Consumer Education
		Consumer education can provide citizens with the best of all protections -- the ability to chose wisely, to assert their rights, to resolve disputes on their own and to know what to do when they come across illegal activity.
		Since the early 1990s the State has not funded general consumer education efforts, making it difficult for the department to respond to new threats to public health and safety and economic well-being.
		Often times consumer education can be enhanced by giving consumers easy and uniform access to public information.

Consumer Education

Finding 1: While consumer education is often the most cost-effective and least intrusive form of consumer protection, the State lacks a well-planned and well-funded effort to equip consumers with the information they need to protect themselves.

Consumer education efforts are an important common ground in a policy arena that is adversarial by nature. Whether a person is "pro-business" or "pro-consumer" they should be able to support efforts to fairly and accurately inform buyers how to make good decisions and what to do when they make bad ones.

Good consumer education is the least intrusive way the State can encourage a healthy economy and in some cases the most cost-effective way it can prevent the abuses that become citizen complaints. Economists and advocates both describe consumer education as the first order of business.

But in California, consumer education is often the last step that is taken rather than the first. Part of the problem is financial. With no General Fund money appropriated to the Department of Consumer Affairs, the only consumer education the department can legally pursue involves regulated professions.

But even where resources are available, consumer education is not the top priority. Rather, education is seemingly left to the end of the day. It is as if only after the brush fires are out, does the fire prevention efforts begin.

Education First, Regulation Second

A fundamental assumption of market economies is that consumers will be fully informed. Markets are most efficient and innovation is best rewarded when consumers select the best goods and services at the best available prices. Of equal importance, consumer education can prevent the need for more intrusive and costly government intervention, such as licensing and enforcement.

Even staunch consumer advocates believe that well-conducted education programs can provide consumers with the best of all protections: The ability to tell when a deal is too good to be true, to select wisely among providers, to assert their rights, to resolve disputes on their own, and what to do when they come across illegal activity.

The Consumer Affairs Act of 1970 recognized the importance of consumer education and named it as a primary function of the Department of Consumer Affairs. And today the department's "vision" statement ranks the importance of education first and regulation second:

First, consumers are best protected through a fair and competitive market with high standards of competence and ethical behavior and consumer information.

Second, a regulatory structure should be pursued only when voluntary compliance fails. When regulation is used, it should be the least intrusive possible for ensuring public health, safety and welfare.⁽¹⁶⁾

In its testimony, the department elaborated on this first goal by saying that the "primary responsibility rests with both industry and consumers who are equipped to make sound decisions about products and services."

Similarly, the county district attorneys, who often become involved in cases when it is too late for education to prevent harm, testified that informing consumers should be a top priority:

The dissemination of information is one of the most important ways to combat consumer fraud. The consumer's first line of defense is knowledge. An informed consumer is less likely to be victimized. This includes knowledge about the specific product or service, the industry, the consumer's legal rights and how other consumers have been victimized in the past.⁽¹⁷⁾

In some instances, the core message in consumer education efforts is the same, whether someone is buying a car or a car phone. In other cases, consumers need information specific to a commodity that may or may not be regulated by the State.

The education can take many forms: a printed brochure, a bill insert, a page on a web site, a public service announcement on television or radio, a news account of a legislative debate or a press conference. And education can be done one-on-one -- by providing consumers the opportunity to ask basic questions and get honest answers about their rights and responsibilities.

Just as consumer education takes many forms, it is sometimes intertwined with other functions the Department of Consumer Affairs is directed by law to perform. Proposed legislation and initiated litigation both generate public debate. Press releases that are part of an aggressive consumer advocacy effort will receive more attention than press releases providing routine cautions to consider when buying noncontroversial commodities.

How much education is enough and how well the State is doing with the resources it has available are not issues that can be easily quantified. But just as nearly everyone who participated in the Commission's process believed education is a first step toward good consumer protection, no one thought the State was doing enough consumer education.

No Money for Step One

Until the early 1990s state General Fund revenue was used to support the Department of Consumer Affairs' general consumer protection efforts, and much of that money was dedicated to consumer outreach and education.

The department's specially funded regulatory programs have provided some consumer education. And the administration overhead fee charged to all department's boards and bureaus funds the department's Communications and Education Division, which distributes press releases, works on public service announcements and does other outreach on behalf of the regulatory programs.

But legally the Department of Consumer Affairs does not have any revenue at its disposal for education efforts in those areas of the marketplace where the State does not regulate suppliers.

Often these areas involve goods and services that are too new to fall under existing regulatory schemes, and may involve issues where effective education efforts could prevent the kind of consumer abuses that historically have prompted the creation of new regulatory agencies.

For instance, one of the most common sources of consumer disputes involve landlord-tenant issues: When can a landlord deny an application? When can a landlord evict a tenant? Does a landlord have to fix a leaky roof? When can a landlord inspect the property? When does a tenant forfeit the security deposit?

California has more than 4.5 million rental units, but the rental housing industry is not regulated by a single agency. The Department of Consumer Affairs has a landlord-tenant brochure that answers some of the basic questions.

But for nearly five years the brochures were unavailable because the department did not have any money to print them. Eventually the department received a $15,000 grant from the California Consumer Protection Foundation, which it used to print 50,000 copies. The department now charges $2 a copy to pay for future printings. The department's creativity is laudable, but how many landlord-tenant conflicts escalated for lack of information in the meantime?

Similarly, the department has spent considerable resources trying to make the small claims court an accessible and efficient process for consumers to resolve their disputes. It has worked with judges and attorneys to publish and distribute -- for a fee -- a consumer law source book for use by judicial officers. And it has published an easy to read guide -- in English and Spanish -- on how to use small claims court for disputes that cannot be settled some other way. But the brochures are gone, there is no money for more. Last year alone, 450,000 small claim cases were filed in California.

Another program related to consumer education that the department is obligated to operate, but receives no money for, is the Dispute Resolution Office. The department administers the 1986 Dispute Resolution Programs Act by encouraging counties to voluntarily operate local mediation programs. Thirty-one of California's 58 counties participate in the program, which is intended to save court costs and accelerate settlements. Counties can divert a portion of their filing fees to pay for programs.

But while the Legislature believed that it was cost-effective and good government to teach people how to resolve disputes, the program does not receive General Fund support. The department dedicates an estimated four personnel hours a week to the program. No evaluations have been completed to assess which programs are working best and why. Data submitted by the counties is not aggregated and analyzed. ⁽¹⁸⁾

The department's Consumer Information Center is another example of how the department has tried to stretch special funds to fill a General Fund obligation. The center is described in greater detail in Finding 4, which deals with interagency cooperation. But in the interest of educating consumers, the center demonstrates the good that comes from providing individual answers to specific concerns.

Currently the call center is funded by the special fees collected through the regulatory boards and programs. However, the call center received nearly 300,000 calls last year that were unrelated to a specific department function, and many of those were not related to a state regulatory function.

More than 27,000 of the calls involved landlord-tenant disputes. Nearly 18,000 of the calls were "private" civil matters that could be settled through local dispute resolution programs or small claims courts.

The department's General Fund revenues were cut when the recession of the early 1990s starved public coffers. Similarly, the State tapped the special fund reserves of the regulatory boards. When the recession ended, the reserve funds were restored but the department's General Fund appropriation was not. The Center for Public Interest Law described the result:

The bottom line for consumers? With some exceptions, DCA has been reduced to the activity level of its predecessor agency, the Department of Professional and Vocational Standards -- an umbrella which provides staff services to its constituent occupational licensing agency. DCA lacks the resources to do much more, and may in fact be legally prohibited from using pro rata charge back funds for general consumer protection activities; and California government lacks a Consumer Advocate office or agency to carry out the terms of the Business and Professions Code § 301 in good faith.⁽¹⁹⁾

The department received $1.2 million from the General Fund in 1991-92, the last year it received a general appropriation. The department estimates that to restore the level of activity would cost $2.9 million in current dollars.

Educating Where the Money Is

The Department of Consumer Affairs, including the boards, does receive $306 million in revenue. And some of the boards publish brochures. The Board of Pharmacy provides information on how to use medicines safely and effectively. The Structural Pest Control Board has a fact sheet on termites. And the Contractors State License Board has a "Consumer's Guide to Asbestos."

But the regulatory boards have been reluctant to quickly, easily and completely provide to consumers public information about specific licensees. The Contractors' State License Board is an example. Its on-line records can provide a list of past formal legal actions against a licensee. (The board will not tell the public about someone it has cited for unlicensed activity, because it does not believe that information to be a public record.) The on-line data base does not cross reference consumers to other registered businesses operated by the same licensee -- which allows bad actors to close one business and open another and avoid detection under the old name. So it is possible to request information under a business name and be told the State has no problem with that contractor, when in fact the person has been cited under a different business name.

Some consumer advocates believe incomplete information can create a false sense of security. On the other hand, the Contractors' Board is doing more than many of the regulating boards, which do not make specific licensee information easily available to the public, on-line or other wise.

Setting Priorities

Some educational efforts have been funded by the special fees collected from regulated businesses and professions -- although clearly more could be done. Recent news accounts have retold some horror stories in which greater public education, along with vigorous enforcement, appear warranted:

• Bad builder. Several Southern California homeowners were scammed by the same contractor -- who took tens of thousands of dollars, did part of the agreed-upon remodeling work and then never returned. The homeowners' second complaint was they had relied upon the hotline at the Contractors' State Licensing Board, which failed to tell them the builder had a history of trouble.
• Illegal clinics. Several illegal medical clinics have been operated in Southern California, catering to immigrant populations. After brief examinations, the fraudulent doctors were diagnosing kidney problems and selling drugs without prescriptions -- even to an undercover reporter with no health problems.

But abuses also occur in areas of the market where there are no specific regulatory programs or dedicated sources of funds. Telemarketing fraud, identity theft and fraudulent Internet commerce are all issues in which consumer education could prevent significant losses.

It is impossible to predetermine an appropriate level of public expenditure on consumer education. But the decision on how and how much to spend should be based on a set of agreed-upon priorities.

The department could take a number of steps to increase education within the framework of the boards:

• Make public records public. At a very minimum, the State could do all that it can reasonably do to make public records more accessible to the public. That means information about problem providers should be available on the Internet and over a toll-free telephone line. The Department of Real Estate managed to win the support and financial backing of the industry it regulates in order to increase public outreach, as explained in more detail in the box.

The department and the boards also could work more closely with nonprofit consumer advocates to make information available. Consumer groups maintain the department has been too restrictive with the most important information that consumers need when making very specific choices.⁽²⁰⁾

Department officials assert that the next generation computer being designed to process and track licensees -- known as the Integrated Consumer Protection System -- will allow the department to more effectively regulate individuals and make more complete records available to the public electronically. From a consumer education standpoint, that external access to public information is as important as the ability of the department to regulate the individual. But not every board is being required to use the system and so there is no assurance the information will be uniformly available.

• Publish annual "State of Consumer Affairs" reports. Part of the education process is to inform policy makers, commentators and business leaders. A former director of the department and several consumer advocates believe the department should publish and proudly distribute an annual assessment of the biggest consumer issues of the year, what has been done to resolve the issues and what else needs to be done. This report could build on the requirement already in the Business and Professions Code that the department track complaints and develop responses to new consumer issues.⁽²¹⁾

Summary

Consumer education is the first step that should be taken in the pursuit of effective consumer protection, but is often not taken at all. Part of the problem is resources, as the Department of Consumer Affairs does not receive General Fund revenue and does not have the authority to tell regulatory boards how to spend their special funds. But education happens in many ways and more education could be achieved by better coordinating resources.

Recommendation 1: The Department of Consumer Affairs should develop a comprehensive consumer education program and the Governor and the Legislature should provide General Fund money to operate that program.

• The highest priority for consumer education funding should be instances in which the public health and safety are jeopardized.



• The education program should be based on a strategic assessment of those areas of the marketplace where consumers are vulnerable to the greatest abuses and where there is the least government infrastructure to prevent or respond to those abuses.



• The education program should provide for coordination between federal, state and local agencies involved in regulating that aspect of the market.



• The education program should include ongoing coordination with media, consumer advocates and trade organizations to amplify and distribute the message throughout the marketplace, including the use of public service announcements.



• The education program needs to be adaptive and flexible as new areas of concern are identified.



• The Department of Consumer Affairs should develop standardized criteria for releasing information on individual licensees. The criteria should make as much information available to consumers as is possible, while shielding businesses from unsubstantiated claims. Telephone hot lines, on-line resources and other means of communicating information about individual licensees should clearly explain the potentially relevant information that is not provided and how often the information is updated.