Peacock Buick, Inc

Text (OCR of the scan at left; may contain errors)

IN THE MATTER OF PEACOCK BUICK, INC., ET AL.

Dockct 8976, Order, Mar. , 1976 Denial of respondents' motion for reconsideration of opinion and final order forbiddingthe misrepresentation of the necessity of credit insurance and requiring disclosure that such insurance is not required. Appearances For the Commission: Jerr W. Boykin, Michael E.K. Mpras, Michael Dershowitz and Frank H. Addonizio. For the respondents: Stein, Mitchell Mezi1Ws Washington, D. ORDER DENYING PETITION FOR RECONSIDERATION The Commission issued its opinion and final order in this matter on December 19, 1975 (86 F. C. 1532), and respondents were served with both on January 16, 1976. By motion dated February 2, 1976 respondents have petitioned for reconsideration of Paragraphs 1(6) and 1(7) of the order, pursuant to Section 3.55 of the Commission s Rules of Practice. Complaint counsel oppose the motion as inappropriate for reconsideration and defective on its merits. This case involved practices in the sale of new and used cars. The Commission held that respondents had committed several violations of Section 5 of the Federal Trade Commission Act (15 U. C. 945), among which was that respondents, through sales agents, misrepresented to certain customers that it would be necessary for those customers to purchase credit life insurance in order to secure automobile financing from area lending institutions. In fact the lending institutions in question did not require such insurance as a precondition for extension of a loan. Order Paragraphs 1(6) and 1(7) were designed to remedy the violation by forbidding respondents from misrepresenting the necessity of credit insurance (Par. 1(6) J and by requiring respondent disclose affirmatively, orally and in writing, that such insurance is not required (Par. 1(7)) In their motion for reconsideration, respondents argue that the practice which the Commission s order condemns is immunized from Commission review by the McCarran-Ferguson Act (15 U. C. 91011 seq. This issue was briefed cursorily by respondents in the main proceeding, and dismissed by the Commission in summary fashion. Respondents in their motion for reconsideration cite certain Federal court cases reported subsequent to the time of oral argument and agree decision, which in their view warrant a different disposition. We 380 FEDERAL TRADE COM IISSION DE"rSIONS Order 87 F.

with complaint counsel that the cases cited by respondents do no more than articulate points that might as readily have been raised earlier in the proceeding. Nonetheless, we have reviewed these cases and considered the substance of respondents' motion which, for reasons indicated below, must be denied.

The McCarran-Ferguson Act provides in part that No Act of Congress shall he construed to invalidate, impair, or supersede any law enacted by any Stale for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance Provided That after June 30, 1948 * * .. the Federal Trade Commission Act, as amended, shall be applicable to the business of insurance to the extent that such business is not regulated by State law. (15 V. C. 91012. A threshold question is whether an automobile dealer s practice of tellng customers that they must buy credit insurance in order to obtain financing constitutes the "business of insurance" as used mthin the statute. As the Supreme Court has recognized, the legislative history of the McCarran-Ferguson Act provides litte guidance as to the meaning of the "business of insurance." The Act was passed in response to the Court' s decision in United States v. South-Eastern Underwters Assn. 322 U.S. 533 (1944), which raised the possibility of massive Federal antitrust intrusion into what had theretofore been considered a State regulatory function, primarily involving insurance ratemaking. Congressional debate centered largely on the relationship between insurance rate making and antitrust laws, and upon State taxation of insurance companies. See SEC v. National Securities, Inc. 393 U. 450, 458-59 (1968). In attempting its own definition, the Court said: The relationship between insurer and insured, the type of policy which could be issued its reliability, interpretation, and enforcement-these were the core of the "business of insurance." Undoubtedly, other activities of insurance companies relate so closely to their status as reliable insurers that they too must be placed in the same class. But whatever the exact scope of the statutory tenn, it is clear where the focus was-it was on the relationship between the insurance company and the policyholder. Statutes aimed at protecting or regulating this relationship, directly or indirectly, are laws regulating the business of insurance." (393 U. S. 459) While the District Court cited by respondents may be correct in asserting that the insurer-insured relationship His not the all-inclusive boundary of (the McCarran- FergusonJ Act" lProctor v. State Farm Mutual Autom.obile Insurance Com.pany (No. 249-722, D. C. Jan. 21 1976)), we must also bear in mind the admonition that: National Securities indicates that the MFA is to be narrowly construed in the face of valid federal regulatory interests; acc01l11/Odation of federal and state regulatory interests is to be sought. (SEC v. Republic National Life Insurance Co. 378 F. Supp. 430, 436 (D. Y. 1974), emphasis added.

PEACOCK BUICK, INC.. ET AL. :J81 379 Order Any analysis of a transaction to determine whether it constitutes the business of insurance" cannot end with the simple determination that an insurance policy is somehow involved, however tangentially. The transaction as a whole must be carefully evaluated to ascertain the nature and significance of the interests which come into play. It is perhaps no accident that the cases cited by respondent, and others on this subject, have sought to define the "business of insurance" in terms of certain activities of insurance companies or insurers, e. , SEC National Securities, Inc., supra. ; Dexter v. Equitable Life Assurance Society of the United States 527 F.2d 233 (2d Cir. 1975); Addrisi Equitable Life Assurance Society of the United States 503 F.2d 725 (9th Cir. 1974), cert. denied 420 U.S. 929 (1975). The transactions of a company whose principal purpose is to sell insurance are, after all those most likely to involve primarily the interests which Congress intended be left to State regulation. Where, as here, we deal with a company which is not an insurance company at all, whose business touches on insurance in only a small way, the utmost care must be exercised to ensure that predominantly non-insurance aspects of the business are not immunized from Federal supervision by the mere presence of an aleatory contract.

Scrutiny of the transaction challenged here makes clear that what is essentially involved is the arrangement of credit by an automobile vendor. The Federal interest in ensuring that the business of financing be undertaken honestly is embodied not merely in the Federal Trade Commission Act' s proscription of "unfair or deceptive" acts or practices, but as well in the explicit requirements of the Truth in Lending Act (15 U. C. 91601 et seq. and its implementing Regulation Z (12 C. R. 9226).

As respondents themselves pointed out in their appeal brief before the Commission, Congress and the Federal Reserve Board have spoken explicitly with respect to the duties of a vendor offering insurance incident to the extension of credit. Regulation Z requires that a creditor who offers credit life insurance must include it when itemizing the finance charge, and for purposes of computing the annual percentage rate of the loan, unless such insurance is not required by the creditor for the extension of credit, and the consumer has made a written election to accept such insurance, follo\\ing written disclosure that it is optionall12 C. R. 9226.4(a)(5) J. In tbe instant case it appears that respondents obtained signed statements from consumers indicating their willngness to accept credit insurance, and those statements included a disclosure that such insurance was optional. Testimony of consumers indicated, however, and the Commission so found, that oral representations by salesmen were sometimes used to mislead borrow- 382 FEDERAL TRADE COM ISSION DECISIONS Order 87 F.

ers into believing that credit life insurance was required, thereby destroying the effect of the written disclosure. Respondents' misrepresentations did not deal with the tenYS of an insurance poEcy, nor bear in any way upon the relationship between an insurer and its insured. The misrepresentations did, however, sorely mislead consumers as to the conditions under which they would be granted credit and the amount they would have to pay to obtain it. We think that any reading of the McCarran-Ferguson Act which would harmonize the Congressional goal of Federal non-interference with the business of insurance" with the goal of Federal prevention of deceptive credit practices must lead to the conclusion that the precise practice involved here is not, within the statutory contemplation, the business of insurance." If the "business of insurance" intrudes upon the business of financing, we think it does so only at the point at which the borrower or his lender may seek to deal with the insurer regarding particular details of the policy being purchased. To hold otherwise, we believe, would do little to effectuate the Congressional desire to leave regulation of the business of insurance to the States, but do much to thwart the clear Federal interest in preventing deception in the sale of automobiles in or affecting commerce and in credit financing generally. We do not believe, as respondents would have it, that the McCarran- Ferguson Act was intended to encroach so fundamentally on areas of Federal concern other than insurance, nor do we find in any of the cases cited by respondents warrant for concluding otherwise. For the foregoing reasons we believe that the opinion of the Commission is correct in concluding that entry of order Paragraphs 1(6) and 1(7) is not barred by the McCarran-Ferguson Act, and accordingly, It is ordered That respondents' motion for reconsideration be, and it hereby is, denied.

, Reaponrlenta a180 argue that the practice involved here is subject to regulllion by the Commonwealth of Virginia. The Virginia inaurance code rited by respondents prohibits in genersl tenns false represent3tions "with re"peel to the business of imurance" VA Code !U.52(2); see aim 51. Whether this constitutes the type of regulation necessary to immunize a practice from Commi"sion scrutiny need not be resolved, inasmuch as we have concluded that for purposes of theMcCarTan- Ferguson Act the practice at issuehere is not the business of insurance. ,) & ,) FUR ITURE CORP.. ET AL. 383 383 Complainl