commission announces its 
determinations to repeal Secs. 14.2, 14.4, 14.7, 14.11 and 14.17, and 
to revise Sec. 14.16.\2\ As explained below, the Commission is 
rescinding certain interpretations, guidelines and policy statements 
that are unnecessary, superfluous or obsolete and revising one policy 
statement to reflect current law and policy. Sections 14.9, 14.12 and 
14.15 remain in effect and are not 

[[Page 42032]]
affected by the amendments described in this notice.

    \1\ Part 14 of title 16 of the Code of Federal Regulations is 
not a comprehensive record of all the Commission's formal 
interpretations, guides, and policy statements. The Commission's 
Office of General Counsel is currently working on a project to make 
other such materials more readily available to the public.
    \2\ This matter has been designated as file number P954215 in 
the Commission's records.
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    The Commission is not seeking public comment on these amendments to 
repeal Secs. 14.2, 14.4, 14.7, 14.11 and 14.17, and to revise 
Sec. 14.16. These interpretations, guidelines and policy statements are 
not regulations, only interpretative guides and general statements of 
policy. Therefore, the Commission does not need to seek public comment 
before repealing or revising them.\3\ Further, because the Commission's 
determinations to repeal or revise these interpretations, guidelines 
and policy statements are based upon changes in the law and 
regulations, the existence of other laws, regulations or legal 
decisions, facts concerning current industry practices that do not 
appear to be in controversy, or current Commission policy, public 
comment is not likely to aid the Commission significantly in making 
these determinations. The amendments become effective upon publication 
in the Federal Register.

    \3\ See section 553(b)(A) of the Administrative Procedure Act, 
15 U.S.C. 553(b)(A).
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II. Sections Revised or Repealed

A. Section 14.2

    Section 14.2 states that it is not the Commission's policy to 
consider the use of the word ``tile'' in the designation of non-ceramic 
products to be false and misleading, provided that either the true 
composition of such products or the fact that they are not ceramic 
products is plainly disclosed. The Commission issued this policy 
statement in 1950 as guidance to industry and to amend certain 
stipulations covering specific companies that the Commission published 
between 1937 and 1945.
    The Commission has no reason to believe that sellers of non-ceramic 
tile products currently fail to disclose the composition of their 
products or misrepresent their composition. In any event, the 
Commission can prosecute misrepresentations of product composition, or 
the failure to disclose, prior to sale, information that is material to 
a consumer's purchasing decision, as unfair or deceptive acts or 
practices under section 5 of the FTC Act, 15 U.S.C. 45.
    For these reasons, the Commission has determined that Sec. 14.2 is 
unnecessary and superfluous.

B. Section 14.4

    Section 14.4 contains the Commission's interpretation of the 
requirements of section 5 of the FTC Act concerning yarn and fabric 
that contain metallically weighted silk fiber. The Commission issued 
this interpretation in 1960 to supplement the fiber identification 
requirements of the Textile Fiber Products Identification Act 
(``Textile Act''), 15 U.S.C. 70, and the rules and regulations issued 
under the Textile Act.\4\

    \4\ See Rules and regulations under the Textile Fiber Products 
Identification Act, 16 CFR part 303.
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    Specifically Sec. 14.4 states that the fiber identification 
required by the Textile Act shall be immediately accompanied by a clear 
and non-deceptive disclosure that the silk fiber present is weighted, 
along with the percentage of the total weight of the silk fiber content 
in its finished state that the weighting represents. Section 14.4 
further states that the disclosure shall appear on the same label that 
contains the fiber identification required by the Textile Act, and the 
rules and regulations issued under it, and in immediate conjunction 
with any representation in advertisements, sales promotional 
literature, or invoices that relates to fiber content.
    During at least the past 15 years, the Commission has not been 
aware of any problems concerning the sale of ``metallically weighted 
silk'' yarn and fabric products. In any event, the Commission can 
prosecute misrepresentations concerning ``metallically weighted silk'' 
products, or the failure to disclose, prior to sale, information that 
is material to a consumer's purchasing decision, as unfair or deceptive 
acts or practices under section 5 of the FTC Act.
    For these reasons, the Commission has determined that Sec. 14.4 is 
unnecessary and superfluous.

C. Section 14.7

    Section 14.7 contains interpretations of legal requirements 
concerning the payment by industry members of so-called ``push money.'' 
\5\ These interpretations, which the Commission issued in 1962, 
prohibit industry members from providing anything of value to a 
salesperson employed by a customer of the industry member as inducement 
to obtain greater effort in promoting the resale of the industry 
member's products when: (i) The agreement or payment is made ``without 
the knowledge and consent of the salesperson's employer,'' (ii) the 
benefit to the salesperson or customer is dependent on lottery; (iii) 
``any provision of the agreement or understanding requires or 
contemplates practices or a course of conduct unduly and intentionally 
hampering the sales of products of competitors * * *;'' (iv) ``the 
effect may be to substantially lessen competition or tend to create a 
monopoly;'' or (v) ``similar payments are not accorded to salespersons 
of competing customers on proportionally equal terms in compliance with 
sections 2 (d) and (e) of the Clayton Act,'' 15 U.S.C. 13 (d) and (e).

    \5\ Section 14.7 is, in all substantive respects, identical to 
Sec. 248.8 of the Commission's Guides for the Beauty and Barber 
Equipment and Supplies Industry (``Beauty/Barber Guides''), 16 CFR 
part 248. For the same reasons the Commission has determined to 
eliminate section 14.7, it has determined that Sec. 248.8 of the 
Beauty/Barber Guides also should be eliminated. The Commission is 
publishing its determination concerning Sec. 248.8 in a separate 
notice.
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    To the extent that the interpretations prohibit industry members 
from surreptitiously compensating employees of their customers in 
exchange for greater effort on the part of those employees, they 
address commercial bribery, which may be prohibited under section 2(c) 
of the Clayton Act, 15 U.S.C. 13(c), and is proscribed by many state 
criminal statutes.\6\ To the extent that they prohibit bonus plans 
dependent on lottery, they address business conduct which may be 
proscribed by section 5 of the FTC Act and by state statutes relating 
to lotteries and similar promotions.\7\ To the extent the 
interpretations require payments to salespersons of competing customers 
to be on proportionally equal terms, they restate general principles of 
competition law that are set forth in section 2 of the Clayton Act and 
the Guides for Advertising Allowances and Other Merchandising Payments 
and Services (``Fred Meyer Guides''), 16 CFR part 240.

    \6\ See e.g., Cal. Penal Code sec. 641.3 et seq. (Deering 1995); 
Ill. Rev. Stat., Ch. 38, para. 29A-1 (1995); N.Y. Penal Law sec. 
180.00 (McKinney 1976).
    \7\ See e.g., Tex. Penal Code sec. 32.42 (West 1995); Cal. Bus. 
& Prof. Code sec. 17539.1 (Deering 1995); Cal. Penal Code sec. 319 
et seq. (Deering 1995).
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    For these reasons, the Commission has determined that Sec. 14.7 is 
unnecessary and superfluous.

D. Section 14.11

    Section 14.11, which the Commission issued in 1979, contains 
guidelines designed to prevent deception and to advise manufacturers 
and dealers of motor vehicles built for use upon public highways about 
how they can avoid violating the FTC Act. These vehicles include truck 
chassis and incomplete vehicles used in building motor homes. The 
Commission issued the guidelines because it was concerned about 
misleading practices some manufacturers had used to identify the model 
years of heavy duty trucks and other vehicles whose features changed 
little from year to year.

[[Page 42033]]

    After it issued the guidelines, the Commission accepted consent 
agreements with most of the manufacturers of those heavy duty trucks 
and other vehicles.\8\ The consent agreements provide adequate guidance 
for manufacturers of such vehicles and others concerning how to avoid 
violating the FTC Act regarding a vehicle's model year.

    \8\ See Mack Trucks, Inc., 94 F.T.C. 236 (1979); Chrysler Motors 
Corp., 94 F.T.C. 245 (1979); Ford Motor Company, 94 F.T.C. 254 
(1979); Paccar. Inc., 94 F.T.C. 263 (1979); White Motor Corp., 94 
F.T.C. 272 (1979); and International Harvester 94 F.T.C. 281 (1979).
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    For these reasons, the Commission has determined that Sec. 14.11 is 
unnecessary and superfluous.

E. Section 14.16

    Section 14.16 contains interpretations, published in 1982, 
concerning the compliance responsibilities under the Truth-in-Lending 
Simplification and Reform Act of 1980, Pub. L. 96-221, 94 Stat. 168, 
and the revisions of Regulation Z, 12 CFR part 226, that were published 
by the Federal Reserve Board in 1981, 46 FR 20848, for those creditors 
and advertisers subject to final cease and desist orders issued by the 
Commission prior to April 1, 1981 that require compliance with 
provisions of the original Turth-In-Lending Act (``TILA''), 15 U.S.C. 
1601 et seq., and prior Regulation Z. This section, therefore, applies 
Congress' simplification of TILA to pre-existing orders issued by the 
Commission that compel compliance with the TILA and Regulation Z.
    The Commission believes that the current language in Sec. 14.16 
might be interpreted to freeze orders enacted prior to April 1, 1981 to 
the requirements of the TILA and Regulation Z as of April 1, 1981, and 
not to allow or require parties subject to Commission orders to meet 
the requirements of subsequent amendments to the TILA and Regulation Z. 
It is not the Commission's intent that section 14.16 have this effect. 
For this reason, the Commission has determined to revise Sec. 14.16 to 
state clearly that the Commission will interpret TILA and Regulation Z 
provisions of all orders consistent with the current requirements of 
the TILA and Regulation Z, and with any subsequent amendments to the 
TILA and Regulation Z.
    Further, Secs. 1416(b)(1) and (b)(2) specify enforcement 
responsibilities during a transition period in 1981 and 1982. Because 
these sections no longer are relevant, the Commission has determined to 
delete these provisions, and to renumber and revise the remainder of 
Sec. 14.16(b).

F. Section 14.17

    Section 14.17 contains an explanation of the Commission's policy 
concerning questions that are relevant when the Commission decides 
whether to initiate an enforcement action under the trade regulation 
rule regarding Disclosure Requirements and Prohibitions Concerning 
Franchising and Business Opportunity Ventures (``Franchise Rule''), 16 
CFR part 436. The Commission, however, has investigated and filed in 
court the vast bulk of its Franchise Rule enforcement actions since it 
published this Franchise Rule enforcement protocol in 1984. Thus, the 
protocol does not reflect, fully and accurately, the Commission's 
present enforcement policy. Moreover, the Commission currently is 
reviewing the Franchise Rule under its ongoing regulatory review 
program.\9\

    \9\ Request for comments, 60 FR 17656 (April 7, 1995).
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    For these reasons, the Commission repeals Sec. 14.17. The 
Commission will consider whether it is necessary to issue an updated 
version of the protocol to reflect current law, fact and policy after 
it completes its regulatory review of the Franchise Rule.

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

List of Subjects in 16 CFR Part 14

    Advertising, motor vehicles, silk, textiles, trade practices, 
truth-in-lending.

Text of Amendments

    Accordingly, under the authority of 15 U.S.C. 41-58, the Commission 
amends 16 CFR part 14 as follows:

PART 14--ADMINISTRATIVE INTERPRETATIONS, GENERAL POLICY STATEMENTS, 
AND ENFORCEMENT POLICY STATEMENTS

    1. Sections 14.2, 14.4, 14.7, 14.11 and 14.17 are removed.
    2. Section 14.16 is revised to read as follows:


14.16  Interpretation of Truth-in-Lending Orders consistent with 
amendments to the Truth-in-Lending Act and Regulation Z.

Introduction

    The Federal Trade Commission (FTC) has determined that there is a 
need to clarify the compliance responsibilities under the Truth-in-
Lending Act (TILA) (Title I, Consumer Credit Protection Act, 15 U.S.C. 
1601 et seq.), as amended by the Truth-in-Lending Simplification and 
Reform Act of 1980 (Pub. L. 96-221, 94 Stat. 168), and under revised 
Regulation Z (12 CFR part 226, 46 FR 20848), and subsequent amendments 
to the TILA and Regulation Z, of those creditors and advertisers who 
are subject to final cease and desist orders that require compliance 
with provisions of the Truth-in-Lending statute or Regulation Z. 
Clarification is necessary because the Truth-in-Lending Simplification 
and Reform Act and revised Regulation Z significantly relaxed prior 
Truth-in-Lending requirements on which provisions of numerous 
outstanding orders were based. The Policy Statement provides that the 
Commission will interpret and enforce Truth-in-Lending provisions of 
all orders so as to impose no greater or different disclosure 
obligations on creditors and advertisers named in such orders than are 
required generally of creditors and advertisers under the TILA and 
Regulation Z, and subsequent amendments to the TILA and Regulation Z.

Policy Statement

    (a) All cease and desist orders issued by the FTC that require 
compliance with provisions of the Truth-in-Lending Act and Regulation Z 
(12 CFR part 226) will be interpreted and enforced consistent with the 
amendments to the TILA incorporated by the Truth-in-Lending 
Simplification and Reform Act of 1980, and the revision of Regulation Z 
implementing the same, promulgated on April 1, 1981 by the Board of 
Governors of the Federal Reserve System (46 FR 20848), and by 
subsequent amendments to the TILA and Regulation Z. Likewise, the 
Federal Reserve Board staff commentary to revised Regulation Z (46 FR 
50288, October 9, 1981), and subsequent revisions to the Federal 
Reserve Board staff commentary to Regulation Z, will be considered in 
interpreting the requirements of existing orders.
    (b) After an amendment to Regulation Z becomes effective, 
compliance with the revised credit disclosure requirements will be 
considered compliance with the existing order, and:
    (1) To the extent that revised Regulation Z deletes disclosure 
requirements imposed by any Commission order, compliance with these 
requirements will no longer be required; however,
    (2) To the extent that revised Regulation Z imposes additional 
disclosure or format requirements, a failure to comply with the added 
requirements will be considered a violation of the TILA.
    (c) A creditor or advertiser must continue to comply with all 
provisions 

[[Page 42034]]
of the order which do not relate to Truth-in-Lending Act requirements 
or are unaffected by Regulation Z. These provisions are not affected by 
this policy statement and will remain in full force and effect.

Staff Clarifications

    The Commission intends that this Enforcement Policy Statement 
obviate the need for any creditor or advertiser to file a petition to 
reopen and modify any affected order under section 2.51 of the 
Commission's rules of practice (16 CFR 2.51). However, the Commission 
recognizes that the policy statement may not provide clear guidance to 
every creditor or advertiser under order. The staff of the Division of 
Enforcement, Bureau of Consumer Protection, will respond to written 
requests for clarification of any order affected by this policy 
statement.

    By direction of the Commission.
Donald S. Clark,
Secretary.

Statement of Commissioner Mary L. Azcuenaga Concurring in 16 CFR Part 
14, Matter No. P954215; Repeal of Mail Order Insurance Guides, Matter 
No. P954903; Repeal of Guides Re: Debt Collection, Matter No. P954809; 
and Free Film Guide Review, Matter No. P959101

    In a flurry of deregulation, the Commission today repeals or 
substantially revises several Commission guides and other 
interpretive rules.\1\ The Commission does so without seeking public 
comment. I have long supported the general goal of repealing or 
revising unnecessary, outdated, or unduly burdensome legislative and 
interpretive rules, and I agree that the repeal or revision of these 
particular guides and interpretive rules appears reasonable. 
Nevertheless, I cannot agree with the Commission's decision not to 
seek public comment before making these changes.

    \1\ Administrative Interpretations, General Policy Statements, 
and Enforcement Policy Statements, 16 CFR part 14; Guides for the 
Mail Order Insurance Industry, 16 CFR part 234; Guides Against Debt 
Collection Deception, 16 CFR part 237; and Guide Against Deceptive 
Use of the Word ``Free'' in Connection With the Sale of Photographic 
Film and Film Processing Services, 16 CFR part 242.
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    Although it is not required to do so under the Administrative 
Procedure Act, 5 U.S.C. 553(b)(A), the Commission traditionally has 
sought public comment before issuing, revising, or repealing its 
guides and other interpretive rules. More specifically, the 
Commission adopted a policy in 1992 of reviewing each of its guides 
at least once every ten years and issuing a request for public 
comment as part of this review. See FTC Operating Manual ch. 8.3.8. 
The Commission decided to seek public comment on issues such as: (1) 
The economic impact of and continuing need for the guide; (2) 
changes that should be made in the guide to minimize any adverse 
economic effect; (3) any possible conflict between the guide and any 
federal, state, or local laws; and (4) the effect on the guide of 
technological, economic, or other industry changes, if any, since 
the guide was promulgated.

Id. The Commission has sought public comment and has posed these 
questions concerning a number of guides since adopting its 
procedures for regulatory review in 1992.\2\

    \2\ See, e.g., Requests for Comments Concerning Guides for the 
Hosiery Industry, 59 FR 18004 (Apr. 15, 1994); Request for Comment 
Concerning Guides for the Feather and Down Products Industry, 59 FR 
18006 (Apr. 15, 1994).
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    Notwithstanding its long-standing, general practice of seeking 
public comment and its specific policy of seeking public comment as 
part of its regulatory review process, the Commission has chosen not 
to seek public comment before repealing or revising these guides and 
interpretive rules. Why not? Has the Commission changed its view 
about the potential value of public comment? Perhaps the Commission 
knows all the answers, but then again, perhaps not. Although 
reasonable arguments can be made for repeal or revision of these 
guides and interpretive rules, public comment still might prove to 
be beneficial.
    In addition, the relatively short period of time that would be 
required for public comment should not be problematic. The 
Commission has not addressed any of these guides or interpretive 
rules in the last ten years. Indeed, it has not addressed some of 
them for thirty years or more. For example, the Commission 
apparently has not addressed the interpretive rule concerning the 
use of the word ``tile'' in designation of non-ceramic products 
since it was issued in 1950.\3\ The continued existence of these 
guides and interpretive rules during a brief public comment period 
surely would cause no harm because they are not binding and because, 
arguably, they are obsolete. I seriously question the need to act so 
precipitously as to preclude the opportunity for public comment.\4\

    \3\ 16 CFR 14.2.
    \4\ Unfortunately, seeking public comment would not permit the 
Commission to count the repeal and revision of these guides and 
interpretive rules in its tally of completed actions in the 
Regulatory Reinvention Initiative Report that will be sent to the 
President on August 1, 1995, but perhaps that harm could be 
mitigated by reporting to the President that the Commission is 
seeking public comment concerning repeal or revision.
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    In 1992, the Commission announced a careful, measured approach 
for reviewing its guides and interpretive rules, and public comment 
has been an important part of that process. Incorporating public 
comment into the review is appropriate and sensible. Although I have 
voted in favor of repealing or revising these guides and 
interpretive rules, I strongly would have preferred that the 
Commission seek public comment before doing so.

[FR Doc. 95-19926 Filed 8-14-95; 8:45 am]
BILLING CODE 6750-01-M