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forced into bankruptcy. The Magnuson-Moss Warranty Act applies to all consumer products with a cost of more than $5.00. The product can be sold as is, full warranty, limited warranty, or implied warranty.
I traveled with our director and association officers over the State for a full month trying to explain to our dealers the law and what they must do to comply—and at the end of the month we were both more confused than when we started. The law went into effect July 5, 1975 and I believe that today, 8 months later, not 10 percent of America's small businessmen are aware of the law or know how to abide by its provisions. But they will be made aware of its existence when they violate some of its provisions and are put out of business through a Federal penalty or loss of a lawsuit that's verdict calls for unreasonable punitive damages.
My cost of doing business has more than doubled in the past 10 years. A great portion of this added cost is due to paperwork and attorney fees as a result of these Federal regulations. As you well know, this increased cost must be passed on to the customer and this increases the inflation rate.
I think the net results of this act will be: (1) Raise the cost of all products covered by this act; (2) put a lot of honest businessmen with a limited formal education out of business; (3) Greatly raise the need for attorneys and their fees; (4) increase the need for employees in the Federal Agency that administers this act; and (5) catch a limited number of unscrupulous businessmen in your huge governmental net at a horrendous price for each catch.
Not the least of this cost is the belief of so many businessmen tha“ the Federal Government is his enemy-determined to tax and harrass him into bankruptcy for the benefit of an enlarged bureaucracy and the nonproductive segment of our society.
Some means must be devised whereas the Congress of the United States can have the authority to approve or disapprove the regulations written for the administration of laws passed by Congress.
I think that the voters of this country, liberal and conservative alike, must unite in requesting our elected officials to do what they were elected to do—and that is to govern and not abdicate their authority to Federal employees, who in too many cases are not qualified for the position to which they have been appointed.
I have not attempted to go into specifics of this act because, as of now, all of the rules have not been written and will not be completed for several months. I have already changed the language on the forms that I use in my business several times, and except to change them several more times before the final rules are written.
Senator Nunn, I think your S.2716 would go a long way in providing a vehicle with which Congress can regain some control over the Federal agencies that exert so much influence on the daily lives of so many Americans.
Senator Nunn. Thank you very much, Mr. Paul. I am not nearly as familiar with the Moss-Magnuson Act as I would like to be. I would like to get more up to date on it because I know it will probably cause a tremendous amount of problems. Mr. Levitas is probably more familiar with it at this stage than I am.
Congressman LEVITAS. Thank you very much for that helpful testimony. I know that you and the Georgia automobile dealers are very much on the receiving end of a lot of regulations and know what the problems are and some of them may appear to be intended to help the consumer, actually hurt him.
Now, the Magnuson-Moss Act is an example. Am I correct that the cost of the provisions of this act, dealers are restricting their warranties to a lesser degree of warranty than they previously had in order not to get linked with the fuel war between corporations.
Mr. Paul. Yes, sir, prior to this act, we all had different type warranties but we did have a warranty. Now the majority of the dealers are selling used vehicles as is because they do not know how to comply with the rules set forth for giving a limited warranty.
Congressman LEVITAS. So instead of protecting the public as a result of this act by giving them more warranty protection, the end result is they are getting less protection and that is very similar to this Erisa thing that Senator Nunn referred to before?
Mr. Paul. That is correct.
Congressman LEVITAS. One other question that I wanted to put to you or at least comment on. You make the statement that the voters of this country, liberal, conservative alike, must unite, and remember, our officials do what they are elected for, that is, govern, and not abdicate their authority to Federal employees. Of course, Senator Nunn and I fully subscribe to that. You may be interested to know that what you have said is being reflected in the Congress.
For example, people on the Senate side, legislation of this type is being sponsored by some one with conservative credentials, as distinguished as our own junior Senator and on the other, as Senator Abourczk's who is said to be of—in the House of Representatives, these things may not be familiar to you as Members of the Senate but this is the Senate and Congressman from Louisiana, James Wagner, considered the leader of the Conservative Southerners, who is a cosponsor of this legislation and Congressman Michael Harrington a Socialist-Democrat, who is a cosponsor of this legislation.
It is not a Liberal-Conservative issue, it is a question whether we are going to restore constitutional government to the United States and when we hear from people such as you and when we hear from people such as representatives of labor, as we will soon hear from representatives of government, this is not a talking problem, this is something we have got to get on with and I am very much appreciative of your willingness and interest to come and participate.
Senator NUNN. Thank you.
TESTIMONY OF BILL MORIE, EXECUTIVE VICE PRESIDENT,
GEORGIA AUTOMOBILE DEALER'S ASSOCIATION, ATLANTA, GA.
Mr. MORIE. Gentlemen, my name is Bill Morie, executive vice president of Georgia Automobile Dealers Association. I appear today on behalf of over 500 franchised automobile dealers in the State of Georgia.
First, let me thank you for allowing us to testify before you today.
On January 6, 1976, the FTC published in the Federal Register the proposed rules covering "disclosure and other regulations concerning the sale of used motor vehicles.” These are the regulations that hit the newspaper at the first of the month that caused glaring headlines about how the consumer would be protected when buying a car in the near future.
I will not outline the proposed rules, but some of the proposals are probably all right except that they are just more encroachment upon business operations. Other proposals are completely impossible—for example, they propose to allow the prospective buyer 8 hours to take the used car and have it inspected for faulty parts, including the removal of certain parts for inspection. Another impossible proposal notifying the buyer if the car had ever been in commercial use. Still, another difficult proposal, any oral statement of fact about the car by the salesman is a warranty. This puts the salesman in a straight jacket and it could call for all salesmen to carry tape recorders and record all conversations with prospective buyers in order to protect themselves from scrupulous customers.
The National Automobile Dealers Association has stated that many of the FTC's proposed rules for used motor vehicles may exceed the congressional mandate concerning warranties and warranty practices as set forth in section 109(b) of the Magnuson-Moss Warranty Act.
The Federal Trade Commission, acting pursuant to a new grant of authority under the Federal Trade Commission Act, has adopted a rule prohibiting clauses in consumer credit contracts whereby a debtor agrees not to raise any claims or defenses on the contract against an assignee of the contract, such as the bank or finance company.
The waiver of defenses clause has generally been sanctioned under most State laws bythe so-called "holder-in-due-course doctrine." Under that doctrine, a debtor who believes he has been sold defective merchandise may not withhold payment on his credit contract once it has been assigned to a bank or finance company that took the contract without knowledge of the debtor's claim. The new FTC rule eliminates the holder-in-due-course doctrine on consumer credit transactions, and makes an assignee bank or finance company subject to the debtor's claims and defenses.
The new FTC rule will take effect May 14, 1976.
Since there are 12 States that have not abolished the holder-in-duecourse doctrine to date, it is felt that these States should have the opportunity to air their views on FTC's jurisdiction in eliminating it at the State level.
The Georgia Automobile Dealers Association feels very strongly that the Federal bureaucrats should not be allowed to continue to make State laws void with their ever-increasing number of regulations. Attached to this testimony is a cony of a resolution that was passed by the Georgia Automobile Dealers Association's board of directors concerning the powers of the Federal regulatory agencies. 1
The resolution was sent to each member of Georgia's congressional delegation. The 100.000 or more Federal workers who keep busy writing, revising and enforcing rules and regulations have come up with quite a list of accomplishments.
1 See p. 82.
Much of our lives and our business relationships are being more and more controlled by Federal bureaucrats that are not responsible to the voters at election time nor to the business they regulate and, apparently, have no interest in how their regulatory decisions affect the profit and loss of the business, or the ultimate cost to the consumer.
The consuming public and the businessmen who try to serve them are literally strangled by redtape. The EPA spent some $3.8 billion last year to regulate what they called mobile sources—that figure is projected to increase to $10.5 billion by 1979. For that health sum the buying public is forced to pay—according to EPA—$327 more for their new car and another $200 in higher maintenance and operating costs, like 2 or 3 cents more per gallon for unleaded gasoline. The EPA now admits that after the hundreds of millions in added cost forced onto the motoring public, they have discovered that the catalytic converter not only smells bad but emits sulfuric acid fumes that injure the lungs and cause cancer.
Let's look at some other costs that are bureaucratical and dreamed up for our protection. These are July 1975 figures per vehicle if we could.spread the cost over 10 million units per year: Seatbelt buzzer system, $25 per car, $250 million per year-remember, 2 years after the car-buying public spent $500 million and raised a storm of protest, Congress repealed the seat belt buzzer system; head restraints, $15 per car, $150 million per year; side door beams, $13 per car, $130 million per year; 5 mile per hour bumpers, $128 per car. $1.28 billion per year; and catalytic converter, $125 per car, $125 billion per year.
None of these is cost effective in the judgment of many respected scientists. Add to these the costs of all other Government-required standards, and you get a total of $700 per vehicle for the Governmentmandated gadgets so far.
Now to the $700 per car let's add the goodies Washington is currently proposing as additional future standards: Airbags, $300 per car, $3 billion per year; high-speed impact standards, $600 per car, $6 billion per year; and new emission standards, $280 per car, $2.8 billion per year.
Now that's another $1,800 per car on top of the $700 we already have for a total of $1,880 and that's not allowing a dime for future inflation.
Now we can't do much about the $3 billion the new car buyers wasted in 1974 for buzzers, lights, harnesses, and other mandatory junk, which they didn't want and wouldn't use and promptly disconnected or otherwise rendered inoperative.
But, perhaps we can learn something. What we need now is protection from the protectionists, not more redtane and regulations that serve in the end onlv to prevent progress and keep the free enterprise, competitive, capitalistic system of ours from developing, producing, and distributing new and better products or processes at lower costs to win and hold the patronage of our customers, and hopefully make a profit for the investors.
[Resolution referred to follows:
69-084 0 - 76 - 7
WHEREAS, The Federal Trade Commission announced on November 14, 1975, the promulgation of a trade regulation, effective May 14, 1976, which eliminates the "holder-in-due-course" doctrine and which, if allowed to stand, will void long established state laws without any Congressional action; and
WHEREAS, If the Federal Trade Commission is permitted to promulgate this regulation or other regulations which void state laws, then the Federal Trade Commission has created the power to legislate in areas heretofore reserved to the various states; and
WHEREAS, The Congress of the United States, and not the Federal Trade Commission, is charged with the responsibility of enacting laws which may preempt enacted state laws;
NOW THEREFORE BE IT RESOLVED, That the Georgia Automobile Dealers Association's Board of Directors assembled in session on January 15, 1976, respectfully urges and requests Congress to take whatever steps are necessary to require the Federal Trade Commission to render void the regulation of November 14, 1975, and to further take whatever steps are necessary to prohibit the Federal Trade Commission and all other governmental agencies from promulgating regulations which will supercede laws passed by the various states, without Congressional approval,
BE IT FURTHER RESOLVED, That a copy of this Resolution be sent to the United States Senators and United States Representatives from the State of Georgia.
January 15, 1976
S. Walter Kelly, Jr., Marietta
Hix H. Green, Jr., Atlanta