STAFF SUMMARY OF FEDERAL TRADE COMMISSION
ACTIVITIES AFFECTING OLDER AMERICANS
This report discusses the Federal Trade Commissions activities of particular significance for older consumers in calendar years 1995 and 1996. The first section of the report describes Commission initiatives to eliminate telemarketing frauds that target older consumers, who represent the majority of victims in many telemarketing scams. The second section reports Commission activities relating to the health concerns of senior citizens. Older consumers, in general, experience more health problems and therefore may be more vulnerable to injury from misleading health claims made about products or services or from anticompetitive mergers or other forms of anticompetitive conduct in health care markets. The third section discusses Commission law enforcement activities of particular importance to older consumers in other areas. The final section of the report addresses the Commissions consumer education initiatives that may be of particular benefit to older consumers.
TELEMARKETING FRAUD INITIATIVES
On March 6, 1996, the Senate Special Committee on Aging conducted a hearing on one of the greatest societal problems affecting older Americans -- telemarketing fraud.(1) Fraudulent telemarketers often target older citizens, knowing that many of them may have significant assets from a lifetime of saving, including self-directed retirement accounts. These telemarketers also know that the victim, shamed at suffering such losses, often will not tell friends and family about the scam and will be desperate to make back the losses. The telemarketers then have other con artists "reload" the victim with more offers until the victim has no more to give, monetarily or psychologically. One witness at the Senate hearing, Mary Downs, testified that she lost over $74,000 to fraudulent telemarketers from April 1992 to March 1993.(2) Some fraudulent telemarketers, in perhaps the most pernicious scheme, also operate "recovery rooms" that purport to help fraud victims get back their money for a substantial fee.
It has been estimated that telemarketing fraud may cost all American consumers as much as $40 billion a year in losses. Older Americans account for 60% of the fraud victims who call the National Consumers Leagues National Fraud Information Center.
To combat these and other frauds, the Federal Trade Commission in 1995 and 1996 employed a new array of effective weapons. First, the Commission promulgated a new Telemarketing Sales Rule ("TSR"), as directed by Congress in the Telemarketing Consumer Fraud and Abuse Prevention Act of 1994, 15 U.S.C. § 6101. This Rule, which went into effect on December 31, 1995, defines a number of telemarketing frauds with greater specificity and allows both the FTC and state Attorneys General to bring actions in federal court. Second, the Commission used both the Rule and its FTC Act authority to conduct coordinated law enforcement "sweeps," working with state Attorneys General, state securities officials, the FBI, the U.S. Postal Service, and other agencies. In 1996 alone, the Commission formed alliances that produced over 200 actions against fraudulent telemarketers. The Commission itself, from October 1995 through December 1996, brought nearly 100 federal court actions stopping fraudulent operations that cost consumers $250 million a year and over $700 million over the lives of these schemes.
Telemarketing Sales Rule
The Telemarketing Sales Rule, 16 CFR Part 310, imposes general requirements for all telemarketers and addresses specific fraudulent practices. Under the TSR, telemarketers must promptly disclose certain information in telephone calls to consumers, including their identities, the fact that they are making a sales call, and the nature of the goods or services they are offering. The Rule also prohibits telemarketers from misrepresenting the services or products they sell and from debiting a consumers checking account without the consumers express authorization. The TSR also outlaws a number of telemarketing practices such as credit card laundering. In addition to addressing the conduct of telemarketers, the TSR also bars third parties from providing substantial assistance to telemarketers -- specifically, assistance such as providing consumer lists, marketing materials, or appraisals of investment offerings -- when the person "knows or consciously avoids knowing" that the telemarketer is engaged in unlawful conduct. Violations of the TSR may result in civil penalties of as much as $11,000 per violation, and consumers who have lost over $50,000 are able to sue under the TSR to recoup their losses.
In 1995 and 1996, the telemarketing frauds that most affected older Americans included bogus prize promotions, investment frauds, charitable solicitations, recovery rooms, and credit schemes sold over the telephone. This Report discusses each below.
Prize promotion is an egregious type of telemarketing fraud in which a high percentage of victims are older Americans. In 1996, more than 40% of the complaints logged into the Telemarketing Complaint System(3) pertained to prize promotion. In a typical scheme, telemarketers make unsolicited calls or mail notification cards to consumers stating that they have won a valuable prize, such as a vacation, car, cash or jewelry. Consumers are told that they should purchase some product such as vitamins, cosmetics or magazine subscriptions and they will then receive the prize.(4) The TSR requires that, in any prize promotion, telemarketers must disclose that no purchase or payment is required to win a prize, and must provide information about the odds of winning the prize and how to participate in the promotion at no cost. 16 CFR § 310.3(a)(1)(iv).
Operation Senior Sentinel: The FTC played a significant role in Operation Senior Sentinel, announced in December 1995. This enforcement effort, led by the U.S. Department of Justice, was the largest criminal crackdown ever on telemarketing fraud. It focused on telemarketing scams targeting older Americans such as prize promotions and recovery rooms. Nearly 80% of the victims in the underlying prize promotion and recovery room cases targeted in Operation Senior Sentinel were older persons. The operation was launched with the simultaneous arrest of nearly 400 telemarketers. By the end of 1996, more than 800 individuals had been prosecuted or arrested on charges of federal crime.
The Commission participated by assisting criminal law enforcement authorities to identify victims and witnesses as well as by filing five civil complaints -- four against allegedly fraudulent prize promotions and the fifth against an alleged recovery room. The courts in these actions issued strong preliminary relief, closing down those "boilerrooms" -- telephone sales rooms -- and freezing defendants assets.
Chattanooga Project: During 1995 and 1996, the Commission also provided other substantial direct support to the criminal prosecution of fraudulent prize promoters. In 1995, the FTC detailed eight attorneys to the Chattanooga, Tennessee Telemarketing Fraud Task Force. Chattanooga had became a leading center of fraudulent telemarketing activity, particularly prize promotions. The overwhelming majority of the victims of the Chattanooga operations were senior citizens. The FTC attorneys were cross-designated as Special Assistant U.S. Attorneys and brought criminal actions against telemarketers operating in the area. By the end of 1996, the Chattanooga Task Force largely had completed its work, having obtained fifty convictions and combined prison sentences against fraudulent telemarketers totaling over 1,695 months. The defendants were ordered to pay more than $13 million in restitution. In recognition of the FTCs contributions, the U.S. Department of Justice honored the FTC attorneys with its John Marshall Award for interagency cooperation in support of litigation in 1996.
Operation Jackpot: In June and July 1996, the Commission joined with the U.S. Postal Inspection Service and 16 state Attorneys General to bring 56 law enforcement actions against 79 fraudulent prize promoters in 17 states. The Commission itself brought eight cases alleging violations of both the FTC Act and the TSR.(5) The complaints named companies that allegedly lured consumers to buy "Say No to Drugs" paraphernalia or magazine subscriptions to obtain a prize. Another target, Publishers Award Bureau, allegedly promised land in Baja California as awards accompanying magazine sales. In another case, American Exchange Group, Inc., the Commission alleged that the company had promised consumers that they would receive large, valuable awards on the condition that they purchase magazine subscriptions. As with other prize promotion offerings, the prizes were allegedly either non-existent or were worth significantly less than the amount paid. The Commission also filed suit against Ideal Concepts and its principals, charging that the defendants, who operated a nationwide telemarketing operation selling novelty items, e.g., hats, frisbees, etc., imprinted with anti-drug statements, had fraudulently promised that consumers would receive valuable prizes.
Fraudulent telemarketers know that many senior citizens have substantial savings and that many may need substantial investment returns to help finance retirement. The stock market boom of the mid-1990's also led many investors to seek and expect high returns. Fraudulent telemarketers were only too happy to respond to these desires, peddling bogus investment opportunities ranging from gold, rare coins, art prints, gemstones, and wine investments to telecommunications licenses issued by the Federal Communications Commission. The telemarketers invariably assured consumers that they would realize a substantial return on their investment, usually in a short period of time and with minimal risk. The amounts of individual losses often were quite high, sometimes $5,000 to $20,000 or more per person. In one case, a woman who had saved over $100,000 over forty years of babysitting lost all of it to a scam touting investments in supposed application services for FCC paging system licenses. Older citizens taken by these scams often are not in a position to recoup their losses.
DIRECTV and IVDS Frauds: In 1995, the Commission brought a coordinated action against three alleged purveyors of investment frauds touting new FCC license technologies. Two cases involved supposed profits to be made in connection with new wireless communication FCC licenses for Interactive Video and Data Service (IVDS). In one case, Digital Interactive Associates, the telemarketers sold over $19 million in partnership interests in such businesses allegedly by such means as understating their risks and failing to disclose the amount of funds being drained off to telemarketers and insiders. In a second case, Chase McNulty Group, Inc. allegedly misrepresented the nature and value of these IVDS licenses and made other misrepresentations. Finally, the Commission alleged that Satellite Broadcasting Corp. misrepresented that it had the rights to market a type of satellite television programming called DIRECTV to certain markets and that investors could earn a substantial return from investing in the venture. The courts in all three cases issued injunctive relief that included asset freezes and the appointment of receivers. In the case against Chase McNulty, the court approved a consent decree awarding a judgment of $1 million(6) and requiring individual defendants to pay $160,000 and to post a bond of $350,000 before engaging in future telemarketing. Defendants in the Satellite Broadcasting Corp. case agreed to pay more than $700,000 in consumer redress. The Digital Interactive case is still in litigation.
Operation Roadblock: In January 1996, the Commission, together with the North American Securities Administrators Association, coordinated a federal and state initiative aimed at high-tech scam promoters peddling Federal Communications Commission paging licenses and 900-number companies as investments. The Commission and 21 states filed 85 law enforcement actions against telemarketing companies. These companies had taken in more than $250 million from consumers touting bogus investments on the "Information Superhighway." As a result of Operation Roadblock, FTC-FCC cooperation, and intensive consumer education efforts, telemarketing scams relating to FCC licenses took a sharp drop in 1997.
Miscellaneous Investment Frauds: Counterfeit art works were the subject of a 1995 Commission lawsuit against Renaissance Fine Arts, Ltd. and its owner. In that case, the individual defendant fled the United States but subsequently returned and was arrested by U.S. Postal authorities on charges related to the Commissions complaint allegation. The court- ordered default judgment required the defendants to pay $2.3 million in consumer redress and banned the companys president from further telemarketing of artwork. Permanent injunctions also were entered in settlement of pending lawsuits against Georgetown Galleries (alleged misrepresentations in the telemarketing of antiquarian art prints) and Cambridge Exchange, Ltd. (alleged misrepresentations in the telemarketing of animation cells and other artworks coupled with an allegedly deceptive prize promotion).
Finally, the Commission obtained a settlement in an earlier case against Unimet Credit Corp., involving allegations that defendants had assisted other companies that deceptively telemarketed leveraged investments in precious metals and foreign currency. The defendants were required to pay $1.9 in consumer redress.
Legitimate charities often offer prizes in connection with their fundraising efforts. However, the Commission in 1995 and 1996 also saw substantial numbers of telemarketing operations where salespeople, in the name of a charity, promised consumers extravagant prizes in return for an allegedly tax-deductible donation to a specific charity ("telefunding"). Not surprisingly, the prizes were almost worthless and the amounts of money that ever reached charitable organizations were infinitesimal.
In 1995, the Commission charged NCH, Inc. and its principals for their roles in a fraudulent telefunding scheme. The Commission alleged that the company had misrepresented that consumers would win valuable prizes in exchange for making a donation to a charity called "Operation Life." The court ordered the defendants to pay over $2.6 million in redress to consumers and permanently banned them from engaging in prize promotion activities.
During the 1995-96 period, the Commission also settled a number of lawsuits previously brought against other telefunders. In one matter, the complaint had alleged that corporate defendants, Publishing Clearing House (not the familiar Publishers Clearinghouse), M.A.A., Inc. and certain individual defendants had made unsolicited calls to consumers, telling them that they had been selected to receive a valuable prize -- ranging in value from $3,500 to $50,000 in cash. The consumers were then told that all they had to do to receive the prize was to make a tax- deductible donation of a significant specified amount to a designated charity. The Commission alleged that the consumers did not receive the promised prize (or if they did, it was of nominal value) and that the "donation" was not tax-deductible. In settling this case, the Commission required the defendants to post a $1 million performance bond before engaging in any prize promotion or charitable solicitation activity.
The Commission obtained comparable relief through settlement of another case with a Las Vegas telemarketer and telefunder, Marketing Twenty-One dba Genesis Enterprises. As with PCH, the company promised prizes in exchange for a purportedly tax-deductible contribution. The Commission alleged that these claims were false. The settlement requires the individual defendant, Markos Mendoza, to post a $1 million performance bond before engaging in a similar telemarketing venture.
In 1995 and 1996, the Commission also obtained consent decrees with 24 defendants involved with an organization of telefunders for The Gleaners. In these cases, the Commission charged that defendants falsely represented the value and nature of prizes that consumers would receive in return for their donations to teenage alcohol and drug-abuse rehabilitation programs and food banks purportedly run by The Gleaners. The complaint also alleged that defendants misrepresented the charitable activities undertaken by the two charitable organizations. The settlements provide that the individual defendants must post a $1 million bond before engaging in any telephone prize promotion business and must disclose the existence of the bond to customers.
"Recovery rooms" prey on persons who have already been victimized by telemarketers. Telemarketers obtain the names and addresses of these victims by purchasing, or trading for, lists of victims from other fraudulent operations. The recovery room salesperson then falsely promises the victims that, for a fee, the telemarketer can help them obtain the promised prize or money lost in a previous telemarketing scam. Often, telemarketers represent themselves as governmental entities or as agents hired to locate victims and distribute money back to them. After the consumer sends in the requested fee, the company invariably fails to deliver the refund or prize, thereby exacerbating the victims losses. A review of victim demographics in several of the Commissions recovery room cases has confirmed that older consumers are prominent in the victim universe. In one case, 81% of the consumers were at least 65 years of age and 23% were at least 80 years old. In another case, 82% were at least 65 and 32% were at least 80 years old.
During 1995 and 1996, the Commission brought or settled lawsuits against numerous individuals and companies involved in nearly a dozen recovery room operations. Some of these cases were brought as part of Senior Sentinel or other sweeps. Examples include the Commissions cases against USM and Meridian Capital Management. In USM, the defendants did business as Senior Citizens Against Telemarketing, or "SCAT." SCAT allegedly masqueraded as a consumer protection organization that worked closely with government agencies. According to the Commissions complaint, SCAT represented to consumers that it would recover substantial sums of money that consumers had lost in previous telemarketing scams and would even file lawsuits on consumers behalf, if necessary. The charge to consumers ranged from $200 to $1,000.
Another of the Commissions 1995 lawsuits targeted Meridian Capital Management, which allegedly made unsolicited telephone calls to consumers who had been victims of various investment frauds, often involving Federal Communications Commission wireless telecommunications licenses. For a fee of 10% of the consumers previous investment, Meridian claimed it could recover all or a substantial portion of the money invested. In addition, according to the complaint, Meridian also represented that it was on the verge of filing a class action lawsuit and the consumer had to pay immediately in order to participate as a member of the class. Finally, the complaint also challenged Meridians representation that it could collect on performance bonds supposedly posted by fraudulent telemarketers.(7) In 1996-1997, the Commission obtained default judgments for $1.6 million against Meridian and several individual defendants, and stipulated or court-ordered permanent injunctions were entered against all defendants. With Commission staff acting as Special Assistant U.S. Attorneys, the U.S. Department of Justice in 1998 obtained indictments charging 17 defendants involved in the Meridian scam with the crimes of conspiracy, mail fraud, and wire fraud. In addition, seven of the defendants were charged with money laundering.
The Commissions efforts against recovery rooms were enhanced by the implementation of the Telemarketing Sales Rule, which specifically prohibits telemarketers from requesting or receiving payment for recovery room services until after the refund or prize is delivered to the consumer. 16 C.F.R. § 310.4(a)(3). Our law enforcement efforts and the deterrent effect of this TSR provision have borne fruit. The volume of consumer complaints concerning recovery rooms logged into the FTC Telemarketing Complaint System in 1996 plummeted to 153 -- less than one-fifth the record high volume of 869 complaints recorded in 1995.
Three types of credit-related telemarketing scams that have plagued older Americans involved unauthorized check cashing, advance fee loan schemes, and bogus credit repair services. The Telemarketing Sales Rule addresses prevalent practices in these areas.
In attacking unauthorized check cashing or demand draft fraud, the Commission filed complaints against a cluster of telemarketers, including, for example, Windward Marketing, Ltd., charging violations of the demand draft provision of the TSR. These telemarketers allegedly tricked consumers into revealing their checking account numbers and then used that information to debit consumers checking accounts without the consumers authorization. This ruse was in conjunction with a magazine subscription offering. The case was settled with monetary judgments of more than $14 million.
In mid-1996, the Commission and 15 state Attorneys General joined in a sweep called Project Loan Shark, bringing 13 lawsuits against 45 firms and individuals that ran advance fee loan schemes, in which telemarketers represent that, for a fee, they will guarantee consumer credit in the form of a loan or credit card. The TSR makes it illegal for telemarketers who guarantee consumers a loan or credit to charge an advance fee. Among the targets of Project Loan Shark was Global E, which marketed credit cards for an advance fee and was charged with violations of the TSR. The Commission also filed a complaint alleging that Patricia Popp charged advance fees in connection with the offer of debt-consolidation services and loans.
Bogus credit repair firms promise that, for a fee, they will remove negative, though accurate, information contained in consumers credit reports. Since credit reporting bureaus legally may include verifiable, negative information in consumers reports for a period of seven years, and bankruptcies for ten years, credit repair companies cannot deliver the service they promise. The TSR prohibits credit repair companies from obtaining payment until six months after they have, in fact, fulfilled their promise to clean up credit histories. The Commission charged Universal Credit Corp. with violations of both the FTC Act and the TSR -- the company claimed a 90% success rate in removing negative, accurate information from customers reports and promised a money-back guarantee. The company was also charged with making unauthorized demand drafts on customers checking accounts. As part of the enforcement strategy in this industry, the Commission launched Operation Payback, a joint federal-state law enforcement sweep in 1996 in which the Commission filed four complaints against deceptive credit repair companies.(8)
Cross-Border Telemarketing Fraud
In 1995, the Commission stepped up its response to the globalization of telemarketing fraud. The Commission had detected an increase in Canadian-based telemarketing companies targeting United States citizens, often older consumers. Canadian officials confirmed that the reverse was also true. The Commission is tackling this problem through workshops, task forces, and cooperative law enforcement efforts. In August 1995, representatives of U.S. and Canadian law enforcement agencies agreed to coordinate enforcement of their competition and deceptive marketing practices laws. In 1996, the Commission co-sponsored two conferences on cross- border fraud and established a task force on Cross-Border Deceptive Marketing Practices with Canadas Competition Bureau to facilitate coordinated law enforcement between the two countries.
Also in 1996, the Commission brought its first enforcement actions against Canadian- based telemarketers. The first case was against Ideal Credit Referral Services, which operated from a boilerroom in British Columbia and peddled advance fee loan services. The next cross- border firm to be sued was another Canadian firm, Incentive International, which allegedly fraudulently ran a prize promotion.
The Commission also has pursued defendants assets across international borders. In an Operation Roadblock case against Online Communications, one of the defendants allegedly transferred assets to the Bahamas. With FTC staffs assistance, the Department of Justices Office of Foreign Litigation obtained an injunction freezing the assets in the Bahamas; the defendant subsequently agreed to repatriate $300,000 to the U.S. This was the first time the U.S. government obtained an asset freeze from a foreign court and obtained the funds for redress to American telemarketing victims.
Finally, the Commission has anticipated the next great competitor to telemarketing fraud -- fraud on the Internet. Older Americans are frequent users of the Internet, and the Commission in 1995 and 1996 held hearings on how not only the Internet, but many new technologies, were likely to be of concern in the coming decades.(9) The Commission also extensively trained its staff and brought the first significant actions against Internet fraud artists. In 1996, the Commission joined with criminal authorities to bring actions against Fortuna Alliance, involving a multi- million dollar, online international pyramid scheme. Other cases included allegations that defendants used the Internet as a medium for fraudulent messages.
In December 1996, the Commission also initiated the first of many subsequent surf days, in which Commission staff join with other law enforcement agencies and private groups to detect and warn potentially fraudulent sellers on the Internet. In this project, the Commission coordinated an effort by four federal agencies and 70 state and local law enforcement officials from 24 states to target pyramid schemes. The FTC staff and other law enforcers contacted over 500 Internet web sites, advising them of applicable law and conducting follow-up communications. Since then, the Commission has conducted surf days in numerous areas of concern, including health fraud, business opportunities, scholarship scams, and others.
While health care is a subject of concern for all of our citizens, it is of disproportionate concern to the aging. A significant portion of the Commissions consumer protection work helps to ensure that consumers are not harmed by deceptive claims about the health benefits of products or services. Similarly, a substantial portion of the Commissions antitrust law enforcement activity is aimed at ensuring that competition among providers of health care goods and services is not unlawfully impaired. This activity contributes both to cost containment and to the maintenance of quality in health care.
Consumer Protection in Health-Related Matters
Hearing Aids and Eyeglasses
In 1994, the Commission filed an order-enforcement action against Dahlberg, Inc., one of the largest hearing aid manufacturers in the United States. The Commissions complaint charged that Dahlberg, maker of the "Miracle-Ear" brand of hearing aids, violated a 1976 FTC order by making false and unsubstantiated claims about its Miracle-Ear "Clarifier," purportedly a "noise- suppression" hearing aid. These claims included assertions that the Clarifier focuses its amplification on sounds the user wants to hear, such as speech, and reduces all unwanted background noise. In 1995, the court entered a consent decree requiring Dahlberg to pay a penalty of $2.75 million -- at that time the highest penalty obtained for alleged violations of an FTC consumer protection order.
In another case, the Commission charged in federal court that the Telebrands Corporation exaggerated the benefits of its WhisperXL hearing aid, and also violated the Commissions Mail or Telephone Order Merchandise Rule, 16 CFR Part 435, by failing to ship products in a timely fashion. The 1996 consent decree prohibits violations of the Rule, requires the company to pay a $95,000 civil penalty, and prohibits misrepresentations about hearing devices. That year, the Commission also obtained an administrative consent order that banned false claims, including that the WhisperXL hearing aid produces clear amplification of whispered or normal speech and allows the user to hear a whisper from as far as 100 feet away. The consent order further requires that any claim that is made about the performance or effectiveness of any hearing aid be truthful and supported by competent and reliable evidence.
In the vision care area, the Commission obtained a court-ordered consent decree that required Doctors Eyecare Center, Inc. and its president to pay a $10,000 civil penalty to settle charges that they violated the Commissions Ophthalmic Practice Rules, 16 CFR Part 456, by failing to provide many patients with a copy of their eyeglass prescription after completing an eye examination and by unlawfully including on their prescription forms a waiver of liability as to accuracy. The purpose of this Rule is to remove unwarranted restraints on the ability of consumers to shop for competitive eyeglass prices.
Health Claims for Food and Dietary Supplements
Consumers rely on the truthfulness of health claims for food and dietary supplements when making purchasing decisions. Senior citizens, because of special dietary requirements or other health concerns, may be particularly vulnerable to misleading claims for such products. The Commission continues to be active in this area and has engaged in several important law enforcement efforts since 1994.
In 1995, the Commission accepted a consent agreement that prohibits Good News Products, Inc. from claiming that its eggs were lower in saturated fat and total fat than ordinary eggs, and that these eggs contained Omega 3 fatty acids that could positively affect heart attack risk factors. The order against Good News Products prohibits the company from misrepresenting the absolute or comparative amount of total fat, saturated fat, or any other nutrient or ingredient in eggs or food containing egg yolks. It also requires the company to have competent and reliable scientific evidence before making claims about the absolute or comparative effects of such food on heart disease, heart disease risk factors, and serum cholesterol, and claims about the health benefits for such foods.
In 1996, the Commission obtained a civil penalty of $100,000 from Eggland's Best, Inc. to settle allegations that the company violated a 1994 order by making unsubstantiated cholesterol-related claims for its eggs. Specifically, the Commission alleged that Eggland's violated the order by: (1) representing, without substantiation, that eating its eggs will not increase serum cholesterol at all, or that doing so will not increase cholesterol as much as ordinary eggs; and (2) misrepresenting that clinical studies have proven that adding 12 Eggland's Best eggs a week to a low-fat diet does not increase serum cholesterol.
Also in 1996, the Commission obtained a settlement with Mrs. Fields Cookies, Inc. The company had claimed that a certain line of cookies was "low fat," when, in fact, the cookies did not meet the FDA requirements for low fat claims. The Mrs. Field's order prohibits the company from misrepresenting the existence or amount of fat, saturated fat, cholesterol, or calories in any bakery food product.
Finally, the Commission in 1996 issued a cease and desist order against The Dannon Company to settle allegations that it made deceptive fat and calorie content claims for its frozen yogurt. The order prohibits Dannon from making false claims regarding the existence or amount of fat, saturated fat, cholesterol, or calories in any frozen food product. It also requires the respondent to pay the Commission $150,000.
In the dietary supplement area, the Commission in 1996 completed administrative litigation against Metagenics, Inc., challenging claims for its over-the-counter calcium supplement. The Administrative Law Judge ruled that Metagenics could not, without adequate substantiation, represent that the product, Bone Builder, restores lost bone, restores bone strength, reduces or eliminates bone pain, and is superior to other forms of calcium. The ALJ found for Metagenics with respect to certain other complaint allegations, and both sides appealed the ALJs ruling.(10)
In 1995, the Commission issued a cease and desist order against Nature's Bounty, Inc. and two of its subsidiaries to settle allegations that they made deceptive weight-loss, body-building, disease-treatment and/or other health-related claims for 26 nutrient supplements they marketed. The order prohibits the respondents from making various allegedly false claims, as well as requiring them to have substantiation for future health claims. The order also requires the respondents to pay $250,000 to the Commission -- to be used for consumer redress, if practical, or to be paid to the U.S. Treasury.
Also in 1995, the Commission gave final approval to a consent agreement with Body Wise International, Inc., settling charges that the company made deceptive weight-loss and cholesterol-reduction claims for its nutritional supplements. The order prohibits the company from making health benefits claims regarding its products -- including weight loss or cholesterol reduction claims -- unless the claims, including those made through testimonials, are true and supported by adequate scientific evidence.
Finally, the Commission in 1995 obtained a civil penalty of $45,000 from HealthComm, Inc. and Jeffrey S. Bland to settle allegations that they violated a 1992 order by making deceptive weight loss and related health claims. The Commission alleged that the defendants violated the order by: (1) representing that their supplements UltraMaintain and UltraMeal alter the mitochondria in the body's cells so that cells convert more food into energy; and (2) making unsubstantiated weight-loss, disease symptom-reduction, toxin-elimination, and blood cholesterol and blood pressure-reduction claims.
Over-the Counter Drugs and Medical Devices
Senior citizens rely heavily on the truthfulness of advertising claims for over-the-counter ("OTC") drugs and medical devices. While the Commission has primary responsibility for ensuring that advertising for these products is truthful and nondeceptive, the FDA exercises primary jurisdiction with respect to the labeling of such products and their safety.
In 1996, the Commission announced a settlement with Natural Innovations, Inc., advertiser of "The Stimulator," a purported pain-relief device said to effectively relieve all types of pain and provide immediate, long-term pain relief better than other medications and treatments. In a separate settlement with World Media T.V., Inc., the Commission alleged that World Media directly participated in the creation and dissemination of the "Say No To Pain" infomercial on behalf of Natural Innovations. The Commission charged that the claims were unsubstantiated. The orders require the companies to provide scientific proof to back up any pain-relief or other health or medical benefit claims they make in the future.
In 1995, the Commission issued consent orders against two marketers of "facilitated communications" devices -- devices similar to a typewriter, computer or alphabet chart that purportedly enable those with developmental or communication disabilities to communicate through the device. One company, for example, claimed that its device would help consumers who had problems such as speech disorders, cerebral palsy, multiple sclerosis, or Alzheimers disease. The Commission alleged that the companies advertisements contained false or unsubstantiated representations concerning the efficacy of their devices. The consent orders ban certain claims and prohibit the companies from making representations about the ability of any communications aid to assist those with other disabilities to communicate through facilitated communications, unless the representation is true and substantiated by competent and reliable scientific evidence.
Other Health-Related Devices and Services
As with OTC drugs and devices, older consumers are particularly vulnerable to fraudulent practices and misleading health benefit claims for other devices and services. The Commission in 1995-1996 took numerous law enforcement actions in this area.
One initiative was against telemarketing firms engaged in fraudulent medical billing practices. The Commission brought federal court actions against three medical equipment companies that allegedly marketed relatively inexpensive wheelchairs, scooters, and other devices to disabled persons but then submitted insurance claims for more expensive equipment that was never delivered. In some cases, the Commission charged, insurance claims were filed for items that had never been ordered by consumers. Under the court-approved settlements, Freedom Medical, Inc., Independence Medical, Inc., Motion Medical, Inc., and individual defendants were required to pay a total of $754,850 for consumer redress, and some individual defendants were barred from any aspect of marketing medical products or services for ten years. In addition, some defendants were required to post a performance bond before engaging in the sale or rental of durable medical equipment, and all defendants were prohibited from making various misrepresentations in the future.
In addition, Cancer Treatment Centers of America, Inc. and two affiliated hospitals agreed to settle Commission charges that they made false and unsubstantiated claims promoting their cancer treatments. The companies also allegedly failed to substantiate a claim that their five-year survivorship rate ranked among the highest recorded for cancer patients. The consent order requires the companies to have competent and reliable scientific evidence to substantiate future claims regarding the success or efficacy of their cancer treatments and to ensure that testimonials they use do not misrepresent the typical experience of their patients.
In another settlement, Genetus Alexandria, Inc. and its owners, who sold impotence treatments, agreed to settle charges that they falsely represented that a physician would examine, diagnose, and treat every patient, that the treatment was unqualifiedly safe, and that the treatment would arrest each patients impotence. The respondents also allegedly billed insurance companies for medical tests that were not performed. The consent order prohibits the respondents from misrepresenting the nature or extent of a physicians participation in any treatment, the safety or efficacy of any procedure, and the extent to which a treatment is covered by a patients medical insurance.
The Commission also brought a number of actions that could affect older consumers with respiratory ailments. In a matter involving air pollution claims, Ford Motor Company and its advertising agency, Young & Rubicam, Inc., agreed to settle Commission charges that they made false claims about the extent to which Fords MicronAir Filtration System could remove air pollution from automobile passenger cabins. The Commission alleged that the system had no effect on gaseous pollutants, such as hydrocarbons, carbon monoxide and nitrogen oxide. The 1996 consent orders prohibit certain claims and require the firms to have competent and reliable scientific evidence for any efficacy claims for car cabin air filters.
In 1995, the Commission in two separate cases also obtained consent agreements with marketers of ozone generator air cleaners. One case involved Living Air Corporation and its sister company, Alpine Industries, Inc. The other involved Quantum Electronics Corporation. In both matters, the Commission alleged that the companies lacked substantiation for claims that the devices eliminate or clear specified chemicals, gasses, mold, mildew, bacteria, or dust from the environment, that the devices do not create harmful by-products, and that the devices prevent or provide relief from allergies, asthma, or other specified conditions. The consent orders require that the manufacturers of the devices have competent and reliable scientific evidence before making such claims and contain other relief to prevent misleading claims about other air cleaning products.
Finally, the Commission settled allegations that David Green, M.D. deceptively advertised as pain-free and permanent his varicose vein and spider vein treatments. The consent order requires Dr. Green to have competent and reliable scientific evidence to substantiate any future claims on this subject.
Diet and Weight Loss Products and Services
Older consumers continue to invest heavily in the weight-loss industry. The Commission in 1995-1996 has continued to be active in this area, and has taken numerous actions involving diet and weight-loss products, programs, and services. These cases include the settlements mentioned above with Mrs. Fields Cookies, The Dannon Company, Natures Bounty, Body Wise International, and HealthComm, all of which included claims relating to weight-loss products. The Commission also obtained a consent order against NordicTrack, Inc., a major manufacturer of indoor exercise equipment. The Commission had charged that the firm had made false and unsubstantiated claims about the weight-loss benefits of its cross-country ski exercise machine, including claims that overstated users weight-loss success. The consent order requires the company to have competent and reliable evidence to support weight-loss, weight maintenance, or related claims for any weight-loss equipment that it sells.
The Commission also entered a final consent order against Choice Diet Products and its owner, marketers of the FormulaTrim 3000, MegaLoss 1000, and MiracleTrim diet pills, settling charges of false advertising. The order requires the companys owner to post a $300,000 performance bond to be used for consumer redress should he engage in deceptive practices when marketing weight-loss products in the future and contains further relief to prevent misleading claims regarding such products.
In addition to weight-loss products, many older consumers purchase services from diet clinics. The Commission, having obtained twelve consent orders against such firms in 1992- 1994, continued this program with further actions in 1995-1996 involving low-calorie and very- low-calorie weight-loss programs. Formu-3 International, Inc., the franchisor of Form-You-3 or Formu-3 weight-loss centers, and two related companies agreed to settle allegations that they made unsubstantiated weight-loss and weight-loss maintenance claims, engaged in deceptive pricing, and made misleading representations about the programs safety, participants rate of weight loss, and other deceptive claims. The consent order prohibits the companies from misrepresenting the performance, efficacy, or safety of any weight-loss program they offer or the competence or training of their personnel. The order also requires them to have scientific data to back up future claims about weight-loss success, rates, or time frames, and weight maintenance.
In a case involving Diet Workshop, Inc., a franchisor of weight-loss plans and products, the Commissions consent order similarly prohibits the firms from misrepresenting the performance of any weight-loss program and requires them to have reliable scientific evidence to substantiate claims about achieving or maintaining weight loss, or the rate at which the loss can be expected to occur. The order also requires disclosure statements in certain advertising and bars the misleading use of consumer testimonials. The Commissions administrative complaints against Weight Watchers International, Inc. and Jenny Craig, Inc., issued in 1993, remained in litigation,(11) and the Commission obtained a consent order against J. Walter Thompson USA, Inc. in connection with advertising it had created for the Jenny Craig Weight Loss Program. That case concerned a study purportedly showing that nine out of ten Jenny Craig clients would recommend the program to a friend.
Finally, the Commission obtained consent orders against three marketers of single- session, group-hypnosis seminars that purportedly helped consumers lose weight. The Commission had charged that the companies and their owners had made false and/or unsubstantiated claims about the success of participants in losing weight. The consent orders prohibit the respondents from making performance or efficacy claims for any weight-loss program they sell in the future without having competent and reliable scientific evidence that substantiates the claims.
Antitrust Guidance to Health Care Providers
The rapid evolution of health care markets in response to changes in the way health care services are paid for and delivered has created concerns that the impact of antitrust enforcement in this sector might impede efficient, procompetitive combinations and collaborations. As was described in the Commissions 1994 report, the Commission and the Department of Justices Antitrust Division jointly issued, in September 1993, their Antitrust Enforcement Policy Statements in the Health Care Area in response to these concerns. These statements defined "antitrust safety zones" for health care activity in various areas; these "safety zones" identified conduct that will not be challenged by the agencies, absent extraordinary circumstances. Additionally, for conduct falling outside these "safety zones," the statements explained how the agencies will analyze the conduct to determine its legality. Finally, the statements highlighted the availability of Commission advisory opinions and DOJ business review procedures, and, for the first time, adopted time limits for agency answers to most health industry requests. Subsequently, in September 1994, the Commission and the Antitrust Division issued updated and expanded policy statements, Analytical Principles Relating to Health Care and Antitrust.
The agencies recognized that additional guidance might become necessary as the health care market continued to evolve in response to consumer demand and competition in the marketplace. New arrangements and variations on existing arrangements involving joint activity by health care providers continue to emerge to meet the desire of consumers, purchasers and payers for more efficient delivery of high quality health care services. This evolution has led, in particular, to the development of many physician and multiprovider networks.
On August 28, 1996, the agencies announced revisions to the agencies enforcement policy statements regarding health care provider networks. These changes expanded upon the guidance contained in the agencies 1993 and 1994 policy statements, in order to ensure that uncertainty about the antitrust laws does not deter the formation of new types of networks that could benefit competition and consumers. Revisions were made affecting two kinds of networks: (1) physician network joint ventures; and (2) multiprovider networks.
The revised statement on physician network joint ventures provides an expanded discussion of the antitrust principles that apply to such ventures. The revised statement explains that where physician integration through the network is likely to produce significant efficiencies, any agreements on price reasonably necessary to accomplish the ventures procompetitive benefits will be analyzed under the rule of reason. The revisions focus on networks that fall outside the safety zones, particularly those networks that do not involve the sharing of substantial financial risk by the physician participants. The statements stress that a physician network that falls outside of the safety zones is not necessarily anticompetitive.
Because multiprovider networks involve a large variety of structures and relationships among many different types of health care providers, the agencies have not set out a safety zone in this area. The 1996 revisions state that multiprovider networks will be evaluated under the rule of reason, and will not be viewed as per se illegal if the providers integration through the network is likely to produce significant efficiencies that benefit consumers, and if any price agreements by the networks are reasonably necessary to realize those efficiencies.
In 1995 and 1996, the Commission staff provided substantial guidance in the form of advisory opinions analyzing proposed ventures on a case-by-case basis.
Antitrust Law Enforcement in the Health Care Sector
Pressures for cost-containment have led to an increasing number of hospital mergers. As in other industries, the Commission challenges only those hospital mergers that it has reason to believe are likely to have anticompetitive results, and it seeks a remedy that is carefully tailored to eliminate only the anticompetitive part of the transaction while allowing the remainder to proceed.
In 1995 and 1996, the Commission obtained consent agreements in five cases involving hospital mergers. Three cases involved mergers of large hospital chains and demonstrated the Commissions sharply focused approach to anticompetitive situations. In the first of these cases, the Commission issued a final consent order involving Columbia/HCA Healthcare Corporations acquisition of Healthtrust Inc., which combined the two largest chains of acute-care hospitals in the country. Although there were a significant number of overlaps throughout the country -- where both chains had hospitals in the same area -- Commission staff, after thorough investigation, found that the merger would substantially lessen competition for general acute-care hospital services in only six geographic markets: the Salt Lake City-Ogden Metropolitan Statistical Area, Utah; the Denton, Texas area; the Ville Platte-Mamou-Opelousas, Louisiana area; the Pensacola, Florida area; the Okaloosa, Florida area; and the Orlando, Florida area. As part of a settlement agreement, the companies agreed to divest seven hospitals in those areas. The Commission did not challenge other aspects of the merger.
The Commission also issued final consent orders in two other hospital merger cases involving large national chains. One involved the merger of Charter Medical Corporation and National Medical Enterprises, the two largest chains of psychiatric hospitals in the country. Charter agreed to modify its purchase agreement so as not to acquire the NME facilities in four geographic markets -- Atlanta, Memphis, Orlando and Richmond -- in which the Commission alleged that the acquisition would substantially lessen competition in the psychiatric care market. Charter's acquisition was allowed to proceed in the other markets. Another case involved the merger of HEALTHSOUTH Rehabilitation Corporation, the nations leading operator of rehabilitation hospitals and other rehabilitation facilities, with ReLife Inc., which operated a number of rehabilitation facilities. The Commission obtained a consent agreement in which HEALTHSOUTH agreed to divest a hospital in Nashville, Tennessee, and to terminate management contracts to operate rehabilitation units at hospitals in Birmingham and Charleston.
In a fourth hospital merger case, the Commission approved a consent agreement concerning Columbia/HCA's acquisition of John Randolph Medical Center in Hopewell, Virginia. John Randolph provided psychiatric services in that market and Columbia already owned Poplar Springs Hospital, a psychiatric hospital in Petersburg, Virginia. Under the consent agreement, Columbia/HCA was allowed to purchase John Randolph only if it divested Poplar Springs.
Finally, the Commission authorized the staff to seek a preliminary injunction to block the merger of Port Huron Hospital and Mercy Hospital-Port Huron, Inc., the only two general acute- care hospitals in Port Huron, Michigan. Prior to trial, the Port Huron hospitals called off the transaction and a consent agreement was signed requiring prior approval before the parties attempt to merge again.
Conduct Involving Health Care Providers
During 1995 and 1996, the Commission issued four final consent orders in cases alleging joint conduct by physicians that prevented competition among health care providers.
The Commission issued a consent order against the medical staff of Good Samaritan Regional Medical Center in Phoenix, Arizona. The agreement settled charges that the staff members conspired, or threatened, to boycott the hospital in order to induce it to end its ownership interest in the Samaritan Physicians Center, a multi-specialty physicians clinic that would have competed with the medical staff. Under the agreement, members of the medical staff are prohibited from agreeing, or attempting to agree, to prevent or restrict the services offered by Good Samaritan, the Samaritan Physicians Center, or any other health care provider.
The Commission also issued a consent order against Physicians Group, Inc. and seven physician board members of the organization, settling charges that they conspired to fix the prices, terms, and conditions of cost-containment under which they would deal with third-party payers. The complaint alleged that the group conspired to prevent or delay the entry of third- party payers into Pittsylvania County and Danville, Virginia. The order required the dissolution of Physicians Group, Inc. and prohibits the physician respondents from engaging in similar anticompetitive conduct with respect to third-party payers.
In addition, the Commission issued a consent order against the Medical Association of Puerto Rico, its Physiatry Section, and two of its physiatrist members. The Commission charged that the Association illegally conspired to boycott a government insurance program in order to obtain exclusive referral powers from insurers, and to increase reimbursement rates. The respondents agreed not to boycott or refuse to deal with any third-party payer, or refuse to provide services to patients covered by any third-party payer. The agreement places restrictions on meetings of physiatrists to discuss refusals to deal with any third-party payer, or the provision of services covered by any third-party payer; and prohibits the respondents from soliciting information from physiatrists about their decisions to participate in agreements with insurers and provide service to patients, passing such information along to other doctors, and giving physiatrists advice about making those decisions.
Finally, the Commission issued a consent order against a physician association (MAPI) and a physician-hospital organization (BPHA) in Billings, Montana. The complaint alleged that MAPI blocked the entry of an HMO into Billings, obstructed a PPO that was seeking to enter, recommended physician fee increases, and later acted through BPHA to maintain fee levels. The associations agreed not to boycott or refuse to deal with third-party payers, to determine the terms upon which physicians deal with such payers, or to fix the fees charged for any physician services. MAPI also is prohibited from advising physicians to raise, maintain, or adjust the fees charged for their medical services, or from creating or encouraging adherence to any fee schedule. The order does not prevent these associations from entering into legitimate joint ventures that are non-exclusive and involve the sharing of substantial financial risk.
Restraints on Advertising
The Commission issued a complaint charging that the California Dental Association had unreasonably restricted its dentist members' truthful and nondeceptive advertising of the price, quality, and availability of their services, and had imposed what were effectively prohibitions against advertising senior-citizen discounts. In March 1996, the Commission issued an opinion and order affirming an ALJs decision finding that the California Dental Associations rules violated Section 5 of the FTC Act. The Commissions order requires CDA, among other things, to cease and desist from restricting truthful, nondeceptive advertising (including truthful, nondeceptive superiority claims, quality claims, and offers of discounts); to remove from its Code of Ethics any provisions that include such restrictions; and to contact dentists who have been expelled or denied membership in the last 10 years based on their advertising practices and invite them to re-apply. The order also requires CDA to set up a compliance program to ensure that its constituent societies interpret and apply CDAs rules in a manner that is consistent with the order. The Commissions order was affirmed by the 9th Circuit in 1997.(12)
Competition Activities in the Pharmaceutical Field
Competition and competitive prices in the pharmaceutical industry are particularly important to older Americans. There are at least three reasons why this is so. First, merely by virtue of their age, older persons are more likely to have medical problems than the average American and thus are more likely to purchase pharmaceutical products. It has been reported that roughly 13 percent of our population is over the age of 65 but that this group consumes more than a third of all prescription drugs dispensed, and that this percentage is increasing. Second, older persons are less likely to have insurance that helps pay for their drugs and thus must bear the entire cost of their medicines. Almost all elderly consumers rely on Medicare, which does not have a prescription drug benefit. Reimbursement is available only to Medicare recipients who can afford Medi-gap coverage, are poor enough to qualify for Medicaid, or are in a managed care plan that offers a prescription drug benefit. Third, because many of the nations senior citizens have limited financial resources, as a group they are disproportionately affected by pharmaceutical prices.
Mergers in Manufacture and Distribution of Pharmaceuticals
The Commission was quite active during 1995 and 1996 in the role of protecting competition in this area, focusing on oversight of merger activity in both the manufacturing and distribution of pharmaceuticals.
In the manufacturing sector, in 1995 the Commission issued a consent order requiring American Home Products to divest its tetanus and diphtheria vaccines and to license its rotavirus vaccine research as a condition for acquiring American Cyanamid Company. Also made final in 1995 was a consent order prohibiting IVAX Corporation from acquiring any rights to market a generic version of verapamil -- a drug used to treat patients with chronic cardiac conditions -- from Zenith Laboratories. IVAX and Zenith were the only two suppliers of generic verapamil. This settlement ensured that two generic suppliers of this drug remained in the market.
In 1995, the Commission also accepted a consent agreement with Glaxo plc, settling charges that its acquisition of Wellcome plc lessened competition in the research and development of drugs to treat migraine headaches. The consent order required Glaxo to divest one of the competing research and development projects to a Commission-approved buyer.
The Commission also obtained relief in four pharmaceutical markets when it challenged the proposed acquisition of Marion Merrell Dow by Hoechst AG. The consent agreement with Hoechst required the company to divest assets and take other actions to restore competition in the following markets: (1) once-a-day diltiazem, a medication used to treat hypertension and angina; (2) mesalamine, a medication used to treat gastrointestinal diseases; (3) rifampin, a drug for tuberculosis; and (4) drugs used to treat intermittent claudication, a circulatory disease. These four product markets have annual sales of over $1.25 billion. The consent order against Hoechst was issued in 1996.
Another consent order that was issued in 1996 involved the merger of Upjohn Company and Pharmacia Aktiebolag. In that case, the companies agreed to divest one of their research and development projects to develop a drug to treat colorectal cancer, in order to maintain competition in the development of such drugs.
Finally, two consent agreements were accepted for public comment in December of 1996. In one, Baxter International, Inc. agreed to divest blood plasma products in order to proceed with its acquisition of Immuno International AG. In the other consent agreement, the Commission required Ciba Geigy, Ltd. and Sandoz, Ltd. to license their patents and intellectual property in the broad area of gene therapy research to an independent competitor as a condition for allowing their merger to proceed.
The Commission also challenged two acquisitions in the retail sale of prescription drugs in order to protect competition for the millions of Americans that obtain prescription drugs through pharmacy benefit plans. In December of 1996, J.C. Penney/Thrift agreed to divest over 100 drugstores in North and South Carolina before it purchased the Eckerd drugstore chain and certain drugstores from Rite Aid. In the other case, the Commission voted on April 17, 1996, to seek a preliminary injunction in federal district court to block Rite Aids proposed acquisition of Revco. As a result of this vote, Rite Aid abandoned its planned acquisition.
Older consumers also are vulnerable to non-merger-related anticompetitive conduct in the pharmacy industry. The Commission has therefore acted to eliminate agreements among pharmacies that raise the price of medications.
In June 1996, the Commission issued a consent order barring RxCare of Tennessee, Inc., a pharmacy network, and the Tennessee Pharmacists Association, its owner, from using "Most Favored Nation" clauses in RxCares contracts with pharmacies. The Commission alleged that RxCare enforced these clauses against pharmacies that accepted reimbursement rates from other third-party payers that were lower than the RxCare rate, and thus discouraged pharmacies from participating in rival, lower-priced networks. The clause forced third-party payers to pay higher rates in Tennessee than in other states.
Finally, Commission staff in 1996 opened an investigation of a pharmacy network and its members, who are large institutional pharmacies in one state that serve nursing homes and similar institutions. The investigation concerned joint negotiation of prescription drug reimbursement rates for the states Medicaid program.
Health Care Regulation
The staff of the Commission continued in 1995-1996 to monitor restraints imposed by existing or proposed regulations and actions that could raise costs to consumers by reducing competition in the health care industry, without providing countervailing benefits to consumers. As part of the Commissions competition advocacy program, Commission staff(13) in 1995-1996 submitted comments to the Kansas legislature on a bill to amend Kansas's laws governing optometry. The bill proposed clarifying the restrictions on commercial forms of practice and would have facilitated optometrists locating in space leased from optical goods stores. The staff concluded that relaxing constraints on commercial practices is consistent with the direction the Commission took in its Eyeglasses II rulemaking, and clarifying conditions under which optometrists may lease space from optical goods stores could benefit consumers through greater competition and efficiencies in operation.
Regarding consumer protection issues, the staff filed two sets of comments with the Food and Drug Administration in response to a notice of proposed rulemaking. The first concerned its regulation of direct-to-consumer advertising for prescription drugs. The staff suggested that the FDA consider adopting an approach similar to the FTC's Deception Policy Statement and Statement on Advertising Substantiation to assist in evaluating the accuracy of prescription drug advertisements. The staff recommended that limiting current disclosure requirements and adjusting disclosure requirements according to advertising venues could increase the net benefits of direct-to-consumer advertisements. The staff also recommended that the FDA consider alternative means for ensuring consumer access to important information to replace the highly technical and lengthy "brief summary" currently appearing in consumer-directed prescription drug advertising. The second comment concerned how structural changes in the health care industry affect its responsibilities to regulate drug marketing and promotion. The staff suggested that the FDA consider a more flexible substantiation standard -- one that requires competent and reliable evidence whose level could depend on the claim being made, rather than on an a priori requirement. The staff also suggested that the FDA may wish to consider a disclosure approach for any deception concerning "switch" programs, because clear and conspicuous disclosures of material connections between pharmacy benefit plans and drug producers could cure deception while preserving the potential economic benefits of the programs.
COMMISSION ACTION IN OTHER FIELDS
The Commission is responsible for enforcing the FTCs Funeral Industry Practices Rule, 16 CFR Part 453, a Rule of considerable importance to older Americans and their families. The Rule is designed to ensure that consumers receive accurate information about prices, options, and legal requirements for funeral services, so that they can make informed purchasing decisions. Funeral services, which often cost $10,000 or more, come at emotionally difficult times and may be among the most expensive of consumer purchases. In many cases, these also are first-time purchases, making it particularly important for consumers to receive immediate and accurate information.
From 1984 through 1994, the Commission brought 43 enforcement actions against funeral homes for failing to comply with the Rule. Despite the Commissions enforcement efforts, compliance with the Rule remained as low as 36 percent. Thus, it became apparent that a new strategy was needed. In 1995 and 1996, Commission staff, with the assistance of the Tennessee, Mississippi, and Delaware Attorneys General, conducted four sweeps in which investigators posing as consumers "test shopped" funeral homes in those states for Rule compliance. The FTC also conducted a pilot sweep in Florida. Those sweeps of 89 funeral homes resulted in 20 FTC enforcement actions,(14) nearly half as many as were brought in the previous decade since the Rule went into effect.
The funeral industry took note of the Commissions new enforcement efforts, and in September 1995, the National Funeral Directors Association ("NFDA") submitted a proposal to the Commission for an industry self-certification and training program to increase Rule compliance. The Commission agreed to this proposal in January 1996.
The first component of this new NFDA initiative is the Funeral Rule Offenders Program ("FROP"), which offers a non-litigation alternative for correcting apparent "core" violations of the Rule -- i.e., failing to provide itemized price lists of available goods and services to consumers seeking to arrange a funeral. Under FROP, if a funeral home is identified by investigators as having failed to provide the required price lists, the home may, at the Commissions discretion, be offered the choice of a conventional investigation and potential law enforcement action resulting in a federal court order and civil penalties as high as $11,000 per violation, or participation in FROP. Violators choosing to enroll in FROP make voluntary payments to the U.S. Treasury or state Attorney General, but those payments generally are less than the amount the Commission would seek as a civil penalty. NFDA attorneys then review the homes practices, revise them so they are in compliance with the Funeral Rule, and then conduct on-site training and testing.
The Commission, in cooperation with state Attorneys General, has continued to conduct Funeral Rule sweeps since the adoption of FROP. Those sweeps, conducted in Massachusetts, Oklahoma, Ohio, Colorado, and Illinois, indicate that compliance among funeral homes has improved significantly since 1994. Nearly 90 percent of funeral homes subjected to test shopping in 1996 complied with the key general price list requirements.(15)
The Commission is active on the antitrust side of its jurisdiction in ensuring that competition is maintained in funeral services and cemetery services. Where mergers take place between two chains providing such services, we examine them for overlaps in particular local markets, in order to ensure that every local market retains enough providers to give consumers a competitive range of alternatives. As part of this program, the Commission during 1995 obtained a consent order against Service Corporation International ("SCI"), the largest owner and operator of funeral homes and cemeteries in North America, for its acquisition of Uniservice Corporation. That acquisition was likely to result in a substantial lessening of competition for funeral services and perpetual care cemetery services in and around Medford, Oregon. The consent agreement required the divestiture by SCI of two funeral homes, a cemetery, and a crematory there. The Commission also obtained a number of other, similar consent agreements involving funeral-chain acquisitions during 1995-96. These orders protected local markets in Amarillo, Brownsville, Harlingen, and San Benito, Texas; Brevard and Lee Counties, Florida; and Castlewood, Virginia.
Mail or Telephone Order Merchandise
The Commissions Mail or Telephone Order Merchandise Rule, 16 CFR Part 435, requires sellers to make timely shipment of orders; give options to consumers to cancel an order and receive a prompt refund, or to consent to any delay in delivery; have a reasonable basis for any promised shipping dates (the Rule presumes a 30-day shipping date when no date is promised in an advertisement); and make prompt refunds. In issuing the original Mail Order Rule in 1975, the Commission noted that consumers with mobility problems, including older consumers, frequently order by mail. On March 1, 1994, the Commission amended the Rule to include telephone sales, one consideration being evidence submitted by the AARP indicating that a significant percentage of persons age 65 and older order products and services by telephone.
The Commission staff works closely with industry members and trade associations to obtain compliance with the Rule, and it initiates law enforcement actions where appropriate. During 1995 and 1996, courts entered three consent decrees resolving alleged Rule violations, resulting in judgments for civil penalties totaling $245,000.
Used Car Sales
The Used Car Rule, 16 CFR Part 455, requires that used car dealers display "Buyers Guides" on the windows of their cars to tell consumers whether the vehicle comes with a warranty or is sold "as is." These warranty disclosure requirements can be of particular benefit to older consumers, who may be on fixed incomes and therefore more likely to purchase less expensive used cars. They also may be less able to meet sudden, unexpected repair expenses. In 1995, a U.S. District Court judge upheld Commission charges against an Illinois used car dealer for Rule violations. The defendant paid a civil penalty of $4,500 and is prohibited from any future violations of the Rule. The Commission solicited public comment on the Rule in 1994 as part of its systematic review of all current Commission regulations and guides, and, in December 1995, announced that it would retain the Rule with minor changes.
The Cooling-Off Rule, 16 CFR Part 429, requires that consumers be given a three-day right to cancel certain sales occurring away from the sellers place of business (often known as "door-to-door sales"). In addition, the Commission, in some administrative cease and desist orders against companies engaged in door-to-door sales, has required companies to allow consumers the right to cancel purchases not covered under the Rule. The Rule and these orders can particularly benefit older Americans who are retired and at home, and who may be exposed more frequently to high pressure sales tactics by door-to-door or other sellers.
As part of its systematic review of all current Commission regulations and guides, the Commission requested public comments in 1994 on, among other things, the economic impact of, and the continuing need for, the Cooling-Off Rule; possible conflict between the Rule and state, local or other federal laws; and the effect on the Rule of any technological, economic, or other industry changes. Comments from both buyers and sellers representatives were submitted. All of the comments stated that the Rule provides important protections for consumers and favored retaining the Rule. The AARP commented that the Rule is especially needed to protect older consumers who are most vulnerable to unscrupulous door-to-door sellers. In 1995, the Commission decided to retain the Rule with minor changes.
The cost of heating and cooling ones home can be especially burdensome to older consumers. Retired individuals, who tend to spend more time at home than working individuals, may have less opportunity to lower their home heating or cooling requirements during the day. In addition, senior citizens, being more susceptible to hypothermia, are often counseled to maintain a higher temperature in their homes than younger persons might comfortably tolerate. Those on fixed incomes also may face greater relative economic burdens in meeting energy costs.
Properly insulated homes can maintain more constant temperatures and can save consumers substantial amounts on heating and cooling costs. The Commissions Rule Concerning the Labeling and Advertising of Home Insulation ("R-value Rule"), 16 CFR Part 460, assists consumers by requiring that sellers of insulation accurately disclose the "R-value," or insulating effectiveness, of such products. The Rule also requires installers and new home sellers to give consumers a written disclosure of the type and R-value of the insulation installed; requires retailers to make specific information available at the point-of-sale to consumers who purchase insulation for do-it-yourself installation; and requires advertisers to include important disclosures in advertisements that contain specific claims. The Commission solicited public comments in 1995 on the current need for, benefits of, and burdens imposed by, the Rule. Based on the comments submitted, the Commission in 1996 found that the Rule had significant benefits for both consumers and insulation sellers, imposed minimal, if any, costs or other burdens on consumers or sellers, and that there was a continuing need for the Rule.
The Commission also has investigated the accuracy of claims of the insulating effectiveness, known as "U-value," of windows and doors used in homes. Insulating effectiveness of such products is often determined by independent laboratories following government-approved test methods. State and local governments then use the U-value test results to determine if windows and doors comply with state and local building codes.
In 1996, the Commission filed a consent decree in the U.S. District Court for the Western District of Washington settling charges that Insulate Industries modified test samples to improve the U-Value of its windows and used the deceptive results to sell windows that did not perform as the test results indicated that they would. The decree prohibited the alleged conduct and required the manufacturer to provide new windows for distribution to customers by the states of Washington and Oregon, which maintain certification programs for that industry.
Appliance Labeling Rule
Utility costs are some of the least discretionary items in the household budget, and are of particular concern to those on fixed incomes. The Commissions Appliance Labeling Rule, 16 CFR Part 305, helps consumers control costs in several ways. First, the Rule enables consumers to reduce energy costs by requiring manufacturers to disclose the energy usage of major household appliances and the water usage of showerheads, faucets, toilets, and urinals. For appliances, the Rule requires disclosure of specific energy consumption, efficiency, or cost consumption for covered products in catalogs. It also requires information at the point of sale in the form of an "Energy Guide" label or fact sheet, or in an industry directory. Because energy efficient appliances cost less to run over the life of the product, the Rule enables those older consumers who may be on limited incomes to keep down monthly expenses for running major home appliances, such as refrigerators and heating and cooling equipment.
Second, the Rule requires certain disclosures relating to three categories of light bulbs or tubes: general service incandescent bulbs (including spot lights and flood lights); general service fluorescent tubes; and medium screw-base compact fluorescent tubes. For the bulbs most commonly used in the home, incandescent light bulbs and screw-base compact fluorescent tubes, the Rule requires that package labels disclose: light output, in lumens; energy used, in watts; voltage; average life, in hours; the number of bulbs or tubes in the package; and a statement explaining how to select the most energy efficient bulb.
Compliance with the Rule is generally high. The appliance industry is largely self- policing through certification programs maintained by the several large trade associations that represent most manufacturers.
Fuel Rating Rule
The Commissions Fuel Rating Rule, 16 CFR Part 306, establishes national, standardized procedures for determining, certifying, and posting (on pumps) octane ratings for gasoline and other ratings for certain liquid alternative fuels like ethanol and methanol. Accurate certification and posting of fuel ratings deter distributors and retailers from deceptively selling lower-rated fuel as being higher-rated. The Rule may be particularly beneficial to many older Americans who increase vacation travel during retirement, and, with more time and reduced income, do so by automobile or recreation vehicles.
To help ensure accurate ratings, the Commission in 1995 completed a nationwide survey of gasoline distributors to determine whether they were accurately certifying gasoline octane ratings and keeping required records. The survey, which began in 1991, focused on gasoline distributors in states that have no octane-testing program, and in states that had expressed concern about possible octane mislabeling problems. While indicating generally high overall compliance with the Commissions Fuel Rating Rule, the investigation did lead to three law enforcement actions, and the FTC obtained a total of $82,500 in civil penalties in those cases.
The Credit Practices Program enforces several federal credit statutes that affect more than 113 million consumers holding credit cards and many millions more who apply for credit and loans. Credit fraud continues to affect consumers of all ages and income levels. The impact of such abuses can be particularly devastating to seniors who rely on credit to augment their income and therefore may be more receptive to credit offers that are "too good to be true."
Each year, the Commission receives thousands of consumer complaints regarding harassing and abusive behavior by debt collectors. Often, these letters come from senior citizens. The Commission brought a number of lawsuits in 1995 and 1996 against debt collectors for violations of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq.
In March 1995, Payco American Corporation ("Payco"), one of the nations largest debt collection agencies, agreed to pay a $500,000 civil penalty to settle allegations that it violated the FDCPA. The Commissions lawsuit, filed in August 1993 through the Department of Justice, charged, among other things, that Payco illegally revealed consumer debts to third parties; used obscene or profane language; telephoned debtors at times and places known to be inconvenient to the consumers being contacted; and made several misrepresentations to consumers. In addition to the $500,000 civil penalty, the settlement prohibits Payco from violating the FDCPA in the future, and requires the company to give notice to all employees who are responsible for debt collection that they may be held liable individually if they are found to be violating the FDCPA.
The Commission brought several other FDCPA actions in 1995. The Commission settled allegations that Great Lakes Collection Bureau, Inc. violated the FDCPA by, among other things, communicating or threatening to communicate with third parties and to disclose the debt, harassing and abusing the consumer, and falsely representing or implying that an attorney had been involved in the collection effort and that non-payment would result in attachment, garnishment, or legal action. The company paid $150,000 in civil penalties, and agreed to injunctive relief. The Commission also sued Trans Continental Affiliates ("TCA") and TCA principals charging a number of egregious violations of the FDCPA, including using obscene language, calling repeatedly or calling at all hours, and misrepresenting that failing to pay debts would result in arrest or imprisonment. Settlements with two of the individual defendants were filed with the complaint.
During 1996, the Commission, through the Department of Justice, concluded its litigation against National Financial Services ("NFS"), its owner, and an attorney who helped devise and mail the collectors dunning notices for serious, persistent violations of the FDCPA involving false threats of legal action. In July 1995, the district court ordered NFS and its owner to pay a $500,000 civil penalty, and its attorney to pay a $50,000 civil penalty. That order was upheld on appeal by the Fourth Circuit in 1996. Finally, the Commission in 1996 resolved a variety of similar allegations in settlements with United Creditors Alliance Corp. ($146,000 civil penalty), Allied Bond and Collection Agency ($140,000 civil penalty), and G & L Financial Services, Inc. ($10,000 civil penalty). The federal court consent decrees in these cases also include injunctive relief to prohibit future violations.
Equal Credit Opportunity Act
Among other things, the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. § 1691 et seq., prohibits discrimination based on age in determining whether or not to extend credit. To help detect discrimination based on age or other prohibited factors (such as sex or race), the ECOA requires written notice to consumers of the reasons for a denial of consumer credit. In 1996, the Commission filed a settlement with J.C. Penney to resolve allegations that the company had violated consumers rights under the ECOA to receive such written notice. The settlement provided for an innovative consumer notification program costing the company an estimated $1 million, in addition to $225,000 in civil penalties.
Consumer Protection Regulation
In 1995 and 1996, the Commission continued to monitor regulatory proposals and actions by federal, state and other entities that could have actual or potential economic impact on consumers. Commission staff testified before the Michigan State House of Representatives on proposed legislation that would have amended the Michigan statutes regulating the licensing and operation of funeral establishments and cemeteries in Michigan. The staff supported the legislation, concluding that joint ownership or operation of a funeral establishment and a cemetery could make possible new business formats and improvements in efficiency and could encourage entry of new competitors, which could, in turn, lead to lower prices and improved service to consumers.
Also during the period, Commission staff filed comments with the Federal Communications Commission supporting the FCCs efforts to keep unscrupulous pay-per-call service providers from evading federal regulations governing the 900-number industry. In particular, the staff supported the FCCs efforts to prevent pay-per-call transactions from being disguised as long-distance calls, by requiring that whenever a provider of information or entertainment programs receives any remuneration for calls to such a program, the call must fall within the 900-number dialing code. The staff said that consumers would likely benefit from this proposal, because it would allow them to recognize telephone numbers for calls that entail charges above regular long distance charges, would subject the calls to cost-disclosure and billing-dispute requirements, and would enable consumers to prevent charges for unauthorized calls by blocking 900 numbers.
CONSUMER EDUCATION ACTIVITIES AFFECTING OLDER CONSUMERS
The Commission, through its Office of Consumer and Business Education ("OCBE"), is involved in preparing and distributing a variety of consumer publications and broadcast materials. Many of the subjects are of significant interest to older consumers. In addition, Commission staff in 1995-1996 engaged in substantial, additional consumer education efforts at the local and regional levels, including regional "town hall" meetings with consumers and Consumer Education Fairs.
1995-1996 Consumer Education Activities
During calendar years 1995-1996, the OCBE produced or revised more than 100 publications covering a broad range of consumer protection topics. Eighteen of these publications are of special interest to older Americans. Most FTC consumer publications are not age-specific. However, publications on certain topics, such as telemarketing scams, health care, funeral services, or credit issues highlight many of the needs and concerns of older citizens.
Some telemarketers have admitted that older consumers are attractive targets for unscrupulous promotions. The FTC produced or revised five publications during this period that focus on a variety of telemarketing scams and offer solid tips on how to recognize and avoid these scams. One especially offensive scheme that preys on former victims of telemarketing fraud is covered in the publication Telemarketing Recovery Scams. The Commission issued this brochure in 1996. The four related brochures issued during the period include Straight Talk About Telemarketing, Prize Offers, International Telephone Number Scams, and Are You A Target of Telephone Scams? The last brochure mentioned also was published in a large-print edition for older consumers.
At the local level, the elderly in many cultures and communities seek advice on business transactions from their religious leaders, particularly where they may not have adult children, lawyers, or accountants to consult. In 1995, Commission staff co-sponsored the Commission's first Consumer Workshop for religious leaders. In partnership with the Harlem Consumer Education Council, the U. S. Office for Consumer Affairs, and the Harlem Branch Office of the New York State Attorney General, workshops were conducted at a Harlem church for ministers, priests, and rabbis on a wide range of consumer issues, including the continued victimization of older Americans via telemarketing fraud and door-to-door sales. The workshop was aired on two local Cable TV channels over a period of three months.
In Denver, Colorado, Commission staff teamed with the Colorado Attorney General, the Denver District Attorney, the Better Business Bureau, and the American Association of Retired Persons to sponsor a conference to educate seniors about all types of fraud, including telemarketing fraud, under the group name Seniors Against Fraud and Exploitation ("SAFE"). Also, Commission staff trained student and senior volunteers to give presentations on telemarketing fraud to senior centers in the Seattle area. Seven volunteers made presentations at 14 senior centers during the summer of 1996. In Columbia, South Carolina, the staff participated in a video-teleconference that included presentations by the White House Special Assistant for Consumer Affairs and the AARP, as well as representatives from several other consumer protection agencies. The teleconference was aired on South Carolina Education Television, channel C, reaching about 150,000 to 200,000 consumers. The telecast included statements from consumers who had been victimized and actual footage of scam artists making various misrepresentations to consumers. The topics discussed included telemarketing travel fraud, sweepstakes and prize promotions, recovery scams, investment scams, charitable solicitations, and tips on how to avoid being scammed.
Finally, Commission staff participated in two "reverse boilerrooms" coordinated by the AARP and the Illinois Attorney General's Office. The reverse boilerroom is a means of providing consumer education to persons whose names appear on lead, or "mooch," lists and therefore are particularly likely to be contacted by fraudulent telemarketers. The volunteers in a reverse boilerroom call consumers on the lists, talk with them about the risks of telemarketing fraud, and inform them that their names and telephone numbers are circulating among real boilerroom scam artists.
Two Commission publications produced in 1996 address health issues that affect older consumers. The first, Fraudulent Health Claims: Dont Be Fooled, produced in cooperation with the U.S. Food and Drug Administration, focuses on the worthless, and sometimes life- threatening, bogus health care products and treatments upon which American consumers spend billions of dollars each year. The brochure also addressed cross-border health care fraud by providing information on governmental contacts in Mexico and its states. The second brochure, Who Cares? - Sources of Information About Health Care Products and Services, is a joint effort with the National Association of Attorneys General and provides a listing of federal, state and private organizations that provide assistance and information to consumers about such things as prescription drugs, hearing aids, nursing facilities, alternative medicine, cataract surgery, purported arthritis cures, direct-mail schemes, and abusive care-givers.
Choosing and buying funeral services and caskets and understanding consumer rights protected by the FTCs Funeral Rule were topics of two publications revised during this period -- Caskets and Burial Vaults and Funerals: A Consumer Guide. In a third brochure, Viatical Settlements: A Guide for People with Terminal Illnesses, the Commission describes this method of allowing living persons to receive the benefits of their life insurance policies, which benefits could be used to pre-pay funeral expenses.
Credit and Financial Matters
Credit and money issues that have a direct impact on older consumers were among the topics of several publications distributed by the FTC in 1995-96. Credit and Older Americans, Equal Credit Opportunity, and Mortgage Discrimination emphasize and explain consumer rights under the law. The pros-and-cons of taking advantage of home equity is discussed in Reverse Mortgages, a brochure designed for older consumers and their families. Likewise, High-Rate, High-Fee Loans (Section 32 Mortgages) explains consumer rights under the Home Ownership Equity Protection Act of 1994, 15 U.S.C. § 1639. According to reports from federal and state law enforcement agencies and the AARP, older consumers are frequently the targeted victims of unscrupulous high-rate lenders.
Access to FTC Publications
In early 1995, the FTC began to offer its publications online through the Internet. By December 1996, FTC Consumerline, a component of the FTC world wide web site, was offering the full-text of all consumer publications produced by the agency.
This report reviews Commission programs in 1995 and 1996 that may be of particular concern to older consumers and their families. Through the combination of law enforcement and consumer education described above, the Commission strives to ensure a vigorous, fair, and competitive marketplace for all consumers.
(1) Hearing before the Senate Special Committee on Aging, March 6, 1996: "Telemarketing Fraud and Senior Consumers," March 6, 1996.
(2) Statement of Mary Ann Downs, March 6, 1996.
(3) The Telemarketing Complaint System ("TCS") is a nationwide database of consumer complaints on telemarketing fraud. The Commission maintains this database, which is accessible by 100 participating law enforcement organizations who can query the system to locate the victims of telemarketing fraud, target law violators, identify other investigative agencies that have opened investigations, and coordinate law enforcement efforts. In 1995 alone, over 16,000 complaints were entered on the TCS, reflecting dollar losses of more than $21 million.
(4) The Commission has traced expenditures by victims of bogus prize promotion schemes and found that some consumers have actually lost tens of thousands of dollars to prize promotion telemarketers.
(5) Other 1996 Commission-led sweeps to enforce the Telemarketing Sales Rule or to target other types of fraud included "Operation Payback" (fraudulent credit repair operations), "Operation Loan Shark" (advance fee loan schemes), "Operation CopyCat" (fraudulent telemarketing of office supplies), "Project Career Sweep" (misleading offers of employment services), "Project $cholar$cam" (bogus scholarship search services), Internet/Credit Repair (deceptive Internet advertising of credit repair), "Project BuyLines" (fraudulent marketing of 900-number business opportunities), and "Operation Missed Fortune" (deceptive offers of get- rich-quick and self-employment schemes).
(6) The consumer redress amounts included in McNulty and the following cases have been ordered by the court (whether through litigation or settlement) and may be higher than the amounts collected and returned to consumers. Collection is often difficult because, in many cases, the defendants do not have identifiable assets subject to execution. In December 1995, the Commission entered into a Memorandum of Understanding with the U.S. Treasury, under which Treasury provides assistance in collecting judgments owed to the Commission. The Commission was the first agency to refer its uncollected judgments to Treasurys Financial Management Services Division, which uses its collection expertise to aggressively collect on these judgments.
Where practicable, the Commission seeks to redress injured victims. Where redress is not practicable, any monies paid by defendants typically are disgorged to the U.S. Treasury.
(7) The Commission also settled its recovery room case against Regeneration & Renewing dba AWARE, described in the 1994 report, with monetary judgments of more than $4.1 million.
(8) As part of the 1996 Fair Credit Reporting Act Amendments, the Congress enacted the Credit Repair Organization Act, 15 U.S.C. § 1679 et seq., which specifically addresses credit repair scams. Effective April 1, 1997, the law will be enforced by the Federal Trade Commission and state Attorneys General.
(9) Anticipating the 21st Century: Consumer Protection Policy in the New High-Tech Global Marketplace, a Report of the Federal Trade Commission Staff, May 1996.
(10) The Commission in 1997 issued a final consent order in the Metagenics case, among other things, requiring the respondents to have scientific substantiation for any claim that Bone Builder or any food, drug, or dietary supplement containing calcium will treat or prevent any disease, disorder, or condition, or that any food, drug, or dietary supplement is more effective than any other product in doing so.
(11) The Commission in 1998 issued final consent orders in settlement of the charges against Jenny Craig and Weight Watchers.
(12) California Dental Association v. FTC, 128 F. 3d 720 (9th Cir. 1997).
(13) Staff advocacy comments and testimony are authorized by the Commission but are not substantively approved by the Commission and do not necessarily reflect the views of the Commission or any individual Commissioner.
(14) The State of Tennessee also brought four additional actions in connection with the sweep conducted in that state. Also in 1995, in settling a case filed against Restland Funeral Homes, Inc. of Dallas and four subsidiaries, the Commission obtained a civil penalty of $121,600, the highest ever paid in a Funeral Rule case. In other non-sweep 1995 cases, the Commission filed actions against two Northern California funeral homes: Chapel of the Chimes agreed to pay a $70,000 civil penalty to settle charges that it violated the Funeral Rule; and Lewis & Ribbs Mortuary, Inc. agreed to pay $20,000 as a civil penalty.
(15) In one survey conducted before the Commission adopted FROP, only 36 percent of the homes tested were in compliance.