Although the Federal Trade Commission unanimously approved the substance of a rule to alleviate credit abuses in small loans and installment sales on Wednesday, some FTC officials fear that the rule may be derailed.
Before the rule is promulgated, the commission also must approve a number of accompanying staff papers. These papers include an analysis of the legal basis for the rule and its regulatory implications.
Approval of these technical papers, usually just a formality, is the focus of concern by some officials. If the papers are not accepted, one possible result would be a change in any or all provisions of the rule.
Commissioner David Clanton, whose compromise version of the rule was accepted by the commission this week, is leaving the FTC in late September, perhaps before the staff papers are considered by the commission.
If that happens, it will the first time that a new commissioner will have the opportunity to vote on a rule that has reached this late stage, according to Eddie Corriea, attorney-adviser to Commissioner Michael Pertschuk.
Although they voted for the rule this week, FTC Chairman James C. Miller and Commissioner George Douglas adamantly opposed an earlier version of the rule proposed last month. One official said Miller and Douglas were "lobbying Clanton hard up until the last minute" to vote against the rule.
The rule adopted Wednesday would prohibit merchants from allowing buyers to pledge their household goods as collateral for purchases, for example. And lenders could not claim any portion of a debtor's wages in a default without going to court.
Some officials said it is conceiveable that, if Clanton retires before the vote on the staff papers, the third Reagan appointee could join Miller and Douglas in opposing them, thus blocking enactment of the rule.
"There's a distinct possibility they might change their minds," Pertschuk said.
Although a target date of Sept. 6 was set for completion of the credit rule's legal papers, the director of the bureau of consumer protection, who is in charge of preparing the staff papers, said the analysis could take anywhere from two months to a year to prepare.
"There's no question that I was surprised that Miller and Douglas voted for the rule," said Pertschuk. "They expressed strong hostility for the rule, and they didn't seem to be persuaded by the rule."
Before he added his vote to the approval, Miller characterized the rule as a "draconian way to address the issue" and said he would look carefully at the statement of basis and purposes to make sure all alternatives to the rule were explored adequately.
Douglas and Miller, both Reagan appointees, are advocates of deregulation and strongly favored disclosure clauses in credit contracts as opposed to prohibitions against certain credit practices.
Douglas said "I can't prejudge anything I haven't seen," referring to the staff papers, but said he expects the rule to become promulgated as it is now written. His statement, issued on the day of the ruling, however, expresses reservations about the rule and suggests a disclosure rule would be far more appropriate.
The FTC's bureaus of economics and consumer protection, which wrote the papers, also objected to the rule, saying "a prerequisite for rulemaking has simply not been demonstrated." Pertschuk said it was the first time he can remember that Miller or Douglas voted contrary to the recommendations of the two bureau directors, who were appointed by Miller.
Commissioner Patricia Bailey and Pertschuk were strong supporters of the rule, leaving the fifth commissioner, David Clanton, as the swing vote.
"We are concerned" about the possible change in the rule, said Correia. "We assume that Chairman Miller and Commissioner Douglas will cooperate in voting the background papers out quickly, and we assume they would never use a delay to change the result that the commission reached today."
Marcy Tiffany, executive assistant to Miller, said "I think he still has some reservations" about the rule, and wouldn't deny the possiblity of anything happening at the vote, but added that Miller will vote on the technical papers "in complete good faith."