COMMISSION

FEDERAL TRADE COMMISSION

Consumer protection regulations imposed incremental costs of $26 million in 1977

88% of incremental costs were operating and administrative

Three industries

account for 60% of incremental costs for consumer protection

Consumer protection regulations imposed incremental costs of $26 million in 1977 on participating companies. The $26 million includes $3 million of costs collected by the bank participants which are under the jurisdiction of the Federal Reserve System.

Although the study methodology enabled firms to report incremental costs in any aspect of FTC activity, only those pertaining to the Bureau of Consumer Protection were reported by enough companies to allow for significant analysis and discussion.

A number of companies with significant costs related to the Bureau of Competition did not choose to report these costs. The Department of Justice has overlapping jurisdiction with the FTC in antitrust enforcement and consequently many companies believed that it would be impossible to draw meaningful conclusions in the antitrust area. As a result, the data collected on this aspect of FTC activity were incomplete and represented only a portion of the costs related to FTC antitrust matters. For those companies which did report incremental costs in this area, the total amounted to approximately $23 million.

All consumer credit related costs and most other costs were operating and administrative. These costs were incurred to modify systems and procedures, train employees, and provide required customer disclosures under the truth in lending and equal credit opportunity regulations. Capital and research and development costs relate to research to support product disclosure claims either required by a consent decree or contemplated by proposed regulations. Figure 1-22 shows the FTC cost classification.

Three industries - banks, credit agencies other than banks, and stone, clay, glass and concrete products incurred the highest relative incremental costs to comply with consumer protection regulations in 1977. Banks with 4% of the sales of the participating companies accounted for 11% of incremental costs to comply with these regulations. Credit agencies other than banks accounted for 1% of sales and 42% of incremental costs. Stone, clay, glass and concrete products accounted for 1% of sales and 7% of incremental costs.

64% of incremental Federal Trade Commission consumer protection costs related to consumer credit

TOTAL FTC INCREMENTAL COSTS $26 MILLION

Consumer credit regulations which include truth in lending, equal credit opportunity and fair credit reporting accounted for $15 million of the $23 million FTC consumer protection costs reported. Figure 1-23 shows incremental costs for each high cost regulation.

Participants considered truth in lending disclosure costs to be excessive

Incremental costs of consumer protection enforcement activities

were of secondary

importance to concerns

over abuse of power

Costs of truth in lending disclosures in particular were considered to be excessive in light of their perceived benefit. The detailed semiannual customer statement of rights in case of billing disputes was cited as unnecessary, particularly when considering the number of credit cards and other consumer credit accounts of the average consumer. Truth in lending cost of credit disclosures were considered by many participants to have evolved to such a state of complexity that the disclosures may actually detract from consumer understanding.

As expected from the outset, incremental costs of FTC compliance were low in comparison to other agencies studied. Concerns expressed by the participants dealt more with potential danger from the misuse of enforcement authority and from potential disclosure of proprietary information than with the direct cost of compliance.

USE OF THE STUDY RESULTS

The investment made in developing the study methodology and conducting the study should be used to the benefit of business, government and the

consumer

The study results and methodology can be used to determine lower cost ways of achieving regulatory objectives, desirable modification of standards and for performance of follow-up studies

The Business Roundtable, the participating member companies and Arthur Andersen & Co. have made a significant investment to produce specific and documented regulatory cost data and a methodology that can be useful in improving the regulatory policy making process.

Although considerable analysis of the data has already been performed in the writing of this report, further analysis by business, government, academic institutions and other interested groups is encouraged.

The study results are arrayed by specific regulation, by industry and by type of cost. The tables and charts contained in the Appendix and selected chapters present the data in detail.

The cost data shown for specific regulations with high incremental costs are supplemented with interpretive narrative. The data describe the actions taken by companies to meet the requirements of those regulations, and report the companies' observations related to specific regulations or areas of regulation.

The results produced by the study and the proven methodology for cost determination can now be used to benefit business, government and the

consumer.

By focusing their attention on the existing high cost regulations and on proposed regulations having high cost attributes, those interested in reform can use the study data presented in several ways:

• To determine better methods of achieving regulatory objectives at lower cost to the economy.

• To evaluate and, where appropriate, modify regulatory procedures and standards.

To stimulate additional studies of other business sectors, specific industries, specific regulations and benefits:

The study results should be useful to the Regulatory Analysis Review Group, COWPS, and the Regulatory Council

The Business Roundtable and Arthur Andersen & Co. are prepared to assist and work with the regulatory agencies, the executive and legislative branches of government, industry and trade associations and other interested groups in conducting further analysis of the results and performing similar studies using the proven study methodology.

President Carter's Executive Order 12044 on "Improving Government Regulations" issued in March, 1978 sought to bring better management to the regulatory process, and included a requirement for economic impact analysis.

The executive order also sets criteria for identifying significant regulations that require regulatory analyses. Specifically, the requirements cover those regulations that result in an annual effect on the economy of $100 million or more or which result in a major increase in costs or prices for individual industries, levels of government or geographic regions.

As an adjunct to the executive order, President Carter established an interagency Regulatory Analysis Review Group to assist agencies in improving regulations. The review group is chaired by Charles Schultze, chairman of the Council of Economic Advisors, and its members include the principal economic and regulatory agencies of the executive branch. One of the group's specified functions is to evaluate regulatory analyses, as required by the executive order, of ten to twenty major regulations per year.

The Council on Wage and Price Stability (COWPS) has statutory authority to intervene on its own behalf in regulatory proceedings and provide analytical staff support for the review group when regulatory analysis appears incomplete or inadequate, when economic effects of the proposal appear to be large, or regulatory overlap or conflict exists across agencies.

As part of his anti-inflation campaign, President Carter has appointed a Regulatory Council, consisting of representatives of the executive branch regulatory agencies, to coordinate the activities of agencies and avoid overlapping and duplication and publish a unified calendar of planned major regulations. The calendar will state the goals and benefits, legal requirements, and expected timetables of the regulations along with available estimates of economic impacts.