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March/April 2001 |
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The Final Word: Actual Revisions to the Text
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By Morgan Beard
The FTC's Guides for the Jewelry, Precious Metals and Pewter Industries now have the same standards for disclosure of diamond treatments and colored gemstone treatments. In addition, a new clause requires sellers to disclose if the "treatment has a significant effect on the stone's value." The decision was sparked by a petition from the Jewelers Vigilance Committee (JVC) and the Diamond Manufacturers and Importers Association of America - supported by 15 other industry organizations - to require disclosure of laser drilling in diamonds. The petition was made in December 1998. In June 1999, the FTC issued a call for public comment on the proposed revisions. The key concern was whether or not laser drilling makes a difference in the value of the gem compared to a non-laser-drilled gem of the same clarity. In addition, the FTC asked people to comment on whether or not there were other treatments that, although permanent, made a stone worth less than an untreated gem of the same quality. The answer in both cases was yes, and the FTC ruled that all enhancements must be disclosed if they have a significant effect on the value of the gem. It's the use of the term "significant" that troubles many industry members, particularly those who have been arguing for full disclosure. In its formal comment to the FTC, the American Gem Trade Association (AGTA) pointed out that "All treatments, permanent or otherwise, are performed to increase the value of untreated material. To propose otherwise implies that when comparing two gemstones with similar characteristics of quality, one treated and another untreated, they should be considered of equal value." The FTC, however, decided that there should be a "practical, common-sense limitation on when disclosures should be made." The federal register notice for the revision to the Guides - which explains how to interpret the new rules - stated that "Disclosure of permanent treatments is necessary only where the treatment's effect on value is likely to affect a consumer's purchasing decision." Exactly what this means for the seller is unclear. On one hand, the federal register notice says that any treatment that affects the value of the gem in a way that is "material to consumers" must be disclosed. In a footnote, the notice adds, "If, in fact, all treatments have such an effect on the value of the gemstones, then all treatments will need to be disclosed." Elsewhere it says, "It is prudent and appropriate to disclose gemstone treatments, rather than remain silent, where there is a possibility that the stones have been treated." In other words, if the AGTA is correct in saying all treatments have a significant effect on the value of the gem, then the seller must disclose all treatments. But the federal register notice also makes it clear that the term "significant" applies only to the actual cost of the gem or the piece of jewelry - whether or not the consumer would want a gem if she knew it was enhanced is irrelevant. "It's not value in terms of some subjective characterization; it's value in terms of price," says Robin Rosen Spector, an attorney for the FTC who was directly involved in drafting the revisions to the Guides. "Not only do the FTC guides not profess to address these subjective issues, but to expect the average retailer to know every idiosyncrasy or preference their customers may have would place too much of a burden [on them]." An easy rule of thumb for the retailer is whether or not the treatment affected the price he or she paid for the gem. "If the retailer would have paid the same for it [whether it was treated or not] then it doesn't fall within the scope of the provisions," Spector explains. Another controversial clause - one that the FTC rejected - was to require disclosure only "if said treatments are known or reasonably should have been known to the seller at the time of sale." Proposed by the JVC, the clause was intended to address the General Electric technique for improving the color of diamonds, which at the time was undetectable. The AGTA opposed adding the clause, however, saying that it would leave too much of a loophole in the disclosure requirements.
Disclosure advocates are disappointed with the revisions, arguing that they simply don't go far enough. "It's too subjective - how do you know if [the difference in cost] is going to change [the customer's] mind?" says Dana Schorr of Schorr Marketing and Sales, a gem wholesaler who has publicly called for stricter standards of gem enhancement disclosure. The revisions also allow too much of a loophole for the retailer - or the dealer - to not disclose treatments, he adds. "All they have to do is say, 'I didn't think it would affect the customer.' Does that mean as a wholesaler I don't have to disclose? In 99 percent of the cases, my customers are not going to change their minds based on enhancements. Based on [the Guides] I don't have to disclose, ever." "I think the revisions are a move in the right direction, but fell far short," says author and lecturer Antoinette Matlins, one of the 40 individuals and organizations who commented on the proposed revisions. When she speaks to consumers about gemstones, she says, she often asks their opinion on gem enhancements. "When I ask how they feel about disclosure, even if the treatment is minor, permanent, and has little impact on value, the message is clear: one, most people want to know; and two, most people think that not being told is unfair and deceptive, regardless of degree of treatment or its effect on value." One thing that all parties involved can agree on is that whether or not it's required, disclosure is a good idea. "I think the retailer ought to be thinking like a consumer and make the disclosure, if for no other reason than he's on safe ground," says Cecilia Gardner, executive director of the JVC. "I think that any seller, in order to protect [himself] from liability, ought to play it safe." "We feel gemstone enhancement [is something] the customer needs to know, regardless of [the effect on] value," explains Douglas Hucker, executive director of the AGTA. "It may not be important to a customer that a citrine was once an amethyst and went from a 50-cent stone to a 50-cent stone." But if the customer later finds out about it and feels deceived, it breeds mistrust. Education is the key. "Lack of education has been a consistent theme in this product throughout the industry," Hucker continues. "I think [jewelers] are going to start looking around to see where they can find the information," and both the AGTA and the JVC are working on ways to address that.
Although the changes to the Guides are important, the impact on individual retail jewelers is likely to be small. The Guides are, as the name implies, guidelines on what the FTC considers deceptive, but they are not the law. If a jeweler is found guilty of deception, he or she may be prosecuted under the FTC Act, but that law addresses patterns of behavior rather than specific, individual cases. "In order for us to challenge something, it has to be affecting commerce," explains Spector. While that can be difficult to define, it usually applies to advertising campaigns or policies in retail chains; the FTC would only go after an individual store or supplier if there were multiple complaints of deceptive practices. In cases where a violation of the Guides, is found, it's usually resolved out of court. "In the instances where we've had cases [of deception] they haven't gone that far," says Spector. "The end result of prosecution [would be] an order to cease and desist. Most companies agree to that without having to have a trial." Of much greater concern to most retailers and their suppliers is being sued by an unhappy customer, and in such cases the Guides would not apply. "It's something they can introduce as evidence [in a court case]," says Spector. "It's totally admissible, and I would assume the judge would put weight on it," but how much importance it has is up to the individual courts. In the end, it's left up to the industry to decide how to handle disclosure, and whether to expand on the Guides by requiring disclosure of all treatments. That was the intent of the FTC all along, says Spector. "In some ways we're deferring to the industry on making the decision whether the treatment needs to be disclosed," she explains. "We're allowing the industry to apply their expertise to these guidelines. They're the experts. We're not." |
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Following is the full text of the revisions to the FTC guides for the jewelry industry. The Commission amends Chapter I of Title 16 of the Code of Federal Regulations Part 23 — Guides for the Jewelry, Precious Metals, and Pewter Industries
By direction of the Commission. |
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