FTC Staff Comment to Governor Garrey Caruthers Concerning New Mexico H.B. 371 to Prohibit Accountant Solicitation of Persons Not Known to Need Such Services or by Coercion, Overreaching, or Harassing Conduct

Federal Trade COlllmission
Officp. of the Regional Director
13303 Elmbrook DriH
-- 	Dallas, Texas "752-t.1
(214) 767·7050
The 	Honorable 	Garrey 	Carruthers
Governor 	of 	New Mexico
State 	Capitol 	Building
Santa 	Fe, 	New Mexico 	87503
Dear 	Governor 	Carruthers:
_.•,
COMMISSION
APPROVED ....~j
March 	18, 	1987
We 	are 	pleased 	to 	respond 	to 	your 	staff's 	request 	for
comments 	on 	House 	Bill 	371 	which 	would 	amend 	certfin 	provisions
of 	the 	New Mexico 	Public 	Accountancy Act 	of 	1947. 	In 	this
letter 	we 	focus 	on 	Section 	14 	of 	the 	bill. 	This 	section 	would
prohibit 	accountants 	from 	engaging 	in 	any 	form 	of 	solicitation
which 	is 	directed 	at 	"persons 	not 	known 	to 	be 	seeking 	pUblic
accounting 	services 	or 	by 	the 	use 	of 	coercion, 	overreaching, 	or
harassing 	conduct." 	We 	oppose 	enactment 	of 	this 	law 	because 	it
would 	prohibit 	truthful, 	nondeceptive 	communications 	in
circumstances 	that 	pose 	little 	or 	no 	riSk 	of 	harm 	to 	consumers.
The 	Federal 	Trade 	Commission 	is 	empowered 	under 	15 	U.S.C. 	§§
41 	et ~ to 	prevent 	unfair 	or 	deceptive 	acts 	or 	practices.
Under tliTS mandate 	the 	Commission 	encourages 	competition 	among
members 	of 	licensed 	professions 	to 	the 	maximum 	extent 	compatible
with 	other 	legitimate 	state 	and 	federal 	goals. 	For 	several
years, 	the 	Commission 	has 	had 	an 	ongoing 	program 	examining 	the
competitive 	effects 	of 	public 	and 	private 	restrictions 	on 	the
business 	practices 	of 	accountants, 	dentists, 	optometrists,
1 These 	comments 	represent 	the 	views 	of 	the 	Dallas 	Regional
Office 	and 	the 	Bureaus 	of 	Consumer 	Protection, 	Competition,
and 	Economics 	of 	the 	Federal 	Trade 	Commission 	and 	do 	not
necessarily 	represent 	the 	views 	of 	the 	Commission 	or 	any
individual 	Commissioner. 	The 	Commission 	has, 	however, 	voted
to 	authorize 	their 	SUbmission.
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lawyers, 	physicians, 	and 	other 	state-licensed 	professionals. 	Our
goal 	is 	to 	identify 	and 	seek 	the 	removal 	of 	restrictions 	that
impede 	competition or 	increase 	costs 	without 	providing
countervailing 	benefits 	to 	consumers.
BENEFITS 	OF 	TRUTHFUL 	COMMUNICATIO~S
Tru~hful, 	nondeceptive 	advertising 	communicates 	information
about 	the 	individuals.or 	firma of~eriDg dervices 	that 	consumers
may 	wish 	to 	purchase. 	Such 	information promotes 	the 	efficient 	.
delivery of 	services 	and 	facilitates 	purchasing 	decisions 	that
reflect 	true 	consumer 	preferences. 	Empirical 	evidence 	suggests
that 	removing 	restrictions 	on 	the 	dissemination 	of 	truthful
information 	about 	pr9.fessionals 	will 	tend 	to 	enhance 	competition
and 	to 	lower 	prices.' 	Although 	some 	concern 	has 	been 	voiced 	that
advertising may 	lead 	to 	lower 	quality 	services, 	the 	empirical 	-_
evidence 	suggests 	that 	the 	quality 	of 	services 	provided 	by 	firms
that 	advertise 	is 	at 	least 	as 	h~gh as, 	if 	not 	higher 	than, 	that
of 	firms 	that 	do 	not 	advertise.
Solicitation 	is 	in 	many 	ways 	just 	a 	more 	focused 	form 	of
advertising. 	Truthful, 	nondeceptive 	solicitation may 	thus 	also
provide 	useful 	information 	to 	consumers 	about 	the 	availability 	of
accounting 	services. 	As 	currently 	drafted, 	however, 	Section 	14
of 	the 	bill 	would 	prohibit 	accountants 	from 	using 	letters,
telegrams 	or 	other 	written 	communications 	to 	solicit 	clients.
The 	FTC 	stafE 	believes 	that 	there 	is 	no 	need 	to 	protect
consumers 	from 	this 	type 	of 	solicitation. 	Consumers 	generally
benefit 	from 	information 	about 	pricing 	and 	choices 	of 	services.
In Adams 	v; 	Attorne~ Registration 	and 	Discielinary Commission,
801 	F.2d 	968 	(7th 	Clr. 	1986), 	the 	Seventh 	Clrcuit 	relied 	on 	the
First Amendment 	to 	sustain 	a 	preliminary 	injunction 	against
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Cleveland 	Regional 	Office 	and 	Bureau 	of 	Economics, 	Federal
~rade Commission, 	tmproving 	Consumer 	Access 	to 	Legal
Services: 	The 	Case 	for 	Removing 	Restrictions 	on Truthful
Advertising 	(1984); 	Bureau 	of 	Economics, 	Federal 	Trade
Commission, 	Effects 	of 	Restrictions 	on Advertising 	and
Commercial 	Practice 	in 	the 	Professions: 	The 	Case 	of
Optometry 	(1980); 	Benham 	and 	Benham, 	Re~ulating Through 	the
Professions: 	A Pers 	ctive 	on 	Informatlon 	Control, 	18 	J.L. 	&
Bcon. 	421 	(1975); 	Benham, 	The 	Ef 	ects 	of 	Advertlslng 	on 	the
Price 	of 	Eyeglasses, 	15 	J.L. 	& Econ. 	337 	(1972).
Huris 	and 	McChesney, 	Advertisin 	and 	the 	Price 	and 	Qualit 	of
Legal 	~ervices: 	The 	Case 	or 	Lega 	C lnlcs, 	Am. 	q.
Found. 	Research 	J. 	179 	(1979).
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enforcement 	of 	an 	Illinois 	Bar 	Association 	disciplinary 	rule
banning 	targeted 	mailings. 	The 	court 	held 	that 	the 	state 	had 	no
substantial 	interest 	in 	enforcing 	suc~~ restriction. 	The 	court
noted 	that 	the 	consumer 	may 	simply 	throw 	out 	a 	letter 	or 	may 	read
it 	several 	times 	and 	reflect 	on 	its 	contents 	before 	making 	a
decision •. W~ 	believe .that 	the 	Adams 	opinion 	is ~pplicable to 	the
accounting 	profession 	and 	provides 	compelling 	support 	for 	the
proposition 	that 	letters, 	telegrams, 	and 	other 	written 	.
communications 	should 	be. treated 	no 	differently 	from 	other 	forms
of 	advertising.
~ruthful, nondeceptive 	in-person 	solicitation 	also 	may
provide 	information 	to 	consumers 	that 	will 	help 	them 	select 	an
eccountant. 	tn-person 	contacts 	can 	convey 	information 	about 	the
availability 	and 	terms 	of 	an 	accountant's-or 	accounting 	fir~'s
services 	and 	serve 	the 	same 	function 	rn 	this 	respect 	as 	pr i nt ._
advertisements.
LITTLE 	DANGER OF 	ABUSE
We 	recognize, 	of 	course, 	that 	abuses 	may 	sometimes 	result
from 	in-person 	solicitation. 	Physically 	ill 	or 	emotionally
distressed 	people 	may 	be 	vulnerable 	to 	the 	exercise 	of 	undue
influence 	when 	face 	to 	face 	with 	a 	person 	SOliciting 	their
business. 	We 	do 	not 	believe, 	howev~r, 	that 	this 	justifies 	a
restriction 	on 	in-person 	solicitation 	by 	accountants.
Accountants 	often 	encounter 	potential 	clients 	at 	meetings 	of
business 	organizations 	and 	at 	social 	events. 	Indeed, 	accpuntants
traditionally 	have 	built 	their 	practices 	through 	such 	contacts.
If 	an 	accountant 	discusses 	his 	or 	her 	services 	with 	a 	potential
client 	under· such 	circumstances, 	no 	undue 	influence 	is 	likely 	to
be 	involved. 	In 	such 	a 	situation, 	the 	potential 	client 	need 	not
respond 	immediately 	and 	can 	subsequently 	select 	an 	accountant
should 	a 	need 	for 	those 	services 	arise. 	The 	Federal Trade
Commission 	considered 	these 	issues 	when 	it 	decided 	American
Medical 	Association, 	94 	F.T.C. 	701 	(1979), 	aff'd, 	638 	F.2d 	443
(2d 	Cir. 	1980), 	aff'd 	mem. 	by 	an 	equally 	divided 	court, 	455 	U.S.
676 	(1982). 	After 	weighing 	the 	possible 	harms 	and 	benefits 	to
consumers 	of 	in-person 	solicitation, 	the 	FTC 	ordered 	the 	AMA 	to
proscribe 	only 	uninvited, 	in-person 	solicitation of 	persons 	who,
because 	of 	their 	particular 	circumstances, 	were 	vulnerable 	to
undue 	influence.
Whatever 	problem 	undue 	influence 	may 	present 	in 	professions
such 	as 	law 	or 	medicine 	which 	deal 	with 	issues 	having 	a 	greater
and 	more 	immediate 	emotional 	impact, 	it 	is 	not 	clear 	that 	such
abuse 	is 	likely 	in 	the 	accounting 	profession. 	In 	this 	agency's
lengthy 	study of 	the 	accounting 	profession, 	we 	found 	no 	evidence
of 	an 	accountant 	exercising 	undue 	influence 	over 	a 	prospective
client. 	Thus, 	there 	appears 	to 	be 	no 	demonstrated 	need 	for 	any
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. 	•.
regulation of 	truthful, 	nondeceptive 	solicitation 	by 	accountants,
a~d 	thp.re 	is 	certainly 	no 	basis 	for 	barring 	virtually 	all
solicitation 	as 	Section 	14 	would 	do.
Section 	14 	of 	the 	bill 	also 	prohibits 	solicitation 	which
involves 	"~he use 	of .coercion, 	overreaching 	or 	harassing
conduct.- 	prohibiting 	~olicitation that 	involves 	such 	conduct
may 	be 	appropriate, 	depending 	upon 	the 	interpretation of 	the
bil~'s 	terms. 	Howeqer, 	we 	have 	found 	instanc~s where 	licensing _
boards 	and 	private 	associations 	in 	accounting 	and 	other 	.
professions 	have 	employed 	such 	interpretations 	anticompetitively
to 	ban 	solicitation 	that 	poses 	no 	real 	danger 	of 	harm 	to
consumers. 	For 	example, 	a 	telephone 	call 	to 	a 	former 	client 	at
his 	or 	her 	home 	offering 	accounting 	services 	may 	be 	viewed 	by
some 	as 	"overreaching." 	Tn 	the 	absence 	of 	any 	reason 	to 	believe
that 	coercion, 	overreaching 	or 	harassment 	by 	accountants 	is
likely 	to 	oe 	a 	problem, 	we 	suggest 	that 	the 	"coercion,
overreaching, 	or 	har~ssing conduct" 	standard 	be 	eliminated.
CONCLUSIO~
In 	s~~mary, we 	urge 	that 	Section 	14 	of 	House 	3ill 	371 	~e
modified 	to 	delete 	the 	prohibition 	of 	"solicitation 	of 	persons
not 	known 	to 	be 	seeking 	public 	accounting 	services 	or 	by 	the 	use
of 	coercion, 	overreaching 	or 	harassing 	conduct." 	Such 	a
prOhibition 	is 	likely 	to 	have 	the 	effect 	of 	impeding 	competition
a,mong 	accountants, 	to 	the 	ultimate 	detriment 	of 	cqnsumers .
. Thank 	you 	for 	considering 	our 	comments. 	We 	would 	be 	happy
to 	supply 	copies 	of 	the 	studies 	and 	materials 	referen~ed in 	t~is
letter. 	if 	you 	so 	desire, 	or 	to 	provide 	any 	other 	assistance.
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Sincerely,
CJt;' 	IIkdl
~im Moseley 	/
l/kegional Director
Dallas 	Regional Office
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