DEPARTMENT OF HEALTH AND HUMAN SERVICES OFFICE OF CONSUMER AFFAIRS STATEMENT OF VIRGINIA KNAUER, SPECIAL ASSISTANT TO THE PRESIDENT AND DIRECTOR, OFFICE OF CONSUMER AFFAIRS ACCOMPANIED BY: JOHN SCULLY, DIRECTOR, DIVISION OF OS BUDGET SERVICES, DEPARTMENT OF HEALTH AND HUMAN SERVICES FRANK MARVIN, DIRECTOR, MANAGEMENT AND CONSUMER COMPLAINTS CHARLES CADWELL, ACTING GENERAL COUNSEL Senator GARN. We are happy to have you with us today, Mrs. Knauer. It is nice to see you again. I remember you but I am not sure you remember me. In the East Room of the White House, many years ago, I was representing the National League of Cities as mayor of Salt Lake City and second vice president of the National League's Consumer Conference and shared a platform with you. Ms. KNAUER. I remember it very well, Mr. Chairman. The U.S. Office of Consumer Affairs was created by President Nixon in 1971 to advocate consumer needs and viewpoints in the Federal Government, to foster consideration of consumer interests by other Government agencies, and to seek information and educate individual citizens to deal more effectively in the marketplace and to learn of opportunities to participate in Government decisionmaking. The Director of the Office also traditionally serves as Special Assistant to the President. The budget proposal before us for the Office totals 54 full-time permanent positions and $2,649,000, an increase of $317,000 over the anticipated fiscal year 1981 appropriation level. The increase request will provide for a reduction in the existing number of vacant positions, thus providing for an end-of-year employment level of 50 positions. I know that you and OMB have been seriously reviewing your budget request. Unfortunately, the only budget document before us for the Office is the Carter budget. Please feel free to answer my questions with the most up-to-date information you have. We will keep the record opened for corrections until March 23. So please go ahead with your statement. GENERAL STATEMENT Ms. KNAUER. Thank you, Mr. Chairman. It is indeed a pleasure for me to be here today representing the administration as the principal officer responsible for consumer matters-my new official title is Special Assistant to the President-and Director of the U.S. Office of Consumer Affairs. In many respects, while I have just recently been appointed to the position of Director, in fact I have only been on board 24 hours, it is not new to me since, as you so kindly recalled, I served for almost 8 years under previous administrations in much the same capacity. In the days ahead, my staff and I will be carefully reviewing the previous administration's budget for the Office of Consumer Affairs to insure that the programs and resources reflect the philosophy of President Reagan and the new administration. I have with me today Frank Marvin, Director of Management and Consumer Complaints, and Charles Cadwell, the Acting General Counsel of the Office of Consumer Affairs, who are familiar with the accomplishments of the Office in the past fiscal year and who can address certain technical matters which may arise. Also with us is John Scully, Director of Budget Services for the Office of the Secretary, Department of Health and Human Services, which provides administrative oversight for the Office of Consumer Affairs. We would all be pleased to answer any questions you may have, Mr. Chairman. NO FUNDING FOR NON-FEDERAL INTERVENORS Senator GARN. Thank you very much. The fiscal year 1981 HUD appropriations bill, Public Law 96-526, contains a provision-section 410-which prohibits the Office from paying non-Federal parties to intervene in regulatory or adjudicatory proceedings. How has this affected the development of your budget and the operation of the Office? Ms. KNAUER. Frank. Mr. MARVIN. Mr. Chairman, section 410 barred the use of Federal funds to pay for intervention in regulatory proceedings by non-Federal parties. The Office of Consumer Affairs has never paid the expense of outside groups for participation in Federal agency proceedings and the budget developed over the last year does not contain any funds for this purpose. Senator GARN. Therefore, it did not affect you because you were not doing it? Mr. MARVIN. That is correct. REGULATORY PROCEDURES Senator GARN. During fiscal year 1980, the Office filed 33 comments in Federal agency regulatory proceedings. You state those comments were filed only in cases where there was little or no other representation of the consumer's perspective. How do you determine whether there is adequate representation? Ms. KNAUER. Mr. Chairman, may I answer in a general way first, then ask Mr. Cadwell to provide details. We expect that as a result of the President's regulatory reform efforts there will be a substantial reduction in burdensome and unnecessary regulations. The regulations that are issued will be important to consumers almost by definition. In effect, the new Executive order will assist us in our selection of issues warranting our attention. To the extent that fewer Federal policies are made by regulation, I plan to use my staff to work with industry and consumer groups to address voluntary marketplace solutions to consumer complaints that regulations have not alleviated. I would like to point out this was a process I started 12 years ago. The process of sorting through the needed and the unneeded existing regulations will be a difficult task and one in which we hope to continue to participate. Our previous contribution to trucking deregulation is a good example of participation. Consumer input will be as important to the deregulation process as it is to the regulatory effort. Mr. CADWELL. Mr. Chairman, I can elaborate on our guidelines. As you may know, we have in the past had five guidelines to help us decide in which agency proceedings we would participate. They are: First, the aggregate economic impact of the proposal on consumers; second, the number of consumers affected; third, the availability of USOCA resources and the type of expertise required; fourth, the existence of other agencies and groups, as you mentioned; and fifth, the types of consumers affected, such as low-income and elderly consumers who are less able to represent themselves. These guidelines have provided a rough measure against which our own involvement has been weighed. In practice, we have not required each rulemaking comment to meet all five criteria. They are considered guidelines, not limitations. There have been rulemaking proceedings we have participated in where there have been other consumer groups, but there are many others—for example, in proceedings involving adjustable-rate mortgages before the Comptroller of the Currency-I believe we were the only consumer representatives. Senator GARN. I was going to refer to that one as well as denied boarding and oversale of tickets on commuter airlines. Mr. CADWELL. Both of those proceedings involve large numbers of consumers in situations where market information and regulation may be important. Bumped airline passengers in a small airport terminal have few alternatives and similarly, home buyers have little experience with innovative types of financing. There is a need for accurate, meaningful disclosures, so we did participate in those proceedings. REGULATORY REFORM Senator GARN. On page 8 of your budget justification, you say the Office plans to continue its involvement in a variety of issues which are likely to be addressed by the new Congress and the administration. One of those issues which you already referred to is regulatory reform. Would you please describe the role the Office sees for itself in the area of regulatory reform and which particular regulatory reform issues you consider high on your agenda? Ms. KNAUER. Consumer interest in the reform of the regulatory process arises from the same source as does business interest. Federal regulation touches all of us and the ability to participate in the process by which Federal regulations are made is important. The Reagan administration has already taken a major step to reform the regulatory process. On January 17, the President signed Executive Order 12291, imposing limits on the ability of Federal agencies to issue rules without carefully weighing costs and benefits. I envision our role in the current circumstances to be threefold. One, to assist the consumers in understanding and responding to the changes ordered by President Reagan; two, to encourage agencies to involve consumers in an early and meaningful way in their regulatory planning; and three, to provide my own input to the regulatory process where such would be helpful. In sum, the regulatory reform question which I feel most important from the viewpoint of this Office is how we can involve citizens in Federal agency decisionmaking. Other aspects of regulatory reform legislation are certainly important to consumers and I feel that this issue in particular is most amenable to constructive efforts by the Office of Consumer Affairs. IMPLEMENTATION OF EXECUTIVE ORDER 12160 Senator GARN. You note that in implementing the Consumer's Executive order the Office staff assisted 42 Federal agencies during fiscal year 1980 in setting up consumer programs. You further note that 37 agencies have published final plans in the Federal Register. What is the most current status of the implementation of this Executive order? Mr. MARVIN. Mr. Chairman, 38 Federal agencies have published final plans in the Federal Register as of this date to meet the specific requirements of Executive Order 12160. It is too early to evaluate the extent to which agencies have carried out their commitments in these plans. Such evaluation will be a USOCA staff function during the balance of this year. Senator GARN. Your budget justification also states that the Office staff helped OMB to evaluate the consumer program budgets for each agency following under the order. Based on your experience with the consumer budgets, what would you estimate the total Government-wide cost of implementing Executive Order 12160 to be? Mr. MARVIN. Staff estimates suggest the total cost for full implementation would be approximately $2 million. Senator GARN. You state that in fiscal year 1981, the Office will review the consumer programs of each agency to determine if they represent substantive benefits to consumers. How will you make this determination as to whether the offices will be of benefit to the consumers? Mr. MARVIN. Mr. Chairman, the determination of what constitutes substantial benefit to consumers will be based on whether agencies have established mechanisms to insure that a consumer perspective in a decisionmaking process exists, whether a consumer can participate in agency proceedings that affect their interest, whether agency personnel are adequately trained in the principles and operation of their consumer programs, and whether an adequate complaint-handling mechanism has been set up. Senator GARN. Do you think even if all of those things are done that you can really make a determination. I think an example of what I am talking about is the Truth in Lending Act. Now, certainly, the Ralph Naders of this world and other groups have had their input concerning this issue. But how in the world can anybody justify, particularly someone representing consumers, that truth in lending serves the consumer with what it has become. It was intended that borrowers have access to disclosure information to determine the amount of their loan, the annual percentage interest rate, and to give them the opportunity to shop for credit. I happen to be somewhat of an expert on some of those issues dealing with truth in lending. A 36-inch-long form would meet all the criteria you outlined, but a 36-inch-long form, which you need five constitutional attorneys to interpret for you, fails to get through to my consciousness. I would like to see a form developed which would indicate to a consumer, "You have borrowed blank number of dollars; you will pay back blank number of interest. Your APR is blank." That would serve the consumer and reduce the regulatory burden. However, the consumer groups you talk about would fight such a change. I don't understand how these groups say they represent consumers and defend these monstrous legal forms which, I suppose, are devised by some of my attorney colleagues in the Senate, so when they are no longer in the Senate, they can be paid large fees for interpreting what they passed while they were here. How do we get at the real root of the problem? Your answer is fine and I understand and I knew what you were going to say. Mr. MARVIN. Mr. Chairman, there are some new mechanisms which we feel can be established by this Executive order. For example, the message from the public, the consumers themselves, is manifested quite often in complaints-the complaints that come to Federal agencies and in the past were answered in a rote manner. One of the criteria in the standards Executive Order 12160 complaints from the average citizen about that 36-inch form, and similar kinds of complaints that come into an agency— Senator GARN. Most of them don't complain about it; they throw it away. Mr. MARVIN. Frankly, our experience is a simple letter sometimes is a memory jogger. However, quite often, what we Federal officers sometimes are missing is the total picture-when there are several hundred people who are complaining to different locations within an agency. This new standard will call for data to be aggregated and sent up to the policymakers to draw attention to that 36-inch form. Also, one of the standards is for information to go to personnel in the Federal agencies, to sensitize them to the consumer problems. Another is a message to citizens asking them for input in the decisionmaking process as opposed to the historic public relations kind of message that used to go out from Federal agencies. They are all individual steps, but in the aggregate we believe they can be meaningful in getting rid of that 36-inch form. We will be measuring that over the next year and over the next several years. I don't know if it is the answer in total, but we feel it is a step forward. Senator GARN. I suppose the point I am getting to is an independent analysis of what really serves the consumer rather than accepting certain consumer advocates' opinions. The same thing occurred with RESPA, the Real Estate Procedures Act, which Senator Bob Morgan and I were |