99–006

107TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 107–276

AMERICAN SPIRIT FRAUD PREVENTION ACT

NOVEMBER 9, 2001.—Committed to the Committee of the Whole House on the State

of the Union and ordered to be printed

Mr. TAUZIN, from the Committee on Energy and Commerce,

submitted the following

R E P O R T

[To accompany H.R. 2985]

[Including cost estimate of the Congressional Budget Office]

The Committee on Energy and Commerce, to whom was referred

the bill (H.R. 2985) to amend the Federal Trade Commission Act

to increase civil penalties for violations involving certain proscribed

acts or practices that exploit popular reaction to an emergency or

major disaster declared by the President, and to authorize the Federal Trade Commission to seek civil penalties for such violations in

actions brought under section 13 of that Act, having considered the

same, report favorably thereon without amendment and recommend that the bill do pass.

CONTENTS

Page

Purpose and Summary ............................................................................................ 2

Background and Need for Legislation .................................................................... 2

Hearings ................................................................................................................... 2

Committee Consideration ........................................................................................ 2

Committee Votes ...................................................................................................... 2

Committee Oversight Findings ............................................................................... 2

Statement of General Performance Goals and Objectives .................................... 2

New Budget Authority, Entitlement Authority, and Tax Expenditures ............. 3

Committee Cost Estimate ....................................................................................... 3

Congressional Budget Office Estimate ................................................................... 3

Federal Mandates Statement ................................................................................. 4

Advisory Committee Statement .............................................................................. 4

Constitutional Authority Statement ...................................................................... 4

Applicability to Legislative Branch ........................................................................ 4

Section-by-Section Analysis of the Legislation ...................................................... 4

Changes in Existing Law Made by the Bill, as Reported ..................................... 5

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PURPOSE AND SUMMARY

The purpose of H.R. 2985 is to amend the Federal Trade Commission Act to increase civil penalties for violations involving unfair or deceptive acts or practices that exploit popular reaction to

a national emergency or natural disaster.

BACKGROUND AND NEED FOR LEGISLATION

During times of national emergency or natural disaster, Americans generously give financial assistance to their fellow citizens in

need. For example, it has been estimated that charities have received in excess of $1 billion for those affected by the September

11th terrorist acts. Unfortunately, such emergencies are often an

invitation for unscrupulous persons to manipulate the emotions of

generous citizens to fraudulently line their own pockets. Scam artists will use the telephone and Internet to prey on emotions—for

example, by being rude when asked for specific information or insinuating that people who decline to give are unpatriotic. H.R.

2985, the American Spirit Fraud Prevention Act, takes measures to

prevent scam artists from capitalizing on national tragedies and

takes additional steps to penalize those practices.

HEARINGS

The Committee on Energy and Commerce did not hold hearings

on H.R. 2985.

COMMITTEE CONSIDERATION

On Wednesday, October 3, 2001, the Subcommittee on Commerce, Trade, and Consumer Protection met in open markup session and approved H.R. 2985 for Full Committee consideration,

without amendment, by a voice vote. On Thursday, October 11,

2001, the Committee on Energy and Commerce met in open markup session and favorably ordered reported H.R. 2985, without

amendment, by a voice vote.

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion

to report legislation and amendments thereto. There were no

record votes taken in connection with ordering H.R. 2985 reported.

A motion by Mr. Tauzin to order H.R. 2985 reported to the House,

without amendment, was agreed to by a voice vote.

COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House

of Representatives, the Committee has not held legislative or oversight hearings on this legislation.

STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES

The goal of H.R. 2985 is to provide the FTC with the authority

to increase penalties for those who perpetuate frauds that capitalize on national emergencies or natural disasters.

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NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the

House of Representatives, the Committee finds that H.R. 2985, the

American Spirit Fraud Prevention Act, would result in no new or

increased budget authority, entitlement authority, or tax expenditures or revenues.

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by

the Director of the Congressional Budget Office pursuant to section

402 of the Congressional Budget Act of 1974.

CONGRESSIONAL BUDGET OFFICE ESTIMATE

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House

of Representatives, the following is the cost estimate provided by

the Congressional Budget Office pursuant to section 402 of the

Congressional Budget Act of 1974:

U.S. CONGRESS,

CONGRESSIONAL BUDGET OFFICE,

Washington, DC, November 2, 2001.

Hon. W.J. ‘‘BILLY’’ TAUZIN,

Chairman, Committee on Energy and Commerce,

House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has completed the enclosed cost estimate for H.R. 2985, the American Spirit Fraud Prevention Act. The CBO staff contact for this estimate

is Ken Johnson.

Sincerely,

BARRY B. ANDERSON

(For Dan L. Crippen, Director).

Enclosure.

H.R. 2985—American Spirit Fraud Prevention Act

H.R. 2985 would authorize the Federal Trade Commission (FTC)

to seek higher civil penalties for unfair or deceptive business practices if businesses exploit the popular reaction to a national emergency. This authority would apply to violations committed within

a year after the President has declared a national emergency.

Based on information from the FTC, CBO estimates that implementing H.R. 2985 would increase the agency’s enforcement costs

and collections of civil penalties by insignificant amounts. Because

the bill would affect civil penalties, which are classified in the

budget as governmental receipts (revenues), pay-as-you-go procedures would apply.

H.R. 2985 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act and would

impose no costs on state, local, or tribal governments.

The CBO staff contact for this estimate is Ken Johnson. This estimate was approved by Peter H. Fontaine, Deputy Assistant Director for Budget Analysis.

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FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office

pursuant to section 423 of the Unfunded Mandates Reform Act.

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the

Federal Advisory Committee Act were created by this legislation.

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the House

of Representatives, the Committee finds that the Constitutional authority for this legislation is provided in Article I, section 8, clause

3, which grants Congress the power to regulate commerce with foreign nations, among the several States, and with the Indian tribes.

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the

terms and conditions of employment or access to public services or

accommodations within the meaning of section 102(b)(3) of the Congressional Accountability Act.

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title

Section 1 establishes the short title of the bill as the ‘‘American

Spirit Fraud Prevention Act.’’

Section 2. Increase in penalties for unfair or deceptive acts or practices exploiting reaction to certain emergencies and major disasters

Subsection (a) makes changes to section 5(m) of the FTC Act. If

the FTC brings an administrative action under section 5 for an unfair or deceptive act or practice committed during an emergency period or disaster period, and the act or practice exploits popular reaction to the emergency or disaster, the civil penalties provided

under section 5(m) are doubled from $11,000 to $22,000 per violation.

Subsection (b) makes changes to section 13 of the FTC Act. If the

FTC brings an action in Federal district court under section 13 for

an unfair or deceptive act or practice committed during an emergency period or disaster period, and the act or practice exploits

popular reaction to the emergency or disaster, after awarding any

equitable relief, subsection (b) requires the court to impose civil

penalties in the amount of $22,000 per violation. The civil penalties

collected under section 13 are not intended to preempt any equitable relief the court may otherwise deem necessary.

For actions brought under section 5 or section 13 of the FTC Act,

an ‘‘emergency period’’ is defined as the period of time that begins

when the President declares an emergency under the National

Emergencies Act (50 U.S.C. 1601 et seq.) and ends one year after

the emergency is terminated. A ‘‘disaster period’’ is defined as the

one year period beginning on the date the President declares an

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emergency or major disaster under the Robert T. Stafford Disaster

Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.).

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the

House of Representatives, changes in existing law made by the bill,

as reported, are shown as follows (new matter is printed in italic,

and existing law in which no change is proposed is shown in

roman):

FEDERAL TRADE COMMISSION ACT

* * * * * * *

SEC. 5. (a) * * *

* * * * * * *

(m)(1)(A)***

* * * * * * *

(D) In the case of a violation involving an unfair or deceptive act

or practice in an emergency period or disaster period, the amount

of the civil penalty under this paragraph shall be double the

amount otherwise provided in this paragraph, if the act or practice

exploits popular reaction to the national emergency, major disaster,

or emergency that is the basis for such period.

(E) In this paragraph—

(i) the term ‘‘emergency period’’ means the period that—

(I) begins on the date the President declares a national

emergency under the National Emergencies Act (50 U.S.C.

1601 et seq.); and

(II) ends on the expiration of the 1-year period beginning

on the date of the termination of the national emergency;

and

(ii) the term ‘‘disaster period’’ means the 1-year period beginning on the date the President declares an emergency or major

disaster under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.).

* * * * * * *

SEC. 13. (a)***

* * * * * * *

(e)(1) If a person, partnership, or corporation is found, in an action under subsection (b), to have committed a violation involving

an unfair or deceptive act or practice in an emergency period or a

disaster period, and if the act or practice exploits popular reaction

to the national emergency, major disaster, or emergency that is the

basis for such period, the court, after awarding equitable relief (if

any) under any other authority of the court, shall hold the person,

partnership, or corporation liable for a civil penalty of not more

than $22,000 for each such violation.

(2) In this subsection—

(A) the term ‘‘emergency period’’ means the period that—

(i) begins on the date the President declares a national

emergency under the National Emergencies Act (50 U.S.C.

1601 et seq.); and

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(ii) ends on the expiration of the 1-year period beginning

on the date of the termination of the national emergency;

and

(B) the term ‘‘disaster period’’ means the 1-year period beginning on the date the President declares an emergency or major

disaster under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.).

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