Consumer Advocacy
		For all of their collective power in the marketplace, consumers are ineffective and under-represented in the policy-making process.
		Institutionalizing consumer advocacy in public venues was a primary reason for creating the Department of Consumer Affairs, but the department's efforts on behalf of consumers within the Legislature and other public forums have dwindled.
		Some have called for creating an independent consumer advocate as other states have done. Another option would be to create a mechanism to encourage more nonprofit advocacy.

Consumer Advocacy

Finding 2: Californian consumers are not adequately represented in the variety of policy making venues in which their interests are at stake.

Just as informed consumers make smarter choices, so do informed policy makers. If policy makers hear debate from a variety of articulate perspectives, they are more informed than if they hear from just one side.

Too often in public venues -- legislative hearing rooms, regulatory proceedings, in the corner office or on the street corner -- the voice of the consumer is not heard. The public interest is certainly at stake -- because in the subsections of statutes, the fine print of regulations and in the parenthetical clauses of court rulings, that is where the ground rules for the marketplace are established. Those rules shape the choices that consumers have and the prices they pay.

It is completely understandable that consumers as individuals do not choose to participate in these proceedings. They lack the detailed knowledge and most consumers lack the time. That does not mean that they -- and the economy at large -- do not stand to benefit from effective representation in the public process.

Advocacy was a primary function of the Department of Consumer Affairs when it was created. But few people, not even the most recent director, believe the department as of late has been a loud and persistent voice for the consumer.

It is the Duty of the Director ...

For all their collective power in the marketplace, consumers have shown to be ineffective -- either individually or collectively -- in the policy making process. Economists have created sophisticated models to rationalize this behavior. But simply put, the costs of participating in the process for individual consumers far outweigh the individual benefits.

There are several public forums in which policies are forged that directly affect the quality, supply and price of consumer goods and services: the Legislature, regulatory proceedings, the courts, and even the court of public opinion.

In most of these forums, business interests -- both individually and aggregated into associations -- are well represented by professionals skilled in the procedures and cultures of those venues. In nearly all cases, consumers lack the same level of representation.

While the stake of individual consumers in each of these proceedings are small, their collective stake is large. The high cost of participating and the diffused benefits to be gained from participating discourages consumers from taking part and often discourages them from effectively consolidating their interests. As a result, the task has fallen to a few diminishing number of nonprofit activists with limited resources.

The Center for Public Interest Law summarized the problem this way:

Consumers, inherently unorganized and represented only sporadically by sufficiently-financed public interest organizations, have little chance -- either in the Legislature or in the agencies -- of overcoming the campaign-contribution assisted influence of the utilities or the insurance, real estate, managed care, banking and cable television industries. Further, consumers may have little incentive to pursue a remedy for abuses. For example, few consumers will take or have the time to question or investigate a possibly unlawful $5 late fee or overcharge by a cable television company. However the $5 times 500,000 customers equals a huge windfall for the company which is unlikely to be disgorged effectively through any judicial or regulatory system. In short, it pays to abuse consumers, and there is rarely anyone with the time, the resources or the incentive to do anything about it.⁽²²⁾

Beyond the fact that consumers are not effective participants in the policy-making process, it is important to recognize that business interests are adept at influencing public decision-making and those efforts are well-financed.

Monitoring the regulatory process has been the principal goal of the Center for Public Interest Law and the subject of the Center's California Regulatory Law Reporter. Publication of the journal has been suspended because of a lack of financial support, which the Center testified is a persistent problem of nonprofit consumer advocacy organizations:

Consumers are inherently unorganized. With some rare exceptions they do not band together, make contributions, hire lawyers and lobbyists and make campaign contributions that influence government decision makers.... That is what trade organizations do. That is what industry does. That is what corporations do.... Consumer interests are sporadically represented by public interest organizations. Most of them are nonprofit. Most of them under-funded. Their resources are stretched thin and they are simply unable to be everywhere policy is made and laws are decided.⁽²³⁾

Publicly sponsored consumer advocacy made sense to then-Gov. Reagan, whose reorganization plan for the Department of Professional and Vocational Standards listed as a top goal to provide consumers with an effective advocate within state government.

That same year the Legislature cited the need for better consumer advocacy as the primary reason for creating the new Department of Consumer Affairs. The Legislature placed advocacy in the detailed duties assigned in statute to the director of the new department. The director is charged with representing consumer's interests before federal and state legislative hearings and executive commissions. The director is expected to investigate consumer issues -- hold hearings, take testimony and compel documents. The director is suppose to advise the Governor and Legislature on "all matters affecting the interests of consumers."

But the assignment has never been fully carried out. In recent years, the department's leadership has been able to point to the lack of General Funds for its limited advocacy agenda. But more than money is needed for effective advocacy, and what nonprofit advocacy does exists operates on a fraction of the $1.2 million the department spends on legislative affairs.

More Than Money

Like consumer education, it is difficult to gauge how much consumer advocacy would be enough. But gauged solely by the department's participation in legislative proceedings, the department's role has been small and diminishing.

Nonprofit consumer advocates trace a gradual decline in the department's legislative advocacy back to the early 1980s. In its first few years the department sponsored a dozen or more bills each session to increase enforcement authority, require more notice to consumers, increase public representation on regulatory boards and dealing with other issues. By the mid-1980s the department legislative efforts had declined to responding to proposals made by others.⁽²⁴⁾

The California Public Interest Research Group (CALPIRG) testified that the department's legislative advocacy declined long before General Funds were eliminated:

CALPIRG has had a presence in Sacramento for more than 15 years, and as time has marched on, the role of the department in consumer protection legislation has dwindled from little to virtually none.... Our experience with the department on consumer protection legislation has mostly been that they are either noticeably absent from most debates or that we must work with them to go from opposed to neutral on good consumer bills.⁽²⁵⁾

Consumer interests were united in 1997 in support of three major pieces of consumer-related legislation: SB 289 (Calderon), which would have expanded the California Lemon Law; SB 930 (Rosenthal), which would have strengthened consumer protections against identity theft; and, AB 46 (Sweeney), which would have prohibited new ATM surcharge fees.

All three bills were heavily opposed by the affected industries. And without judging the merits of any of the bills, it is noteworthy that legislators did not receive the benefit of the department's analysis or testimony on any these measures. While clearly the consumer groups sought the support of the department, what is most telling is the department never took a public position, despite its statutory obligation to represent consumers in the process.⁽²⁶⁾

The director of the department told the Commission that the legislative unit is overwhelmed with the task of analyzing the hundreds of consumer-related bills each year. The department also is subject to the administration's protocol of having to obtain gubernatorial approval for every position it takes legislatively.

The department's legislative unit has 10 analysts, five staff managers and an annual budget of $1.2 million. In the spring of 1998, the department was sponsoring 1 bill (the department's omnibus bill enacting minor statutory changes for the bureaus and boards). It was opposing 2 bills and supporting 16.⁽²⁷⁾

The department also is required by statute to disseminate information to the public about legislation of interest to consumers.⁽²⁸⁾ The department does this by publishing an annual digest. By the time the digest is published, most of the bills are either dead or adopted -- and in either case it is too late for consumers to participate in the process. The digest also fails to tell consumers which bills the department opposed, supported or sponsored on their behalf.

In pointing to other venues, the department did produce a briefing paper identifying consumer-related issues in the restructuring and the advent of competition in local telephone markets -- an issue largely decided by the Public Utilities Commission. The department did not publicly participate in the regulatory or legislative proceedings in which the rules defining competition in the electrical markets were established.

Beyond the numbers and examples, the history dating back more than one administration shows that assigning to the director broad responsibilities to advocate on behalf of consumers does not ensure much advocacy will get done. Among the problems:

• Time. Perhaps more than money, department officials said they were limited by a long list of managerial problems that they considered the first order of business. This problem is aggravated by the department's organizational structure, which makes the director responsible for about half of the regulatory programs and requires the director to work with hundreds of volunteer board members in order to influence the management of the other programs. In recent years, the department's top managers also have been overwhelmed with new tasks -- smog check and vocational school regulation -- which pushed freelance consumer advocacy farther down the list of things to do.



• Protocol. Historically, for a variety of reasons, including the political beliefs of a given executive and the political climate of the times, individual department directors have been given more or less latitude in their role as consumer advocate. While in some ways this is a product of representative government, the act creating the department did not envision that the director as consumer advocate would be prevented from taking a public position counter to another state agency.



• Resources. Consumers do not just need a loud voice, they need a wise and respected voice. The statute envisions advocacy based on investigation and research first. While the department has resources, it legally must spend money on issues within the jurisdiction of the boards and bureaus. While the department could do more with what it has, if it wandered much farther afield of the regulated businesses, it would likely and rightly be challenged legally.

There also are inherent conflicts in consumer advocacy that will have to be addressed if the State wants to find the best way to accomplish this goal: What is good for one class of consumer is not always good for another class of consumer or the consumer advocate. And there are at times competing ideas about how to best provide for the same group of consumers.

On Behalf of Consumers

Even within these limitations, given the recent history, it is easy to think of ways the department could increase its advocacy. Its web site could track the most important consumer bills of the session, and provide links to sites of opponents and supporters of the bill. The department could publish the same report on paper form and distribute it weekly to the hundreds of small news outlets that are looking for "news you can use."

During the Reagan Administration the department started an advertisement substantiation unit. In 1978 it received 454 requests from consumers that resulted in 145 advertisements being modified. The unit was disbanded in 1979, but could be resurrected with the cooperation of the Attorney General.⁽²⁹⁾

But the larger problem is systemic, and efforts to establish more consistent and forceful consumer advocacy should recognize the systemic problems.

Other states, such as New York, have set up independent consumer advocates, who are given the freedom to decide what debates to participate in and what positions to take. The advocate is unfettered by ties to the executive and unburdened by the demands of managing a multi-body agency like the Department of Consumer Affairs. Such independence, however, raises questions of accountability that are fundamental to the long-term expenditure of public money.

Every president since Lyndon Johnson has appointed a special assistant for consumer affairs to advocate on behalf of consumers within the government and on the public stage. (Johnson, however, fired his adviser, Esther Peterson, for being too outspoken. President Carter gave Peterson the job back when he was elected.) Congress in the 1970s considered establishing an independent consumer advocate, but the measure failed under heavy lobbying by business interests.

A former director of the department recommends establishing an advocacy office within the department to give it some autonomy, more focus and a dedicated revenue stream. Similarly, the Center for Public Interest Law believes the State should create an Office of Consumer Advocate within the department.

Others have suggested expanding to other agencies the intervenor funding that is now available to nonprofit groups that advocate on behalf of consumers before the Public Utilities Commission and the Department of Insurance. That system has fans, who assert the intervenors add a valuable and knowledgeable voice to complicated public processes. It also has critics, who assert intervenors become dependent on the public funding and permanently linked to a specific government agency.

Another potential model for increasing advocacy is the California Consumer Protection Foundation. The foundation was created in 1991 as an independent 501(c)(4) corporation to distribute $4 million from the legal settlement of the consumer class action lawsuit State of California v. Levi Strauss & Co.

The foundation is governed by a five-member board of directors, representing consumer interests from across the state, who were named by parties to the litigation and approved by the court. The foundation is required to distribute the money over a six-year period in the form of grants to public, private and non-profit organizations for litigation, lobbying and consumer education.

The department could establish a similar mechanism, by creating a council that identified the most pressing consumer issues, collecting and distributing available funds from court settlements, fines and even seed money from the General Fund, and then distributing that money in the form of grants to nonprofit groups that submit proposals to work on the most important consumer issues.

The council could be created in a way that does not expand the bureaucracy and does not create umbilical-like relationships between specific advocacy groups and specific government agencies. The goal of the council would be to provide what is missing in many of these forums -- credible and research-based advocacy on rapidly changing issues. The funds would go to groups that are willing to support the legislative intent of the Department of Consumer Affairs -- to make free markets work better.

The Consumer Affairs Act of 1970 did establish a Consumer Advisory Council. The seven-member council -- when empaneled -- is comprised of representatives of business, labor and the public. The members are appointed by the governor and the legislative leadership. The purpose of the council is to make recommendations to the director and the Legislature that would protect or promote the interests of consumers.⁽³⁰⁾

Department officials said it has been a number of years since the advisory council was operative and in its last iteration was unproductive. In this context, the statute -- modified to reflect the State's previous experience with the council -- could be the basis for a forum charged with discerning consumer issues most in need of more effective consumer advocacy.

While there is more than one way to provide advocacy, the goal is important -- to engender the power of public discussion.

Summary

The consumer advocacy envisioned in the Consumer Affairs Act of 1970 is not being fulfilled. A variety of hurdles have thwarted advocacy efforts -- including the director's other responsibilities, political protocol and restrictions on resources. One option the State has would be to create an independent or quasi-independent consumer advocate to perform the duties outlined in the 1970 law. Another alternative would be to supplement the department's advocacy role by distributing available funds on a project-by-project basis to nonprofit groups willing to represent consumers on the most important issues and in the most relevant venues of the day.

Recommendation 2: The Governor and the Legislature should create and fund a Consumer Advocacy Council to serve as a repository for consumer advocacy funds and as a vehicle for distributing those funds through a competitive process to nonprofit groups that agree to represent consumers on a particular issue for a specific time.

• The Council should be comprised of a range of consumer interests -- such as retired citizens, renters and those with lower incomes. The director of the Department of Consumer Affairs should be a member of the board. Other members could include previous directors of the department and legislative committee chairs.



• While at times policy makers may want to appropriate General Fund or special fund revenue for specific advocacy programs, the council should first explore the use of court judgments, foundation and federal grants.



• The council should annually conduct a public process to identify the most immediate concerns to the broadest range of consumers and in which consumers are most grossly under-represented. The council should solicit proposals from nonprofit groups and award intervenor grants to fund that consumer advocacy on those issues. Each grant should be evaluated to determine the effectiveness of the effort, providing information to guide future council decisions.