Wednesday, January 29, 2003

Part III

Federal Trade Commission 16 CFR Part 310 Telemarketing Sales Rule; Final Rule

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FEDERAL TRADE COMMISSION defines ‘‘upselling’’ to clarify the The culmination of Congressional amended Rule’s application to these efforts to protect consumers against 16 CFR Part 310 transactions, requires specific telemarketing fraud occurred in 1994 disclosures for upsell transactions, and with the passage of the Telemarketing Telemarketing Sales Rule expressly excludes upselling Act, which was signed into law on AGENCY: Federal Trade Commission. transactions from certain exemptions in August 16, 1994.3 The purpose of the ACTION: Final Amended Rule. the amended Rule; (4) requires that Act was to combat telemarketing fraud sellers and telemarketers accepting by providing law enforcement agencies SUMMARY: In this document, the Federal payment by methods other than credit with new tools and to give consumers Trade Commission (‘‘FTC’’ or and debit cards subject to certain new protections. ‘‘Commission’’) issues its Statement of protections obtain express verifiable Basis and Purpose (‘‘SBP’’) and final authorization from their customers; (5) The Telemarketing Act directed the amended Telemarketing Sales Rule retains the exemptions for pay-per-call, Commission to issue a rule prohibiting (‘‘amended Rule’’). The amended Rule franchise, and face-to-face transactions, deceptive and abusive telemarketing sets forth the FTC’s amendments to the but makes these transactions subject to acts or practices, and specified, among Telemarketing Sales Rule (‘‘original the national ‘‘do-not-call’’ registry and other things, certain acts or practices the Rule’’ or ‘‘TSR’’). The amended Rule is certain other provisions in the abusive FTC’s rule must address. The Act also issued pursuant to the Commission’s practices section of the Rule; (6) required the Commission to include Rule Review, the Telemarketing and specifies requirements for the use of provisions relating to three specific Consumer Fraud and Abuse Prevention predictive dialers; (7) requires ‘‘abusive telemarketing acts or Act (‘‘Telemarketing Act’’ or ‘‘Act’’) and disclosures and prohibits practices:’’ (1) a requirement that the Uniting and Strengthening America misrepresentations in connection with telemarketers may not undertake a by Providing Appropriate Tools the sale of credit card loss protection pattern of unsolicited telephone calls Required to Intercept and Obstruct plans; (8) requires an additional which the consumer would consider Terrorism Act (‘‘USA PATRIOT Act’’). disclosure in connection with prize coercive or abusive of his or her right to EFFECTIVE DATES: The amended Rule promotions; (9) requires disclosures and privacy; (2) restrictions on the time of will become effective March 31, 2003. prohibits misrepresentations in day telemarketers may make unsolicited Full compliance with § 310.4(a)(7), the connection with offers that include a calls to consumers; and (3) a caller identification transmission negative option feature; (10) eliminates requirement that telemarketers promptly provision, is required by January 29, the general media and direct mail and clearly disclose in all sales calls to 2004. The Commission will announce at exemptions for the telemarketing of consumers that the purpose of the call a future time the date by which full credit card loss protection plans and is to sell goods or services, and make compliance with § 310.4(b)(1)(iii)(B), the business opportunities other than other disclosures deemed appropriate ‘‘do-not-call’’ registry provision, will be business arrangements covered by the by the Commission, including the required. The Commission anticipates Franchise Rule1; (11) requires nature and price of the goods or services that full compliance with the ‘‘do-not- telemarketers to transmit caller sold.4 Section 6102(a) of the Act not call’’ provision will be required identification information; (12) only required the Commission to define approximately seven months from the eliminates the use of post-transaction and prohibit deceptive telemarketing date a contract is awarded to create the written confirmation as a means of acts or practices, but also authorized the national registry. obtaining a customer’s express verifiable FTC to define and prohibit acts or ADDRESSES: Requests for copies of the authorization when the goods or practices that ‘‘assist or facilitate’’ amended Rule and this SBP should be services are offered on a ‘‘free-to-pay deceptive telemarketing.5 The Act sent to: Public Reference Branch, Room conversion’’ basis; (13) prohibits the further directed the Commission to 130, Federal Trade Commission, 600 disclosure or receipt of the customer’s consider including recordkeeping Pennsylvania Avenue, N.W., or donor’s unencrypted billing requirements in the rule.6 Finally, the Washington, DC 20580. The complete information for consideration, except in Act authorized state Attorneys General, record of this proceeding is also limited circumstances; and (14) requires other appropriate state officials, and available at that address. Relevant that the seller or telemarketer obtain the private persons to bring civil actions in portions of the proceeding, including customer’s express informed consent to federal district court to enforce the amended Rule and SBP, are all transactions, with specific compliance with the FTC’s rule.7 available at http://www.ftc.gov. requirements for transactions involving FOR FURTHER INFORMATION CONTACT: ‘‘free-to-pay conversions’’ and (‘‘TCPA’’), 47 U.S.C. 227 et seq., which restricts the Catherine Harrington-McBride, (202) preacquired account information. use of automatic dialers, bans the sending of 326–2452, Karen Leonard, (202) 326– Statement of Basis and Purpose unsolicited commercial facsimile transmissions, 3597, Michael Goodman, (202) 326– and directs the Federal Communications 3071, or Carole Danielson, (202) 326– Commission (‘‘FCC’’) to explore ways to protect I. Background residential telephone subscribers’ privacy rights; 3115, Division of Marketing Practices, and the Senior Citizens Against Marketing Scams Bureau of Consumer Protection, Federal A. Telemarketing and Consumer Fraud Act of 1994, 18 U.S.C. 2325 et seq., which provides Trade Commission, 600 Pennsylvania and Abuse Prevention Act. for enhanced prison sentences for certain Avenue, N.W., Washington, DC 20580. telemarketing-related crimes. The early 1990s saw heightened 3 15 U.S.C. 6101–6108. SUPPLEMENTARY INFORMATION: The Congressional attention to burgeoning 4 15 U.S.C. 6102(a)(3)(A)-(C). 2 amended Rule: (1) retains most of the problems with telemarketing fraud. 5 Examples of practices that would ‘‘assist or original Rule’s requirements concerning facilitate’’ deceptive telemarketing under the Rule deceptive and abusive telemarketing 1 Disclosure Requirements and Prohibitions include credit card laundering and providing acts or practices without major Concerning Franchising and Business Opportunity contact lists or promotional materials to fraudulent Ventures (‘‘Franchise Rule’’), 16 CFR Part 436. sellers or telemarketers. See 60 FR 43842, 43853 substantive changes; (2) establishes a 2 Statutes enacted by Congress to address (Aug. 23, 1995). national ‘‘do-not-call’’ registry telemarketing fraud during the early 1990s include 6 15 U.S.C. 6102(a)(3). maintained by the Commission; (3) the Telephone Consumer Protection Act of 1991 7 15 U.S.C. 6103, 6104.

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B. Original Rule. as newspapers or television.18 Lastly, enforcement, and consumer groups, as 23 The FTC adopted the original Rule on catalog sales are exempt, as are most well as from individual consumers. August 16, 1995.8 The Rule, which business-to-business calls, except those The commenters generally praised the became effective on December 31, 1995, involving the sale of non-durable office effectiveness of the TSR in combating requires that telemarketers promptly tell or cleaning supplies.19 the fraudulent practices that had each consumer they call several key plagued the telemarketing industry C. Rule Review and Request for before the Rule was promulgated. They pieces of information: (1) the identity of Comment. the seller; (2) the fact that the purpose also strongly supported the Rule’s of the call is to sell goods or services; The Telemarketing Act required that continuing role as the centerpiece of (3) the nature of the goods or services the Commission initiate a Rule Review federal and state efforts to protect being offered; and (4) in the case of proceeding to evaluate the Rule’s consumers from interstate telemarketing prize promotions, that no purchase or operation no later than five years after fraud. Commenters consistently stressed payment is necessary to win.9 its effective date of December 31, 1995, that it is important to retain the Rule. Telemarketers must, in any telephone and report the results of the review to However, commenters were less sales call, also disclose cost and other Congress.20 Accordingly, on November sanguine about the effectiveness of the material information before consumers 24, 1999, the Commission commenced Rule’s provisions dealing with pay.10 In addition, the original Rule the mandatory review with publication consumers’ right to privacy, such as the requires that telemarketers have of a Federal Register notice announcing ‘‘do-not-call’’ provision and the consumers’ express verifiable that Commission staff would conduct a provision restricting calling times. They authorization before using a demand forum on January 11, 2000, limited to also identified a number of areas of draft (or ‘‘phone check’’) to debit examination of issues related to the ‘‘do- continuing or developing fraud and consumers’ bank accounts.11 The not-call’’ provision of the Rule, and abuse, as well as the emergence of new original Rule prohibits telemarketers soliciting applications to participate in technologies that affect telemarketing from calling before 8:00 a.m. or after the forum.21 for industry members and consumers 9:00 p.m. (in the time zone where the On February 28, 2000, the alike. Commenters identified several consumer is located), and from calling Commission published a second notice changes in the marketplace that had consumers who have said they do not in the Federal Register, broadening the occurred in the five years since the Rule want to be called by or on behalf of a scope of the inquiry to encompass the was promulgated and that threatened particular seller.12 The original Rule effectiveness of all the Rule’s the Rule’s effectiveness. Those changes provisions. This notice invited included increased consumer concern also prohibits misrepresentations about 24 the cost, quantity, and other material comments on the Rule as a whole and about personal privacy, the announced a second public forum to development of novel payment aspects of the offered goods or services, 25 and the terms and conditions of the discuss the provisions of the Rule other methods, and the increased use of offer.13 Finally, the original Rule bans than the ‘‘do-not-call’’ provision.22 In response to this notice, the Commission 23 A list of the commenters and the acronyms telemarketers who offer to arrange loans, used to identify each commenter who submitted a provide credit repair services, or recover received 92 comments from comment in response to the February 28 Notice is money lost by a consumer in a prior representatives of industry, law attached hereto as Appendix A. Appendix B is a list telemarketing scam from seeking of the commenters and the acronyms used to identify each commenter who submitted a comment 18 payment before rendering the promised 16 CFR 310.6(d)-(f). in response to the Notice of Proposed Rulemaking services,14 and prohibits credit card 19 16 CFR 310.2(u) (pursuant to 15 U.S.C. 6106(4) (‘‘NPRM’’), discussed below, including laundering and other forms of assisting (catalog sales)); 16 CFR 310.6(g) (business-to- supplemental comments and comments submitted business sales). In addition to these exemptions, on the user fee proposal. References to comments and facilitating fraudulent certain entities including banks, credit unions, 15 are cited by the commenter’s acronym followed by telemarketers. savings and loans, common carriers engaged in the appropriate page designation. ‘‘RR’’ after the The Rule expressly exempts from its common carrier activity, non-profit organizations, commenter’s acronym indicates that the comment coverage several types of calls, and companies engaged in the business of was received in response to the Rule Review. including calls where the transaction is insurance regulated by state law are not covered by ‘‘NPRM’’ after the commenter’s acronym indicates the Rule because they are specifically exempt from that the comment was received in response to the completed after a face-to-face sales coverage under the FTC Act. 15 U.S.C. 45(a)(2); but NPRM. ‘‘Supp.’’ after the commenter’s acronym presentation, calls subject to regulation see discussion below concerning the USA PATRIOT indicates that the comment was received as a under other FTC rules (e.g., the Pay-Per- Act amendments to the Telemarketing Act. Finally, Supplemental Comment. ‘‘User Fee’’ after the Call Rule,16 or the Franchise Rule),17 a number of entities, and individuals associated commenter’s acronym indicates the comment was calls initiated by consumers that are not with them, that sell investments and are subject to submitted in response to the request for comments the jurisdiction of the Securities and Exchange on the Commission’s user fee proposal. in response to any solicitation, calls Commission or the Commodity Futures Trading 24 The past several years have seen a greater initiated by consumers in response to Commission are exempt from the Rule. 15 U.S.C. public and governmental focus on the ‘‘do-not-call’’ direct mail, provided certain disclosures 6102(d)(2)(A); 6102(e)(1). issue. Related to the ‘‘do-not-call’’ issue is the are made, and calls initiated by 20 15 U.S.C. 6108. proliferation of technologies, such as caller 21 64 FR 66124 (Nov. 24, 1999). Comments identification service, that assist consumers in consumers in response to regarding the Rule’s ‘‘do-not-call’’ provision, managing incoming calls to their homes. Similarly, advertisements in general media, such § 310.4(b)(1)(ii), as well as the other provisions of privacy advocates have raised concerns about the Rule, were solicited in a later Federal Register technologies used by telemarketers (such as 8 60 FR at 43842 (codified at 16 CFR 310 (1995)). notice on February 28, 2000. See 65 FR 10428 (Feb. predictive dialers and deliberate blocking of caller 9 16 CFR 310.4(d). 28, 2000). Seventeen associations, individual identification information) that hinder consumers’ 10 16 CFR 310.3(a)(1). businesses, consumer groups, and law enforcement attempts to screen calls or make requests to be agencies were selected to engage in the forum’s placed on a ‘‘do-not-call’’ list. 11 16 CFR 310.3(a)(3). 25 12 roundtable discussion (‘‘Do-Not-Call’’ Forum), The growth of electronic commerce and 16 CFR 310.4(c), and 310.4(b)(1)(ii). which was held on January 11, 2000, at the FTC 13 payment systems technology has led, and likely 16 CFR 310.3(a)(2). offices in Washington, D.C. References to the ‘‘Do- will continue to lead, to new forms of payment and 14 16 CFR 310.4(a)(2)-(4). Not-Call’’ Forum transcript are cited as ‘‘DNC Tr.’’ further changes in the way consumers pay for goods 15 16 CFR 310.3(b) and (c). followed by the appropriate page designation. and services they purchase through telemarketing. 16 Trade Regulation Rule Pursuant to the 22 65 FR 10428 (Feb. 28, 2000) (the ‘‘February 28 In addition, billing and collection systems of Telephone Disclosure and Dispute Resolution Act Notice’’). The Commission extended the comment telephone companies, utilities, and mortgage of 1992 (‘‘Pay-Per-Call Rule’’), 16 CFR Part 308. period from April 27, 2000, to May 30, 2000. 65 FR lenders are becoming increasingly available to a 17 16 CFR 310.6(a)-(c). 26161 (May 5, 2000). Continued

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preacquired account telemarketing26 telemarketers on behalf of charitable electronic and paper comments from and upselling.27 organizations. Because enactment of the representatives of industry, law Following the receipt of public USA PATRIOT Act took place after the enforcement, consumer and privacy comments, the Commission held a comment period for the Rule Review groups, and from individual second forum on July 27 and 28, 2000 closed, the Commission did not raise consumers.33 On June 5, 6 and 7, 2002, (‘‘Rule Review Forum’’), to discuss issues relating to charitable fundraising the Commission held a forum (‘‘June provisions of the Rule other than the by telemarketers in the Rule Review. 2002 Forum’’) to discuss the issues ‘‘do-not-call’’ provision and to discuss Section 1011(b)(3) of the USA raised by commenters regarding the the Rule’s effectiveness.28 Both the ‘‘Do- PATRIOT Act amends the definition of FTC’s proposed revisions.34 The forum Not-Call’’ Forum and the Rule Review ‘‘telemarketing’’ that appears in the was open to the public, and time was Forum were open to the public, and Telemarketing Act, 15 U.S.C. § 6106(4), reserved to receive oral comments from time was reserved to receive oral expanding it to cover any ‘‘plan, members of the public in attendance. comments from members of the public program, or campaign which is During the forum, the Commission in attendance. Both proceedings were conducted to induce . . . a charitable announced that it would accept transcribed and, along with the contribution, donation, or gift of money supplemental comments until June 28, comments received, placed on the or any other thing of value, by use of 2002.35 The forum proceeding was public record.29 one or more telephones and which transcribed and placed on the public Based on the record developed during involves more than one interstate record. The public record, including the Rule Review, as well as the telephone call . . . .’’ many comments and all forum Commission’s law enforcement In addition, § 1011(b)(2), among other transcripts, has been placed on the experience, the Commission determined things, adds a new section to the Commission’s website on the Internet.36 to retain the Rule but proposed to Telemarketing Act directing the Individual consumers generally amend it to better address recurring Commission to include new favored the Commission’s proposals, abuses and to reach emerging problem requirements in the ‘‘abusive particularly with regard to a national areas. telemarketing acts or practices’’ ‘‘do-not-call’’ registry. Consumer groups provisions of the TSR.31 Finally, D. The USA PATRIOT Act of 2001. and state law enforcement § 1011(b)(1) amends the ‘‘deceptive representatives also generally supported On October 25, 2001, the USA telemarketing acts or practices’’ the proposed amendments, although PATRIOT Act30 became effective. This provision of the Telemarketing Act, 15 they expressed concern about the effect legislation contains provisions that have U.S.C. § 6102(a)(2), by specifying that of the proposal on state ‘‘do-not-call’’ significant impact on the TSR. ‘‘fraudulent charitable solicitation’’ is to Specifically, § 1011 of that Act amends be included as a deceptive practice 33 Of these, more than forty-five were the Telemarketing Act to extend the under the TSR. supplemental comments from organizations and coverage of the TSR to reach not just individuals, and about 15,000 supplemental E. Notice of Proposed Rulemaking. comments were from Gottschalks’ customers telemarketing to induce the purchase of submitted by Gottschalks. Simultaneous with, but goods or services, but also charitable On January 30, 2002, the Commission separate from, the NPRM proceeding, the fundraising conducted by for-profit published its NPRM, proposing Commission has been exploring possible methods revisions to the TSR (‘‘proposed Rule’’) for implementing the proposed national ‘‘do-not- call’’ registry. On February 28, 2002, the wide variety of vendors of all types of goods and in order to ensure that consumers Commission published a Request for Information services. These newly available payment methods receive the protections that the (‘‘RFI’’) that solicited information from potential in many instances are relatively untested, and may contractors on various aspects of implementing the not provide protections for consumers from Telemarketing Act mandated, and to proposed registry. The RFI comment period closed unauthorized charges. effectuate § 1011 of the USA PATRIOT on March 29, 2002. On August 2, 2002, the 26 32 The practice of preacquired account Act. The Commission proposed a Commission issued a Request for Quotes to selected telemarketing—where a telemarketer acquires the number of changes, including creating a vendors. Final proposals were submitted on customer’sbilling information prior to initiating a national ‘‘do-not-call’’ registry September 20, 2002, and are being evaluated by telemarketing call or transaction—has increasingly maintained by the FTC, a ban on Commission staff. On May 29, 2002, the resulted in complaints from consumers about Commission published a Notice of Proposed unauthorized charges. Billing information can be receiving from or disclosing to a third Rulemaking, soliciting comments on a proposed preacquired in a variety of ways, including from a party a consumer’s billing information, amendment to the TSR that would establish the consumer’sutility company, from the consumer in a prohibition against blocking caller methods by which fees for use of the registry would a previous transaction, or from another source. In identification information, and a be set. 67 FR 37362 (May 29, 2002). The comment many instances, the consumer is not involved in the period ended June 28, 2002. The proposed transfer of the billing information and is unaware requirement that sellers or telemarketers amendment received about forty comments (cited as that the seller possesses it during the telemarketing accepting payment via novel payment ‘‘[Name of Commenter]-User Fee at [page call. number]’’), virtually all of which argued that the 27 methods obtain the customer’s express The practice of ‘‘upselling’’ has also become verifiable authorization. During the Commission does not have the authority to issue a more prevalent in telemarketing. Through this user fee, or that it was premature to propose a user technique, customers are offered additional items course of this NPRM proceeding, the fee because the Commission did not have sufficient for purchase after the completion of an initial sale. Commission received about 64,000 information upon which to base the proposal. The In the majority of upselling scenarios, the seller or user fee proposal remains under review as the telemarketer already has received the consumer’s 31 Specifically, § 1011(b)(2)(d) mandates that the Commission continues to evaluate the issues raised billing information, either from the consumer or TSR include in its regulation of abusive in the comments. from another source. telemarketing acts and practices ‘‘a requirement that 34 References to the June 2002 Forum transcript 28 References to the Rule Review Forum transcript any person engaged in telemarketing for the are cited as ‘‘June 2002 Tr.’’ followed by the are cited as ‘‘RR Tr.’’ followed by the appropriate solicitation of charitable contributions, donations, appropriate day (I, II, or III, referring to June 5, 6, page designation. or gifts of money or any other thing of value, shall or 7, respectively) and page designation. 29 Relevant portions of the entire record of the promptly and clearly disclose to the person 35 June 2002 Tr. II at 254. References to the Rule Review proceeding, including all transcripts receiving the call that the purpose of the call is to supplemental comments received are cited as and comments, can be viewed on the FTC’swebsite solicit charitable contributions, donations, or gifts, ‘‘[Name of Commenter]-Supp. at [page number].’’ at http://www.ftc.gov/bcp/rulemaking/tsr/tsr- and make such other disclosures as the Commission 36 Much of the record in this proceeding can be review.htm. In addition, the full paper record is considers appropriate, including the name and viewed on the FTC’s website at http://www.ftc.gov/ available in Room 130 at the FTC, 600 Pennsylvania mailing address of the charitable organization on bcp/rulemaking/tsr/tsr-review.htm. In addition, the Avenue, N.W., Washington, DC 20580, telephone behalf of which the solicitation is made.’’ Pub. L. full paper record is available in Room 130 at the number: 1–202–326–2222. 107–56 (Oct. 26, 2001). FTC, 600 Pennsylvania Avenue, N.W., Washington, 30 Pub. L. 107–56, 115 Stat. 272 (Oct. 26, 2001). 32 67 FR 4492 (Jan. 30, 2002). DC 20580, telephone number: 1–202–326–2222.

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and other laws. Business and industry that many of the changes in the • Expands upon the current prize commenters generally opposed the marketplace that have occurred since promotion disclosures to include a proposal, but suggested changes that the original Rule was promulgated have statement that any purchase or payment they believed would make the proposed led to the growth of deceptive and will not increase a consumer’s chances amendments less burdensome on abusive practices in areas not of winning; legitimate business while still achieving adequately addressed by the original • Prohibits disclosing or receiving, for the desired consumer protections. Rule. The amended Rule addresses consideration, unencrypted consumer Comments from charitable organizations these practices by responding to the account numbers for use in focused primarily on the FTC proposal changes in the marketplace in a manner telemarketing, except when the which would require for-profit consistent with the intent of Congress in disclosure or receipt is to process a telemarketers who solicit on behalf of enacting the Telemarketing Act and payment for goods or services or a charitable organizations to comply with § 1011 of the USA PATRIOT Act. The charitable contribution pursuant to a the proposed ‘‘do-not-call’’ registry. Commission believes that the amended transaction; Charitable organizations consistently Rule strikes a balance, maximizing • Prohibits causing billing opposed such a requirement. The consumer protections without imposing information to be submitted for comments and the basis for the unnecessary burdens on the payment, directly or indirectly, without Commission’s decision on the various telemarketing industry. Each of the the express informed consent of the recommendations are analyzed in detail amendments is discussed in detail in customer or donor; in Section II below. this SBP. A summary of the major • Sets out guidelines for what changes from the original Rule is set F. The Amended Rule. evidences express informed consent in forth below. The amended Rule: • transactions involving preacquired The Commission has carefully Supplements the current company- account information and ‘‘free-to-pay reviewed the entire record developed in specific ‘‘do-not-call’’ provision with a conversion’’ features; its rulemaking proceeding. The record, provision that will empower a consumer • Requires telemarketers to transmit as well as the Commission’s law to stop calls from all companies within the telephone number, and name, when enforcement experience, leave little the FTC’s jurisdiction by placing his or available, of the telemarketer to any doubt that important changes have her telephone number on a central ‘‘do- caller identification service; occurred in the marketplace, and that not-call’’ registry maintained by the • Prohibits telemarketers from modifications to the original Rule are FTC, except when the consumer has an abandoning any outbound telephone necessary if consumers are to receive ‘‘established business relationship’’ call, and provides, in a safe harbor the protections that Congress intended with the seller on whose behalf the call provision, that to avoid liability under to provide when it enacted the is made; this provision, a telemarketer must: Telemarketing Act. Based on that record • Permits consumers who have put abandon no more than three percent of and on the Commission’s law their numbers on the national ‘‘do-not- all calls answered by a person; allow the enforcement experience, the call’’ registry to provide permission to telephone to ring for fifteen seconds or Commission has modified the proposed call to any specific seller by an express four rings; whenever a sales Rule published in the NPRM and now written agreement; representative is unavailable within two promulgates this amended Rule, as • Explicitly exempts solicitations to seconds of a person’s answering the call, described in this SBP. induce charitable contributions via The Commission’s decision to retain outbound telephone calls from coverage play a recorded message stating the certain provisions of the original Rule under the national ‘‘do-not-call’’ registry name and telephone number of the while supplementing or amending provision; seller on whose behalf the call was others is made pursuant to the Rule • Modifies § 310.3(a)(3) to require placed; and maintain records express verifiable authorization for all documenting compliance; Review requirements of the • Telemarketing Act,37 and pursuant to transactions except when the method of Extends the applicability of most the rulemaking authority granted to the payment used is a credit card subject to provisions of the Rule to ‘‘upselling’’ protections of the Truth in Lending Act transactions; Commission by that Act to protect • consumers from deceptive and abusive and Regulation Z, or a debit card subject Prohibits denying or interfering in practices,38 including practices that may to the protections of the Electronic Fund any way with a consumer’s right to be Transfer Act and Regulation E; placed on a ‘‘do-not-call’’ list; be coercive or abusive of the consumer’s • interest in protecting his or her • Modifies § 310.3(a)(3)(iii), the Requires maintenance of records of privacy.39 The Commission’s decision provision allowing a telemarketer to express informed consent and express obtain express verifiable authorization agreement; to amend the original Rule also is made • pursuant to the authority granted to the by sending written confirmation of the Narrows certain exemptions of the transaction to the consumer prior to Rule; Commission by § 1011 of the USA • PATRIOT Act. submitting the consumer’s billing Clarifies that facsimile As discussed in detail herein, the information for payment; transmissions, electronic mail, and Commission believes that it is necessary • Mandates disclosures in the sale of other similar methods of delivery are to amend the original Rule to ensure credit card loss protection, and direct mail for purposes of the direct that the Telemarketing Act’s goals are prohibits misrepresenting that a mail exemption; and • met—that is, encouraging the growth of consumer needs offered goods or Modifies various provisions the legitimate telemarketing industry, services in order to receive protections throughout the Rule to effectuate while curtailing those practices that are he or she already has under 15 U.S.C. expansion of the Rule’s coverage to abusive or deceptive. The record in this § 1643 (limiting a cardholder’s liability include charitable solicitations, rulemaking proceeding demonstrates for unauthorized charges on a credit pursuant to Section 1011 of the USA card account); PATRIOT Act, and adds new mandatory • 37 15 U.S.C. 6108. Explicitly mandates that all disclosures and prohibited 38 15 U.S.C. 6102(a)(1) and (a)(3). required disclosures in § 310.3(a)(1) and misrepresentations in charitable 39 15 U.S.C. 6102(a)(3)(A). § 310.4(d) be made truthfully; solicitations.

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G. Proposed Rule Adopted with Some any administrative or fundraising other issues relating to the scope of Modifications. expenses are deducted;’’ coverage of the TSR. • The Rule now specifies that billing Based on the entire record in this Effect of the USA PATRIOT Act. proceeding, the amended Rule adopted charges to a consumer’s account without by the Commission is substantially the consumer’s authorization is an As noted in the NPRM, § 1011(b)(3) of similar to the proposed Rule. However, abusive practice and a Rule violation; the USA PATRIOT Act amends the the amended Rule contains some and the Rule now requires that a definition of ‘‘telemarketing’’ that important differences from the proposed customer’s express informed consent be appears in the Telemarketing Act, 15 provided in every transaction; U.S.C. § 6306(4), by inserting the Rule. These further modifications to the • original Rule were based on the The ban on the transfer of underscored language: recommendations of commenters and consumers’ billing information has been The term ‘telemarketing’ means a plan, on the Commission’s more replaced with a ban on transferring program, or campaign which is conducted to comprehensive law enforcement unencrypted consumer account induce purchases of goods or services or a experience in certain areas over the numbers; charitable contribution, donation, or gift of • money or any other thing of value, by use of months since publishing the NPRM. The failure to transmit caller identification information is prohibited, one or more telephones and which involves The major differences between the more than one interstate telephone call. . . . proposed Rule and the amended Rule rather than the affirmative blocking of such information; In addition, § 1011(b)(2) adds a new adopted here are as follows: • • The definition of ‘‘charitable Abandoned calls are prohibited, section to the Telemarketing Act contribution’’ no longer contains subject to a ‘‘safe harbor’’ that requires requiring the Commission to include in exceptions for religious and political a telemarketer to: abandon no more than the ‘‘abusive telemarketing acts or groups; three percent of all calls answered by a practices’’ provisions of the TSR: person; allow the telephone to ring for • Sellers who have an ‘‘established a requirement that any person engaged in business relationship’’ with the fifteen seconds or four rings; whenever telemarketing for the solicitation of charitable consumer are exempted from the a sales representative is unavailable contributions, donations, or gifts of money or national ‘‘do-not-call’’ registry; within two seconds of a person’s any other thing of value, shall promptly and • For-profit telemarketers who solicit answering the call, play a recorded clearly disclose to the person receiving the charitable contributions are exempted message stating the name and telephone call that the purpose of the call is to solicit charitable contributions, donations, or gifts, from the national ‘‘do-not-call’’ registry, number of the seller on whose behalf the call was placed; and maintain and make such other disclosures as the but remain subject to the entity-specific Commission considers appropriate, including ‘‘do-not-call’’ provision; records documenting compliance; • Records of express informed the name and mailing address of the • The original Rule’s definition of charitable organization on behalf of which ‘‘outbound call’’ has been reinstated, consent or express agreement must be the solicitation is made. and the proposed Rule modified to maintained; • The exemptions for certain kinds of Finally, § 1011(b)(1) amends the require specific disclosures in an upsell ‘‘deceptive telemarketing acts or transaction; calls are explicitly unavailable to • upselling transactions; practices’’ provision of the Disclosures regarding negative • Telemarketing Act, 15 U.S.C. option features are required; The exemption for business-to- • business telemarketing is once again § 6102(a)(2), by inserting the Express verifiable authorization is underscored language: required for all payments, except those available to telemarketing of Web made by a credit or debit card subject services and Internet services, as well as The Commission shall include in such rules to certain statutorily-mandated the solicitation of charitable respecting deceptive telemarketing acts or consumer protections; contributions. practices a definition of deceptive • telemarketing acts or practices which shall For express oral authorization to be II. Discussion of the Amended Rule include fraudulent charitable solicitations deemed verifiable, a seller must ensure The amendments to the Rule do not and which may include acts or practices of the customer’s or donor’s receipt of the alter § 310.7 (Actions by States and entities or individuals that assist or facilitate date the charge will be submitted for deceptive telemarketing, including credit Private Persons), or § 310.8 payment (rather than the date of the card laundering. (Severability), although § 310.8 payment) and identify the account to be (Severability) has been renumbered as Notwithstanding the amendment of charged with sufficient specificity such § 310.9 in the amended Rule. Section these provisions of the Telemarketing that the customer or donor understands 310.8 of the amended Rule is now Act, neither the text of § 1011 nor its what account is being used to collect reserved. legislative history suggests that it payment (rather than provide the amends § 6105(a) of the Telemarketing account name and number); A. Section 310.1 — Scope of • Act—the provision which incorporates The use of written post-sale Regulations. the jurisdictional limitations of the FTC confirmations is permitted, subject to Section 310.1 of the amended Rule Act into the Telemarketing Act and, the requirement that such confirmations states that ‘‘this part [of the CFR] accordingly, the TSR. Section 6105(a) of be clearly and conspicuously labeled as implements the [Telemarketing Act], as the Act states: such; however, this method is not amended,’’ reflecting the amendment of Except as otherwise provided in sections permitted in transactions involving a the Telemarketing Act by § 1011 of the ‘‘free-to-pay conversion’’ feature and 6102(d) [with respect to the Securities and USA PATRIOT Act.40 This section Exchange Commission], 6102(e) [Commodity preacquired account information; discusses comments received regarding Futures Trading Commission], 6103 [state • In charitable solicitations, the the implementation of the USA Attorney General actions], and 6104 [private prohibited misrepresentation regarding PATRIOT Act amendments as well as consumer actions] of this title, this chapter the percentage or amount of any shall be enforced by the Commission under the Federal Trade Commission Act (15 U.S.C. charitable contribution that will go to a 40 15 U.S.C. 6101-6108. The Telemarketing Act charitable organization or program is no was amended by the USA PATRIOT Act on October §41et seq.). Consequently, no activity which longer delimited by the phrase ‘‘after 25, 2001. Pub. L. 107-56 (Oct. 26, 2001). is outside of the jurisdiction of that Act shall

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be affected by this chapter. (emphasis Commission under the FTC Act by and to for-profit entities soliciting added).41 expanding the Rule’s coverage to charitable contributions for their own One type of ‘‘activity which is outside include not only the sale of goods or philanthropic purposes.’’47 Others the jurisdiction’’ of the FTC Act, as services, but also charitable solicitations suggested that ‘‘Congress intended only interpreted by the Commission and by for-profit entities on behalf of to address bogus charitable solicitation federal court decisions, is that nonprofit organizations. where the non-profit or charitable cause conducted by non-profit entities. The Commission received numerous or organizational scheme itself is of a Sections 4 and 5 of the FTC Act, by their comments regarding the change in scope criminal or fraudulent nature.’’48 These terms, provide the Commission with to the TSR required by the USA commenters cite statements made by the jurisdiction only over persons, PATRIOT Act amendments of the legislation’s chief sponsor to the effect partnerships, or ‘‘corporations organized Telemarketing Act. Some comments that concerns about fraudulent charities to carry on business for their own profit supported the Commission’s prompted him to introduce the or that of their members.’’42 interpretation of the USA PATRIOT Act legislation.49 Reading the amendments to the amendments, and the coverage of for- The Commission believes that Telemarketing Act effectuated by § 1011 profit telemarketers who solicit on concerns about bogus charitable of the USA PATRIOT Act together with behalf of exempt charitable the unchanged sections of the organizations.44 However, the majority fundraising in the wake of the events of Telemarketing Act compels the of commenters who addressed this issue September 11, 2001, in large measure conclusion that for-profit entities that believed the Commission had propelled passage of § 1011 of the USA 50 solicit charitable donations now must misinterpreted the mandate of the USA PATRIOT Act. But the fact remains comply with the TSR, although the PATRIOT Act amendments. Law that Congress did more than impose Rule’s applicability to charitable enforcement agencies and consumer upon the solicitation of charitable organizations themselves is groups, including NAAG and NASCO, contributions by for-profit telemarketers unaffected.43 The USA PATRIOT Act generally expressed the view that the prohibitions against misrepresentation brings the Telemarketing Act’s Commission had underestimated the and basic disclosure obligations. Indeed, jurisdiction over charitable solicitations jurisdictional powers conferred on it by the USA PATRIOT Act amendments in line with the jurisdiction of the the USA PATRIOT Act amendments, alter the scope of the entire TSR by and urged that the Rule apply not only altering the key definition of the 41 Section 6105(b) reinforces the point made in to for-profit solicitors who call on behalf statute—‘‘telemarketing’’—to encompass § 6105(a), as follows: of charities, but also to the charities charitable solicitation. Moreover, the ‘‘The Commission shall prevent any person from themselves.45 These commenters argued text of § 1011 expressly directs the violating a rule of the Commission under section that the language of the USA PATRIOT Commission to address both deceptive 6102 of this title in the same manner, by the same 51 means, and with the same jurisdiction, powers, and Act and its legislative history do not and abusive acts or practices. Thus, duties as though all applicable terms and provisions support limiting the applicability of the there is no textual support for the notion of the Federal Trade Commission Act (15 U.S.C. TSR to telemarketers who call on behalf that § 1011 excludes from its grant of §41et seq.) were incorporated into and made a part of non-profits, rather than extending it authority over charitable solicitations of this chapter. Any person who violates such rule shall be subject to the penalties and entitled to the to cover charitable organizations as the power to prohibit deceptive or same privileges and immunities provided in the well.46 abusive practices.52 Federal Trade Commission Act in the same manner, On the other hand, most non-profit by the same means, and with the same jurisdiction, organizations that commented argued 47 DMA-NonProfit-NPRM at 4. See also ACE- power, and duties as though all applicable terms NPRM at 1-2; ERA-NPRM at 45; IUPA-NPRM at 21- and provisions of the Federal Trade Commission that the Commission’s interpretation of 22. Act were incorporated into and made a part of this the USA PATRIOT Act amendments 48 chapter.’’ (emphasis added). was too expansive. Several of these Not-For-Profit Coalition-NPRM at 26. See also Community Safety-NPRM at 2. 42 Section 5(a)(2) of the FTC Act states: ‘‘The commenters argued that in adopting 49 See Not-For-Profit Coalition-NPRM at 27-28; Commission is hereby empowered and directed to § 1011 of the USA PATRIOT Act, prevent persons, partnerships, or corporations . . . DMA-NonProfit-NPRM at 5. from using unfair or deceptive acts or practices in ‘‘Congress meant only to apply certain 50 See letter dated June 14, 2002, from Senator or affecting commerce.’’ 15 U.S.C. 45(a)(2). Section disclosure requirements—and not the Mitch McConnell to FTC Chairman Timothy Muris, 4 of the Act defines ‘‘corporation’’ to include: ‘‘any other aspects of the Rule—to commenting on the NPRM and stating: company, trust, so-called Massachusetts trust, or professional fundraisers for charities ‘‘In an effort to protect generous citizens and the association, incorporated or unincorporated, which charitable institutions they support, I was proud to is organized to carry on business for its own profit introduce the Crimes Against Charitable Americans or that of its members . . . .’’ 15 U.S.C. 44 (emphasis 44 See, e.g., AARP-NPRM at 4; AFP-NPRM at 3 Act and secure its inclusion in the USA PATRIOT added). (arguing that the USA PATRIOT Act gives the FTC Act. This legislation strengthens federal laws 43 A fundamental tenet of statutory construction jurisdiction over for-profit telemarketers soliciting regulating charitable phone solicitations. The bill is that ‘‘a statute should be read as a whole, . . . on behalf of non-profits, agreeing that the also takes important steps to combat deceptive [and that] provisions introduced by the amendatory disclosures required by amended Rule § 310.4(e) are charitable solicitations by requiring telemarketers to act should be read together with the provisions of necessary, and noting that the disclosures mirror make common sense disclosures such as the the original section that were . . . left unchanged the disclosures required by AFP’s code of ethics); charity’s identity and address at the beginning of . . . as if they had been originally enacted as one ASTA-NPRM at 1; Make-a-Wish-NPRM, passim; the phone call. . . . When Congress enacted this section.’’ 1A NORMAN J. SINGER, SUTHERLAND MBNA-NPRM at 6 (the Rule amendments to legislation, it did not envision, nor did it call for, STATUTES & STAT. CONSTR. § 22:34 (6th ed. effectuate the USA PATRIOT Act’s provisions the FTC to propose a federal ‘‘do-not-call’’ list, and 2002), citing, inter alia, Brothers v. First Leasing, ‘‘reflect Congress’ intent and are limited in scope certainly not a list that applied to charitable 724 F.2d 789 (9th Cir. 1984); Republic Steel Corp. and impact while providing important consumer organizations or their authorized agents.’’ v. Costle, 581 F.2d 1228 (6th Cir. 1978); Am. benefits.’’). 51 Pub. L. 107-56 (Oct. 26, 2001). Airlines, Inc. v. Remis Indus., Inc., 494 F.2d 196 (2d 45 See, e.g., NAAG-NPRM at 50-51; NASCO- 52 It is a tenet of statutory construction that ‘‘an Cir. 1974); Kirchner v. Kansas Tpk. Auth., 336 F.2d NPRM at 3-4. amendatory act is not to be construed to change the 222 (10th Cir. 1964); Nat’l Ctr. for Preservation Law 46 See NAAG-NPRM at 50-51; NASCO-NPRM at original act . . . further than expressly declared or v. Landrieu, 496 F. Supp. 716 (D.S.C. 1980); 3-4 (the USA PATRIOT Act refers to ‘‘fraudulent necessarily implied.’’ SUTHERLAND STAT. Conoco, Inc. v. Hodel, 626 F. Supp. 287 (D. Del. charitable solicitations,’’ and requires disclosures CONSTR., note 43 above, at § 22:30 (citations 1986); Palardy v. Horner, 711 F. Supp. 667 (D. by ‘‘any person’’ engaged in telemarketing; also omitted). The Commission believes the necessary Mass. 1989). Thus, in construing a statute and its noting that the USA PATRIOT Act was passed in implication of modifying the definition of amendments, ‘‘[e]ffect is to be given to each part, the wake of September 11, 2001, and in response ‘‘telemarketing’’ in the USA PATRIOT Act is to and they are to be int erpreted so that they do not to misrepresentations by non-profits as well as their have all provisions of the Rule apply to charitable conflict.’’ Id. for-profit telemarketers.). solicitations.

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Some non-profit commenters also outbound telephone calls from the ‘‘do- reading is consistent with the argued that the Commission’s not-call’’ registry provision. Only the Commission’s long-standing interpretation of the USA PATRIOT Act less restrictive entity-specific ‘‘do-not- interpretation of the scope of its produced, in effect, a double standard, call’’ provision included in the original authority under the FTC Act, as well as regulating charities who outsource their Rule will apply to charitable solicitation with judicial precedent.63 Furthermore, telemarketing, but not those who telemarketing. However, both the entity- the Commission’s authority was conduct their own telemarketing specific ‘‘do-not-call’’ provisions and clarified in § 133 of the Gramm-Leach- campaigns.53 Others opined that this the ‘‘do-not-call’’ registry provisions Bliley Act (‘‘GLBA’’), which states that bifurcated regulatory scheme was not apply to commercial telemarketing to ‘‘[a]ny person that . . . is controlled intended by Congress when it passed induce purchases of goods or services. directly or indirectly . . . by . . . any the USA PATRIOT Act amendments to This approach fulfills the Commission’s bank . . . ([as] defined in section 3 of the the Telemarketing Act.54 These intention that the TSR be consistent Federal Deposit Insurance Act) and is commenters argued that this distinction with First Amendment principles, not itself a bank . . . shall not be deemed penalizes charities (by subjecting them whereby a higher degree of protection is to be a bank . . . for purposes of any to regulation) merely because they extended to charitable solicitation than provisions applied by’’ the FTC under choose to outsource an administrative to commercial solicitation. Moreover, as the FTC Act.64 Most recently, a federal function. Some argued further that the a practical matter, the Commission district court held that, under this increased costs of regulatory compliance believes that this approach will enable language, the Rule applies to will not be borne by the for-profit charities to continue soliciting support telemarketing by a mortgage subsidiary telemarketers, but rather by charities and pursuing their missions. of a national bank. As the court stated, themselves, negatively impacting their ‘‘the definition of ‘bank’ identified by ability to carry out their primary Commenters’ Proposals. Congress simply does not include the mission.55 Noting the Commission’s subsidiaries of banks.’’65 Again, the Commission notes that jurisdictional limitations with respect to The Commission believes it is despite its broad mandate to regulate banks, MBNA requested that the Rule unnecessary to state in the Rule what is charitable solicitations made via explicitly state that it is ‘‘inapplicable to already plain in the Telemarketing Act, telemarketing, the USA PATRIOT Act entities exempt from coverage under i.e., that its jurisdiction for purposes of amendments did not expand the § 5(a)(2) of the [FTC Act].’’58 MBNA also the TSR is conterminous with its Commission’s jurisdiction under the recommended that the Rule extend this jurisdiction under the FTC Act, and TSR to make direct regulation of non- exemption to ‘‘entities acting on behalf therefore declines to include an express profit organizations possible. of banks . . . because such entities are statement of this fact in the Rule. Nevertheless, reading the amendatory regulated by the Bank Service Company Further, the Commission declines to act together with the original language, Act, 15 U.S.C. § 45(a)(2), concerning adopt the interpretation of some as it must, the Commission has sought services they provide for banks.’’59 commenters that the FTC Act itself to give full effect to the directive of MasterCard challenged the exempts non-bank entities based on Congress set forth in the USA PATRIOT Commission’s statement that it can their affiliation with or provision of Act amendments. regulate third-party telemarketers who services to exempt banks, and the Another argument raised by large call on behalf of a bank, and urged that recommendations of those commenters numbers of non-profit commenters is the Commission explicitly exempt ‘‘any who sought an exemption from the Rule that regulating for-profit telemarketers bank subsidiary or affiliate performing for bank subsidiaries or agents. To do so who solicit on behalf of non-profits, and services on behalf of a bank.60 ABA would be contrary to the Commission’s in particular subjecting them to the recommended that the amended Rule interpretation of its jurisdictional requirements of the ‘‘do-not-call’’ clarify that ‘‘non-bank operating boundaries, and would unnecessarily registry provision, is unfair given the 66 subsidiaries of banks as defined by the limit the reach of the Rule. other limitations on the Commission’s In a similar argument, SBC asserted banking agencies’’ are exempt.61 jurisdiction.56 These commenters that, contrary to the Commission’s The Commission notes that, from the suggested that the result of this scheme stated position, the Commission’s lack inception of the Rule, the Commission would be to allow commercial calls that of jurisdiction over common carriers has asserted that parties acting on behalf consumers find intrusive, while banning engaged in common carriage activity of exempt organizations are not thereby calls from charities, even those with extends to their affiliates and their exempt from the FTC Act, and thus, for whom a donor has a past relationship.57 agents engaged in telemarketing on their example, ‘‘a nonbank company that As explained in greater detail in the behalf.67 SBC cites no authority for this discussion of the applicability of the contracts with a bank to provide proposition, and the Commission is ‘‘do-not-call’’ provisions to charitable telemarketing services on behalf of the bank is covered’’ by this Rule.62 This solicitation telemarketing, careful with the Telemarketing Sales Rule (Apr. 1996) consideration of this argument has led (‘‘TSR Compliance Guide’’) at 7. 58 MBNA-NPRM at 2. Accord Fleet-NPRM at 2 63 the Commission to exempt solicitations See, e.g., Official Airline Guides, note 62 above; (arguing that the Office of the Comptroller of the FTC v. Saja, 1997-2 CCH (Trade Cas.) P 71,952 (D. to induce charitable contributions via Currency already provides significant guidance to Ariz. 1997); FTC v. Am. Standard Credit Sys., Inc., banks on managing risks that may arise from their 874 F. Supp. 1080 (1994). 53 See, e.g., March of Dimes-NPRM at 2. business relationships with third parties); AFSA- 64 GLBA, Pub. L. 106-102, 113 Stat. 1383, Title I, 54 See IUPA-NPRM at 1. NPRM at 3. § 133(a), 15 U.S.C. 6801-6810 (2001). 59 55 See Reese-NPRM at 2. MBNA-NPRM at 2. See also AFSA-NPRM at 3. 65 Minnesota v. Fleet Mortgage Corp., 181 F. 60 56 See, e.g., FOP-NPRM at 2; HRC-NPRM at 1; MasterCard-NPRM at 13-14. Accord Citigroup- Supp. 2d 995 (D. Minn. 2001) (noting that the Italian American Police-NPRM at 1; Lautman- NPRM at 11. applicable definition under the Federal Deposit NPRM at 2; Leukemia Society-NPRM at 1-2; NCLF- 61 ABA-NPRM at 3. Insurance Act (‘‘FDIA’’) is ‘‘any national bank, State NPRM at 1; Angel Food-NPRM at 1; North Carolina 62 60 FR at 43843, citing, inter alia, Official bank, District Bank, and any Federal branch and FFA-NPRM at 1; SO-CT-NPRM at 1; SO-NJ-NPRM Airline Guides v. FTC, 630 F.2d 920 (2d Cir. 1980) insured branch’’ citing FDIA, 12 U.S.C. at 1; SO-WA-NPRM at 1; Reese-NPRM at 2; SHARE- (holding that the air carrier exemption from the FTC 1813(a)(1)(A)). NPRM at 3; Stage Door-NPRM at 1. Act did not apply to a firm publishing schedules 66 This approach is consistent with that laid out 57 See, e.g., PAF-NPRM at 1; AOP-Supp. at 1; and fares for air carriers, which was not itself an in the SBP of the original Rule. See 60 FR at 43483. Chesapeake-Supp. at 1. air carrier); FTC/Direct Mktg. Ass’n., Complying 67 SBC-NPRM at 2, 4–5.

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aware of none. SBC claims that the cases Rule is set by statute, and the calls may be ‘‘telemarketing’’ does not cited by the Commission in the NPRM68 Commission has no authority to expand affect the fact that such calls are already in support of its authority provide no the Rule beyond those statutory prohibited, except with the consumer’s support for Commission jurisdiction limits.’’77 Thus, absent amendments to prior express consent, under regulations over a common carrier’s agent assisting the FTC Act or the Telemarketing Act, promulgated by the FCC pursuant to the in selling common carrier services.69 In the Commission is limited with regard TCPA.81 Similarly, FCC regulations fact, in one of those cases, the publisher to its ability to regulate under the Rule already prohibit unsolicited facsimile of what the court described as ‘‘the those entities explicitly exempt from the advertisements,82 although facsimiles primary market tool of . . . virtually FTC Act. Despite this limitation, the also are a form of direct mail subject to every (air) carrier . . . in the United Commission can reach telemarketing the TSR. The Commission notes in the States’’ was held not to be exempt under activity conducted by non-exempt discussion of § 310.6(b)(6) below that it the exemption for air carriers.70 entities on behalf of exempt entities.78 considers facsimiles to be a form of Accordingly, the Commission declines Therefore, when an exempt financial direct mail solicitation. Thus, under to revise its position. institution, telephone company, or non- § 310.6(b)(6), a seller using a facsimile Citigroup requested that the amended profit entity conducts its telemarketing advertisement to induce calls from Rule clarify that certain financial campaign using a third-party consumers may not claim the direct services providers, such as insurance telemarketer not exempt from the Rule, mail exemption unless the facsimile underwriters and registered broker- then that campaign is subject to the truthfully discloses the material dealers, are exempt from the Rule.71 provisions of the TSR.79 information listed in § 310.3(a)(1) (or NAIFA requested similar clarification Regarding the suggestion that the contains no material misrepresentation regarding insurance companies, as well Commission regulate intrastate regarding any item contained in as an explicit statement of exemption in telemarketing calls, the Commission § 310.3(d) if the solicitation is for a the Rule.72 The Commission believes notes that, pursuant to the definition of charitable contribution). that the explicit statement of the ‘‘telemarketing’’ included in the B. Section 310.2 — Definitions. Commission’s jurisdictional limitation Telemarketing Act, 15 U.S.C. § 6106(4), over broker-dealers is abundantly clear the Commission only has authority to The amended Rule retains the in the Telemarketing Act itself;73 thus, regulate ‘‘a plan, program, or campaign following definitions from the original it is unnecessary to exempt them in the which is conducted . . . by use of one Rule unchanged, apart from Rule. Similarly, the Commission or more telephones and which involves renumbering: ‘‘acquirer,’’ ‘‘Attorney believes its jurisdictional limitations more than one interstate call.’’ General,’’ ‘‘cardholder,’’ ‘‘Commission,’’ regarding the business of insurance are (emphasis added). ‘‘credit,’’ ‘‘credit card,’’ ‘‘credit card clear, and thus no express exemption for Finally, one commenter suggested sales draft,’’ ‘‘credit card system,’’ these entities is necessary.74 that the Commission expressly state its ‘‘customer,’’83 ‘‘investment In contrast to these requests to jurisdiction over prerecorded telephone opportunity,’’84 ‘‘merchant,’’ ‘‘merchant circumscribe or restate the solicitations and facsimile agreement,’’ ‘‘person,’’ ‘‘prize,’’ ‘‘prize Commission’s jurisdiction under the advertisements.80 The Commission promotion,’’ ‘‘seller,’’ and ‘‘State.’’ Rule, a number of commenters urged the believes that sales calls using pre- Based on the record developed in this expansion of the Rule’s scope beyond its recorded messages may fall within the matter, the Commission has determined current boundaries. As NCL put it, Rule’s definition of ‘‘telemarketing,’’ to retain the following definitions from ‘‘[b]ecause the Commission’s general provided the call is not exempt and 81 jurisdiction does not include significant provided the call meets the other 47 CFR 64.1200(a)(2). 82 47 CFR 64.1200(a)(3). segments of the telemarketing industry, criteria of ‘‘telemarketing.’’ Thus, a sales such as common carriers and financial 83 VISA stated that the definition of ‘‘customer’’ call using a prerecorded message may be is too broad, encompassing not only ‘‘the person institutions, the Rule does not provide ‘‘telemarketing’’ if it is part of a plan, who is party to the telemarketing call and who comprehensive protection for program, or campaign for the purpose of would be liable for the amount of a purchase as the contracting party, but also would include any consumers or a level playing field for inducing the purchase of goods or 75 person who is liable under the terms of the payment marketers.’’ Others argued that the services or inducing a donation to a device.’’ VISA-NPRM at 7. Although the term Commission should assert jurisdiction charitable organization, is conducted by ‘‘customer,’’ defined to mean ‘‘any person who is over intrastate calls as well as interstate use of one or more telephones, and or may be required to pay for goods or services 76 offered through telemarketing,’’ is broad in scope, calls. involves more than one interstate call. As the Commission stated in the the Commission believes this breadth is necessary However, the fact that prerecorded sales to effect the purposes of the Rule. Further, the NPRM, ‘‘the jurisdictional reach of the Commission believes that the term ‘‘customer,’’ taken in context of the various Rule sections in 77 67 FR at 4497. 68 67 FR at 4407 (citing 60 FR at 43843, citing FTC which it is used, is not confusing. Therefore, the 78 Id. v. Miller, 549 F.2d 452 (7th Cir. 1977) and Official Commission makes no change in the amended Rule 79 Airline Guides), see note 62 above. As the Commission stated when it promulgated to the definition of ‘‘customer.’’ the Rule, ‘‘[t]he Final Rule does not include special 69 SBC-NPRM at 4-5. 84 One commenter recommended that the provisions regarding exemptions of parties acting 70 Official Airline Guides, see note 62 above. See Commission clarify that an investment vehicle on behalf of exempt organizations; where such a also cases cited above in note 63, rejecting whose main attribute is that it provides tax benefits company would be subject to the FTC Act, it would exemption claims of telemarketers for exempt would be considered an ‘‘investment opportunity’’ be subject to the Final Rule as well.’’ 60 FR at organizations. under the Rule. Thayer-NPRM at 6. The 43843. Although some commenters, such as SBC 71 See Citigroup-NPRM at 10. Commission believes that such a tax-advantaged (SBC-NPRM at 5-8) and Wells Fargo (Wells Fargo- investment would come under the present 72 See NAIFA-NPRM at 1-2. NPRM at 2), took issue with this proposition, the definition, which is predicated on representations 73 15 U.S.C. 6102(d)(2). fact remains that the Telemarketing Act states about ‘‘past, present, or future income, profit, or 74 See Section 2 of the McCarran-Ferguson Act, 15 merely that ‘‘no activity which is outside the appreciation.’’ The Commission believes that any U.S.C. 1012(b) (the business of insurance, to the jurisdiction of that Act shall be affected by this such investment opportunity would only result in extent that it is regulated by state law, is exempt chapter.’’ 15 U.S.C. 6105(a). Thus, when an entity a tax advantage because of its ability to produce from the Commission’s jurisdiction pursuant to the not exempt from the FTC Act engages in income or appreciation, regardless of whether that FTC Act). telemarketing, that conduct falls within the income is positive (and tax-deferred or tax-exempt) 75 NCL-NPRM at 2. See also Horick-NPRM at 1; Commission’s jurisdiction under the TSR. Id.; TSR or negative (resulting in deductible losses). Thus, PRC-NPRM at 3-4; Myrick-NPRM at 1. Compliance Guide at 12. the Commission has retained the original definition 76 FCA-NPRM at 2. 80 See Worsham-NPRM at 6. of ‘‘investment opportunity’’ in the amended Rule.

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the proposed Rule unchanged, apart deemed verifiable.88 Comments from specified items unique to that from renumbering: ‘‘caller identification consumer groups generally favored the commenter’s business practices.93 service,’’ ‘‘donor,’’ ‘‘telemarketer,’’85 ‘‘billing information’’ definition, noting Instead, industry commenters and ‘‘telemarketing.’’ The amended Rule that the breadth of the term would prove recommended, ‘‘billing information’’ modifies the definitions put forth in the beneficial to consumers.89 AARP, for should be limited to account NPRM for the terms ‘‘billing example, stated that the definition, as information that ‘‘in and of itself, is information,’’ ‘‘charitable contribution,’’ employed in the proposed preacquired sufficient to effect a transaction’’ against ‘‘material,’’ and ‘‘outbound telephone account telemarketing provision, ‘‘is a consumer’s account.94 Virtually all of call.’’ Finally, the amended Rule adds broad enough so as not to leave any these comments were made in the five definitions that were not included doubt in the mind of the telemarketer context of the proposed Rule provision in the NPRM proposal. They are: regarding what can and cannot be regarding preacquired account ‘‘established business relationship,’’ shared.’’90 Law enforcement telemarketing, which would have ‘‘free-to-pay conversion,’’ ‘‘negative representatives and some consumer prohibited the disclosure or receipt of option feature,’’ ‘‘preacquired account groups expressed their concern that, as ‘‘billing information’’ except when information,’’ and ‘‘upselling.’’ The broad as the definition might seem, it provided by the customer or donor to Commission discusses each of these should be further expanded to process payment. definitions below, along with the encompass encrypted data, and other As noted below in the discussions of comments received regarding them, and kinds of information that can allow amended Rule §§ 310.4(a)(5) and (6), the the Commission’s reasoning in making a access to a consumer’s account.91 Commission has tailored its approach to final determination regarding each of Industry commenters, on the other preacquired account telemarketing, these definitions.86 hand, argued precisely the opposite, thereby addressing many of the requesting that the definition be concerns raised by commenters on both § 310.2(c) — Billing information narrowed and that it specifically sides regarding the proposed definition exclude encrypted data,92 or other of ‘‘billing information.’’ The amended The proposed Rule included a Rule’s approach to preacquired account definition of the term ‘‘billing 88 As discussed below, in the section explaining telemarketing—which no longer focuses information,’’ which was used in the express verifiable authorization provision (i.e., on the sharing of ‘‘billing information’’ proposed § 310.3(a)(3), the express § 310.3(a)(3)), commenters’ concerns regarding in anticipation of telemarketing, but verifiable authorization provision, and billing information in the express verifiable authorization provision focused on the dangers of instead prohibits ‘‘[c]ausing billing proposed § 310.4(a)(5), the section that disclosure of consumers’ account numbers. information to be submitted for addressed preacquired account 89 See NCLC-NPRM at 13; LSAP-NPRM at 5 payment, directly or indirectly, without telemarketing. Under the definition (approved of definition, but also suggested changing the express informed consent of the ‘‘such as’’ to ‘‘including but not limited to’’). proposed in the NPRM, the term customer or donor’’—obviates the ‘‘billing information’’ encompassed 90 AARP-NPRM at 7. 91 Specifically, NAAG noted: ‘‘[T]he Gramm concerns about the breadth of the term, ‘‘any data that provides access to a Leach Bliley Act (‘‘GLBA’’) has resulted in the and whether it includes or excludes consumer’s or donor’s account, such as common use of reference numbers and encrypted encrypted account numbers.95 However, a credit card, checking, savings, or numbers to identify consumer accounts in preacquired account telemarketing. These types of similar account, utility bill, mortgage 93 See, e.g., Green Mountain-NPRM at 31 (‘‘If the 87 account access devices definitely should be loan account, or debit card.’’ included in the list of examples. Failure to include Commission intends to adopt its proposal to amend the TSR to add a new Section 310.4(a)(5) to ban the The Commission received numerous encrypted numbers within the scope of the Rule’s definition of ‘billing information’ would render the use of preacquired billing information obtained comments regarding this definition as it Rule useless as a device to combat the ills of from third parties, it should exempt names, pertained to the express verifiable preacquired account telemarketing.’’ NAAG-NPRM addresses, electricity meter identifiers, and authorization and preacquired account at 38. See also NACAA-NPRM at 5-6 (‘‘consider electricity usage patterns from its definition of ‘billing information.’’’) provisions of the proposed Rule. The providing a non-exclusive list of such information, based upon technologies in place today. Thus, 94 IBM-NPRM at 10. ARDA argued that use of the term in the express verifiable name, account number, telephone number, married information that would fall within the definition of authorization provision drew less and maiden names of parents, social security ‘‘billing information’’ —such as a customer’s or comment, perhaps because that number, passwords to accounts and PINs, and donor’s date of birth— may be collected during a provision merely required that the encrypted versions of this information, with or call for purposes other than to effect a charge. without the encryption [key], should all be ARDA cited examples including ‘‘eligibility to enter customer or donor receive such billing prohibited from use in any trasaction but the a contest or drawing’’ or ‘‘demographic purposes.’’ information if express verifiable immediate one in which the co nsumer is ARDA-NPRM at 3. ARDA then asserted that, while authorization of payment is to be engaged.’’); NCLC-NPRM at 13. this information may not be gathered during a call 92 Citigroup-NPRM at 7-8; Household Auto-NPRM in which a billing occurs, or used for billing at 2 (‘‘Although the specific language of the purposes in the first instance, it could be passed 85 One commenter expressed concern that ‘‘a proposed definition does appear to be consistent along to other parties for marketing or other company that sells telemarketing services to sellers, with the Commission’s GLBA interpretation, the purposes. Id. While the Commission recognizes that but does not maintain any calling facilities itself, explanation of the term in the [NPRM] is broader information like date of birth has marketing uses instead subcontracting the actual telephoning to and creates a conflict with the GLBA interpretation beyond access to consumer accounts for billing individuals’’ might not fall within the definition of . . . . To avoid such a conflict, we suggest that the purposes, the Commission finds it improbable at ‘‘telemarketer.’’ Patrick-NPRM at 2. The Commission clarify that the term . . . includes only best that collection or confirmation of date of birth, Commission disagrees, and believes that regardless account numbers and specifically excludes or similar piece of information, as a proxy for of whether an entity maintains a physical call encrypted account numbers.’’). Accord ABIA-NPRM consent to be charged for a purchase or donation center, it would be a ‘‘telemarketer’’ for purposes at 2; Roundtable-NPRM at 8 (‘‘The Roundtable is would satisfy the ‘‘express informed consent’’ of the Rule if ‘‘in connection with telemarketing, [it] concerned that this definition is so broad that it requirements of amended Rule § 310.4(a)(6), initiates or receives telephone calls to or from a could be construed to restrict the sharing of discussed below. customer or donor.’’ Amended Rule § 310.2(bb). publicly available identifying information, such as 95 During the Rule Review, industry argued the 86 The definitions proposed in the NPRM for a consumer’s name, phone number and address.’’). term was so broad it might mean that sellers and ‘‘express verifiable authorization,’’ ‘‘Internet See also AFSA-NPRM at 11-12; Advanta-NPRM at telemarketers could not share customer names and services,’’ and ‘‘Web services’’ have been deleted 3; ARDA-NPRM at 3; Assurant-NPRM at 3; Capital telephone numbers for use in telemarketing. See, from the amended Rule because they are no longer One-NPRM at 8-9; Cendant-NPRM at 7; Citigroup- e.g., Advanta-NPRM at 3; Roundtable-NPRM at 8. necessary in light of certain substantive NPRM at 7; E-Commerce Coalition-NPRM at 2; Industry also argued that encrypted data should not modifications in the amended Rule. ERA-NPRM at 24; IBM-NPRM at 10; MPA-NPRM at be included in the definition of ‘‘billing 87 See proposed Rule § 310.2(c), and discussion, 23, n.23; MasterCard-NPRM at 8; Metris-NPRM at information,’’ because such data by itself does not 67 FR at 4498-99. 7; VISA-NPRM at 6. allow a charge to be placed on a consumer’s

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the amended Rule includes a definition transmitted contemporaneously with constituted religious organizations or of ‘‘preacquired account information,’’ the telephone call, and displayed on a groups affiliated with and forming an which encompasses both encrypted and device in or connected to the integral part of the organization where unencrypted account information, to subscriber’s telephone.’’ As the no part of the net income inures to the address specifically the practice of Commission explained in the NPRM, direct benefit of any individual, and preacquired account telemarketing.96 the Commission intends the definition which has received a declaration of Consequently, after consideration of of ‘‘caller identification service’’ to be current tax exempt status from the the record in this proceeding, and in sufficiently broad to encompass any United States government.’’102 This light of the more focused approach to existing or emerging technology that proposed exemption drew strong the provisions in which the term is provides for the transmission of calling comment and criticism. NASCO used, the Commission has decided to party information during the course of recommended that a definition of retain the proposed definition of a telephone call.98 Those few ‘‘constituted religious organizations’’ be ‘‘billing information,’’ with a minor commenters who addressed the included in the Rule to set clear modification. The definition now definition supported the Commission’s boundaries for what kinds of groups encompasses ‘‘any data that enables any proposal.99 Therefore, the amended were intended to be included.103 person to obtain access to a customer’s Rule adopts § 310.2(d), the definition of Hudson Bay stated that ‘‘establishing or donor’s account, such as a credit ‘‘caller identification service,’’ governmentally preferred groups, such card, checking, savings, share or similar unchanged from the proposal. as religious organizations or political account, utility bill, mortgage loan parties, and providing them with account, or debit card.’’ (emphasis § 310.2(e) — Charitable contribution superior access to the public, is in our added). The Commission believes that The original Rule did not include a opinion unquestionably a violation of this syntactical modification, definition of ‘‘charitable contribution’’ the Fourteenth Amendment’s guarantee substituting the phrase ‘‘that enables because originally the term of equal protection and of the First any person to obtain access’’ for the ‘‘telemarketing’’ in the Telemarketing Amendment.’’104 Similarly, DMA- phrase ‘‘that provides access,’’ makes Act, which determined the scope of the Nonprofit stated ‘‘the Commission has the definition more precise and TSR, was defined to reach telephone no authority to single out agents of somewhat easier to understand. The solicitations only for the purpose of religious organizations for exemption . . definition retains the broad scope of its inducing sales of goods or services.100 . . [T]here is no language in the [USA predecessor in order to capture the The proposed Rule added a definition of PATRIOT Act] that allows the myriad ways a charge may be placed the term ‘‘charitable contribution’’ Commission to make this against a consumer’s account,97 yet has because § 1011 of the USA PATRIOT distinction.’’105 more limited effect in the context of the Act amended the Telemarketing Act to Based on careful consideration of the approach adopted in the amended Rule specify that ‘‘telemarketing’’ now record, the Commission is persuaded to address preacquired account includes not only calls to induce that no exemptions based upon the type telemarketing and express verifiable purchases of goods or services but also of organization engaged in telemarketing authorization. calls to induce ‘‘a charitable are warranted, and that all telemarketing contribution, donation, or gift of money (as defined in the Telemarketing Act as § 310.2(d) — Caller identification or any other thing of value.’’101 The amended by the USA PATRIOT Act) service Commission has determined that the conducted by any entity within its The definition of ‘‘caller identification term ‘‘charitable contribution,’’ defined jurisdiction should be covered by the service’’ comes into play in § 310.4(a)(7) for the purposes of the Rule to mean TSR. This does not mean that the of the amended Rule, discussed below. ‘‘any donation or gift of money or any Commission believes political In the NPRM, the Commission proposed other thing of value’’ succinctly fundraising is within the scope of the to define ‘‘caller identification service’’ captures the meaning intended by Rule.106 It means only that the TSR to mean ‘‘a service that allows a Congress. Therefore, the Commission applies to all calls that are part of any telephone subscriber to have the has retained this definition from the ‘‘plan, program, or campaign’’ that is telephone number, and, where proposed Rule. It has, however, conducted by any entity within the available, name of the calling party determined to modify the proposed FTC’s jurisdiction, involving more than definition to eliminate the exemptions one interstate telephone call for the account, and because sharing it is permitted by the included in the proposed Rule. purpose of inducing a purchase of goods GLBA. See, e.g., Cendant-NPRM at 7; E-Commerce The proposed definition in the NPRM Coalition-NPRM at 2; MPA at 23, n.23. These or services or a charitable contribution, arguments have been addressed by the expressly excluded donations or gifts of donation, or gift of money or any other Commission’s revised approach to preacquired money or any other thing of value thing of value. Thus, for example, if a account telemarketing, which focuses not on the solicited by or on behalf of ‘‘political for-profit telemarketer on behalf of a sharing of account information—except in the very clubs, committees, or parties, or limited area of sale of unencrypted account numbers—but on the harm that results from certain 102 Proposed Rule § 310.2(f). practices in preacquired account telemarketing, i.e., 98 67 FR at 4499. 103 NASCO-NPRM at 6. unauthorized charges. Moreover, in those instances 99 See, e.g., EPIC-NPRM at 11; ARDA-NPRM at 4. 104 Hudson Bay-NPRM at 12. where there has been the strongest history of abuse, ARDA suggested that the definition be expanded to 105 DMA-NonProfit-NPRM at 5-6. See also Not- sellers and telemarketers are required to obtain part allow transmission of the name and number of ‘‘any for-Profit Coalition-NPRM at 41. or all of the customer’s account number directly party whom the telephone subscriber may contact’’ 106 The USA PATRIOT Act is consistent with a from the customer. regarding being placed on the company’s ‘‘do-not- basic common law distinction between charities 96 See amended Rule § 310.2(w), and related call’’ list. As noted in the subsequent discussion of and political organizations. ‘‘Gifts or trusts for discussion below. this provision, § 310.4(a)(7) of the amended Rule political purposes or the attainment of political 97 The record shows that a telemarketer or seller permits telemarketers to substitute a customer objectives generally have been regarded as not may provide anything from complete account service number on the caller identification charitable in nature. Also . . . a trust to promote the number to mother’s maiden name to initiate a transmission. success of a political party is not charitable in charge for a telemarketing transaction, depending 100 15 U.S.C. 6106(4). nature.’’ 15 Am. Jur. 2d Charities § 60 (2002). In this on its relationship with another seller, financial 101 15 U.S.C. 6106(4) (amended by § 1011(b)(3) of regard, it is noteworthy that Congress elsewhere has institution, or billing entity. See, e.g., Assurant- the USA PATRIOT Act, Pub. L. 107-56 (Oct. 26, established a regulatory scheme applicable to NPRM at 4. 2001)). political fundraising. 2 U.S.C. §§ 431-455.

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(presumably non-profit) political club or gift of money,’’ ensuring that it will commenters urged the Commission to constituted religious organization were encompass non-money contributions. ensure that such hybrid transactions are to engage in a ‘‘plan, program, or The Commission believes that, while covered, either as sales of goods or campaign’’ involving more than one blood donors are asked for blood and services or as charitable contributions, interstate telephone call to induce a not money, the blood they donate is or both, under the Rule.118 The purchase of goods or services or a clearly a ‘‘thing of value.’’112 Similarly, Commission believes that when the charitable contribution, that activity although volunteers are asked to give transaction predominantly is an would be within the scope of the TSR. time rather than money, the inducement to make a charitable But if such a for-profit telemarketer on Commission believes that a donation of contribution, such as when an incentive behalf of the same client made calls that time is a ‘‘thing of value.’’113 Therefore, of nominal value is offered in return for were not for the purpose of inducing a the Commission cannot exempt from the a donation, the telemarketer should purchase of goods or services or a definition of ‘‘charitable contribution’’ proceed as if the call were exclusively charitable contribution, those calls either blood or time volunteered. The to induce a charitable contribution. would not be within the scope of the Commission believes, however, that Similarly, if the call is predominantly to TSR. legitimate concern about inclusion of induce the purchase of goods or Commenters also addressed the scope blood in the definition should be services, but, for example, some portion of the term ‘‘or any thing of value’’ in alleviated by the exemption of of the proceeds from this sale will the definition of ‘‘charitable charitable solicitation telemarketing benefit a charitable organization, the contribution’’ in the proposed Rule, from the ‘‘do-not-call’’ registry telemarketer should adhere to the suggesting exemptions to limit this provisions. The remaining provisions portions of the Rule relevant to sellers definition. Red Cross urged the that will apply to telemarketing to of goods or services. The Commission Commission to exempt blood from the solicit blood donations are neither believes that further elaboration on the definition of ‘‘charitable contribution’’ burdensome nor likely to impede the differences between these scenarios is because, it argued, ‘‘blood donations are mission of the non-profit organizations unnecessary because, in either case, the not ’a thing of value’ in a fiduciary that seek such donations. requirements are similar, consisting sense.’’107 Blood Centers agreed with NAAG and NASCO suggested that the primarily of avoiding this position, arguing that while ‘‘the Commission ‘‘state that the word misrepresentations, and promptly donor’s blood is of great value to the ‘charitable’ does not limit the character disclosing information that would likely recipient of the blood donation . . . the of the recipient of the contribution.’’114 be disclosed in the ordinary course of a donor is not being asked to part with According to these commenters, it is telemarketing call. anything other than his or her time.’’108 important to ensure that donations Blood Centers also argued that solicited by or on behalf of public safety § 310.2(m) — Donor donations of blood are of grave organizations are considered ‘‘charitable The proposed Rule contained a importance to save lives, and so are contributions’’ for regulatory purposes, definition of ‘‘donor’’ in order to distinguishable from typical commercial and that those contributions solicited by effectuate the goals of the USA and even charitable telemarketing sham charities are still ‘‘charitable PATRIOT Act amendments. Under that calls.109 Another argument raised by contributions’’ under the amended 115 definition, a ‘‘donor’’ is ‘‘any person Blood Centers in support of its position Rule. The Commission believes that solicited to make a charitable the current definition, which closely that a blood donation should be contribution.’’119 Throughout the excluded from the definition of tracks the USA PATRIOT Act definition, 116 proposed Rule, wherever the word ‘‘charitable contribution’’ is that blood is clear as to what is covered. Its ‘‘customer’’ was used, the Commission donation programs are highly regulated focus is on the donation, rather than the added the word ‘‘or donor’’ where by the Food and Drug Administration solicitor, and it is sufficiently broad in appropriate, to indicate that the 110 (‘‘FDA’’). March of Dimes also scope to encompass donations solicited provision was also applicable to the requested that volunteers’ time not be on behalf of any organization. solicitation of charitable contributions. NAAG and NASCO also requested considered a ‘‘thing of value’’ under the The Commission received very few that the Commission explicitly address Rule, noting that their organization comments on this definition. The March the situation where a call involves often uses the telephone to contact of Dimes expressed the concern that ‘‘‘percent of purchase’ situations, where volunteers who then solicit ‘‘[t]he definition of a ‘donor’ does not contributions are sought in the form of contributions from their friends and accurately reflect the nomenclature used 111 the purchase of goods or services, [and] neighbors. by the industry.’’120 Rather, the March where a portion of the price will, The Commission believes that the text of Dimes suggested, the term ‘‘donor,’’ according to the solicitor, be dedicated of the USA PATRIOT Act provision as used in philanthropic circles, to a charitable cause.’’117 These expanding the definition of ‘‘connotes an established relationship telemarketing to include calls to induce with the non-profit charitable 112 See Maryland Health Care, Fall 2000 at 4, ‘‘a charitable contribution, donation, or organization.’’121 The March of Dimes gift of money or any other thing of http://www.mdhospitals.org/MarylandPubs/ MDHlthCrl1100.pdf (noting the blood shortages recommended replacing the terms value’’ is broad in scope and plain in had driven up the price of blood from $145.24 per ‘‘customer’’ and ‘‘donor’’ in the Rule meaning. The USA PATRIOT Act unit to $174.10 per unit in a single year). with the term ‘‘consumer.’’ specifically uses the term ‘‘or any other 113 Presumably, organizations that rely on thing of value’’ in addition to the terms volunteers would, absent their donations of time, be The Commission believes that the forced to pay labor costs associated with the work term ‘‘consumer’’ is too broad and non- ‘‘charitable contribution, donation, or done by volunteers. Therefore, the time donated is a ‘‘thing of value,’’ equivalent to the labor cost specific to substitute for the terms 107 Red Cross-NPRM at 3. saved. 108 Blood Centers-NPRM at 2. 114 NAAG-NPRM at 52; NASCO-NPRM at 5-6. 118 Id. 109 Id. 115 Id. 119 Proposed Rule § 310.2(m), 67 FR at 4540. 110 Id. at 2-3. 116 15 Am. Jur. 2d Charities § 60 (2002). 120 March of Dimes-NPRM at 3. 111 March of Dimes-NPRM at 2. See also AFP- 117 NAAG-NPRM at 52. See also NASCO-NPRM at 121 Id. (noting that the term ‘‘prospect’’ is used to NPRM at 5. 5-6. mean a potential donor).

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‘‘customer’’ and ‘‘donor.’’122 The Rule statements during the June 2002 Forum defeat the purpose of the national ‘‘do- uses these more targeted terms to and in their supplemental comments not-call’’ registry. capture the varied nature of transactions expressed the view that such an In adopting the ‘‘do-not-call’’ between sellers or telemarketers and exemption would be acceptable, as long provisions of the original Rule, the individuals who are, or may be, as it was narrowly-tailored and limited Commission considered, among other required to pay for something as the to current, ongoing relationships.125 things, the approach taken by Congress result of a telemarketing solicitation. Moreover, state law enforcement and the FCC in the TCPA and its 127 Thus, it is the intent of the Commission representatives’ comments on their implementing regulations. In crafting an ‘‘established business relationship’’ that the term ‘‘donor’’ as used in the experience with state ‘‘do-not-call’’ laws definition, it is useful again to consider Rule encompass not only those who that have an exemption for ‘‘established the TCPA, which specifically exempts have agreed to make a charitable business relationships’’ suggest that this contribution, but also any person who is calls ‘‘to any person with whom the type of exemption is consistent with solicited to do so, to be consistent with caller has an established business consumer expectations.126 While the its use of the term ‘‘customer.’’ relationship.’’128 The House Report on Commission is persuaded that an Therefore, the Commission has the TCPA’s ‘‘established business determined that the term ‘‘donor’’ is ‘‘established business relationship’’ relationship’’ exemption confirms that necessary and appropriate, and has exemption is necessary and appropriate, Congress intended for the reasonable retained the definition of ‘‘donor’’ in the it believes that the exemption must be expectation of the consumer to be the amended Rule without modification. narrowly crafted and clearly defined to touchstone of the exemption: avoid a potential loophole that could § 310.2(n) — Established business In the Committee’s view, an ‘‘established business relationship’’ also could be based relationship difficulty in defining a ‘‘pre-existing business upon any prior transaction, negotiation, or The Commission has determined to relationship’’ without creating significant loopholes inquiry between the called party and the add to the Rule a definition of in the protections provided by the national ‘‘do-not- business entity that has occurred during a call’’ registry (described in the discussion of ‘‘established business relationship.’’ reasonable period of time. . . . By requiring amended Rule § 310.4(b)(1)(iii) below). See NCL- this type of relationship, the Committee This new definition comes into play in NPRM at 10. Furthermore, they did not agree with expects that otherwise objecting consumers § 310.4(b)(1)(iii), which now exempts industry’s argument that consumers want to hear would be less annoyed and surprised by this from the national ‘‘do-not-call’’ registry from companies with whom they have an existing relationship. NCL stated that the fact that a type of unsolicited call since the consumer calls from sellers with whom the consumer may have had a relationship with a would have a recently established interest in consumer has an ‘‘established business company does not necessarily mean that he or she the specific products or services. . . . In sum, relationship’’ (unless that consumer has wishes to receive calls, or to continue to receive the Committee believes the test to be applied asked to be placed on that seller’s calls, from that company. NCL-NPRM at 10. must be grounded in the consumer’s Consumer advocates believed the FTC had taken expectation of receiving the call.129 company-specific ‘‘do-not-call’’ list). the right approach: the burden should lie with the This definition limits the exemption to seller to show specific consent to receive calls. When it promulgated its rules pursuant relationships formed by the consumer’s NCL-NPRM at 10; EPIC-NPRM at 20-21; PRC-NPRM to the TCPA, the FCC included the purchase, rental, or lease of goods or at 2. following definition of ‘‘established services from, or financial transaction 125 June 2002 Tr. I at 110 (NCL) (‘‘This would business relationship’’ with regard to its have to be . . . really narrowly defined in order to company-specific ‘‘do-not-call’’ with, the seller within eighteen months protect consumers so that if somebody had of the telephone call (or, in the case of something that was ongoing . . . that would be in requirements: inquiries or applications, within three a different category.’’). See also AARP-Supp. at 3 The term established business relationship months of the call). (‘‘AARP recognizes that there may be an means a prior or existing relationship formed Industry comments were nearly expectation by consumers that they will be in by a voluntary two-way communication contact with businesses with whom they have between a person or entity and a residential unanimous in emphasizing that it is current, ongoing, voluntary relationship; calls from essential that sellers be able to call their such businesses are not necessarily unwanted or subscriber with or without an exchange of existing customers.123 Although the unsolicited. Calls made from a business with which consideration, on the basis of an inquiry, application, purchase or transaction by the initial comments from consumer groups consumers had a prior relationship are a different matter altogether. In situations where the consumer residential subscriber regarding products or opposed an exemption for ‘‘established has chosen not to continue a business relationship, services offered by such person or entity, business relationships,’’124 their it cannot be presumed they wish to be solicited by which relationship has not been previously that business again. Therefore, AARP believes that terminated by either party.130 122 The term ‘‘consumer’’ is defined generally as any exemption for an existing business relationship ‘‘one that utilizes economic goods.’’ Merriam- must be limited to those situations where the Consideration of state approaches to Webster’s Collegiate Dictionary, at: http:// relationship is current, ongoing, voluntary, involves the ‘‘established business relationship’’ www.merriamwebster.com/cgi-bin/dictionary#. an exchange of consideration, and has not been This broader term is used in the Rule in the terminated by either party.’’). 127 60 FR at 43855. definition of ‘‘established business relationship,’’ 126 June 2002 Tr. I at 110-19. See also June 2002 128 47 U.S.C. 227(a)(3)(B). The legislative history § 310.2(n), and in the provision banning the transfer Tr. I at 119-22, in which participants discussed an of the TCPA shows that Congress exempted of unencrypted account numbers, § 310.4(a)(5). In AARP survey conducted in conjunction with the ‘‘established business relationship’’ calls ‘‘so as not each of these instances, the Commission has Missouri Attorney General’s Office, which showed to foreclose the capacity of businesses to place calls consciously used the broader term ‘‘consumer’’ to that three-fourths of consumers did not feel an that build upon, follow-up, or renew, within a effect broader Rule coverage. established business relationship was justified. reasonable period of time, what had once been an 123 See, e.g., AFSA-NPRM at 13-14; AmEx-NPRM However, representatives from the Missouri existing customer relationship.’’ H.R. REP. NO. 102- at 3; ANA-NPRM at 5; ARDA-NPRM at 17; ATA- Attorney General’s Office explained that the results 317 at 13 (1991). Throughout the House Report NPRM at 29; BofA-NPRM at 4; Best Buy-NPRM at were less a measure of consumer condemnation of discussing the exemption for ‘‘established business 1; DialAmerica-NPRM at 12; DMA-NPRM at 33-34; such an exemption, than an indication that relationship,’’ the point is stressed that the DSA-NPRM at 7-8; ERA-NPRM at 36-37; consumers were receiving calls from businesses exemption is intended to reach only those Gottschalks-NPRM at 1; NCTA-NPRM at 6; NRF- with whom they did not perceive that they had relationships that are current or recent. The Report NPRM at 13; PMA-NPRM at 28; Roundtable-NPRM such a relationship. According to the Missouri consistently refers to an ‘‘established business at 5; SIIA-NPRM at 2-3; Time-NPRM at 6-7; VISA- representatives, businesses took a broader view of relationship’’ in terms of ‘‘the existence of the NPRM at 3. See also, e.g., ARDA-Supp. at 1; ICTA- the relationship than did consumers. As noted in relationship at the time of the solicitation, or within Supp. at 2. more detail below, consumers appear to be a reasonable time prior to it.’’ Id. at 13-15. 124 See, e.g., EPIC-NPRM at 20-21; NCL-NPRM at comfortable with an exemption for ‘‘established (emphasis added). 10. Among other things, consumer advocates business relationships’’ once its parameters are 129 Id. at 14, 15. opposed such an exemption because of the explained to them. 130 47 CFR 64.1200(f)(4).

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exemption is also instructive. Most state reasonable period of time.133 believes, based on the record evidence ‘‘do-not-call’’ laws have some form of Throughout the comments from and statements from Congress regarding exemption for ‘‘established business industry stressing the need for an the TCPA’s ‘‘established business relationships,’’ and several of these are ‘‘established business relationship’’ relationship,’’ that a company should be modeled on the language of the FCC’s exemption, a consistent theme is that able to claim the exemption only if there exemption.131 However, there is an such an exemption is necessary for has been a relatively recent transaction important difference between the FCC ‘‘existing customers’’ or someone with between the customer and the seller approach and that of many of the states, whom sellers ‘‘currently do business,’’ sufficient to support the existence of an in that many state law exemptions and there seems to be a common ‘‘established business relationship.’’ circumscribe the scope of an understanding regarding what Based on the comments, the ‘‘established business relationship’’ by constitutes an ‘‘existing’’ Commission finds little support for a 36- specifying the amount of time after a relationship.134 There is less consensus month time period. Most of the particular event (like a purchase) during when it comes to the issue of how long commenters who suggested that time which such a relationship may be a business relationship lasts following a period did so as part of a joint comment deemed to exist.132 The Commission transaction between a seller and filed by five associations.137 In the believes that this approach is more in consumer. Many states have attempted comments the individual associations keeping with consumer expectations to provide some clarity regarding how filed separately, however, they than an open-ended exemption. As long after dealings between a consumer suggested a time period of 24 months.138 discussed in more detail below, many and seller have ceased that a residual NAA initially suggested 24 months, but consumers favor an exemption for ‘‘established business relationship’’ expanded that to 36 months in its companies with whom they have an could be deemed still to exist. supplemental comment. Industry established relationship. Consumers Twelve of the states that have an commenters who advocate 24 months also might reasonably expect sellers ‘‘established business relationship’’ provide little support for their assertion with whom they have recently dealt to exemption limit it to a specific time that it is the appropriate length of time call them, and they may be willing to period after a transaction has occurred, by which to measure ‘‘reasonableness;’’ accept these calls. A purchase from a ranging from six months to 36 nor did they submit data that would seller ten years ago, however, would not months.135 Industry commenters show that a shorter time period would likely be a basis for the consumer to suggested various time periods to limit not serve their purposes. Other industry expect or welcome solicitation calls the exemption. Several suggested 24 to members (such as Bank of America, from that seller. 36 months, while others stated that a Consumer Mortgage Coalition, and In addition, specific time limits for an shorter period (12 months) would be Federated Department Stores) suggested ‘‘established business relationship’’ are more appropriate.136 The Commission shorter time periods. The Commission particularly appropriate for a general does not believe that a relationship ‘‘do-not-call’’ registry such as the one to 133 The comments received on ‘‘established which terminated or lapsed two years be maintained by the Commission, as business relationship’’ came primarily from the ago would constitute a relationship that business community. On the other hand, there was opposed to the company-specific ‘‘do- little comment from consumer advocates and state had recently terminated or lapsed. The not-call’’ lists for which the FCC regulators on how such an exemption would be Commission believes that if consumers definition was crafted. The Commission formulated because the proposed Rule did not received a call from a company with believes that an ‘‘established business include an ‘‘established business relationship’’ whom the most recent purchase, rental, exemption. However, the NPRM did ask about the relationship’’ exemption in a national effect on companies and charitable organizations lease or financial transaction occurred list applying to many sellers and with whom consumers had a pre-existing business or lapsed two years ago or longer, telemarketers should be carefully and or philanthropic relationship of the proposal to consumers would likely be surprised by narrowly crafted to ensure that allow companies to call consumers on the ‘‘do-not- that call and find it to be unexpected. call’’ registry if they had given their express appropriate companies are covered verifiable authorization to call (67 FR at 4539, The Commission believes that 18 while excluding those from whom question 9). As discussed in more detail above in months is an appropriate time frame consumers would not expect to receive note 124, those few consumer advocates who did because it strikes a balance between calls. A specific time limit balances the mention such an exemption were opposed to it. industry’s needs and consumers’ 134 See, e.g., ABA-NPRM at 10; Community privacy needs of consumers and the Bankers-NPRM at 2; AmEx-NPRM at 3; ANA-NPRM privacy rights and reasonable need of businesses to contact their at 5; Associations-NPRM at 2; ARDA-NPRM at 17; expectations about who may call them current customers. Bank One-NPRM at 4; BofA-NPRM at 4; Best Buy- and when. By extending beyond a single Comments received in response to the NPRM at 1; Cendant-NPRM at 5-6; Citigroup-NPRM annual sales cycle, the 18-month period at 4; Comcast-NPRM at 3; CMC-NPRM at 6; Cox- NPRM stress the importance of NPRM at 2, 4; DMA-NPRM at 33, 34; Eagle Bank- allows sufficient time for businesses to extending such an exemption to current, NPRM at 2; Roundtable-NPRM at 5; Gottschalks- renew contact with prospects who may existing relationships and prior NPRM at 1; NCTA-NPRM at 4; NRF-NPRM at 13; only purchase once a year. Moreover, SIIA-NPRM at 2-3; Time-NPRM at 6; VISA-NPRM relationships that occurred within a at 3. 135 Six months (Louisiana, Missouri); 12 months would tend to show that a shorter time period 131 Fourteen state ‘‘do-not-call’’ statutes are open- (Pennsylvania, Tennessee); 18 months (Colorado, would not serve their purposes. The breakdown of ended and do not contain a time limit for tolling Illinois); 24 months (Alaska, Massachusetts, suggested time periods is as follows: ‘‘recently the established business relationship: Alabama, Oklahoma); 36 months (Arkansas, Kansas). In terminated or lapsed’’ (New Orleans-NPRM at 14- California, Connecticut, Florida, Georgia, Idaho, addition, New York apparently has adopted an 18- 15); 12 months (BofA-NPRM at 4; CMC-NPRM at 6- Kentucky, Maine, Minnesota, Oregon, Texas, month time period: the New York statute does not 7); 24 months (ATA-Supp. at 8; ERA-NPRM at 38; Vermont, Wisconsin, and Wyoming. Three of these contain a time limit; however, at the June 2002 ERA-Supp. at 19; MPA-Supp. at 11; NAA-NPRM at ‘‘open-ended’’ state statutes incorporate the FCC Forum, NYSCPB stated that New York applies an 11; June 2002 Tr. I at 109 (PMA)); 36 months definition either in whole or in part: California, 18-month time limit. June 2002 Tr. I at 115 (‘‘We (ARDA-NPRM at 20; Associations-Supp. at 3-4). In Texas, and Wyoming. In addition, four other states have two separate exemptions. . . . The second thing a supplement to their comment, FDS supported incorporate the FCC definition in whole or in part, is a prior business relationship, which we define as limiting telemarketing sales calls to customers who but limit the time period during which a business an exchange of goods and services for consideration have made a purchase in the past 12 months, while may claim an ‘‘established business relationship’’ within the preceding 18 months. . . .’’). Indiana’s allowing strictly informational calls to persons who once the relationship has lapsed: Colorado, Kansas, statute does not have an exemption for ‘‘established have had a transaction within the past 36 months. Oklahoma, and Pennsylvania. See note 592 below business relationships.’’ Federated-Supp. at 1-2. for citations to all state ‘‘do-not-call’’ statutes. 136 Industry commenters generally supported a 137 See Associations-NPRM at 3-4. 132 See discussion and note 135 below. 24-month time period, but did not submit data that 138 See note 136 above.

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limiting the ‘‘established business According to the study, 50 percent of which to respond to a consumer’s relationship’’ to 18 months from the consumers surveyed supported inquiry or application. date of the last purchase or transaction regulations that would allow local or The amended Rule allows for an 18- would be at least as restrictive as the community-based organizations to call month time limit where there has been majority of states that have such an during specific hours of the day.143 a purchase, rental or lease, or other exemption, thus achieving greater Furthermore, slightly less than half of financial transaction between the consistency for both industry and the respondents supported legislation customer and seller. The 18-month time consumers. The experience of states that that would allow calls, but only from limit for an ‘‘established business have an ‘‘established business local or community-based organizations relationship’’ based on a purchase, relationship’’ exemption in their ‘‘do- with whom they have an existing lease, rental, or financial transaction not-call’’ laws indicates that a relatively relationship.144 The survey showed that runs from the date of the last payment limited ‘‘established business consumers were less likely to welcome or transaction, not from the first relationship’’ exemption does not calls from national companies, although payment. In instances where consumers conflict with consumers’ expectations. 40 percent indicated that they would pay in advance for future services (e.g., At the June 2002 Forum, the allow calls from national organizations purchase a two-year magazine representatives from New York and with whom they had an existing subscription or health club Missouri spoke about consumer relationship.145 membership), the seller may claim the expectations in connection with their In sum, consumers are split over exemption for 18 months from the last states’ ‘‘do-not-call’’ lists.139 Both noted whether they favor an ‘‘established payment or shipment of the product. that consumers appeared to be business relationship’’ exemption. For such ongoing relationships, it makes comfortable with such an exemption Given the difference of opinion among little difference to likely consumer because they had received few consumers, and industry’s convincing expectations whether the purchase was complaints from consumers regarding arguments regarding the detrimental financed over time or paid for up front. companies with whom they had an effects the lack of an exemption would Sellers who provide products or established relationship.140 The states’ cause, the Commission is persuaded to services where the consumer is required experience is not contradicted by the provide an exemption for ‘‘established to pay in advance can also get the comments of individual consumers in business relationships.’’ consumer’s express agreement to call, as response to a specific question included The definition of ‘‘established provided in § 310.4(b)(1)(iii)(B)(i). on the Commission’s website inviting business relationship’’ in the amended Several financial services industry email comments from the public. Rule would limit the exemption in the commenters urged that any ‘‘established Although 60 percent of consumers who case of inquiries and applications to business relationship’’ exemption responded to this question stated that three months after the date of the should encompass all affiliates of a seller.147 These commenters noted that they opposed an exemption for application or inquiry (except with the regulatory requirements often dictate ‘‘established business relationship,’’ 40 consumer’s express consent or 141 the corporate structure of financial percent favored such an exemption. permission to continue the institutions, which must market Furthermore, a study conducted in relationship). The Commission believes products and services across holding 2002 by the Information Policy Institute that a consumer’s reasonable company affiliates and subsidiaries.148 found that consumers preferred a expectations are different in the case of For that reason, they suggested that any ‘‘nuanced approach’’ to the ‘‘do-not- inquiries and applications as compared call’’ issue, wanting to limit some calls exemption for an ‘‘established business to purchase, rental, and lease to their household, but not all calls.142 relationship’’ should extend to all transactions. A simple inquiry or members of a corporate family, application would reasonably lead to an 139 See June 2002 Tr. I at 110-21. including affiliates and subsidiaries, so expectation of a prompt follow-up 140 Id. at 118-19 (New York: ‘‘Well, [consumers long as the individual has an are not unhappy], and a lot of times they complain, telephone contact close in time to the ‘‘established business relationship’’ and you could say they’re [sic] prima facie evidence initial inquiry or application, not one with any member of that corporate they’re unhappy. We call them back and say, gee, after an extended period of time. did you have a transaction with these folks? They family.149 They also suggested that claim you did on X, Y and Z, and they furnished Comments from NYSCPB at the June agents of the seller be included within us this paperwork. And then they say, oh, yeah. 2002 Forum also warned of possible the exemption if the consumer They don’t seem to be mad.’’) (Missouri: ‘‘Most abuse in the creation of an ‘‘established people when you call them back are delighted that reasonably would expect the agent to be business relationship’’ based on included under the exception.150 70 to 80 percent of their phone calls have been 146 caused to not come in, so when we explain to them inquiries from consumers. The The Commission believes that such a that you had a relationship or you explain to them Commission believes three months broad definition of ‘‘established that some of these calls are exempt, they should be a sufficient time frame in understand when you explain that to them, and business relationship’’ is inappropriate they’re delighted, because our anecdotal in the context of a ‘‘do-not-call’’ registry information shows that 70 to 80 percent of the calls 143 Id. which is intended to protect consumers’ people had been receiving, they’re not receiving 144 Id. privacy. As stated earlier, the now.’’). 145 Id. Commission believes that such an 141 Analysis of consumer email comments in the 146 [146]: June 2002 Tr. I at 116 (NYSCPB) Commission’s TSR comment database indicates that (‘‘[D]oes a mere inquiry constitute a business exemption must be narrowly crafted to about 860 favored an exemption for calls from firms relationship? And our answer to that is no, because avoid defeating the purpose of the ‘‘do- with whom they already have an established we have had some what I would say are really not-call’’ registry. In determining relationship, while about 1,080 opposed such an sleazy operators. They will call up and leave a whether affiliates or subsidiaries should exemption. Furthermore, over 13,000 of the 14,971 message on your phone. They won’t even identify comments submitted by Gottschalks’ customers who they are. They will simply say ‘Call us back, 147 supported allowing Gottschalks to call them even it’s very important.’ You call back out of curiosity See, e.g., BofA-NPRM at 4; Bank One-NPRM if they signed up on a ‘‘do-not-call’’ registry to block or whatever, okay, and then all of a sudden they at 4; Eagle Bank-NPRM at 2; Roundtable-NPRM at other calls. feel free to bombard you for the next few years with 5; Fleet-NPRM at 4; VISA-NPRM at 3-4. 142 Michael A. Turner, ‘‘Consumers, Citizens, calls.’’). The Commission intends that such a 148 See Bank One-NPRM at 4; Fleet-NPRM at 4. Charity and Content: Attitudes Toward practice would not entitle a seller or telemarketer 149 See Eagle Bank-NPRM at 2; HSBC-NPRM at 2; Teleservices’’ (Information Policy Institute, June to make calls to consumers by claiming to have an Roundtable-NPRM at 5. 2002) at 4, 8 (hereinafter ‘‘Turner study’’). ‘‘established business relationship.’’ 150 See Roundtable-NPRM at 5.

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be encompassed within an ‘‘established affirmative action to cancel before the obligation to pay a seller due to the business relationship,’’ the Commission end of that period.’’ The term ‘‘free-to- consumers’ non-action. To describe the looks to consumer expectations: If pay conversion’’ is the terminology circumstances when these disclosures consumers received a call from a commonly used in the telemarketing must be made, the amended Rule company that is an affiliate or industry to describe what was referred employs the term ‘‘negative option subsidiary of a company with whom to throughout the Rule Review feature’’ and, accordingly, provides a they have a relationship, would proceeding as a ‘‘free trial offer.’’152 definition of that term in § 310.2(t). A consumers likely be surprised by that A ‘‘free-to-pay conversion’’ is a form ‘‘negative option feature’’ is any call and find it inconsistent with having of ‘‘negative option feature’’—a term provision under which the consumer’s placed their telephone number on the that is also newly defined in the silence or failure to take an affirmative national ‘‘do-not-call’’ registry? amended Rule and is discussed below. action to reject goods or services or to The Commission used similar The term ‘‘free-to-pay conversion’’ cancel the agreement is interpreted by reasoning in resolving this issue in comes into play in the amended Rule in the seller as acceptance of the offer. This connection with the definition of three provisions. First, as a form of provision includes, but is not limited to, ‘‘seller’’ in the original Rule. In the negative option feature, any ‘‘free-to-pay ‘‘free-to-pay conversions,’’ (which are discussion on the definition of ‘‘seller,’’ conversion’’ is subject to the newly- discussed above), as well as negative the Commission stated that there were added disclosure requirements in option plans153 and continuity plans.154 several factors that it would consider in § 310.3(a)(1)(vii). Second, where a Section 310.3(a)(1)(vii) below provides a determining how it would view the telemarketing offer involves a ‘‘free-to- detailed discussion of the definition of Rule’s application to diversified pay conversion,’’ and is accepted by a ‘‘negative option feature’’ and the companies or divisions within one consumer using a payment method disclosures necessary when such a parent organization. Among those subject to the express verifiable provision is a part of an offer to sell factors was ‘‘whether the nature and authorization requirements of goods or services. type of goods or services offered by the § 310.3(a)(3), the seller or telemarketer § 310.2(u)—Outbound telephone call division are substantially different from may not use the written confirmation those offered by other divisions of the form of authorization generally available Based on a review of the record, the corporation or the corporate under § 310.3(a)(3)(iii). Third, under the Commission has decided to retain the organization as a whole.’’151 This new unauthorized billing provision at definition of ‘‘outbound telephone call’’ distinction looks to consumer § 310.4(a)(6), the amended Rule sets that was in the original Rule, and not to expectations and whether a consumer forth specific requirements to obtain expand the definition to include would perceive the division to be the express informed consent in any ‘‘upsell’’ transactions, as proposed in same as or different from other divisions transaction involving preacquired the NPRM. Many commenters noted or from the corporate organization as a account information and a ‘‘free-to-pay that, by including upselling in the whole. For example, a consumer who conversion.’’ Each of these provisions is proposed Rule’s definition of ‘‘outbound had purchased aluminum siding from discussed in detail below. telephone call,’’ the proposal brought Company A’s aluminum and vinyl upselling transactions within all of the siding subsidiary would likely not be § 310.2(q)—Material provisions relating to outbound calls, surprised to receive a call from kitchen The amended Rule retains unchanged remodeling service also owned by, and the definition of ‘‘material’’ from the 153 Under a ‘‘negative option plan,’’ the customer operating under the name of, Company agrees to purchase a specific number of items in a original Rule, except for extending it to specified period of time. The customer receives A. charitable contributions pursuant to the periodic announcements of the selections; each Thus, under the amended Rule, some mandate of the USA PATRIOT Act. The announcement describes the selection, which will but not all affiliates will be able to take Commission received no comments on be sent automatically and billed to the customer unless the customer tells the company not to send advantage of the ‘‘established business this definition in response to the NPRM. relationship’’ exemption to the national it. See the Commission’s Rule governing ‘‘Use of The amended Rule has deleted the Negative Option Plans by Sellers in Commerce,’’ 16 ‘‘do-not-call’’ registry. The Commission designations for subsections (a) and (b) CFR 425. intends that the affiliates that fall within that had been proposed in the NPRM. 154 A ‘‘continuity plan’’ consists of a subscription the exemption will only be those that This is merely a formatting change and to a collection or series of goods. Customers are the consumer would reasonably expect offered an introductory selection and agree to does not alter the substantive content of receive additional selections on a regular basis until to be included given the nature and type the definition. The amended Rule’s they cancel their subscription. Unlike negative of goods or services offered and the definition of ‘‘material,’’ therefore, option plans, customers do not agree to buy a identity of the affiliate. The consumer’s reads: ‘‘likely to affect a person’s choice specified number of additional items in a specified expectations of receiving the call are the time period, but may cancel their subscriptions at of, or conduct regarding, goods or any time. Continuity plans resemble negative measure against which the breadth of services or a charitable contribution.’’ option plans in that customers are sent the exemption must be judged. announcements of selections and those selections § 310.2(t)—Negative option feature are shipped automatically to the customer unless § 310.2(o) — Free-to-pay conversion The amended Rule includes new the customer advises the company not to send Section 310.2(o) of the amended Rule them. Unlike negative option plans, however, requirements in § 310.3(a)(1)(vii) for customers are not billed for the selection when it sets out a new definition:—‘‘free-to-pay specific material disclosures necessary is shipped, but only if they do not return the conversion.’’ In connection with an offer to avoid misleading consumers with selection within the time specified for the free or agreement to sell or provide goods or respect to offers that entail incurring an examination period. See, e.g., FTC Facts for services, a ‘‘free-to-pay conversion’’ is Consumers, ‘‘Continuity Plans: Coming to You Like Clockwork,’’ (June 2002), http://www.ftc.gov/bcp/ ‘‘a provision under which a customer 152 See, e.g., Electronic Retailing Association, online/pubs/products/continue.htm. See also FTC, receives a product or service for free for GUIDELINES FOR ADVANCE CONSENT ‘‘Pre-Notification Negative Option Plans’’ (May an initial period and will incur an MARKETING, http://www.retailing.org/regulatory/ 2001) (distinguishing these plans from continuity obligation to pay for the product or publicpolicylconsent.html; Magazine Publishers plans), http://www.ftc.gov/bcp/online/pubs/ of America, Resources - Research: ‘‘Advance products/negative.htm); and FTC, ‘‘Facts for service if he or she does not take Consent Subscription Plans,’’ http:// Business: Complying with the Telemarketing Sales www.magazine.org/resources/ Rule,’’ http://www.ftc.gov/bcp/online/pubs/ 151 60 FR at 43844. advancelconsent.html. buspubs/tsr.htm.

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which led to unintended and situations where these requirements ‘‘preacquired account information,’’ undesirable consequences, such as come into play, the amended Rule since the seller or telemarketer does not subjecting upsells to the calling time defines ‘‘preacquired account have to obtain the account number from restrictions and national ‘‘do-not-call’’ information’’ as: the customer or donor in order to cause 155 registry provisions. The amended any information that enables a seller or a charge to be placed on the customer’s Rule addresses upselling transactions telemarketer to cause a charge to be placed or donor’s account. separately, rather than attempting to against a customer’s or donor’s account Finally, this definition would apply to sweep them within the definition of without obtaining the account number upsell transactions, because the seller or ‘‘outbound telephone call.’’156 The directly from the customer or donor during telemarketer in the upsell transaction amended Rule reinstates the original the telemarketing transaction pursuant to may either already possess the account definition of ‘‘outbound telephone call,’’ which the account will be charged. information from the initial transaction, with only a modification to reflect the The Commission intends this definition or would, by virtue of a joint marketing expanded reach of the Rule to charitable to be construed broadly. The definition or other arrangement, have access to contributions pursuant to the USA includes any type of billing information, that information, so as to be able to PATRIOT Act. In the amended Rule, encrypted or unencrypted,160 that charge the customer without getting the then, an ‘‘‘[o]utbound telephone call’ enables a seller or telemarketer to cause account number directly from the means a telephone call initiated by a a charge to be placed on any customer’s customer in the upsell transaction. or donor’s account without obtaining telemarketer to induce the purchase of § 310.2 (cc) — Telemarketing goods or services or to solicit a the account number directly from the charitable contribution.’’ customer or donor. It obviously covers The Commission received very few instances where the seller or comments on its proposed definition of § 310.2(w)—Preacquired account telemarketer is in actual possession of ‘‘telemarketing,’’163 but those it did information account information, whether by virtue receive expressed agreement that the The amended Rule adds a definition of some prior relationship with the definition should continue to include of ‘‘preacquired account information’’ to consumer or otherwise. It also is the phrase ‘‘by use of one or more address the problems that have been intended specifically to address affinity telephones,’’ to ensure that large and associated with telemarketing marketing campaigns where, for small telemarketing operations are transactions where the telemarketer example, through a joint marketing covered by the Rule.164 Based on the already has access to the customer’s arrangement, Seller A provides access to Commission’s review of the record in billing information at the time the its customer base and those customers’ this proceeding, the amended Rule outbound call is placed.157 The NPRM accounts or account numbers to Seller B retains unchanged the definition of discussed these problems at length. The in exchange for a percentage of the ‘‘telemarketing’’ that was proposed in Commission used the term ‘‘preacquired proceeds from each sale.161 the NPRM. This definition is virtually account telemarketing’’ in the NPRM Some industry members expressed the same as that in the original Rule, during its discussion of the proposed their belief that this second class of except that it now includes the phrase ban on disclosing or receiving billing transactions does not involve ‘‘or a charitable contribution’’ following information for use in telemarketing, but preacquired account information at all ‘‘goods or services,’’ pursuant to the did not use the term itself in the because, in such affinity marketing mandate of the USA PATRIOT Act. campaigns, Seller B may possess only proposed Rule, and so did not define § 310.2(dd) — Upselling it.158 In response, several industry encrypted account numbers, or no account numbers at all prior to initiating As described above in § 310.2(u), the commenters asked for more specificity 162 as to what the Commission intends the the call to the consumer. The Commission proposed in the NPRM to term to mean.159 Thus, the definition of Commission intends to clarify that such modify the Rule’s definition of ‘‘preacquired account information’’ also an arrangement does involve ‘‘outbound telephone call’’ to include serves to address these commenters’ most upsell transactions.165 The 160 By ‘‘unencrypted,’’ the Commission means majority of commenters who addressed concerns about clarifying the concept of both unencrypted readable account information, preacquired account telemarketing. and encrypted information in combination with a this issue, including both industry As explained in detail in the decryption key. See discussion of amended Rule members and consumer groups, discussion of § 310.4(a)(6) below, the § 310.4(a)(5) below. 161 amended Rule sets forth specific See 67 FR at 4513. 163 Although few commenters directly addressed 162 ERA/PMA-Supp. at 14; June 2002 Tr. II at 134 this definition, many who commented on the USA requirements for obtaining express (ERA). ERA described such a scenario during the PATRIOT Act amendments discussed the informed consent in any telemarketing June 2002 Forum: expansion of the Rule to cover the solicitation of transaction that involves ‘‘preacquired ‘‘What typically might occur is L.L. Bean might charitable contributions. These comments are account information.’’ To clarify the enter into some type of [affinity] agreement with addressed above, in the discussion of amended Rule Timberland to say, We would like you to sell your § 310.1 relating to the scope of the Rule. boots . . . to our customers. . . . So L.L. Bean would 164 DOJ-NPRM at 1 (noting its experience with 155 See, e.g., ABA-NPRM at 4; AmEx-NPRM at 6; provide the name and telephone number . . . and fraudulent telemarketers operating using only one AFSA-NPRM at 16; Associations-NPRM at 3; they might provide some unique identifier, it could or two telephones); Patrick-NPRM at 2 (urging that Cendant-NPRM at 2; CCC-NPRM at 13; Cox-NPRM be a four digit code. It might be an encrypted code the practice of subcontracting telemarketing to at 6; KeyCorp-NPRM at 6; Metris-NPRM at 9; MBA- that’s used solely for the purpose of matching back, individual sales agents who work from their homes NPRM at 4; NBCECP-NPRM at 2; NCTA-NPRM at but the account billing number or any information using their home phones continue to be captured 13-14; PCIC-NPRM at 1; PMA-NPRM at 10-11; that would provide access to the account is not by the Rule). Time-NPRM at 10; VISA-NPRM at 8; Wells Fargo- transmitted to the telemarketer when you make that 165 Specifically, the Commission proposed NPRM at 5-6. call. They make the call to the consumer. They ask amending the definition to mean ‘‘any telephone 156 See § 310.2(dd), defining the term ‘‘upselling’’ the consumer if they want to order the boots. If the call to induce the purchase of goods or services or in the amended Rule. customer says yes, that information is then to solicit a charitable contribution, when such 157 See discussions of amended Rule transferred to Timberland. Timberland would go telephone call: (1) is initiated by a telemarketer; (2) §§ 310.4(a)(5) and (6) below. back to L.L. Bean and say, This customer has is transferred to a telemarketer other than the 158 See 67 FR at 4512-14. accepted our offer. We would now like to get the original telemarketer; or (3) involves a single 159 See, e.g., June 2002 Tr. II at 123-24 (CCC), 133- account information to bill the consumer for telemarketer soliciting on behalf of more than one 34 (ERA) and 173 (ATA); PMA-NPRM at 13-14; something that they’ve authorized.’’ seller or charitable organization.’’ Proposed Rule MPA-Supp. at 5; PRA-NPRM at 13-14. June 2002 Tr. II at 136-37. § 310.2(t), 67 FR at 4541.

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supported the proposition that upsells the initial proposal,172 and the focus of who has placed their telephone should be expressly included in the the current amendments, is to ensure numbers on a company-specific ‘‘do- Rule.166 Most of these commenters, that consumers in upselling transactions not-call’’ list or on the FTC’s ‘‘do-not- however, suggested that the receive the same information and call’’ registry.176 Second, the amended Commission’s proposal to address the protections as consumers in other Rule expressly excludes upsell problem by expanding the definition of telemarketing transactions subject to the transactions from the exemptions in ‘‘outbound telephone call’’ to include Rule. §§ 310.6(b)(4), (5) and (6)—i.e., where upselling was not the most effective way Based upon the comments received the initial transaction is exempted from to achieve this goal.167 Instead, many during the rulemaking period and the the Rule because the call was initiated commenters recommended treating Commission’s law enforcement by the consumer unilaterally or because upsells as a distinct type of transaction experience, the Commission has taken a it was initiated in response to a direct by adding a definition of ‘‘upselling’’ to two-fold approach to upselling in the mail solicitation or general media the Rule and specifying a unique set of amended Rule. The Commission has advertisement.177 disclosures required in upsell added a definition of ‘‘upselling,’’ The definition of ‘‘upselling’’ transactions.168 Others suggested which, in combination with certain encompasses any solicitation for goods retaining the expanded definition of amendments to §§ 310.4(d) and 310.6 of or services that follows an initial 173 ‘‘outbound telephone call’’ but the Rule, provides important transaction of any sort in a single amending it to avoid application of protections to consumers who, after telephone call. Thus, both solicitations certain provisions unnecessary or completing one transaction, are offered made by or on behalf of the same seller inappropriate to the upselling goods or services in an additional involved in the initial transaction, and telemarketing transaction during the those made by or on behalf of a different context,169 such as application of the same telephone call.174 By including the seller are considered upsells, and both ‘‘do-not-call’’ and calling time definition, the Commission intends to types of transactions are covered by the provisions of the Rule, to upsells.170 clarify that upsells are subject to all of Rule.178 The term ‘‘initial transaction’’ The Commission does not intend for the Rule’s requirements except the ‘‘do- is intended to describe any sort of upselling to be subject to the ‘‘do-not- not-call’’ and calling time restrictions in exchange between a consumer and a call’’ requirements or the calling time §§ 310.4(b)(1)(iii) and 310.4(c).175 With seller or telemarketer, including but not restrictions in the Rule.171 The goal of this definitional shift, the ‘‘do-not-call’’ limited to sales offers, customer service regime no longer applies to upsells, calls initiated by either the seller or 166 See, e.g., AmEx-NPRM at 6 (‘‘We agree with since the ‘‘do-not-call’’ provisions telemarketer or the consumer, consumer the Commission that the disclosure requirements of the TSR should apply whenever a new offer is made specifically prohibit ‘‘initiating inquiries, or responses to general media to the consumer, whether by the original outbound telephone calls’’ to anyone advertisements or direct mail telemarketer or a telemarketer to whom a call is solicitations. The upsell is defined as a transferred. Consumers should always be informed 172 See 67 FR at 4500. ‘‘separate telemarketing transaction, not of material terms and conditions before they 173 Section 310.4(d) now includes the phrase ‘‘or purchase a product.’’); ERA-NPRM at 8, 11 (‘‘The a continuation of the initial transaction’’ internal or external upsell’’ after ‘‘outbound to emphasize that an upsell is to be ERA is cognizant of the fact that the practice of telephone call’’ to clearly state that the basic upselling has increased dramatically since the Rule disclosure requirements of that provision—the treated as a new telemarketing call, was originally promulgated in 1995. . . . The ERA identity of the seller, that the purpose of the call independently requiring adherence to acknowledges the Commission’s desire to include is to sell goods or services, the nature of the goods 179 upsells within the ambit of the Rule and supports all relevant provisions of the Rule. or services, and disclosures related to prize Upselling occurs in a wide variety of the position that, in instances where solicitations promotions—must be made in any upsell associated are made during a single telephone call on behalf with an initial telephone transaction. Sections circumstances—as an addendum to a of multiple unaffiliated entities, there should be a 310.6(b)(4), (5) and (6) have been amended to customer service call, or after an initial clear disclosure. . . .’’); ERA-Supp. at 6; LSAP- expressly exclude upsells from these exemptions. NPRM at 6; NAAG-NPRM at 36; NCL-NPRM at 3; 174 The provisions relating to ‘‘upselling’’ address 176 See § 310.4(b)(1)(iii). PMA-NPRM at 4, 8 (‘‘PMA acknowledges that the the practices which the Commission had proposed practice of marketing products and services via 177 Treating upsells as ‘‘outbound telephone to address in the NPRM through modification of the calls’’ meant that they were implicitly not covered upsell offers has increased in recent years and that definition of ‘‘outbound telephone call.’’ Because the existing TSR does not provide express guidance by any of these exemptions (which all involve the amended Rule addresses the practice of inbound telephone calls of one sort or another). regarding responsible marketing practices via the ‘‘upselling’’ in a different manner, the amended upsell channel.’’); June 2002 Tr. II at 213-15, 249- Creating a separate definition for ‘‘upselling’’ Rule retains unchanged the wording in the original requires that the Commission explicitly address 50. But see CCC-NPRM at 15-16; CMC-NPRM at 7; Rule for the definition of ‘‘outbound telephone call’’ Household Auto-NPRM at 3; Keycorp-NPRM at 5- which of the exemptions in § 310.6 of the Rule do (now expanded to cover calls to induce charitable not apply to upselling. 6; Noble-NPRM at 3; NATN-NPRM at 3-4; NSDI- contributions, pursuant to the USA PATRIOT Act). NPRM at 4; PCIC-NPRM at 1-2; Technion-NPRM at 178 In the NPRM, the Commission focused its See § 310.2(u) of the amended Rule. analysis of upselling on whether there were one or 5. 175 In the NPRM, the Commission noted that in 167 AmEx-NPRM at 6; ARDA-NPRM at 4; DMA- two telemarketers or sellers involved in the upsell addition to the disclosure requirements of transaction. After reviewing the record in this NPRM at 38; ERA-NPRM at 8, 12; Household Auto- § 310.4(d) (and the proposed disclosures of NPRM at 3; ICT-NPRM at 2; E-Commerce Coalition- matter, the Commission believes that the salient § 310.4(e)), the disclosures in § 310.3(a)(1): distinction is whether a separate offer is made in NPRM at 2; NCTA-NPRM at 14; PMA-NPRM at 8- ‘‘would, of course, also have to be made by each 10; SIIA-NPRM at 3; Time-NPRM at 9; June 2002 the course of a single telephone call. telemarketer. In fact . . . the Commission believes 179 Tr. II at 213-14. This definition also addresses the concerns of that [in any upsell] it is necessary for this some telemarketers that simply transferring a 168 See, e.g., ERA-NPRM at 14-15; ERA-Supp. at transaction to be treated as separate for the consumer-initiated call to the individual most 6; PMA-NPRM at 8-10. purposes of complying with the TSR. Therefore, in qualified to address the consumer’s inquiry would 169 ARDA-NPRM at 4; Cox-NPRM at 36; Discover- such an instance, the telemarketer should take care trigger the application of the Rule to that otherwise NPRM at 5; Eagle Bank-NPRM AT 4; NCL-NPRM at to ensure that the customer/donor is provided with exempt transaction. See, e.g., CMC-NPRM at 7-8; 3. the necessary disclosures for the primary Cox-NPRM at 35; Eagle Bank-NPRM at 4; HSBC- 170 ABA-NPRM at 4-5; AFSA-NPRM at 15; ARDA- solicitation, as well as any further solicitation. NPRM at 2. Instead of focusing on the transfer of NPRM at 4; CCC-NPRM at 13; DMA-NPRM at 38; Similarly, express verifiable authorization for each a call, the definition of ‘‘upselling’’ centers on the Eagle Bank-NPRM at 4; NCTA-NPRM at 14; PMA- solicitation, when required, would be necessary. Of instigation of an offer for sale of goods or services NPRM at 10; SIIA-NPRM at 3; Time-NPRM at 10. course, even absent the Rule’s requirement to obtain subsequent to an initial transaction. Thus, where a The ‘‘do-not-call’’ provision is found at proposed express verifiable authorization, telemarketers must consumer calls a company, makes an inquiry, and and amended Rules § 310.4(b)(1)(iii), while the always take care to ensure that the consumer’s or is immediately transferred in direct response to that calling time restrictions are at proposed and donor’s explicit consent to the purchase or inquiry, that transfer would not fall within the amended Rules § 310.4(c). contribution is obtained.’’ definition of ‘‘upselling’’ and would not be subject 171 June 2002 Tr. II at 213-15. 67 FR at 4500, n.71. to the Rule.

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offer of goods or services via an inbound business voluntarily puts herself in a requirements and prohibitions apply to or outbound telephone call, for business environment and knows that all sellers and telemarketers that are example.180 The upsell can be made by she is doing so. It should come as no subject to the Commission’s or on behalf of the same seller involved surprise to the consumer if, once in that jurisdiction. Thus, a seller or in the initial transaction (‘‘internal environment, she is solicited for telemarketer subject to the Rule must upsell’’), or a different seller (‘‘external products and services provided by abide by the requirements of these upsell’’).181 Commenters argue that affiliates or partners of the business . . sections, regardless of whether they are upsell transactions provide benefits to . .’’186 engaged in an initial telemarketing both sellers and consumers. According According to NCL, however, transaction or in an upsell transaction. to some industry commenters, sellers ‘‘[c]omplaints to the NFIC [National Indeed, the Commission assumes that, can reduce costs associated with Fraud Information Center] indicate that where the initial transaction is subject telemarketing by linking transactions abuses can occur when consumers who to the Rule, most sellers and together in a single call,182 and are more respond to an advertisement for one telemarketers treat the upsell as subject likely to make successful sales to thing are then solicited for something to the Rule as well, and comply with the consumers already predisposed to the else, especially if the new offer is Rule’s requirements in both segments of transaction.183 Consumers can benefit significantly different than the original the telephone call.190 from the convenience of such one or is from another vendor. In these The Commission also finds that transactions, and from receiving more situations, the only information that consumers should have the Rule’s targeted marketing offers.184 Industry consumers have on which to decide billing protections in each of these commenters also suggested that sellers’ whether to make a purchase or donation transactions. CCC suggested that, at least reduced costs in such transactions are is that which is provided during the in inbound calls that include upsells, passed along as savings to call.’’187 In other words, in any upsell, consumers have ‘‘the highest level of consumers.185 the seller or telemarketer initiates the consumer protection because the Despite these benefits, upsells are no offer; it is not the consumer who solicits consumer is specifically asked and less vulnerable to abuse than other or requests the transaction. This means consents to the additional goods or telemarketing practices, and provide the that the consumer is hearing the terms services being charged to the same potential for harm to consumers. Some of that upsell offer for the first time on billing source the consumer provided industry commenters argued that this is the telephone. The consumer has not and/or accessed just moments not the case, suggesting that, had an opportunity to review and before.’’191 However, the Commission’s particularly when the call is initiated by consider the terms of the offer in a and states’ law enforcement experience the consumer: ‘‘The consumer calling a direct mail piece, or to view an does not support CCC’s assertion that, advertisement and gather information by giving consent to the use of an 180 See, e.g., NAAG-NPRM at 33 (‘‘The upsell can on pricing or quality of the particular account number in an initial follow either a sales call or a call related to good or service before determining to transaction, the consumer in an upsell customer service, such as a call about an account payment or product repair. . . . Some examples are make the purchase. This makes an is afforded protection from deception or the upsell of membership programs, magazines and upsell very much akin to an outbound unauthorized billing.192 the like or a television solicitation to buy an telephone call from the consumer’s inexpensive lighting product that includes an perspective, even when the seller is following conduct.’’ (emphasis added). Similarly, upsell of a costly membership program, consumers someone with whom the consumer is § 310.4(a) states ‘‘it is an abusive telemarketing act sold a membership program when attempting to or practice and a violation of this Rule for any seller purchase United States flags following the familiar. Thus, as NCL noted, every or telemarketer to engage in the following conduct.’’ September 11, 2001, tragedy, or tickets to consumer needs ‘‘the same basic (emphasis added). Section 310.5(a) states ‘‘any entertainment events.’’) (citations omitted). Industry disclosures about who they’re dealing seller or telemarketer shall keep, for a period of 24 commenters emphasized the prevalence of with, what they’re buying and the terms months from the date the record is produced, the upselling in the inbound call context generally. See, following records relating to its telemarketing e.g., CCC-NPRM at 12; ERA-NPRM at 11-12; PMA- and conditions [of the offer]’’ regardless activities.’’ 188 NPRM at 9-10. of the nature of the telephone sale. 190 The record suggests, however, that the 181 The NPRM described these forms of upselling The disclosure provisions of §§ 310.3(a) opposite is true when upsells are appended to calls as ‘‘internal’’ and ‘‘external.’’ 67 FR at 4496. Some and 310.4(d) were designed to ensure that are otherwise exempt from the Rule. In these commenters, such as ERA, noted that the industry that consumers know they are being instances, the upsells have been treated as part of refers to multiple offers by a single seller—what the the exempt telemarketing transaction and, thus, Commission calls an ‘‘internal upsell’’—as a ‘‘cross offered goods or services for sale, and consumers are not receiving the protections the sell,’’ and to multiple offers by separate sellers— receive all information material to their Rule requires when a consumer receives an what the Commission calls an ‘‘external upsell’’— decision to accept an offer before they outbound telephone call, despite the fact that as an ‘‘upsell.’’ ERA-NPRM at 9, n.3. The pay for the purchase. upsells are similar to outbound calls from the Commission’s approach, however, does not appear consumer’s perspective. See, e.g., PCIC-NPRM at 1- to have caused any confusion in the industry, or on Moreover, it should be noted that the 2. The Commission believes that the protections the consumer side. So, for the sake of consistency introductory paragraphs of §§ 310.3(a), provided a consumer in an upsell should be the both within the rulemaking process and with 310.4(a) and 310.5 do not distinguish same as the protections accorded to consumers existing law enforcement cases, the Commission receiving an outbound telephone call, regardless of has decided to retain these terms as originally between types of telemarketing 189 whether the upsell is appended to an exempt proposed. transactions. The Rule is clear that its telemarketing transaction or to a transaction subject 182 See, e.g., PMA-NPRM at 9. to the Rule. As noted above, consumer advocates 183 CCC determined that 14 billion inbound calls 186 CMC-NPRM at 9. See also Citigroup-NPRM at and the FTC’s law enforcement experience confirm are made per year, of which 40 percent have an 6-7; Fleet-NPRM at 5; Household Auto-NPRM at 4. that upselling can be equally or more problematic, upsell associated with them. June 2002 Tr. II at 218. 187 NCL-NPRM at 3. Accord ERA-NPRM at 11 and thus sellers and telemarketers engaged in ERA estimated, based on a 12 percent conversion (‘‘The ERA is . . . aware of the fact that there have upselling should be required to provide the basic rate, that approximately $1.5 billion in sales are been some marketers who have engaged in disclosures mandated by the Rule. In addition, generated through inbound upsells alone each year. unscrupulous marketing practices in soliciting there is no evidence to suggest that upsells should ERA-NPRM at 11. Aegis estimated the conversion purchases via upsells, particularly when such not be subject to any other part of the Rule (other rate for consumers accepting upsell offers at upsells involve a free trial offer and/or other than the ‘‘do-not-call’’ and calling time restrictions). between 25 and 30 percent. Aegis-NPRM at 4. advance consent marketing technique.’’). 191 CCC-NPRM at 12. 184 DMA-NPRM at 40; PMA-NPRM at 10; SIIA- 188 June 2002 Tr. II at 221-22. 192 Indeed, law enforcement experience indicates NPRM at 3. 189 Section 310.3(a) states ‘‘it is a deceptive that the fact that the consumer has already provided 185 ERA-NPRM at 12; PMA-NPRM at 10; SIIA- telemarketing act or practice and a violation of this or authorized use of his or her billing information NPRM at 3. Rule for any seller or telemarketer to engage in the Continued

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Other recommendations a whole and law enforcement to the consumer. In fact it would likely be confusing to the consumer to do so.204 Limitations to the definition of experience indicate that upsells by ‘‘upselling.’’ Some commenters affiliates and non-affiliated third parties The Commission has retained in the suggested that the definition of with whom there is a joint marketing amended Rule the definition of ‘‘seller,’’ ‘‘upselling’’ be limited to ‘‘external relationship have as much potential for which states that a ‘‘seller’’ is ‘‘any upselling’’ transactions (i.e., where there deception and abuse as other types of person who, in connection with a are two different sellers in the two telemarketing transactions that are 200 telemarketing transaction, provides, transactions).193 They argued that any subject to the Rule’s requirements. offers to provide, or arranges for others requirements that the Commission The Commission has made it very to provide goods or services to the might apply to ‘‘upselling’’ should not clear that the Rule does not apply to customer in exchange for include upsells made by or on behalf of entities or activities that fall outside the consideration.’’205 The Commission the same seller.194 However, the Commission’s authority under the FTC believes that this definition makes clear Commission believes that law Act, such as banks, savings associations that, for purposes of the Rule, a ‘‘seller’’ enforcement experience indicates that and federal credit unions; regulated is not necessarily the manufacturer of a ‘‘internal upsells’’ (where both common carriers, and the business of product, nor the sole financial transactions are by or on behalf of the insurance. However, the Commission beneficiary from its sale. Rather, the same seller) have as much potential for has also made it very clear that the definition of ‘‘seller’’ is predicated upon deception and abuse as other types of exemption enjoyed by those entities a person’s provision of goods or telemarketing transactions that are does not extend to any third-party services—whether consummated, subject to the Rule’s requirements.195 telemarketers who may make or receive merely offered, or even simply Therefore, the Commission has not calls on behalf of those exempt entities. ‘‘arranged for’’— to the customer. adopted this suggestion. As the Commission stated in the SBP for Therefore, in the case of an upselling Other commenters argued that the the original Rule: transaction, or, indeed, any definition of ‘‘upselling’’ should not telemarketing transaction, the marketer 196 The Commission is not aware of any reason include upsells by ‘‘affiliates.’’ Still or other entity who provides, offers to others made more specific requests to why the Final Rule should create a special exemption for such companies where the provide, or arranges for the provision of exempt banks, their affiliates and non- FTC Act does not do so. Accordingly, the the goods or services that are the subject affiliated third parties who provide Final Rule does not include special of the offer would be the ‘‘seller’’ for services on the banks’ behalf or with provisions regarding exemptions of parties purposes of the Rule. whom the banks have joint marketing acting on behalf of exempt organizations; relationships;197 to exempt agents or Second, both ERA and PMA, as well where such a company would be subject to as a number of other commenters, affiliates of common carriers;198 and to the FTC Act, it would be subject to the Final exempt affiliates of insurance Rule as well.201 suggested that the Commission ‘‘clarify companies.199 However, once again, that affiliated entities do not constitute 206 there is scant support justifying such an Clarification of ‘‘seller’’ in an upsell separate sellers.’’ To this end, ERA approach. On the contrary, the record as transaction. ERA and PMA recommended looking to the recommended that the Commission Commission’s Privacy of Consumer 207 in an initial transaction may actually result in clarify what is meant by ‘‘seller’’ in the Financial Information Rule, while greater risk of abuse during the second transaction. context of upselling.202 First, ERA and PMA and NRF suggested using the For example, in actions by the FTC and several PMA suggested that ‘‘seller’’ be standard laid out by the FCC for ‘‘do- states against Triad Discount Buying Service, Inc., not-call’’ purposes.208 NCL and AARP and related entities, the Commission and the states construed as the marketer who will alleged that the defendants crafted a marketing submit the charge for payment against disagreed. NCL stated: campaign designed to lure consumers to call solely the consumer’s account.203 As ERA We believe affiliates have to be treated as for the purpose of upselling them. See FTC v. stated: second sellers. They may be selling totally Smolev, No. 01-8922-CIV ZLOCH (S.D. Fla. 2001). different products with different terms and Specifically, the Commission and states alleged that [A] marketer might offer (and bill) a the defendants ran an advertising campaign for a consumer for a product that it obtains on a conditions. Consumers don’t have any way of free product, inviting consumers to call a toll-free wholesale basis from a manufacturer (in knowing what is an affiliate of that company number. When they called, consumers were asked many instances, the marketer may not even and what isn’t, and ultimately it doesn’t to provide account information to pay for shipping really matter to them because they need the take possession of the product, but rather and handling for the free product, and then were same basic disclosures about who they’re have the manufacturer ship directly to the upsold a ‘‘free trial’’ in a membership club or dealing with, what they’re buying and the purchaser). Both the marketer and the buyers club, that was then charged, without the terms and conditions, whether it’s entirely a consumer’s knowledge or consent, to the account manufacturer receive consideration in different seller or an affiliate of the original provided by the consumer to pay for the shipping exchange for providing, or arranging for the one.209 of the first product. See also NAAG-NPRM at 30, other to provide, the product to the n.73 (citing, among others such cases, Illinois v. consumer. Thus, both entities are arguably Blitz Media, Inc. (Sangamon County, No. 2001-CH- 204 ‘sellers.’ However, only the marketer will bill ERA-NPRM at 11. 592) and New York v. Ticketmaster and Time, Inc., 205 Amended Rule § 310.2(z). (Assurance of Discontinuance)). the consumer for the sale. As such, there 206 ERA-NPRM at 10. See also June 2002 Tr. II at 193 should be no need to identify both entities ERA-NPRM at 9; NCTA-NPRM at 14. 222 (ATA); PMA-NPRM at 13; SBC-NPRM at 9. 194 Id. 207 The Privacy of Consumer Financial 195 See NAAG-NPRM at 30, n.73, citing cases 200 See NAAG-NPRM at 30, n.73 (‘‘States have Information Rule, 16 CFR 313.3(a), defines an involving internal upsells, including but not limited taken actions against companies using preacquired affiliate as ‘‘any company that controls, is to Illinois v. Blitz Media, Inc. (Sangamon County, information as part of an upsell of membership controlled by or is under common control with Case No. 2001-CH-592); Triad Discount Buying programs or magazines. See note 188. See also New another company.’’ (quoted in ERA-NPRM at 11). Serv., Inc. [a/k/a Smolev] and related entities; and York v. Ticketmaster and Time, Inc. (Assurance of 208 The applicable definition in the FCC’s Minnesota v. Fleet Mortgage Corp., 158 F. Supp. 2d Discontinuance)’’). regulations is found at 47 CFR 64.1200(e)(2)(v). 962 (D. Minn. 2001). 201 60 FR at 43843. PMA-NPRM at 13 (‘‘Thus, we suggest that corporate 196 ABIA-NPRM at 5; AFSA-NPRM at 15; NFC- 202 ERA-NPRM at 9-10; PMA-NPRM at 12-13. See affiliates be exempt in those situations where the NPRM at 6. also VISA-NPRM at 9 (requesting clarification of the consumer would reasonably expect such affiliates 197 ABIA-NPRM at 5; MBA-NPRM at 3. term in all transactions, not just those involving to be related to the original seller.’’). See also June 198 SBC-NPRM at 2, 5, 8. upselling). 2002 Tr. II at 217-18; and at 226-28 (NRF). 199 PCIC-NPRM at 1-2. 203 ERA-NPRM at 10; PMA-NPRM at 13. 209 June 2002 Tr. II at 221-22; and at 228 (AARP).

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The Commission shares this viewpoint. wording, by adding the word the meaning of the term ‘‘before the As discussed above, the record in this ‘‘truthfully’’ to clarify that it is not customer pays’’ are sufficiently clear matter, as well as law enforcement enough that the disclosures be made; and declines to modify this provision. experience, indicate that upsells by the disclosures must also be true. The affiliates and non-affiliated third parties Commission received no comment on § 310.3(a)(1)(i) — Disclosure of total with whom there is a joint marketing this proposed change, and therefore has costs relationship have as much potential for determined to retain this additional Section 310.3(a)(1)(i) of the original deception and abuse as other types of wording in amended § 310.3(a)(1). Rule requires a seller or telemarketer to The few comments that the telemarketing transactions that are disclose the total costs to purchase, Commission received on § 310.3(a)(1) in subject to the Rule’s requirements. For receive, or use the goods or services. As response to the NPRM focused primarily that reason, the Commission believes noted in the TSR Compliance Guide, on the timing of the required that affiliates should be treated as ‘‘[i]t is sufficient to disclose the total separate sellers for purposes of upsell disclosures. AARP argued that, to be meaningful, the disclosures required by number of installment payments, and transactions. the amount of each payment, to satisfy this section must be given before 217 C. Section 310.3 — Deceptive payment is requested, not merely before this requirement.’’ Some commenters Telemarketing Acts or Practices. it is ‘‘collected.’’211 According to AARP, in the Rule Review urged the Section 310.3 of the original Rule sets ‘‘[s]uch information is key to making Commission to require, in sales forth required disclosures that must be truly informed buying decisions,’’ and involving monthly installment made in every telemarketing call; so all the necessary disclosures should payments, the disclosure of the total prohibits misrepresentations of material be given before a consumer is requested cost of the entire contract, not just the 218 information; requires that a telemarketer to pay for goods and services.212 DOJ amount of the periodic installment. obtain a customer’s express verifiable commented that the use of money- In the NPRM, the Commission declined authorization before obtaining or transmission services, rather than to modify the provision, but clarified submitting for payment a demand draft; couriers, is increasingly popular in that ‘‘the disclosure of the number of prohibits false and misleading fraudulent telemarketing schemes, and installment payments and the amount of statements to induce the purchase of recommended that the Commission each must correlate to the billing goods or services; holds liable anyone amend the current footnote addressing schedule that will actually be who provides substantial assistance to the meaning of ‘‘before the customer implemented. Therefore, to comply with another in violating the Rule; and pays’’ to state: ‘‘Similarly, when a seller the Rule’s total cost disclosure prohibits credit card laundering in or telemarketer directs a customer to use provision, it would be inadequate to telemarketing transactions. a money-transmission service to wire state the cost per week if the In the NPRM, the Commission payment, the seller or telemarketer must installments are to be paid monthly or 219 proposed amendments to require that make the disclosures required by quarterly.’’ The NPRM further noted disclosures made pursuant to this § 310.3(a)(1) before directing the that the best practice to ensure section be made ‘‘truthfully;’’ require customer to take money to an office or compliance with the clear and additional disclosures regarding prize agent of a money-transmission service to conspicuous standard governing all the promotions and in the sale of credit card wire payment.’’213 § 310.3(a)(1) disclosures is to ‘‘do the loss protection plans; prohibit In the SBP for the original Rule, the math’’ for the consumer, stating the total misrepresentations in the sale of credit Commission noted that for a cost of the contract whenever 220 card loss protection plans; expand the telemarketer to make the required possible. The Commission reach of the express verifiable disclosures ‘‘before a customer pays,’’ acknowledged that such a statement authorization provision to include all the disclosures must be made ‘‘before might not be possible in an open-ended methods of payment lacking certain key the consumer sends funds to a seller or installment contract, and stated that in consumer protections; and make certain telemarketer or divulges to a such contracts, ‘‘particular care must be changes pursuant to the USA PATRIOT telemarketer or seller credit card or bank taken to ensure that the cost disclosure Act, which extends the coverage of the account information.’’214 In the original is easy for the consumer to 221 Rule to include the inducement of a Rule’s TSR Compliance Guide, the understand.’’ charitable solicitation. Commission further clarified that the In response to the NPRM, the Based on the record in this disclosures required by § 310.3(a)(1) Commission again received some proceeding, the Commission has must be made ‘‘[b]efore a seller or comments urging that the Commission determined to make additional telemarketer obtains a consumer’s affirmatively mandate that, in modifications in the amended Rule. consent to purchase, or persuades a installment sales contracts, the total cost These changes, and the reasoning consumer to send any full or partial of the contract be disclosed, rather than supporting the Commission’s decisions, payment. . . .’’215 The Guide goes on to the number and amount of payments.222 are set forth below. say that ‘‘[a] seller or telemarketer also For example, LSAP opined that ‘‘it is must provide the required information illogical to maintain a provision that § 310.3(a)(1) — Required disclosures before requesting any credit card, bank demands a subjective determination of Section 310.3(a)(1) of the original account, or other information that a whether or not a disclosure meets a Rule requires the seller or telemarketer seller or telemarketer will or could use ‘clear and conspicuous’ standard when to disclose, in a clear and conspicuous to obtain payment.’’216 The Commission an objective and unambiguous standard manner, certain material information believes that its statements to date on before a customer pays for goods or 217 Id. at 12. services offered.210 The NPRM proposed 211 AARP-NPRM at 8. 218 See 67 FR at 4502. to make a minor modification to the 212 Id. 219 Id. 213 DOJ-NPRM at 2. 220 Id. 210 See ARDA-NPRM at 5 (noting that ARDA 214 60 FR at 4384. 221 Id. at n.92. members support the current disclosures required 215 TSR Compliance Guide at 11. 222 See, e.g., LSAP-NPRM at 6-8; NACAA-NPRM by this section). 216 Id. at 7-8; NCL-NPRM at 3-4; NCLC-NPRM at 13.

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can be adopted.’’223 NACAA suggested myriad variations of ‘‘total cost’’ not improve a customer’s chances of that the Commission require disclosure disclosures for the many kinds of goods winning,232 which would make the of the total cost of the contract, noting and services sold through telemarketing. TSR’s disclosure provision consistent that consumers do not always have the Therefore, § 310.3(a)(1)(i) is retained with the requirements for direct mail time or ability to ‘‘do the math’’ during unchanged in the amended Rule. solicitations under the Deceptive Mail 224 Prevention and Enforcement Act of 1999 a telemarketing call. NCL concurred § 310.3(a)(1)(ii) — Disclosure of material (‘‘DMPEA’’).233 After reviewing the with LSAP and NACAA, and noted that restrictions since the seller or telemarketer would record in this matter, the Commission know the total contract price in an Section 310.3(a)(1)(ii) requires the has determined to amend the Rule by installment offer, it would impose no disclosure of ‘‘[a]ll material restrictions, adding this disclosure requirement to undue burden on industry members to limitations, or conditions to purchase, two provisions: in § 310.3(a)(1) mandate disclosure of the total contract receive, or use the goods or services that (governing all telemarketing calls), and price.225 are the subject of the sales offer.’’ In in § 310.4(d) (governing outbound The Commission declines to adopt the response to the Rule Review, NAAG telemarketing).234 recommendations to modify the total recommended that this provision As noted in the NPRM, the cost disclosure provision. The explicitly state that the illegality of the Commission believes that this Commission believes that its goods or services offered is a material disclosure will prevent consumer interpretation, set forth in the NPRM, term. NAAG’s concern arose out of the deception. The legislative history of the allows sellers and telemarketers the numerous cross-border foreign lottery DMPEA suggests that without such a flexibility necessary to make a truthful scams in which U.S. citizens are offered disclosure, many consumers reasonably and meaningful disclosure when goods the sale of foreign lottery chances.228 interpret the overall presentation of or services are offered in conjunction The Commission declined to modify the many prize promotions to convey the with an open-ended installment Rule, stating its position that the term message that making a purchase will agreement. The Commission’s ‘‘material’’ is ‘‘sufficiently clear and enhance their chances of winning the interpretation makes clear, however, broad enough to encompass the touted prize.235 Such a message is likely that, at a minimum, the total number of illegality of goods or services payments and the amount of each must offered.’’229 232 67 FR at 4503. Although NCL originally made this suggestion with respect to § 310.4(d), which be clearly and conspicuously disclosed In response to the NPRM, DOJ supported NAAG’s reasoning, and governs oral disclosures required in outbound in order to satisfy the requirements of telemarketing calls, the rationale and purpose of the § 310.3(a)(1)(i). Although the recommended that the Commission add proposed disclosure applies with equal force to all Commission continues to believe that to § 310.3(a)(1)(ii) ‘‘a specific and telemarketing, as covered by § 310.3(a). See NCL-RR at 9. See also the discussion below in the section the best practice is for the telemarketer unambiguous reference to the illegality of goods and services that the seller or on sweepstakes disclosures within the analysis of or seller to disclose the full amount of § 310.4(d). payments under of the contract telemarketer is offering,’’ noting that 233 67 FR at 4503. The DMPEA is codified at 39 whenever possible, it declines to impose such an amendment would enhance law U.S.C. 3001(k)(3)(A)(II). See also ‘‘The DMA enforcement and consumer education Guidelines for Ethical Business Practice,’’ revised such a requirement, which would be Aug. 1999, at http://www.the-dma.org/library/ unworkable in the context of open- efforts regarding foreign lottery 230 guidelines/dotherightthing.shtml#23 (Article #23, ended contracts, such as negative option scams. The Commission remains Chances of Winning). In this regard, it is plans.226 confident that the breadth of the term noteworthy that the DMA’s Code of Ethics advises The Commission also declines to ‘‘material,’’ as used in the Rule, would that ‘‘[n]o sweepstakes promotion, or any of its necessarily encompass the underlying parts, should represent . . . that any entry stands adopt the recommendation that the a greater chance of winning a prize than any other Commission explicitly state that for illegality of goods or services offered in entry when this is not the case.’’ 231 electricity sales, it is permissible to telemarketing. Therefore, the 234 See discussion below regarding the disclosure disclose the price per kilowatt hour.227 Commission declines to modify the in § 310.4(d). language in this provision and the 235 See SEN. REP. NO. 106-102 (1999); and H. The Commission recognizes that a vast REP. NO. 106-431 (1999). Law enforcement actions number of goods and services can be amended Rule retains unchanged the since enactment of DMPEA further support this sold through telemarketing, and believes original text of § 310.3(a)(1)(ii). conclusion. For example, Publishers Clearing House it unnecessary to specify, for each, the (‘‘PCH’’) agreed to settle an action brought by 24 § 310.3(a)(1)(iv) — Disclosures regarding states and the District of Columbia alleging, among specific terms that must be disclosed. prize promotions other things, that the PCH sweepstakes mailings Rather, the Commission believes that deceived consumers into believing that their Section 310.3(a)(1)(iv) requires that, the language of § 310.3(a)(1)(i), which chances of winning the sweepstakes would be in any prize promotion, a telemarketer requires that the disclosure of total costs improved by buying magazines from PCH. As part must disclose, before a customer pays, of the settlement, PCH agreed to include (among others) be made ‘‘truthfully, and the odds of being able to receive the disclaimers in its mailings stating that buying does in a clear and conspicuous manner,’’ not increase the consumer’s chances of winning, prize, that no purchase or payment is provides sufficient guidance for sellers and pay $18.4 million in redress. In 2001, PCH required to win a prize or participate in agreed to pay $34 million in a settlement with the who must make these disclosures, a prize promotion, and the no-purchase/ remaining 26 states. See, e.g., Missouri ex rel. Nixon without necessitating explicit approval no-payment method of participating in v. Publishers Clearing House, Boone County Circuit from the Commission for each of the Ct., No. 99 CC 084409 (2002); Ohio ex rel. the prize promotion. In the NPRM, the Montgomery v. Publishers Clearing House, Franklin Commission proposed adding a County Ct. of Common Pleas, No. 00CVH-01-635 223 LSAP-NPRM at 7. (2001 ). Similarly, in 1999, American Family 224 disclosure that making a purchase will NACAA-NPRM at 7-8 (citing, as an example of Publishers (‘‘AFP’’) settled several multi-state class the harm that would persist absent such a actions that alleged the AFP sweepstakes mailings 228 provision, the sale of purportedly ‘‘free’’ magazines, 67 FR at 4502-03. induced consumers to buy magazines to better their for which consumers are billed exorbitant 229 Id. at 4503. chances of winning a sweepstakes. The original ‘‘shipping and handling’’ fees). 230 DOJ-NPRM at 3. suit, filed by 27 states, was settled in March 1998 225 NCL-NPRM at 3-4. 231 As the Commission noted in the NPRM, the for $1.5 million, but was reopened and expanded 226 See 60 FR at 43846 (noting that the total cost definition of ‘‘material’’ under the Rule comports to 48 states and the District of Columbia after claims of a contract cannot be ascertained in negative with the Commission’s Deception Statement and that AFP had violated its agreement. The state option or continuity plans). established Commission precedent. See 67 FR at action was finally settled in August 2000 with AFP 227 See Green Mountain-NPRM at 7. 4503. agreeing to pay an additional $8.1 million in

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to influence these consumers’ instances, such a requirement to § 310.3(a)(1)(v) — Required disclosure purchasing decisions, inducing them to disclose odds would reveal that of material costs in prize promotions purchase a product or service they virtually every entrant gets a ‘‘prize.’’ otherwise would not purchase just so The Commission believes that the better NACAA expressed concern that they can increase their chances of course is to require prize promoters to original and proposed Rule winning. For this reason, the disclose the method by which odds are § 310.3(a)(1)(v) requires that a prize Commission believes that entities using calculated. With regard to the promoter disclose to consumers all these promotions must disclose that a suggestions to revise the definition of ‘‘material costs or conditions to receive purchase will not enhance the chance of ‘‘prize’’ and the ease of entry for non- or redeem a prize that is the subject of winning, to ensure that consumers are purchasers, the record provides no the prize promotion’’ when there should 246 not deceived. evidence on why the difference between be no costs to receive a prize. Commenters who addressed this a ‘‘prize’’ and a ‘‘free gift’’ would be NACAA suggests removing the proposal generally were supportive of ‘‘material costs’’ portion of subsection adding the disclosure.236 NAAG material to consumers. The Commission believes that its authority to reach (v). The Commission agrees that there supported the additional disclosure, but should be no costs to receive or redeem deceptive or unfair acts or practices asked the Commission to go further. a prize. In fact, § 310.3(a)(1)(iv) requires under the FTC Act has been sufficient First, NAAG suggested that any a disclosure that ‘‘no purchase or to address any deceptive prize telemarketer using a prize promotion payment is required to win a prize or to promotions that have not been reachable should be required to disclose the actual participate in a prize promotion.’’ under the Rule.242 The Commission’s or estimated odds—not simply how the Moreover, § 310.3(a)(2)(v) prohibits 237 requirements regarding prize promotion odds might be calculated. Second, misrepresentations ‘‘that a purchase or disclosures are not inconsistent and do NAAG recommended that the original payment is required to win a prize or 238 Rule’s definition of ‘‘prize’’ be made not conflict with the more restrictive participate in a prize promotion.’’ Thus consistent with state laws and state laws. Therefore, the Commission the Rule is unequivocal in forbidding regulations, and the several multi-state declines to adopt NAAG’s conditioning a ‘‘prize’’ on a payment or settlements with large promotional recommendations. purchase. Section 310.3(a)(1)(v) is 239 sweepstakes companies. Third, they PMA maintained that the disclosure intended to further clarify that any recommended that the Commission that making a purchase would not incidental cost that a consumer must track provisions in the recent improve a customer’s chances of incur— not merely a purchase or settlements between the states and PCH, winning was unnecessary and that there payment—must be disclosed in advance which would ensure that the means by was no evidence on the record to to avoid deception and to comply with which a consumer might enter a support its addition to the Rule.243 They the Rule. Despite NACAA’s comment, sweepstakes without making a purchase suggested that the disclosure makes the Commission does not believe there is not more difficult than if a purchase sense in the context of direct mail, but is any confusion regarding the role of were made.240 Each of these suggestions not in the types of representations more this provision. Therefore, the is discussed below. 244 Commission has determined to retain As noted in the SBP for the original often found in telemarketing. the original wording of this provision. Rule, the Commission continues to Nonetheless, the PMA stated that, as a gesture of good faith, they would not believe that, in many instances, actual § 310.3(a)(1)(vi) — Required disclosures oppose the change.245 odds cannot be calculated in advance. in the sale of credit card loss protection In such circumstances, the Commission Therefore, the Commission has believes that requiring prize promoters determined that it is a deceptive The telemarketing of credit card loss to disclose ‘‘estimated’’ odds has greater telemarketing act or practice to fail to protection plans has been a persistent potential for abuse than a disclosure of disclose before the customer pays, in source of a significant number of the method used to calculate those any prize promotion, the odds of being complaints about fraud.247 odds.241 Furthermore, in many able to receive the prize, that no Telemarketers of credit card loss purchase or payment is required to win protection plans represent to consumers damages. See, e.g., Washington v. Am. Family a prize or participate in a prize that these plans will limit the Publishers, King County Super. Ct., No. 99-09354- promotion, that any purchase or consumer’s liability if his credit card is 2 SEA (2000). lost or stolen.248 These telemarketers 236 ARDA-NPRM at 5; NAAG-NPRM at 54-55; payment will not increase the person’s NACAA-NPRM at 6-7; NCL-NPRM at 4; DOJ-NPRM chances of winning, and the no- frequently misrepresent themselves as at 3-4. See also June 2002 Tr. II at 105-15. purchase/no-payment method of being affiliated with the consumer’s 237 NAAG-NPRM at 54. NACAA also participating in the prize promotion. credit card issuer, or misrepresent either recommended that the Commission require more affirmatively or by omission that the specificity in the disclosure regarding the odds. NACAA-NPRM at 6-7; and discussion regarding the for activity that does not cause consumer injury, consumer is not currently protected disclosure of odds, June 2002 Tr. II at 113-15. DOJ since it is hard to imagine what harm is caused to against credit card fraud, or that the recommended that the Commission include a brief consumers by underestimating the odds of winning. consumer has greater potential legal explanation in the Rule or in a footnote of what is 242 See, e.g., FTC v. Landers, No. 100-CV-1582 liability for unauthorized use of his or meant by the phrase ‘‘the odds of being able to (N.D. Ga. filed June 22, 2000); New World Bank receive a prize,’’ and clarify that the disclosure Servs., Inc., No. CV-00-07225-GHK (C.D. Cal. filed her credit cards than he or she actually must give the odds for each prize. DOJ-NPRM at 3- July 5, 2001); Global Network Enters., Inc., No. 00- 4. 625 (GET) (ANX) (C.D. Cal. 2001). 246 NACAA-NPRM at 6-7 (pointing out that, if 238 Original Rule § 310.2(v). 243 PMA-NPRM at 4-8. there are costs, then the ‘‘prize offer’’ becomes a 239 NAAG-NPRM at 54. NAAG recommended that 244 Id. See also June 2002 Tr. II at 104-05. sales pitch for add-ons, not a prize). ‘‘prize’’ be defined to be an item of value and that 245 PMA-NPRM at 5, 7. See also June 2002 Tr. II 247 See, e.g., NCL-NPRM at 6. it not be an item that substantially all entrants in at 106, 108 (PMA and ARDA, each stating that they 248 Credit card loss protection plans are the promotion will receive. do not oppose the disclosure). ARDA stated in its distinguished from credit card registration plans, in 240 Id. at 54-55. comment that, while it is inconvenient to include which consumers pay a fee to register their credit 241 Ironically, requiring accurate disclosure of the additional verbiage in a telephone call, it did not cards with a central party, who agrees to contact the odds of winning also is likely to subject some find the additional disclosure unduly burdensome. consumers’ credit card companies if the consumers’ sellers and telemarketers to liability under the Rule ARDA-NPRM at 5. cards are lost or stolen.

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does under the law.249 In fact, federal of credit card protection plans is consumers will decline to purchase law limits this liability to no more than particularly pernicious because it such plans once they know that they $50.250 usually involves blatant duplicate free protection the law already In the NPRM, the Commission misrepresentations and scare tactics provides them. The Commission will proposed two new provisions to address about consumers’ liability for lost or continue to monitor complaints this practice. The first provision— stolen credit cards.254 Furthermore, the regarding the sale of these plans to § 310.3(a)(1)(vi)—requires the seller or fraud is especially egregious because ensure that these provisions are telemarketer of credit card loss these schemes appear adequate to remedy this problem. protection plans to disclose, before the disproportionately to affect older Therefore, the Commission has customer pays, the limit, pursuant to 15 consumers: in 2001, NCL reported, 55 determined that it is a deceptive U.S.C. § 1643, on a cardholder’s liability percent of the victims of credit card loss telemarketing act or practice to fail to for unauthorized use of a credit card. protection plans were age 60 or older, disclose the limits on a cardholder’s Since many consumers appear to be while that age group accounted for only liability for unauthorized use of a credit unaware of the protection they have, the 26 percent of telemarketing fraud card pursuant to 15 U.S.C. § 1643, and Commission reasoned that a disclosure victims overall.255 As noted in the has adopted § 310.3(a)(1)(vi), to require of the limits of their liability would NPRM, large numbers of complaints that this information be disclosed. deter many consumers from paying for have prompted both the Commission protection that duplicates the free and the state Attorneys General to § 310.3(a)(1)(vii) — Disclosures protection they already have under devote substantial resources to bringing regarding negative option features federal law. The second provision— cases that challenge the deceptive The amended Rule adds a new § 310.3(a)(2)(viii)—prohibits sellers or marketing of credit card loss protection provision, § 310.3(a)(1)(vii), which telemarketers from misrepresenting that plans.256 requires sellers and telemarketers to any customer needs offered goods or NCL supported the Commission’s disclose certain material information services to provide protections a decision to require disclosures and any time a seller or telemarketer makes customer already has pursuant to 15 prohibit misrepresentations in the sale an offer including any ‘‘negative option U.S.C. § 1643.251 of credit card loss protection plans. feature’’ as that term is defined under The Commission received little However, NCL also recommended that new § 310.2(t) of the amended Rule. comment on these proposed provisions. the Commission go further and mandate This disclosure, like all of those listed Those commenters who addressed the requirements similar to those under the in § 310.3(a)(1), must be made before a disclosure provision strongly supported Credit Repair Organizations Act257—i.e., customer pays for goods or services. it, noting that complaints about the written disclosures regarding the This new provision requires disclosure fraudulent sale of credit card loss consumer’s rights, coupled with a of all material terms and conditions of protection plans have continued written agreement or an agreement the negative option feature. unabated since the original Rule became signed by the buyer who has three days During the Rule Review, several effective.252 In its NPRM comment, NCL to cancel.258 The Commission believes commenters recommended that the reported that fraudulent solicitations for that disclosures coupled with the Commission specifically address the credit card loss protection plans ranked prohibition against misrepresentation problems associated with ‘‘free’’ or eighth among the most numerous are appropriate and sufficient remedies ‘‘trial’’ offers that include a negative complaints to the NFIC in 2001.253 The to cure the problems associated with option feature, particularly when the Commission’s complaint-handling deceptive sales of credit card loss telemarketer already possesses the experience is consistent with that of protection plans. The likely outcome of consumer’s billing information.259 NCL, with credit card loss protection enforcement of these remedies is that These offers frequently are presented to plans continuing to be a source of consumers as ‘‘low involvement consumer complaints. In its comment, 254 Id. marketing decisions’’260 in which they NCL pointed out that fraud in the sale 255 Id. In its Rule Review comment, NCL reported are simply ‘‘previewing’’ the product or that in 1999, over 71 percent of the complaints service. However, the Rule Review 249 about these schemes were from consumers over 50 NCL-RR at 10. See, e.g., FTC v. Universal years of age. NCL-RR at 10. record, as well as federal and state law Mktg. Servs., Inc., No. CIV-00-1084L (W.D. Okla. 256 See, e.g., FTC v. Consumer Repair Servs., Inc., filed June 20, 2000); FTC v. NCCP Ltd., No. 99 CV- enforcement experience, show that No. 00-11218 (C.D. Cal. filed Oct. 23, 2000); FTC v. 0501 A(Sc) (W.D.N.Y. filed July 22, 1999); S. Fla. consumers frequently are confused Forum Mktg. Servs., Inc., No. 00 CV 0905C(F) Bus. Ventures, No. 99-1196-CIV-T-17F (M.D. Fla. (W.D.N.Y. filed Oct. 23, 2000); FTC v. 1306506 about their obligations in these filed May 24, 1999); Tracker Corp. of Am., No. 1:97- Ontario, Ltd., No. 00 CV 0906A (SR) (W.D.N.Y. filed CV-2654-JEC (N.D. Ga. filed Sept. 11, 1997). transactions, mistakenly believing that, Oct. 23, 2000); FTC v. Advanced Consumer Servs., 250 because they did not provide any billing Under § 133 of the Consumer Credit Protection No. 6-00-CV-1410-ORL-28-B (M.D. Fla. filed Oct. Act, the consumer’s liability for unauthorized 23, 2000); Capital Card Servs., Inc. No. CIV 00 1993 information to the telemarketer, they are charges is limited to $50 when there is a signature PHX ECH (D. Ariz. filed Oct. 23, 2000); .FTC v. First under no obligation unless they take involved. For transactions where no signature was Capital Consumer Membership Servs., Inc., No. 00- some additional affirmative step to involved (e.g., where the transaction did not take CV- 0905C(F) (W.D.N.Y. filed Oct. 23, 2000); FTC consent to the purchase.261 As a result, place face-to-face), the consumer has zero liability v. Universal Mktg. Servs., Inc., No. CIV-00-1084L for unauthorized charges. 15 U.S.C. 1643. (W.D. Okla. filed June 20, 2000); FTC v. Liberty 251 This approach parallels the Rule’s treatment of Direct, Inc., No. 99-1637 (D. Ariz. filed Sept. 13, 259 See, e.g. NACAA-RR at 2; NAAG-RR at 11-12, cost and quantity of goods (§§ 310.3(a)(1)(i) and 1999); FTC v. Source One Publ’ns, Inc., No. 99-1636 16-17; NCL-RR at 5-6. 310.3(a)(2)(i)), material restrictions, limitations, or PHX RCP (D. Ariz. filed Sept. 14, 1999); FTC v. 260 NAAG-RR at 11. conditions (§§ 310.3(a)(1)(ii) and 310.3(a)(2)(ii)), Creditmart Fin. Strategies, Inc., No. C99-1461 (W.D. 261 67 FR at 4501, citing FTC v. Triad Disc. Buying refund policy (§§ 310.3(a)(1)(iii) and 310.3(a)(2)(iv)), Wash. filed Sept. 13, 1999); FTC v. NCCP Ltd., No. Serv., Inc., No. 01-8922 CIV ZLOCH (S.D. Fla. and prize promotions (§§ 310.3(a)(1)(iv) & (v) and 99 CV-0501 A(Sc) (W.D.N.Y. filed July 22, 1999); 2001); New York v. MemberWorks, Inc., Assurance 310.3(a)(2)(v)). In each case, material facts must be FTC v. S. Fla. Bus. Ventures, No. 99-1196-CIV-T- of Discontinuance (Aug. 2000); Minnesota v. disclosed, and misrepresentations of those facts are 17F (M.D. Fla. filed May 24, 1999); FTC v. Bank MemberWorks, Inc., No. MC99-010056 (4th Dist. prohibited. See additional discussion below Card Sec. Ctr., Inc., No. 99-212-Civ-Orl-18C (M.D. Minn. June 1999); Minnesota v. Damark Int’l, Inc., regarding § 310.3(a)(2)(viii). Fla. filed Feb. 26, 1999); FTC v. Tracker Corp. of Assurance of Discontinuance (Ramsey County Dist. 252 DOJ-NPRM at 4; LSAP-NPRM at 7-8; NAAG- Am., No. 1:97-CV-2654-JEC (N.D. Ga. filed Sept. 11, Ct. Dec. 3, 1999); FTC v. S.J.A. Soc’y, Inc., No. 2:97 NPRM at 55; NCL-NPRM at 6. See also June 2002 1997). CM 472 (E.D. Va. filed May 31, 1997). To this list Tr. II at 104. 257 15 U.S.C. 1679. may be added several more law enforcement 253 NCL-NPRM at 6. 258 NCL-NPRM at 6. actions, including but not limited to actions by state

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such scenarios have resulted in The amended Rule now takes a two- Therefore, new § 310.3(a)(1)(vii) significant abuse as consumers discover pronged approach to remedying the requires that the following disclosures they have been charged for something harms associated with offers involving must be made if an offer includes any they did not realize they had been negative option features, either alone or negative option feature, as that term is deemed to have consented to in combination with preacquired defined under § 310.2(t): (1) the fact that purchase.262 account telemarketing. Although the the customer’s account will be charged In the NPRM, the Commission record shows that the greatest consumer unless the customer takes an affirmative proposed a broad prohibition on the injury occurs when these two practices action to avoid the charge(s); (2) the receipt or disclosure of a consumer’s 265 occur together, each practice can, and date(s) the charge(s) will be submitted billing information from any source 266 often does, occur without the other, for payment; and (3) the specific steps other than the consumer herself. This and both, alone or in combination, can expansive approach would have the customer must take to avoid the be problematic for consumers. Thus, the charge(s).268 As noted above in the obviated the need for a more narrowly- amended Rule sets forth separate discussion of § 310.2(t) defining tailored remedy specifically addressing requirements specific to each practice— 263 ‘‘negative option feature,’’ that term is negative options. The Commission disclosure requirements for offers with believed that without preacquired a negative option feature, in intended to reach any provision under account information, telemarketers’ § 310.3(a)(1)(vii); and, separately, which a consumer’s failure to take ability to exploit the negative option consent requirements for offers where affirmative action to reject the goods or scenario to bill charges to consumers’ the telemarketer possesses preacquired services will be deemed by the seller to accounts without their knowledge or account information, in § 310.4(a)(6). constitute acceptance (or continuing consent would have been eliminated. The application of these two separate acceptance) of goods or services. Thus, The seller or telemarketer would have provisions depends on the details of the the term includes, but is not limited to, been required to obtain the account transaction, thus addressing with greater ‘‘free-to-pay conversions,’’ automatic information directly from the consumer, precision different potential renewal offers, and continuity plans.269 thus putting the consumer on notice telemarketing scenarios. The required material disclosures that he is agreeing to purchase Commenters stressed one issue: the must be made truthfully, and in a clear something.264 need for consumers to clearly and conspicuous manner, before a Based on the entire record in this understand and consent to the precise 270 proceeding, however, the Commission customer pays. Under the amended terms of the negative option feature of Rule’s treatment of preacquired account has determined that a blanket 267 an offer. The problematic aspect of an 271 prohibition on preacquired account telemarketing, ‘‘before a customer offer with a negative option feature is pays’’ shall be construed as meaning telemarketing sweeps too broadly, that the consumer’s inaction—not an before a customer provides express curtailing much activity that has not affirmative action taken by the informed consent to be charged for the generated a record of consumer harm. consumer—is deemed to signal As explained in detail below in acceptance (or continuing acceptance) goods or services offered, and to be § 310.4(a)(6) of this SBP, the of an offer for goods or services. By charged using a specifically identified 272 Commission has refocused this aspect of accepting the initial offer (e.g., to try a account. Thus, § 310.3(a)(1)(vii), and the amended Rule on the core problem membership in a buying club service for indeed, all of § 310.3(a)(1), must be read of preacquired account telemarketing, 30 days, or to receive a daily newspaper in conjunction with new § 310.4(a)(6), which is to ensure that a customer’s for six months) and doing nothing which prohibits any seller or consent is obtained before charges are further, the consumer actually contracts telemarketer from causing billing billed to the customer’s account, to pay for something more (e.g., an information to be submitted for regardless of the source from which the automatic annual membership fee or payment, directly or indirectly, without seller or telemarketer obtained the long-term newspaper subscription the express informed consent of the customer’s billing information. renewal). In these circumstances, it is customer. Therefore, the amended Rule contains a crucial that consumers clearly new provision, § 310.4(a)(6), that understand the precise terms of such a 268 prohibits charging a customer’s account negative option feature before they agree These disclosures are similar to those required in the Commission’s Rule concerning without the customer’s express to accept the initial ‘‘free offer’’ or informed consent. As a result of the ‘‘Prenotification Negative Option Plans.’’ See 16 purchase, since this agreement subjects CFR 425.2(a)(1). more narrowly-tailored approach to the them to continuing charges, often long- 269 Each of these terms describes a form of problems associated with preacquired term, if they fail to understand that they negative option feature, as discussed in this SBP at account telemarketing, a new solution to must take action to decline the offer or § 310.2(t), regarding the definition of ‘‘negative the problems associated with negative terminate the agreement. option feature,’’ and § 310.2(o), regarding the option features is also required. definition of ‘‘free-to-pay conversion.’’ 270 265 See discussion of § 310.4(a)(6) below. 16 CFR 310.3(a)(1). 271 Attorneys General against BrandDirect Marketing 266 For example, the seller or telemarketer of a The Commission has determined to include Corp. (Assurances of Discontinuance with the magazine or newspaper subscription, who does not provisions prohibiting the disclosure, for States of Connecticut and Washington); Cendant have preacquired account information, may make consideration, of unencrypted account information Membership Services (Consent Judgment with State an offer for a subscription that includes an for use in telemarketing in § 310.4(a)(5), and of Wisconsin); Signature Fin. Mktg. (Assurance of automatic annual renewal by obtaining account prohibiting unauthorized billing in § 310.4(a)(6) of Discontinuance with State of New York); Illinois v. information or payment directly from the consumer the amended Rule. As explained below in the Blitz Media, Inc. (Sangamon County, No. 2001-CH- in the initial transaction. Or, as noted in the NPRM, discussion of these new provisions, these 592); New York v. Ticketmaster and Time, Inc. a customer may have an ongoing relationship with provisions address the harm caused by sellers or (Assurance of Discontinuance), and additional a particular contact lens retailer, in which he telemarketers who possess preacquired account actions by New York and California against expects the retailer to retain account information for MemberWorks, and by New York against Damark future similar purchases, none of which involve a information, as well as the broader abuse of Int’l. See NAAG-NPRM at 30, n.73. negative option feature. See 67 FR 4513, n.196. charging a consumer’s account without the 262 See 67 FR 4513-14, citing NAAG-RR at 11-12. 267 NACAA-RR at 2; NAAG-RR at 11-12; NCL-RR consumer’s express informed consent, regardless of 263 Id. at 4514. at 5-6; NAAG-NPRM at 32-33. See also ERA-NPRM the nature of the telemarketing transaction. 264 Id. at 4512-14. at 2-3, 16; June 2002 Tr. II at 209-10 (ERA). 272 See discussion of § 310.4(a)(6) below.

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§ 310.3(a)(2) — Prohibited use of a credit card. This provision is result of the more narrowly-tailored misrepresentations in the sale of goods retained unchanged in the amended approach to the problems associated or services Rule. with preacquired account telemarketing, Section 310.3(a)(2) in the original In addition to advising consumers of a newly focused approach to the Rule prohibits a seller or telemarketer their rights, the Commission also problems related to negative option from misrepresenting certain material believes that additional protection is features is also required. This includes information in a telemarketing needed to curb the misrepresentations specific disclosure requirements, which transaction, including: total cost; any that are prevalent in the sale of credit are set forth in § 310.3(a)(1)(vii) and material restrictions; any material aspect card loss protection plans. explained above. Consistent with the of the performance, efficacy, nature, or Telemarketers often misrepresent structure of the Rule to date, and to central characteristics of the goods or various aspects of the credit card loss ensure that the disclosures are not only services offered; any material aspect of protection plan to consumers, especially made, but made truthfully, the amended the seller’s refund policy; any material the existing legal limits on consumer Rule includes a mirroring provision to liability if their cards are lost or these disclosure requirements, at aspect of a prize promotion; any 276 material aspect of an investment stolen. Therefore, the Commission § 310.3(a)(2)(ix), which prohibits opportunity; and a seller’s or proposed to add a second provision misrepresentations regarding ‘‘[a]ny telemarketer’s affiliation with, or —§ 310.3(a)(2)(viii)—which prohibits material aspect of a negative option endorsement by, any governmental or sellers or telemarketers from feature including, but not limited to, the third-party organization.273 misrepresenting that any customer fact that the customer’s account will be In the NPRM, the Commission needs offered goods or services to charged unless the customer takes an proposed three changes to the provision. provide protections a customer already affirmative action to avoid the charge(s), First, the phrase ‘‘in the sale of goods or has pursuant to 15 U.S.C. § 1643, which the date(s) the charge(s) will be services’’ was added to the section to limits a cardholder’s liability for submitted for payment, and the specific 277 clarify that these prohibited unauthorized charges. steps the customer must take to avoid misrepresentations apply only in that The Commission received little the charge(s).’’ context. This change was made because, comment on this proposed provision. § 310.3(a)(3) — Express verifiable pursuant to the mandate of the USA Those commenters who addressed the authorization PATRIOT Act, the Commission Commission’s proposal strongly proposed adding to the Rule § 310.3(d), supported the provision’s method of Section 310.3(a)(3) of the original which delineates misrepresentations addressing problems with these plans, Rule requires that a seller or prohibited in the specific context of noting that complaints about the telemarketer obtain express verifiable charitable solicitations. Second, fraudulent sale of credit card loss authorization in sales involving § 310.3(a)(2)(vii) was modified slightly protection plans have continued payment by demand drafts or similar unabated since the original Rule became negotiable paper.279 The Rule also to conform with proposed § 310.3(d)(7) 278 which is an almost identical provision, effective. Therefore, the Commission provides that authorization is deemed but in the charitable solicitation context. has determined that it is a deceptive verifiable if any of three specified means Finally, the Commission proposed an telemarketing act or practice to are employed to obtain it: (1) express additional prohibited misrepresentation misrepresent that any customer needs written authorization by the customer, regarding credit card loss protection particular goods or services in order to including signature; (2) express oral plans.274 have protections provided pursuant to authorization that is tape recorded and The Commission received no 15 U.S.C. § 1643, and has adopted made available upon request to the comments regarding the first two § 310.3(a)(2)(viii), which prohibits a customer’s bank; or (3) written changes, and thus retains these in the seller or telemarketer from confirmation of the transaction, sent to amended Rule. misrepresenting that any consumer the customer before submission of the needs to purchase protections that they draft for payment. If the telemarketer § 310.3(a)(2)(viii) — Misrepresentations already have under 15 U.S.C. § 1643. regarding credit card loss protection chooses to use the taped oral plans § 310.3(a)(2)(ix) — Misrepresentations authorization method, the Rule requires regarding negative option feature offers the telemarketer to provide, upon As discussed in detail above, the request, tapes evidencing the customer’s telemarketing of credit card loss The original Rule did not specifically require disclosures or prohibit oral authorization, including the protection plans has been a persistent customer’s receipt of the following source of a significant number of misrepresentations regarding negative option features in telemarketing offers. information: the number, date(s) and complaints about fraud and, as a result, amount(s) of payments to be made; date has been the target of numerous law However, as noted above, in the discussion of § 310.3(a)(1)(vii), as a of authorization; and a telephone enforcement actions by both the number for customer inquiry that is Commission and the state Attorneys 276 answered during normal business General.275 In the NPRM, the See discussion of § 310.3(a)(1)(vi) above, and notes 249 and 253. hours.280 Commission proposed two new 277 As noted above, this approach parallels the In the NPRM, the Commission provisions to address this practice. The TSR’s treatment of cost and quantity of goods proposed to amend the express first provision, in § 310.3(a)(1)(vi), (§§ 310.3(a)(1)(i) and 310.3(a)(2)(i)), material verifiable authorization provision to discussed above, requires that sellers or restrictions, limitations, or conditions (§§ 310.3(a)(1)(ii) and 310.3(a)(2)(ii)), refund policy telemarketers of such plans disclose, (§§ 310.3(a)(1)(iii) and 310.3(a)(2)(iv)), and prize 279 The use of demand drafts, or ‘‘phone checks,’’ before the customer pays, the limit, promotions (§§ 310.3(a)(1)(iv) & (v) and enables a merchant to obtain funds from a person’s pursuant to 15 U.S.C. § 1643, on a 310.3(a)(2)(v)). In each case, material facts must be bank account without that person’s signature on a cardholder’s liability for unauthorized disclosed, and misrepresentations of those facts are negotiable instrument. prohibited. 280 See original Rule § 310.3(a)(3). Section 278 DOJ-NPRM at 4; LSAP-NPRM at 7-8; NAAG- 310.3(a)(3)(iii)(A) of the original Rule requires that 273 See 16 CFR 310.3(a)(2). NPRM at 55; NCL-NPRM at 6. See also June 2002 all information required to be included in a taped 274 Proposed Rule § 310.3(a)(2)(viii). Tr. II at 104; and discussion of § 310.3(a)(1)(vi) oral authorization be included in any written 275 See note 256 above. above. confirmation of the transaction.

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require that the seller or telemarketer amended Rule pursuant to the mandate pursuant or comparable to TILA and obtain the customer’s express verifiable of the USA PATRIOT Act. First, where FCBA are absent.287 authorization in any telemarketing the term ‘‘customer’’ appeared in the Comments on the requirement for transaction where the method of original Rule, that term has been express verifiable authorization in novel payment lacks the protections provided replaced in the amended Rule with the payment method scenarios were many by, or comparable to those available phrase ‘‘customer or donor’’ (including, and varied. Some industry under, the Fair Credit Billing Act where applicable, the plural form). commenters—with the notable (‘‘FCBA’’) and the Truth in Lending Act Similarly, where the phrase ‘‘goods or exception of DialAmerica—rejected the (‘‘TILA’’). In addition, the proposed services’’ had been used in the Rule, it notion that novel payment methods amendment would have required that has been replaced with the phrase should be subject to more stringent the customer receive two additional ‘‘goods or services or charitable requirements under the Rule, arguing pieces of information in order for contribution’’ to reflect the expansion of that, as long as the consumer has a clear authorization to be deemed verifiable: the Rule to cover charitable understanding that he or she is the name of the account to be charged solicitations. And, the term purchasing a particular product or and the account number, which would ‘‘telemarketing transaction’’ has been service and that the purchase will be have been required to have been recited substituted for the term ‘‘sales offer,’’ charged to a particular account, nothing by either the customer or donor, or the further should be required of the again to reflect the expansion of the 288 telemarketer. The Commission also provision to cover authorization in the telemarketer. NACHA advocated proposed to delete § 310.3(a)(3)(iii), context of a charitable solicitation. scaling back the proposed express which allowed a seller or telemarketer verifiable authorization requirement, to obtain express verifiable The Commission received numerous which it argued was ‘‘overly broad’’ in authorization by confirming a comments addressing the proposed its coverage of payment methods, such transaction in writing, provided the amendments to § 310.3(a)(3). In as debit cards, with protections confirmation was sent to the customer addition, the topic was the subject of comparable to TILA and FCBA.289 EFSC prior to the submission of the extensive discussion at the June 2002 noted its concern that emerging customer’s billing information for Forum.284 The major themes that payment methods would be payment. Finally, the Commission emerged from the record are disadvantaged because they would be proposed in the NPRM, pursuant to the summarized below. subject to the express verifiable USA PATRIOT Act, to bring charitable Express verifiable authorization for authorization provision.290 contributions within the coverage of the novel payment methods. In the NPRM, NAAG, on the other hand, supported express verifiable authorization the Commission noted two separate the Commission’s proposed 291 provision.281 rationales in support of the requirement approach. Some consumer groups Based on the record in this that a customer’s express verifiable urged the Commission to take an even proceeding, the Commission has authorization be obtained any time the more stringent approach than it did in decided to modify the proposed express payment method used lacks certain the NPRM, and require express verifiable authorization provision. The protections against unauthorized verifiable authorization in all amended Rule prohibits ‘‘[c]ausing charges and fails to provide dispute telemarketing transactions. For example, billing information to be submitted for resolution rights. First, the Commission NCL argued that since most payment, or collecting or attempting to stated its belief that the use of novel telemarketers use audio recordings to collect payment for goods or services or payment methods may lead to verify authorizations anyway, it would a charitable contribution, directly or unauthorized billing.285 If consumers hardly be burdensome to require indirectly, without the customer’s or fail to understand that a telemarketer express verifiable authorization, which donor’s express verifiable authorization, has the ability to place a charge using 287 Id. except when the method of payment a novel payment method (such as utility used is a credit card subject to 288 See, e.g., Aegis-NPRM at 4; Green Mountain- or mortgage account billing), based on NPRM at 27 (‘‘there is little danger that consumers protections of the TILA and Regulation will give their [debit card] account numbers to 282 this misperception, they may be Z, or a debit card subject to the induced to divulge billing information telemarketers without knowing that their accounts will be debited’’); ITC-NPRM at 5; NATN-NPRM at protections of the Electronic Fund that enables such charges. Second, the Transfer Act (‘‘EFTA’’) and Regulation 4; Noble-NPRM at 4; NSDI-NPRM at 4; and Commission noted that many emerging Technion-NPRM at 5. But see June 2002 Tr. III at E.’’283 This modified language draws a payment methods lack both dispute 22 (DialAmerica representative noting that his ‘‘bright line’’ to simplify compliance. resolution rights and protection against company declines to use novel payment methods The amended Rule retains the express because it ‘‘had experience with charging people’s unlimited liability for unauthorized written authorization and oral bank accounts and [ ] also [with] LEC billing, and charges.286 These two facts—that they have not been good experiences.’’). authorization provisions consumers can be charged unwittingly 289 NACHA-NPRM at 2. (§§ 310.3(a)(3)(i) and (ii) of the original 290 by means of novel payment methods EFSC-NPRM at 7. See also NATN-NPRM at 4; and proposed Rules), with slight and that the resulting injury due to June 2002 Tr. III at 39. The Commission notes that modifications, and has reinstated the it was in part because of this concern that the unauthorized charges is magnified when provision of the original Rule allowing original Rule did not require written authorization dispute resolution procedures and in every instance for demand drafts. See 60 FR at written confirmation, with certain liability limits are absent—persuaded 43850-51. The amended Rule’s allowance for additional requirements and limitations. obtaining express verifiable authorization by any of In addition, certain modifications to the Commission that it was appropriate three means, including written confirmation, this express verifiable authorization to require express verifiable should obviate concerns about the burden imposed authorization when protections on sellers who choose to accept novel payment provision have been adopted in the methods. Further, the Commission believes, for the reasons stated above, that it is precisely when such 281 Proposed Rule § 310.(3)(a)(3), 67 FR at 4542. 284 See June 2002 Tr. III at 4-52. novel methods—unfamiliar to the consumer and 282 TILA, 15 U.S.C. 1601 et seq. (including the 285 See 67 FR at 4507. This concern was also devoid of legally-mandated consumer protections— FCBA amendments, at 15 U.S.C. 1637 et seq.), and articulated by the Commission in the original are used that express verifiable authorization of a Regulation Z, 12 CFR part 226. rulemaking in connection with the use of demand consumer’s acquiescence to the transaction is 283 EFTA, 15 U.S.C. 1693 et seq., and Regulation drafts as a payment method. 60 FR at 43850-51. critical. E, 12 CFR part 205. 286 See 67 FR at 4507. 291 See NAAG-NPRM at 48.

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can be evidenced by such a recording, particular account. Therefore, as is liability’’ protection for unauthorized in every instance.292 In support of this discussed in detail below, new charges provided by the two main position, NCL offered statistics showing § 310.4(a)(6) of the Rule explicitly issuers of debit cards, VISA and that complaints to the NFIC for 2001 requires, in every telemarketing MasterCard, as a voluntary initiative.303 show that 60 percent of the payments transaction, that the seller or MasterCard and VISA noted that their for fraudulent buyers club offers—a telemarketer obtain the express respective ‘‘zero liability policies’’ ‘‘category in which nearly all of the informed consent of the customer or provided greater protection to consumers said they never agreed to donor to be charged for the goods or cardholders than is provided by federal purchase the service’’—were made by services or charitable contribution that law.304 Similarly, Fleet urged the credit card.293 According to NCL, even is the subject of the transaction. This Commission to take note of the when the payment method used by more explicit treatment will achieve the unauthorized use liability provisions consumers may be subject to legal goals of consumer groups without that VISA and MasterCard offer for debit protections, ‘‘all consumers whose unduly burdening industry members cards.305 Other commenters requested accounts will be billed should have the with the recordkeeping required by the that the Commission explicitly state that basic protections that such [express express verifiable authorization certain other protections are verifiable authorization] provides.294 provision. ‘‘comparable.’’306 LSAP concurred, suggesting that the The comments from consumer groups Based on the record evidence, the Rule would better serve all consumers if addressing the express verifiable Commission has decided to eliminate express verifiable authorization were authorization issue opposed the the ‘‘comparability’’ language from the required in every purchase.295 ‘‘comparability’’ standard set out in the express verifiable authorization Similarly, NCLC urged the Commission proposed amended Rule, i.e., the provision. The comments made clear to extend the express verifiable provision which would have exempted that it is far more desirable to authorization requirements to cover all from the requirement to obtain express transactions, or at least those not subject verifiable authorization any payment 303 Id. to the protection of FCBA and TILA.296 method with protections comparable to 304 See MasterCard-NPRM at 4; VISA-NPRM at 5. The Commission declines to require those available under FCBA and TILA. The Commission notes, however, that the ‘‘zero Some commenters stated that it would liability’’ protection offered by MasterCard and in every transaction that a seller or VISA does not come into play in all circumstances. telemarketer obtain the express be too difficult for merchants to For example, MasterCard extends this protection verifiable authorization of a customer or determine, during the course of each only to a consumer whose account is in good telemarketing transaction, whether a standing and who has not reported two or more donor prior to submitting billing instances of unauthorized use in the past year. See information for payment. As it made given payment method had protections comparable to those available under http://www.mastercard.com/general/ clear in the original rulemaking, the zerolliability.html. VISA offers its coverage only 298 Commission believes that the burden of TILA. NCL and NCLC argued that the for ‘‘VISA credit and debit card transactions impermanent nature of voluntary processed over the VISA network,’’ and allows the requiring express verifiable financial institution that issued the card to authorization is justified in limited policies, such as the ‘‘zero liability’’ guarantees made by MasterCard and determine liability for transactions processed over circumstances; namely, when other networks. See http://www.usa.visa.com/ consumers are unaware that they may VISA, makes them a poor substitute for personal/securelwithlvisa/ 299 l l be billed via a particular method, when legal protection. NCLC further argued zero liability.html?it=f2 /personal/ that such an amendment would ‘‘invite securelwithlvisa/. that method lacks legal protection 305 sham internal review procedures,’’300 See Fleet-NPRM at 5. See also KeyCorp-NPRM against unlimited unauthorized charges, thereby making it deleterious to at 5; June Tr. III at 11 (DMA) (endorsing voluntary and when the method fails to provide protections). consumers, by placing the power of 306 dispute resolution rights.297 However, See Capital One-NPRM at 7 (exempt determining which transactions the Commission agrees that consumers transactions subject to the UCC); CMC-NPRM at 12 required express verifiable authorization (state that protections under the Real Estate could benefit from a more explicit Rule in the hands of the merchant.301 Settlement Procedures Act (‘‘RESPA’’) and EFTA provision mandating what should be are comparable to those under the FCBA and TILA); Industry commenters, on the other Fleet-NPRM at 5 (exempt transactions where the obvious: a transaction is valid only hand, urged the Commission to clarify when the telemarketer has obtained the goods or services are subject to a ‘‘liberal refund that ‘‘comparable protection,’’ whether policy’’); KeyCorp-NPRM at 5 (exempt transactions consumer’s express informed consent to in the form of a business rule or private subject to the UCC); NACHA-NPRM at 2 (exempt be charged, and to be charged using a contract, should be sufficient to relieve transactions subject to the NACHA Rules); VISA- NPRM at 5 (exempt transactions subject to UCC sellers and telemarketers of requirement 292 NCL-NPRM at 5. when the revisions to Article 4 are complete). The to obtain express verifiable Commission declines, at this time, to exclude from 293 Id. 302 the express verifiable authorization requirement 294 Id. (noting that even when legal protections authorization. In this regard, some industry commenters noted the ‘‘zero transactions subject to RESPA. While the exist to protect consumers from unauthorized Commission recognizes that RESPA provides charges, consumers must still bear the burden to important protections for consumers, it does not ‘‘contest the charges in the required manner and 298 See NCLC-NPRM at 2, 4 (noting the exemption believe that most real estate transactions would be time frame to assert their rights’’); see also LSAP at from express verifiable authorization for methods of subject to the TSR at all. And, in instances of 10. payment with protections comparable to TILA and mortgage billing, which would be subject to the 295 LSAP-NPRM at 9-11. FCBA ‘‘essentially sanctions an on-the-spot Rule, the Commission believes that consumers, 296 NCLC-NPRM at 8. judgment made by telemarketers regarding a unfamiliar with this method of billing for anything 297 See 60 FR at 43850-51. The Commission notes complex and much disputed legal issue. . .’’). Some other than their mortgage payment, need the that despite its request for detailed evidence industry members also noted that the comparability protections of the express verifiable authorization regarding the cost of obtaining express verifiable standard was too vague to be useful. See, e.g., CMC- provision. The Commission also declines to exclude authorization and the prevalence of each of the NPRM at 12; EFSC-NPRM at 4 (noting that the transactions subject to the UCC from the three methods allowed by the original Rule, see, vagueness could inhibit the use of novel payment requirements of express verifiable authorization, e.g., 67 FR 4537; June Tr. III at 32, there remains methods). but may revisit this issue when modifications to the 299 a dearth of specific record evidence regarding such See NCL-NPRM at 5; NCLC-NPRM at 8. UCC are completed. The Commission also declines costs. Industry commenters who did address the 300 NCLC-NPRM at 7. to exempt transactions subject to the NACHA Rules cost merely stated that creating and maintaining 301 See NCLC-NPRM at 4-5. or for which the seller provides a liberal refund audio recordings of express verifiable authorization 302 See, e.g., ABA-NPRM at 7-8; BofA-NPRM at 6; policy, believing that it is preferable to limit was ‘‘expensive.’’ See, e.g., Capital One-NPRM at 7; Capital One-NPRM at 7; Citigroup-NPRM at 10; exemptions and thus maintain a ‘‘bright line’’ rule June Tr. III at 38 (CCC). DMA-NPRM at 56-57. to simplify compliance.

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implement a ‘‘bright line’’ rule in this argued that distant sellers cannot Moreover, the Commission is persuaded instance to avoid the costs to businesses distinguish between a debit and credit that the practical result of requiring and consumers of requiring a card until, in the best case scenario, the express verifiable authorization when a telemarketer to make a real-time consumer reads the entire number.311 consumer pays using a debit card would determination of whether a payment Finally, commenters noted that VISA be to require it in all instances when a method provides adequate protection has an ‘‘honor all cards’’ policy that debit or credit card is used, because it while on the telephone with a would prohibit a merchant from is not currently possible to distinguish consumer. Moreover, the Commission is declining to accept VISA-branded debit these methods in a distance persuaded that the impermanent nature cards if it accepted VISA-branded credit transaction.315 of voluntary consumer protections cards.312 These commenters contended Regulation E provides protections that makes them ill-suited as a predicate for that the practical result of requiring are similar, though not identical, to circumventing the express verifiable express verifiable authorization for debit those provided under TILA. Some authorization provision.307 Therefore, cards would be that express verifiable commenters argued that express the amended Rule requires express authorization would have to be obtained verifiable authorization should be verifiable authorization in all in all transactions—whether payment required for debit cards because transactions where payment is made by was made by credit or debit card, Regulation E’s three-tiered liability a method other than a debit card subject demand draft, or any other method.313 scheme for unauthorized use, with to Regulation E, or a credit card subject Based on the extensive record on this increasing liability when the to Regulation Z. issue, and on the Commission’s law unauthorized use is reported after two Several industry commenters enforcement experience, the business days, is less advantageous for specifically urged the Commission to Commission has determined to modify consumers than the TILA protections, ensure that express verifiable the express verifiable authorization which cap a consumer’s losses, in all authorization not be required when a provision in the amended Rule. The instances, at $50.316 The Commission consumer uses a debit card to pay for Commission is persuaded that debit believes that this disparity will not goods and services offered, or a cards should not be subject to the disadvantage consumers who face charitable contribution solicited, express verifiable authorization unauthorized charges pursuant to a through telemarketing. Commenters provision, based on their wide telemarketing transaction. Both raised several arguments in support of consumer acceptance and the fact that Regulation Z and Regulation E provide this position. First, commenters noted they are subject to the protections of the that, in a situation where the consumer that debit cards are not ‘‘novel’’ EFTA and Regulation E. The retains control of the card, no liability payment methods.308 Commenters Commission believes that debit cards shall attach; Regulation Z does so contended that, on the contrary, debit are so commonly used that it cannot unconditionally,317 while Regulation E cards are widely accepted and used by persuasively be argued that consumers provides such protection on condition consumers, who understand that by do not understand that when they that the consumer reports the providing their debit card number in a provide their debit card account number unauthorized charge within 60 days of telemarketing transaction, the account to a telemarketer, their account can be transmittal of the consumer’s with which the card is associated will debited by using that number.314 statement.318 The Commission believes be debited.309 Second, commenters that, despite the reporting requirement argued that debit cards are subject to the 311 BofA-NPRM at 6; Collier Shannon-NPRM at 6 imposed by Regulation E, consumers protections of the EFTA and its (‘‘Merchants who process credit and debit card who face unauthorized charges due to transactions over the phone do not have the ability implementing regulation, Regulation E, to differentiate between credit cards and debit telemarketing fraud have important which provide similar, although not cards.’’); ERA-NPRM at 48; June 2002 Tr. III at 11 fundamental protections whether they identical, protection to that available (DMA) (noting that ‘‘it is impossible for a marketer use a debit or credit card. The under TILA.310 Third, commenters to know whether it’s a debit card or a credit card, Commission will continue its campaign in the best instance, until after the entire number has been given’’); June 2002 Tr. III at 18 (NRF) to educate consumers about their 307 See June 2002 Tr. III at 29 (NCL) (noting (stating that ‘‘remote sellers cannot distinguish a varying obligations in reporting receipt of complaints about the enforceability of debit card from the credit card with any great unauthorized charges involving both these voluntary protections). degree of reliability pre-purchase’’). debit and credit cards, and will monitor 308 See, e.g., ABA-NPRM at 6; DMA-NPRM at 57; 312 June 2002 Tr. III at 19-20 (NRF) (noting that the effectiveness of this provision from and ERA-NPRM at 47. VISA and MasterCard ‘‘have what’s called an 309 See, e.g., Collier Shannon-NPRM at 16; Green Honor-All-Cards rule’’ that requires that merchants Mountain-NPRM at 27; June 2002 Tr. III at 24 accept any card branded with these issuers’ logos suggest that, while consumers do understand that (ERA). as a condition of being able to accept the VISA and their debit cards can be used as a method of 310 See, e.g., ABA-NPRM at 2-7; AFSA-NPRM at MasterCard branded credit cards). payment, it is not clear that consumers understand 18-19; BofA-NPRM at 5-6; Citigroup-NPRM at 10; 313 Collier Shannon-NPRM at 6-7; June 2002 Tr. the varying degrees of consumer protection afforded Collier Shannon-NPRM at 11; KeyCorp-NPRM at 5; III at 11 (DMA) (noting that ‘‘[i]n some instances by credit versus debit cards. See June 2002 Tr. III MasterCard-NPRM at 4; NACHA-NPRM at 2. Some you don’t even know [whether a number provided at 24-25. The Commission has issued consumer commenters suggested that any method of payment by a consumer is for a debit or credit card] when education materials to reinforce the material subject to Regulation E be exempted from the the number is given, which would force marketers differences in protection under federal law for debit express verifiable authorization requirements. See to have express verifiable authorization for and credit cards. See, e.g., FTC Facts for Citigroup-NPRM at 10 (exempt all electronic fund everything. . .’’). Some commenters argued that Consumers, Credit, ATM and Debit Cards: What to transfers, including wire transfers); EFSC (exempt such a provision would have the effect of do if They’re Lost or Stolen, http://www.ftc.gov/ automated clearinghouse (‘‘ACH’’) transactions, as eliminating or reducing the use of debit cards as a bcp/conline/pubs/credit/atmcard.htm. well as other novel payments, such as prepaid form of payment. See Gannett-NPRM at 1-2; Intuit- 315 See note 311 above. smart cards). The Commission declines to exempt NPRM at 19. 316 Compare Regulation E, 12 CFR 205.6(b) to all electronic fund transfers subject to Regulation E. 314 This is not to say, of course, that an Regulation Z, 12 CFR 226.12(b). The record does not support exclusion of other unscrupulous telemarketer could not misrepresent 317 See Regulation Z, 12 CFR 226.12(b)(2)(iii), methods of payment subject to Regulation E; and the purpose for which it needed such an account Official Staff Interpretation, Suppl. I. the Commission believes that, despite any number, leading to consumer injury. Section 318 See Regulation E, 12 CFR 205.6(b)(3). The 60- consumer protections available, many emerging 310.3(a)(4) of the Rule, which prohibits making a day notification period is somewhat flexible. payment methods covered by Regulation E are still false or misleading statement to induce any person Section 205.6(b)(4) notes that ‘‘[i]f the consumer’s relatively unknown to consumers who will thus to pay for goods or services, would come into play delay in notifying the financial institution was due benefit from express verifiable authorization when in such situations. Moreover, the record and the to extenuating circumstances, the institution shall these payment methods are used. Commission’s consumer protection experience extend the [time limit] to a reasonable period.’’

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the implementation of the amended credit cards from debit cards, clarification that a signed check would Rule through the next Rule Review, particularly in distance transactions. meet the requirements of § 310.3(a)(3)(i) making any modifications as necessary. The Commission believes that the of the amended Rule.324 The original The record reflects a variety of appropriate balance of protecting Rule’s express verifiable authorization viewpoints on whether dispute consumers without unduly burdening only pertained to demand drafts; and, as resolution rights are essential to the industry is best met by excluding debit the Commission noted in the TSR determination of whether a payment cards from the requirements of the Compliance Guide, ‘‘[a]ny form of method should be excluded from the express verifiable authorization written authorization from a consumer requirement of obtaining express provision, for to do otherwise would is acceptable,’’ including ‘‘a ‘voided’ verifiable authorization.319 The result in requiring express verifiable signed check.’’325 While the language of Commission continues to believe that authorization for all credit card the amended Rule is arguably broad dispute resolution protection is a key payments, an unnecessary and costly enough to cover payment methods such predicate for excluding a payment burden.321 The core dispute resolution as check and money order, the method from coverage under the express protection provided by Regulation E, in customer’s or donor’s signed check or verifiable authorization provision, to conjunction with its critical protection money order would, in every instance, ensure that consumers are not unduly against unauthorized charges, will be sufficient to serve as written burdened during the investigation of provide a vital safety net for consumers authorization pursuant to 310.3(a)(3)(i). any claim of unauthorized billing. The who choose to pay by debit card. Thus, A handful of commenters addressed Commission believes that, although the the Commission has determined that the interplay between the E-SIGN Act326 substantive dispute resolution express verifiable authorization will be and the Rule. One industry commenter protections of Regulation E are required only in instances when the urged that the Commission explicitly somewhat less extensive than those of payment method is not a credit card state that the E-SIGN Act governs Regulation Z,320 the core protections subject to the protections of Regulation transactions under the TSR,327 and provided by Regulation E—allowing a Z or a debit card subject to the another requested the amended Rule consumer to report an unauthorized protections of Regulation E.322 expressly adopt the definitions of electronic fund transfer and to receive a Express written authorization. Section ‘‘electronic record’’ and ‘‘electronic provisional credit of the disputed 310.3(a)(3)(i) of the proposed Rule states signature’’ used in the E-SIGN Act.328 In amount within ten business days of the that authorization will be deemed particular, commenters expressed financial institution’s receipt of such verifiable if it is by ‘‘express written concern over the Commission’s use of notice—will afford sufficient basic authorization . . . which includes the the term ‘‘verifiable’’329 as a modifier in protection to consumers who choose to customer’s or donor’s signature.’’ The discussing what would constitute a use debit cards to pay for goods or footnote to this section of the Rule notes valid signature under the Rule. While services or charitable contributions in that ‘‘the term ‘signature’ shall include the Commission declines at this time to telemarketing transactions. a verifiable electronic or digital form of expressly incorporate the E-SIGN Act’s Furthermore, the Commission notes signature, to the extent that such form definitions into the Rule, it has that its decision not to require express of signature is recognized as a valid determined that deleting the term verifiable authorization for payments signature under applicable federal law ‘‘verifiable’’ from the amended Rule will made by debit card is based in part on or state contract law.’’ alleviate the concerns expressed by the practical reality that it is currently The Commission received few industry, without compromising the impossible for merchants to distinguish comments on this provision overall. protections afforded to consumers.330 AARP reiterated its long-standing NCLC suggested that the Rule 319 See ABA-NPRM at 5, 7 (encouraging the position that all express verifiable incorporate the procedures set forth in Commission to delete from the express verifiable authorizations should be in writing.323 § 101(c) of the E-SIGN Act for using authorization provision the requirement that any The Commission maintains its position electronic records to provide a exempt payment mechanism include dispute consumer with written disclosures resolution procedures); Collier Shannon-NPRM at that to require written authorization in 11-15 (noting that the dispute resolution protections every instance would unduly burden under Regulations E and Z are similar). sellers and telemarketers, potentially 324 Tribune at 7. 325 320 For example, unlike Regulation Z, Regulation impede the growth of new payment TSR Compliance Guide at 19. E does not provide that a consumer may assert 326 Electronic Signatures in Global and National against a financial institution all claims (other than mechanisms, and not provide Commerce Act (‘‘E-SIGN Act’’), Pub. L. No. 106-229, tort) and defenses arising out of the transaction and meaningful benefits to consumers above 106th Cong. 2d Sess., 114 Stat. 464 (2000), codified relating to the failure to resolve the dispute. See and beyond those ensured by the other at 15 U.S.C. § 7001 et seq. Regulation Z, 12 CFR 226.12(c). However, Collier two means of obtaining authorization 327 EFSC-NPRM at 9-10. 328 Shannon argued that, in some instances, Regulation under the Rule. Therefore, the Intuit-NPRM at 22. E provides greater consumer dispute resolution 329 67 FR 4542. In the NPRM, the Commission rights. For example, Collier Shannon noted that Commission declines to require written noted, in a footnote to § 310.3(a)(3)(i), that ‘‘[f]or investigations under Regulation E must be authorization of a transaction in every purposes of this Rule, the term ‘signature’ shall completed within ten days of the financial instance. Another commenter requested include a verifiable electronic or digital form of institution’s receipt of the consumer’s complaint, or signature, to the extent that such form of signature a provisional credit must be issued. Collier is recognized as a valid signature under applicable 321 Shannon also noted that the coverage of the See June 2002 Tr. III at 11 (DMA) (noting that federal law or state contract law.’’ (emphasis regulations diverges in some instances because requiring express verifiable authorization in all added). some of the dispute resolution protections available instances would be ‘‘highly expensive.’’). 330 The Commission believes that the remaining under Regulation Z only make sense in the context 322 Cendant requested that the Commission language regarding signatures makes plain that of a credit transaction, such as the provision that explicitly note in the Rule that the marketer can sellers and telemarketers who choose to obtain a creditor may not seek to collect funds or issue a rely upon the statement by the consumer express verifiable authorization using the express negative statement on a consumer’s credit report). identifying the type of billing mechanism that the written authorization method, and who wish to use See Collier Shannon-NPRM at Appendix F. The customer is using to pay. Cendant-NPRM at 9. The digital or electronic signatures, will need to comply Commission notes, in regard to the argument made Commission believes that its modified approach, with applicable federal law and state contract law. by Collier Shannon regarding the shorter time exempting from the express verifiable authorization The Commission believes, by way of example, that period allowed for investigations under Regulation provision both credit and debit cards, obviates the a seller or telemarketer who obtained a signature E, that a shorter time frame is entirely appropriate need for such a statement to be included in the that would be valid under the E-SIGN Act’s because the funds at issue are the consumer’s, not Rule. standards would meet its burden under this the funds of a credit card lender. 323 AARP-NPRM at 7. provision of the Rule.

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required by the Rule.331 Under § 101(c), addition, the information was modified. ARDA requested that the the consumer must, among other things, reorganized.334 parenthetical phrase ‘‘if more than one’’ affirmatively consent to such use of In § 310.3(a)(3)(ii) of the amended be reinstated in the Rule to ensure that electronic records and acknowledge that Rule, the Commission has retained the this disclosure is only made in instances he or she has the hardware and software proposed oral authorization provision, where there will be multiple debits, necessary to access the requisite with three minor wording changes. charges, or payments; to do otherwise, information electronically. The First, the broader term ‘‘other billing ARDA argued, would be a burden on Commission is deferring any entity’’ replaces the term ‘‘credit card industry to state what would likely be determination at this time as to the company,’’ which was included in the presumed by consumers—that is, that specific manner in which the Rule proposed Rule as an example of an only a single payment will be should incorporate these statutory entity to whom a seller or telemarketer required.337 The Commission agrees that procedures until it has clearer evidence would need to make available a the benefit to consumers of disclosing or experience from which to develop an recording of a customer’s or donor’s that there will only be a single payment appropriate and effective regulatory express oral authorization. Second, the does not outweigh the burden on sellers interpretation, consistent with the E- phrase ‘‘authorization of payment for and telemarketers to have to make such SIGN Act, to ensure that written goods or services or charitable a disclosure. Therefore, the Commission disclosures required under the Rule are contribution’’ is inserted to reflect the has reinstated the phrase ‘‘(if more than provided clearly and conspicuously to expansion of this provision to reach one)’’ at the end of § 310.3(a)(3)(ii)(A). consumers if and when a seller or charitable solicitations. Third, the term No comments in the record suggest telemarketer uses electronic means to ‘‘sales offer’’ has been replaced with modification of proposed ‘‘telemarketing transaction.’’ These last provide such disclosures.332 § 310.3(a)(3)(ii)(C) (requiring disclosure two changes are intended to conform of the amount of the debit(s), charge(s), Finally, NCLC suggested that the this provision to the mandate of the or payment(s)); (D) (disclosure of the Commission require that the USA PATRIOT Act. customer’s or donor’s name); (F) (the information set forth in Few comments were prompted by this disclosure of a telephone number for § 310.3(a)(3)(ii)(A)-(G), be required section generally, or by any of the customer or donor inquiry); or (G) (the when the written method of express specific proposed disclosures required date of the customer’s or donor’s oral verifiable authorization is used.333 The to satisfy the oral authorization authorization). Therefore, these sections Commission declines to adopt this provision. One commenter noted that are retained in the amended Rule suggestion because the record does not the audio recording method of obtaining without alteration. support the argument that such a express verifiable authorization may Proposed § 310.3(a)(3)(ii)(B) required requirement is necessary in instances require the consent of the customer or that ‘‘the date of the debit(s), charge(s), when the consumer controls the method donor in states that require two-party or payment(s)’’ be recited for oral of payment, and provides written consent to record telephone calls.335 authorization to be deemed verifiable. authorization, including a signature, to The Commission notes that determining This proposal drew criticism from the seller or telemarketer prior to the compliance with state law taping members of industry, including submission for payment of the requirements has been and will MasterCard and KeyCorp, who noted consumer’s billing information. continue to be the responsibility of that, in many instances, telemarketers those sellers and telemarketers who Oral authorization. The proposed would not possess this information, and choose to use this method of suggested that the frequency of the Rule modified and expanded the list of authorization. Another commenter payment could be recited instead.338 information that must be recited in asked the Commission to state explicitly The Commission agrees that in at least order for oral authorization to be that ‘‘a telemarketer cannot circumvent some instances the exact date of deemed verifiable. In particular, the a writing requirement [such as required payment—that is, the date on which the proposed Rule added the requirement by EFTA for recurring drafts] by holding charge will appear on a customer’s or that the specific billing information of up the express oral authorization in the donor’s billing statement or be debited the customer or donor, including the [TSR].’’336 Clearly, compliance with the from a customer’s or donor’s account— name of the account and the account EFTA and compliance with the TSR are may be unknown at the time of the number that will be used to collect separate obligations, and to the extent transaction. Therefore, the amended payment for the transaction, must be that an entity is subject to both Rule provision requires instead that the identified as part of the express regulations, it must determine how best seller or telemarketer recite the date on verifiable authorization process. Finally, to comply with both. Therefore, the which the debit(s), charge(s), or certain wording changes were proposed Commission declines to modify the Rule payment(s) will be submitted for to address the expansion of the express to include such guidance. payment. The Commission believes that verifiable authorization provision to Another commenter, ARDA, this piece of information is, or without cover not just demand drafts, but all requested that § 310.3(a)(3)(ii)(A), which much burden can be, known to a seller methods of payment that lacked specific requires disclosure of the number of or telemarketer, and that providing this protections under TILA and FCBA. In debits, charges or payments, be date to the customer or donor will supply a means for determining 331 NCLC-NPRM at 3. 334 See Proposed Rule § 310.3(a)(3)(ii)(A)-(D), (F)- approximately when such debit(s), 332 See generally FTC and Dept. of Commerce, (G). For example, the term ‘‘draft,’’ used in the charge(s), or payment(s) will be posted Report to Congress on the Electronic Signatures in original provision, was replaced with the phrase Global and National Commerce Act: The Consumer ‘‘debit(s), charge(s), or payment(s)’’ in the proposed to the customer’s or donor’s account. Consent Provision in Section 101(c)(1)(C)(ii), June version, to reflect that methods of payment other Several commenters also expressed 2001 (noting that nearly all participants in a than demand draft would now be covered by the concern about the requirement, in workshop held to discuss the provision agreed that Rule. For the same reason, and because of the § 310.3(a)(3)(ii)(E), that, as part of oral further study of the provision and its role in the mandate of the USA PATRIOT Act, the term marketplace was necessary). See also E-SIGN Act ‘‘payor’s’’ was replaced by the phrase ‘‘customer’s authorization, a customer or donor § 104 (preserving agency authority to interpret or donor’s.’’ § 101). 335 Worsham-NPRM at 6. 337 ARDA-NPRM at 5-6. 333 NCLC-NPRM at 10-11. 336 NCLC-NPRM at 11. 338 MasterCard-NPRM at 6-7; KeyCorp-NPRM at 5.

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receive his or her specific billing complaints about such disputes often seller or telemarketer to obtain express information, including the name of the arise when a consumer has been duped verifiable authorization by sending account and the account number to be into providing his or her billing written confirmation of the transaction charged.339 These commenters stated information for some bogus purpose, to the customer prior to submitting the that there are dangers inherent in having such as ‘‘verification,’’ or to enable the customer’s billing information to be a telemarketing sales representative seller purportedly to deposit charged. In general, industry recite or receive from the consumer the sweepstakes winnings to the consumer’s commenters opposed the Commission’s consumer’s full account number over account.341 NCL also noted that proposal to delete this provision from 340 the telephone. consumers may provide their account the Rule, arguing that, contrary to the On the other hand, comments from information in conjunction with a evidence presented during the Rule consumer groups were generally payment for a particular item, but then Review, this method of authorization is supportive of the expanded disclosures be billed for additional goods or services commonly used in telemarketing.346 required as a predicate for oral that they did not authorize.342 Based on Aegis noted that there is nothing authorization to be deemed verifiable. its experience, NCL ‘‘believes that it is ‘‘inherently fraudulent, abusive, or NCL noted that billing disputes are important to verify both the account that prevalent in connection with deceptive will be billed and the fact that the problematic’’ with this method of or abusive telemarketing, and consumer is agreeing to purchase obtaining express verifiable specific products or services using that authorization, and urged the 347 339 See, e.g., AFSA-NPRM at 17-18; CCC-NPRM at account.’’343 NAAG concurred, stating Commission to retain it. Industry 12 (recommending § 310.3(a)(3)(ii)(E) be deleted that the proposed Rule’s express commenters urged the Commission to entirely); DialAmerica-NPRM at 27 (noting its retain this provision, especially because support for the disclosure of the account name); requirements to recite the account name Fleet-NPRM at 6; KeyCorp-NPRM at 5; MasterCard- and number would be beneficial to it provides a low-cost alternative to NPRM at 5 (noting that if the provision is not consumers who, as law enforcement recording a customer’s oral deleted, the amended Rule should at least exempt experience demonstrates, may otherwise authorization.348 from compliance entities subject to the privacy provisions of the GLBA); Wells Fargo-NPRM at 3. be unaware of this critical Consumer groups and law 340 See, e.g., KeyCorp-NPRM at 5; MasterCard- information.344 enforcement officials expressed their NPRM at 5. These commenters expressed concern Based on the record, the Commission support for deleting this provision from about identity theft and unauthorized charges has decided to modify the proposed occurring as a result of the express disclosure of the Rule, or modifying it to ensure that this information. Several commenters noted that provision to limit the required amount consumers are better protected when consumers are disinclined to provide their account of information about an account that this method is used.349 NAAG, for numbers in telemarketing, in part due to the success must be received by a customer or donor example, noted the potential danger of consumer protection education campaigns that to comply with the express verifiable have stressed that a consumer should only provide inherent in the written confirmation his or her account number in telemarketing if the authorization provision. The amended provision as it is worded in the original consumer knows the seller with whom he or she is Rule requires that the customer or donor Rule. Specifically, NAAG opined that dealing. See, e.g., Bank One-NPRM at 4; Cendant- receive ‘‘billing information, identified consumers are likely to overlook a NPRM at 7; Household Auto-NPRM at 2-3; VISA- with sufficient specificity that the NPRM at 6-7. Some commenters noted that confirmation that appears to be yet marketers will not have such account numbers in customer or donor understands what some instances, such as in preacquired account account will be used to collect payment 346 telemarketing involving a joint marketing program, See, e.g., ARDA-NPRM at 5 (noting that the for the goods or services or charitable written confirmation method may actually increase and thus will be unable to ensure the customer’s contribution.’’345 This more flexible ‘‘receipt’’ of this information. See, e.g., Household in popularity if the additional requirements during Auto-NPRM at 4; NEMA-NPRM at 8-10 (noting that standard takes into account concern oral authorization are adopted in a final Rule); the ‘‘ receipt’’ language directly contradicts the about identity theft, but still mandates ARDA-Supp. at 1 (noting that the Rule should allow NEMA’s guidelines to ensure that the customer for flexibility given the rapid technological changes that the customer receive information in payment methods); CCC-NPRM at 14 (asserting ‘‘disclose’’ such information before processing a sufficient to understand what account is charge, and will result in duplicative information that ‘‘this method is readily available, being exchanged); Green Mountain-NPRM at 26 being used to process payment for the straightforward, reliable and is currently used by (requesting an exemption because the energy transaction. It will allow telemarketers many marketers.’’); CNHI-NPRM at 1 (noting that industry is highly regulated). As discussed below, eliminating this method would place newspapers at the option to state, for example, the ‘‘an unfair competitive disadvantage’’); EFSC-NPRM the Commission decided to delete the requirement name and the last four digits of the that the account number be disclosed, and therefore at 8; NAA-NPRM at 16 (‘‘many newspapers the Commission anticipates that this will ameliorate account to be charged, rather than the regularly and legitimately used this method’’ and the concern about preacquired account full account number. would incur considerable expense using the written telemarketing. In every instance, the seller or Written confirmation. The or oral authorization methods instead). 347 telemarketer should be able to tell the customer or Commission received several comments Aegis-NPRM at 4. Accord Noble-NPRM at 4 donor the name of the billing vehicle and enough (arguing there is nothing inherently fraudulent other information to ensure that the customer or regarding its proposal to delete about this method of authorization); PMA-NPRM at donor knows what account will be used to collect § 310.3(a)(3)(iii) from the Rule. This 20 (suggesting that the record does not support payment. As to NEMA’s and, to some extent, Green section of the original Rule allows a elimination of this method of authorization); Mountain’s concern about redundancy, it is true Technion-NPRM at 5 (arguing there is nothing that in a non-preacquired account call, some ‘‘wrong with’’ this method of authorization). 341 NCL-NPRM at 4. information, such as the customer’s or donor’s 348 See, e.g., Capital One-NPRM at 8; Gannett- 342 billing information, will initially be unknown to the Id. NPRM at 1; Intuit-NPRM at 19-20; MPA-NPRM at telemarketer. It is equally true that some of the 343 Id. 27; PMA-NPRM at 20 (urging that this method be information a customer must receive under 344 NAAG-NPRM at 48-49. retained in part to reduce costs for inbound call § 310.3(a)(3)(ii) is known only to the telemarketer, 345 Amended Rule § 310.3(a)(3)(ii)(E). The centers who, under proposed revisions to address such as the date a charge will be submitted for requirement that the account be identified with upselling, would need to conduct express verifiable payment and a customer or donor service number. sufficient specificity that the customer or donor authorization and may not be equipped to do so by The Commission believes that, for payment understands what account will be used to collect taping); June 2002 Tr. III at 40-42 (CCC, noting that methods that are novel and lacking in certain payment mirrors the provision in amended Rule written confirmation ‘‘is the cheapest way of consumer protections, it is critical for the customer § 310.4(a)(6)(ii)(A), requiring that, in telemarketing effectuating a transaction;’’ ERA, stating that to authorize the payment. If a seller or telemarketer transactions involving preacquired account reinstating the written confirmation method will chooses the express oral authorization method, then information, a seller or telemarketer obtain express ‘‘help balance the additional costs’’ incurred due to it is incumbent upon them to ensure that a informed consent by identifying the account to be the expansion of the express verifiable consumer receives this information, even if charged with specificity such that the customer or authorization requirement). redundant, as part of the recorded authorization. donor understands what account will be charged. 349 See, e.g., NAAG-NPRM at 49.

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another piece of ‘‘junk mail,’’350 and by first class mail355 prior to the Commission received few comments on recommended that the Rule be amended submission for payment of the this section, and none opposing this to specifically require that any customer’s or donor’s billing proposed expansion.360 Therefore, the confirmation document sent pursuant to information.356 The Commission will Commission adopts the wording of this method of authorization be clearly continue to monitor the use of the post- proposed § 310.3(a)(4) unchanged in the and conspicuously labeled as such.351 sale written confirmation method of amended Rule. express verifiable authorization and NAAG also suggested that, if reinstated, § 310.3(b) — Assisting and facilitating the written confirmation method should may revisit this issue in a subsequent not be considered a ‘‘verifiable’’ means Rule Review should circumstances Section 310.3(b) of the original Rule of obtaining consumers’ authorization in warrant. prohibits a person from providing substantial assistance or support to any circumstances when the consumer is The amended Rule also proscribes the seller or telemarketer when that person already vulnerable, such as when the use of the post-sale method of knows or consciously avoids knowing goods or services to be paid for are authorization when the goods or services that are the subject of the that the seller or telemarketer is offered in conjunction with a ‘‘free-to- transaction are offered in conjunction violating certain provisions of the Rule. pay conversion’’ or ‘‘negative option with a ‘‘free-to-pay conversion’’ feature During the Rule Review, the feature,’’ or when the seller or and preacquired account information. Commission received comments from telemarketer has preacquired account The record is replete with evidence, consumer protection and law information prior to the initiation of the detailed in the section below discussing enforcement groups who argued that the 352 call. MPA suggested that perhaps this new § 310.4(a)(6), that ‘‘free-to-pay ‘‘conscious avoidance’’ standard method could be reinstated if used in conversion’’ offers, particularly when adopted in the original Rule should be the sale of goods or services for which coupled with the use of preacquired modified to a ‘‘knew or should have a liberal refund policy exists.353 NAAG account information, have often resulted known standard.’’361 The Commission raised the concern that there might exist in unauthorized charges to noted that it continued to support the a material inconsistency between the consumers.357 Given this evidence, ‘‘conscious avoidance’’ standard, disclosures made in the sales portion of coupled with NAAG’s observation that believing that such a standard is the call and those sent as part of a post- ‘‘[a] consumer who does not believe appropriate ‘‘in a situation where a call confirmation.354 they entered into a transaction would be person’s liability to pay redress or civil In response to this range of comment, less likely to even open mail from a penalties for a violation of this Rule the Commission has decided to reinstate company whose offer he or she had depends on the wrongdoing of another the written confirmation method of recently ‘declined,’’’358 the Commission person.’’362 Although the provision was obtaining express verifiable will require that authorization in such retained in the proposed Rule without authorization, with certain situations must be obtained pursuant to amendment, its coverage was expanded modifications. After balancing the either § 310.3(a)(3)(i) or (ii). to cover assisting and facilitating in the concerns enunciated by consumer solicitation of charitable contributions § 310.3(a)(4) — Prohibition of false and pursuant to the USA PATRIOT Act. The groups against industry’s strongly-stated misleading statements to induce the desire to reinstate this economical Commission invited additional purchase of goods or services or a comment on, and proposed alternatives means of obtaining express verifiable charitable contribution authorization, the Commission has to, the assisting and facilitating The only proposed modification of standard.363 determined to modify the provision to this provision in the NPRM was to In response to the NPRM, VISA noted enhance the likelihood that consumers expand it, pursuant to the mandate of that although this provision was will receive these written confirmations the USA PATRIOT Act, to encompass retained unchanged in the proposed in a timely manner and will recognize misrepresentations made to induce a Rule, ‘‘the expanded scope of the the confirmations as important charitable contribution.359 The Proposed Rule, including provisions documents that should not be thrown that conflict with the GLBA privacy away unopened. The amended Rule 355 The requirement that such confirmations be rules, could require financial continues to require that the written sent via first class mail should cause industry to institutions to police the activities of confirmation disclose all of the incur no additional expense. According to the DMA representative at the June 2002 Forum, federal third parties, many of whom are information contained in 364 postal regulations require that such confirmations themselves regulated entities.’’ The § 310.3(a)(3)(ii)(A)-(G), as well as a be sent via first class mail. See June 2002 Tr. III at Commission believes that the statement of the procedures by which 45; see also June 2002 Tr. III at 47 (CCC) (noting modifications to the preacquired the customer can obtain a refund from that company practice is to ensure that written confirmations are clearly and conspicuously account telemarketing provisions in the the seller or telemarketer or charitable labeled). This change to the Rule, then, will merely amended Rule obviate the concerns organization in the event the echo the postal regulations, which require that expressed by VISA.365 confirmation is inaccurate. However, personalized business correspondence be sent via ARDA expressed its support for the amended Rule requires that the first class mail. See 39 CFR 3001.68, App. A. retaining the ‘‘conscious avoidance’’ written confirmation be ‘‘clearly and 356 The Commission has declined, at this time, to follow the suggestion by Capital One that the standard, endorsing the rationale conspicuously labeled’’ as such, on the written confirmation method should be reinstated, outside of the envelope in which it is ‘‘provided that the confirmation is delivered 30 360 See, e.g., Make-A-Wish-NPRM, passim sent, and that it be sent to the customer days prior to submission for payment, and the (detailing complaints received by Make-A-Wish, customer is permitted to repudiate the sale within which does not solicit donations by telephone, that time by calling a toll-free number,’’ because the regarding fraudulent telemarketers claiming or 350 Id. (noting that such confirmations ‘‘tend to go record provides too little evidence to suggest that implying that they are calling from or affiliated with unnoticed or unrecognized by consumers, thereby these additional protections are necessary to Make-A-Wish). failing in their function of ‘authorizing’ a prevent consumer injury. See Capital One-NPRM at 361 See 67 FR at 4508-09. payment’’). 8. 362 Id. at 4509. 351 Id. 357 See discussion of amended Rule § 310.4(a)(6), 363 Id. 352 See June 2002 Tr. III at 42-43 (NAAG). below. See also June 2002 Tr. III at 42-43 (NAAG). 364 VISA-NPRM at 12. 353 Id. at 44 (MPA). 358 NAAG-NPRM at 49. 365 See discussion of amended Rule §§ 310.4(a)(5) 354 Id. at 48-49 (NAAG). 359 Proposed Rule § 310.3(a)(4). See 67 FR 4508. and (6) below.

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enunciated by the Commission in the provision to be a useful tool in business calls to induce a charitable NPRM for the heightened knowledge combating fraudulent telemarketing.372 solicitation. As a result, the prohibition 366 against misrepresentations regarding the requirement. But AARP reiterated its § 310.3(c) — Credit card laundering concern that the conscious avoidance sale of advertising, which would occur standard places too high a burden on In the NPRM, the Commission in a business-to-business context, is no law enforcement, and urged the retained the original Rule provision longer necessary. Finally, proposed addressing credit card laundering, but Commission to substitute a ‘‘knew or § 310.3(d)(7), prohibiting noted that the coverage of the provision should have known’’ standard for the misrepresentations regarding a 367 in the proposed Rule would expand to charitable organization’s or assisting and facilitating provision. cover credit card laundering in the NACAA also urged the Commission to telemarketer’s affiliation with, or solicitation of charitable contributions, endorsement or sponsorship by, any adopt a ‘‘knew or should have known’’ pursuant to the mandate of the USA 368 person or government entity, is standard in the amended Rule. PATRIOT Act.373 Although the renumbered in the amended Rule as NAAG made a similar recommendation, proposed Rule was issued with this § 310.3(d)(6). noting that the current standard results provision unmodified, the Commission Section 310.3(d) prohibits in ‘‘both federal and state authorities expressed concern that the provision’s misrepresentations regarding certain [being] unduly hampered in trying to ‘‘usefulness may be unduly restricted by material information that a telemarketer reduce telemarketing fraud.’’369 NAAG the phrases ‘[e]xcept as expressly might choose to convey to a donor to also noted that this provision is critical permitted by the applicable credit card induce a charitable contribution.376 The in addressing the participation of those system,’ in the preamble to § 310.3(c), goal of the prohibition on these United States-based entities, such as and ‘when such access is not authorized misrepresentations is to ensure that sellers of victim lists, fulfillment house by the merchant agreement or the donors solicited for charitable operators, and credit card launderers, applicable credit card system,’ in contributions are not deceived, a who provide necessary assistance to § 310.3(c)(3).’’374 purpose squarely in line with the fraudulent telemarketers, many of Having received no comment mandate of the USA PATRIOT Act, whom have begun operating from regarding the credit card laundering which directed the Commission to provision generally, or regarding the outside the country.370 include ‘‘fraudulent charitable Commission’s specific concerns, the solicitations’’ in the deceptive practices The Commission declines, on the Commission has determined to retain prohibited by the TSR.377 Deception record evidence, to lower the standard this provision in its original form. The occurs if there is a representation, for assisting and facilitating under the Commission will continue to monitor its omission, or practice that is likely to Rule. The Commission continues to effectiveness, however, and may mislead consumers acting reasonably believe the ‘‘conscious avoidance’’ reconsider modifications at the next under the circumstances, and the standard is the appropriate one in Rule Review. representation, omission, or practice is 378 instances when liability to pay redress § 310.3(d) — Prohibited deceptive acts material. As set forth in the NPRM, or civil penalties rests on another or practices in the solicitation of the Commission believes that if any of person’s violation of the Rule. Further, charitable contributions the items listed in this section are the Commission believes the ‘‘conscious misrepresented, donors are likely to be avoidance’’ standard is one that can be Pursuant to § 1011(b)(1) of the USA misled, as false representations of met in situations where third parties PATRIOT Act, the Commission material facts are likely to mislead.379 proposed in the NPRM to include in the provide substantial assistance to Moreover, the Commission’s Rule new prohibited misrepresentations fraudulent telemarketers. As stated in enforcement experience shows that in the solicitation of charitable often such representations are express, the original SBP, this standard ‘‘is 375 contributions. The amended Rule and therefore presumptively material. If intended to capture the situation where retains § 310.3(d) unchanged, with the actual knowledge cannot be proven, but implied, such representations are still following exceptions. First, the phrase likely to influence a donor’s decision there are facts and evidence that support ‘‘after any administrative or fundraising an inference of deliberate ignorance.’’371 whether to contribute. Therefore, expenses are deducted’’ has been ‘‘misrepresentation of any of these [] In the hypothetical situations posed in deleted from § 310.3(d)(4). The NAAG’s comment, the Commission categories of material information is Commission believes that the provision deceptive, in violation of section 5 of believes it would be possible to is clearer absent this qualifying phrase, 380 demonstrate such ‘‘deliberate the FTC Act.’’ and thus has stricken it in the amended In response to the NPRM, some ignorance’’ on the part of, for example, Rule. Second, § 310.3(d)(6), the commenters expressed their general a fulfillment house that ships only prohibited misrepresentation regarding support for the USA PATRIOT Act inexpensive prizes on behalf of a advertising sales has been deleted. As amendments, which extended the Rule’s telemarketer about whom it receives discussed below, in the section coverage to for-profit telemarketers numerous complaints. The Commission addressing § 310.6(b)(7), the soliciting charitable donations. AARP, itself has brought several cases Commission has determined to exempt for example, noted its support for the successfully using the assisting and from the Rule’s coverage business-to- general purposes of the USA PATRIOT facilitating provision, and has found the Act, stating that the amendments would 372 See 67 FR at 4509, n.155. See also FTC v. Allstate Bus. Distrib’n. Ctr., Inc., No. 00-10335AHM 366 ARDA-NPRM at 6. (CTX) (C.D. Cal. 2001); FTC v. Sweet Song Corp., 376 Amended Rule § 310.3(d)(1)-(7). 367 AARP-NPRM at 8. No. CV-97-4544 LGB (Jgx) (C.D. Cal. 1997); FTC v. 377 USA PATRIOT Act § 1011(b)(1). 368 NACAA-NPRM at 8. Walton (d/b/a Pinnacle Fin. Servs.), No. CIV98-0018 378 See Cliffdale Assocs., Inc., 103 F.T.C. 110, 165, 369 NAAG-NPRM at 56. PCT SMM (D. Ariz. Jan. 1998). appeal dismissed sub nom., Koven v. FTC, No. 84- 370 Id. (suggesting that liability for those who 373 See 67 FR at 4509. 5337 (11th Cir. 1984). assist and facilitate is particularly important when 374 Id. 379 See Thompson Med. Co., 104 F.T.C. 648, 818 the fraudulent telemarketer holds no assets in the 375 Id. at 4509-10 (discussing the reasoning (1984), aff’d 791 F.2d 189 (D.C. Cir. 1986), cert. United States). behind the prohibited misrepresentations included denied, 479 U.S. 1086 (1987). 371 60 FR at 43852. in proposed Rule § 310.3(d)). 380 67 FR at 4510.

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prevent fraudulent charitable According to NAAG, because many mentioned in the statute, and, solicitations while still allowing prospective donors prefer to support additionally, five other practices that ‘‘legitimate fundraising appeals.’’381 organizations that will benefit their own the Commission determined to be Similarly, NCL noted that the new community, fundraisers sometimes take abusive under the Act. provisions in the TSR regarding for- advantage of that sentiment by using a Each of the three abusive practices profit fundraisers will be ‘‘very helpful local post office box or other local enumerated in the Act implicates in curbing deceptive and abusive address as their return address, to make consumers’ privacy. In fact, with respect practices.’’382 it seem as if the charity is based close to the first of these practices, the Very few comments were received to the donors.388 explicit language of the statute directs specifically on § 310.3(d) of the The Commission believes that any the FTC to regulate ‘‘calls which the proposed Rule. One such comment, misrepresentation of the charitable reasonable consumer would consider from NCL, noted that ‘‘[t]he proposed organization’s location, or the location coercive or abusive of such consumer’s list of prohibited practices covers most where the funds are to be used, would right to privacy.’’392 Similarly, by of the common abuses that are reported likely violate § 310.3(d)(3), which directing that the Commission regulate by consumers and businesses.’’383 NCL prohibits misrepresentation of the the times when telemarketers could did suggest adding an additional ‘‘purpose for which any charitable make unsolicited calls to consumers in prohibited misrepresentation on contribution will be used.’’ Therefore, the second enumerated item,393 ‘‘sound-alikes,’’ or the use of a name the Commission declines to include a Congress recognized that telemarketers’ similar or identical to that of a specific prohibited misrepresentation right to free speech is in tension with legitimate charity in an attempt to regarding the address or location of a consumers’ right to privacy within the benefit from that charity’s good will.384 charity. sanctity of their homes, but that a Similarly, Make-A-Wish proposed balance must be struck between the two D. Section 310.4 — Abusive prohibiting misrepresentations of the that meshes with consumers’ Telemarketing Acts or Practices. ‘‘identity’’ of the entity on whose behalf expectations while not unduly the charitable solicitation is being The Telemarketing Act authorizes the burdening industry. The calling times sought.385 NAAG and NASCO suggested Commission to prescribe rules limitation protects consumers from that the Commission clarify that ‘‘prohibiting deceptive telemarketing telemarketing intrusions during the late proposed § 310.3(d)(7), which prohibits acts or practices and other abusive night and early morning, when the toll misrepresentations regarding ‘‘[a] telemarketing acts or practices.’’389 The on their privacy from such calls would seller’s or telemarketer’s affiliation with, Act does not define the term ‘‘abusive likely be greatest. The third enumerated or endorsement or sponsorship by, any telemarketing act or practice.’’ It directs practice394 also relates to privacy, in person or government entity,’’ would the Commission to include in the TSR that it requires the consumer be given prohibit misrepresentations of a seller’s provisions prohibiting three specific information promptly that will enable or telemarketer’s affiliation with any ‘‘abusive’’ telemarketing practices, him to decide whether to allow the charity.386 The Commission believes namely, for any telemarketer to: 1) infringement on his time and privacy to that proposed § 310.3(d)(7), renumbered ‘‘undertake a pattern of unsolicited go beyond the initial invasion. Congress as § 310.3(d)(6) in the amended Rule, is telephone calls which the reasonable provided authority for the Commission broad enough to prohibit the ‘‘sound- consumer would consider coercive or to curtail these practices that impinge alike’’ misrepresentation NCL raised, as abusive of such consumer’s right to on consumers’ right to privacy but are well as to prohibit a misrepresentation privacy;’’ 2) make unsolicited phone not likely deceptive under FTC regarding one’s affiliation with any calls to consumers during certain hours jurisprudence. This recognition by charity. Therefore, the Commission of the day or night; and 3) fail to Congress, that even non-deceptive declines to add a further ‘‘promptly and clearly disclose to the telemarketing business practices can misrepresentation to specifically person receiving the call that the seriously impair consumers’ right to be address the ‘‘sound-alike’’ scenario, or purpose of the call is to sell goods or free from harassment and abuse, and its add the ‘‘identity’’ of the charity to the services and make such other directive to the Commission to rein in prohibited misrepresentations. disclosures as the Commission deems these tactics lie at the heart of § 310.4 of NAAG and NASCO also proposed one appropriate, including the nature and the TSR. further modification: the addition of a price of the goods and services.’’390 The The practices not specified as abusive prohibited misrepresentation of ‘‘[t]he Act does not limit the Commission’s in the Act, but determined by the address or location of the charitable authority to address abusive practices Commission to be abusive and thus organization, and where the beyond these three practices prohibited in the original rulemaking organization conducts its activities.’’387 legislatively determined to be are: (1) threatening or intimidating a NAAG stated that the addition of such abusive.391 Accordingly, the consumer, or using profane or obscene a provision would ensure that Commission adopted a Rule that language; (2) ‘‘causing any telephone to telemarketers do not misrepresent that addresses the three specific practices ring, or engaging any person in the charities on whose behalf they are telephone conversation, repeatedly or soliciting are ‘‘local’’ or that their 388 Id. continuously with intent to annoy, activities are local, since the local 389 15 U.S.C. 6102(a)(1) (emphasis added). abuse, or harass any person;’’ (3) character of a charity or its programs 390 15 U.S.C. 6102(a)(3). requesting or receiving payment for often is material to prospective donors. 391 See KENNETH CULP DAVIS & RICHARD J. credit repair services prior to delivery PIERCE, JR., ADMINISTRATIVE LAW TREATISE and proof that such services have been 381 AARP-NPRM at 4. § 3.2 (3d ed. 1994) (noting that agencies have the power to ‘‘fill any gaps’’ that Congress either rendered; (4) requesting or receiving 382 NCL-NPRM at 2. expressly or implicitly left to the agency to decide payment for recovery services prior to 383 Id. at 5. pursuant to the decision in Chevron v. Natural Res. delivery and proof that such services 384 Id. Def. Council, 467 U.S. 837 (1984)). It is, therefore, 385 Make-A-Wish-NPRM at 5. permissible for agencies to engage in statutory 386 NAAG-NPRM at 53. See also NASCO-NPRM at construction to resolve ambiguities in laws 392 15 U.S.C. 6102(a)(3)(A) (emphasis added). 7. directing them to act, and courts must defer to this 393 15 U.S.C. 6102(a)(3)(B). 387 NAAG-NPRM at 53. administrative policy decision. 394 15 U.S.C. 6102(a)(3)(C).

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have been rendered; and (5) ‘‘requesting as abusive that are less distinctly within caused substantial injury to consumers. or receiving payment for an advance fee that parameter, the Commission now Amounting to nothing more than loan when a seller or telemarketer has thinks it appropriate and prudent to do outright theft, these practices conferred guaranteed or represented a high so within the purview of its traditional no potentially countervailing benefits. likelihood of success in obtaining or unfairness analysis, as developed in Finally, having no way to know these arranging a loan or other extension of Commission jurisprudence400 and offered services were illusory, credit.’’ codified in the FTC Act.401 This consumers had no reasonable means to The first two of these are directly approach constitutes a reasonable avoid the harm that resulted from consistent with the Act’s emphasis on exercise of authority under the accepting the offer. Thus, these privacy protection, and with the intent, Telemarketing Act, and provides an practices meet the statutory criteria for made explicit in the legislative history, appropriate framework for several unfairness, and accordingly, the remedy that the TSR address these particular provisions of the original Rule. Whether imposed by the Rule to correct them is practices.395 In the SBP for the original privacy-related intrusions or concerns to prohibit requesting or receiving Rule, the Commission stated, with might independently give rise to a payment for these services until after respect to the prohibition on threats, Section 5 violation outside of the performance of the services is intimidation, profane and obscene Telemarketing Act’s purview is not completed. language, that these tactics ‘‘are clearly addressed or affected by this analysis. § 310.4(a) — Abusive conduct generally abusive in telemarketing The abusive practices relating to transactions.’’396 The Commission also credit repair services, recovery services, Section 310.4(a) of the original Rule noted that the commenters supported and advance fee loan services each meet sets forth specific conduct that is this view, and specifically cited the fact the criteria for unfairness. An act or considered to be an ‘‘abusive that ‘‘threats are a means of perpetrating practice is unfair under Section 5 of the telemarketing act or practice’’ under the a fraud on vulnerable victims, and [that] FTC Act if it causes substantial injury to Rule. None of the comments in the Rule many older people can be particularly consumers, if the harm is not Review recommended that changes be vulnerable . . . .’’397 outweighed by any countervailing made to the original wording of The remaining three abusive practices benefits, and if the harm is not §§ 310.4(a)(1)-(3); nor had the identified in the Rule—relating to credit reasonably avoidable.402 An important Commission’s enforcement experience repair services, recovery services, and characteristic common to credit repair revealed any difficulty with these advance fee loan services—were services, recovery services, and advance provisions that would warrant amendment.404 Although one included in the Rule under the fee loan services is that in each case the Telemarketing Act’s grant of authority offered service is fundamentally bogus. for the Commission to prescribe rules or twenty-four in terms of number of complaints It is the essence of these schemes to take received by the NFIC). NCL-RR at 11. The prohibiting other unspecified abusive consumers’ money for services that the Commission continues to take action against telemarketing acts or practices. The Act seller has no intention of providing and fraudulent credit repair schemes; for example, in gives the Commission broad authority to in fact does not provide. Each of these August 2000, the FTC, the Department of Justice identify and prohibit additional abusive and forty-seven other federal, state and local law schemes had been the subject of large enforcement and consumer protection agencies telemarketing practices beyond the numbers of consumer complaints and surfed the Web looking for illegal scams that specified practices that implicate enforcement actions,403 and in each case promise consumers that they can restore their privacy concerns,398 and gives the creditworthiness for a fee. Over 180 websites were put on notice that their credit repair claims may Commission discretion in exercising 400 See Letter from the FTC to Hon. Wendell Ford violate state and federal laws. See ‘‘Surf’s Up for 399 this authority. and Hon. John Danforth, Committee on Commerce, Crack Down on ‘‘Credit Repair’’ Scams,’’ FTC press As noted above, some of the practices Science and Transportation, United States Senate, release dated Aug. 21, 2000). Unfortunately, prohibited as abusive under the Act Commission Statement of Policy on the Scope of complaints about advance fee loan schemes rose Consumer Unfairness Jurisdiction, appended to Int’l flow directly from the Telemarketing from a number fifteen ranking in 1995 to the Harvester Co., 104 F.T.C. 949, 1064 (1984); Letter number two ranking in 1998, with about 80 percent Act’s emphasis on protecting from the FTC to Hon. Bob Packwood and Hon. Bob of the advance fee loan companies reported to the consumers’ privacy. When the Kasten, Committee on Commerce, Science and NFIC located in Canada. NCL-RR at 12. RR Tr. at Commission seeks to identify practices Transportation, United States Senate, reprinted in 378. The Commission and the state Attorneys FTC Antitrust & Trade Reg. Rep. (BNA) No. 1055, General continue to launch law enforcement at 568-70 (Mar. 5, 1982); Orkin Exterminating Co., ‘‘sweeps’’ targeting corporations and ind ividuals 395 ‘‘With respect to the bill’s reference to ‘other Inc. v. FTC, 849 F.2d 1354, 1363-68, reh’g denied, that promise loans or credit cards for an advance abusive telemarketing activities’ . . . the Committee 859 F.2d 928 (11th Cir. 1988), cert. denied, 488 U.S. fee, but never deliver them. A sweep was intends that the Commission’s rulemaking will 1041 (1989). announced June 20, 2000, involving five cases filed include proscriptions on such inappropriate 401 15 U.S.C. 45(n). by the FTC, 13 actions taken by state officials, and practices as threats or intimidation, obscene or 402 Id. three cases filed by Canadian law enforcement profane language, refusal to identify the calling 403 During 1995 and 1996, the Commission authorities. See ‘‘FTC, States and Canadian party, continuous or repeated ringing of the brought or settled lawsuits against numerous Provinces Launch Crackdown on Outfits Falsely telephone, or engagement of the called party in individuals and companies involved in nearly a Promising Credit Cards and Loans for an Advance conversation with an intent to annoy, harass, or dozen recovery room operations. See, e.g., FTC v. Fee,’’ FTC press release dated June 20, 2000. Among oppress any person at the called number. The Meridian Capital Mgmt., No. CV-S-96-63-PMP the most recent FTC cases targeting advance fee Committee also intends that the FTC will identify (RLH) (D. Nev. filed Nov. 20, 1996). The loans, four involved advance fee credit card other such abusive practices that would be Commission’s efforts against recovery rooms have schemes: FTC v. Fin. Servs. of N. Am., No. 00-792 considered by the reasonable consumer to be borne fruit. The volume of consumer complaints (GEB) (D.N.J. filed June 9, 2000); FTC v. Home Life abusive and thus violate such consumer’s right to concerning recovery rooms logged into the FTC Credit, No. CV00-06154 CM (Ex) (C.D. Cal. filed privacy.’’ H.R. REP. NO. 103-20 at 8 (1993). Telemarketing Complaint System in 1996 June 8, 2000); FTC v. First Credit Alliance, No. 300 396 60 FR at 30415. plummeted to 153—less than one-fifth the record CV 1049 (D. Conn. filed June 8, 2000); and FTC v. 397 Id. high volume of 869 complaints recorded in 1995. Credit Approval Serv., No. G-00-324 (S.D. Tex. filed 398 15 U.S.C. 6102(a)(1). The ordinary meaning of See ‘‘1995-1996 Staff Summary of FTC Activities June 7, 2000). In addition, another case against a ‘‘abusive’’ is (1) ‘‘wrongly used; perverted; Affecting Older Americans’’ (Mar. 1998). fraudulent credit card loss protection seller also misapplied; catachrestic;’’ (2) ‘‘given to or tending Complaints about ‘‘recovery’’ schemes have included elements of illegal advance fee credit card to abuse,’’(which is in turn defined as ‘‘improper continued to decline dramatically, from a number fees. FTC v. First Capital Consumer Membership treatment or use; application to a wrong or bad three ranking in 1995 to a number twenty-five Servs., Inc., Civil No. 00-CV-0905C(F) (W.D.N.Y. purpose’’). Webster’s International Dictionary, ranking in 1999, while complaints about credit filed Oct. 23, 2000). Unabridged 1949. repair have remained at a relatively low level since 404 Section 310.4(a)(1) prohibits as an abusive 399 15 U.S.C. 6102(a)(1). 1995 (steadily ranking about number twenty-three practice ‘‘threats, intimidation, or the use of profane

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commenter suggested amendments to telemarketers engaged in the solicitation has provided the consumer with § 310.4(a)(4), the Commission of charitable contributions. evidence that the services were determined that no amendment was The Commission received many successful—that is, that the consumer’s needed to the language of that comments discussing the proposed creditworthiness has improved. No provision.405 Therefore, the language in modifications to § 310.4(a), and change to this section was incorporated these provisions was unchanged in the significant time was devoted to these in the proposed Rule, except to note its proposed Rule. issues at the June 2002 Forum. A expanded coverage as a result of the As noted in the NPRM, however, the summary of the major points on the USA PATRIOT Act.409 The only Rule amendments mandated by the USA record regarding the proposed comment received in response to the PATRIOT Act expand the reach of amendments is provided below. NPRM was from DBA, which requested § 310.4(a) to encompass the solicitation § 310.4(a)(1) — Threats and that debt collectors be specifically of charitable contributions. The section intimidation exempted from compliance with this begins with the statement ‘‘It is an section.410 As DBA itself noted, debt Section 310.4(a)(1), unchanged in the abusive telemarketing act or practice collection activities do not fall within proposed Rule, specifies that it is an and a violation of this Rule for any the Rule’s ambit in any event because abusive telemarketing practice to engage seller or telemarketer to engage in [the they are outside the definition of in threats, intimidation, or the use of 411 conduct specified in subsections (1) ‘‘telemarketing.’’ Therefore, it is profane or obscene language. None of through (6) of this provision of the unnecessary to exempt debt collectors the comments in response to the NPRM Rule].’’406 The proposed Rule modified from compliance with this provision. recommended that changes be made to the definitions of ‘‘telemarketing,’’ and, the wording of § 310.4(a)(1), although § 310.4(a)(5) — Disclosing or receiving, by association, ‘‘telemarketer,’’ to ICFA did request clarification of the for consideration, unencrypted encompass the solicitation of charitable term ‘‘intimidation,’’ arguing that ‘‘a consumer account numbers for use in contributions. Consequently § 310.4(a) person could potentially claim to have telemarketing of the proposed Rule would have been ‘intimidated’ simply because a pre- The Commission has added a new applied to all telemarketers, including need caller suggested meeting to discuss provision, § 310.4(a)(5), which specifies those engaged in the solicitation of funeral arrangements.’’407 The that it is an abusive practice and a charitable contributions. Each of the Commission believes that under the violation of the Rule to disclose or prohibitions in § 310.4(a) will therefore language of the Rule, which focuses on receive, for consideration, unencrypted now apply to those telemarketers the telemarketer’s behavior, to ‘‘engage consumer account numbers for use in soliciting on behalf of either sellers or in . . . intimidation’’ could not telemarketing. charitable organizations. As noted in the reasonably be extended to cover the As mentioned above, since the NPRM, the Commission believes it situation where a telemarketer merely original Rule was promulgated, unlikely that §§ 310.4(a)(2)-(4) will have invites a consumer to discuss funeral consumer concern over encroachments any significant impact on telemarketers arrangements, even if the person called on their privacy has become engaged in the solicitation of charitable finds the prospect of funeral planning widespread. One response to privacy contributions, since those sections all an ‘‘intimidating’’ one. Rather, as the concerns was passage of the GLBA412 deal with practices that are commercial Commission noted in the TSR and its related regulations,413 under in nature and not associated with Compliance Guide, this provision is which financial institutions, and the charitable solicitations. Sections meant to prohibit ‘‘intimidation, third parties with which they do 310.4(a)(1), (5), (6), (7) and (8) of the including acts which put undue business, may provide consumer proposed Rule, however, addressed pressure on a consumer, or which call account information to other third practices that are not necessarily into question a person’s intelligence, parties only in encrypted form for confined to telemarketing to induce honesty, reliability or concern for marketing purposes. To do otherwise is purchases of goods or services. They family.’’408 The Commission believes not only a violation of the GLBA and its therefore may have had an impact upon further clarification is unnecessary, and related regulations,414 but is construed thus declines to include in the amended by consumers as a breach of the or obscene language.’’ Section 310.4(a)(2) prohibits Rule a definition of ‘‘intimidation.’’ financial institution’s promise to requesting advance payment for so-called ‘‘credit Therefore, the language in this provision repair’’ services. Section 310.4(a)(3) prohibits consumers to keep the consumer’s requesting advance payment for the recovery of remains unchanged in the amended account information confidential and money lost by a consumer in a previous Rule. However, the USA PATRIOT Act secure.415 telemarketing transaction. expansion of the TSR brings within the 405 Section 310.4(a)(4) prohibits requesting ambit of this provision telemarketers 409 67 FR at 4512 (noting that ‘‘[i]t is unlikely that advance payment for obtaining a loan or other soliciting charitable contributions. [this section] will have any significant impact on extension of credit when the seller or telemarketer telemarketers engaged in the solicitation of has represented a high likelihood that the consumer § 310.4(a)(2) — Credit repair charitable contributions. . .’’). will receive the loan or credit. NCL reported in its 410 DBA-NPRM at 2-4. Rule Review comment that the number of Section 310.4(a)(2) prohibits 411 complaints it received about such advance fee loan requesting or receiving a fee or Id. 412 Gramm-Leach-Bliley Act, see note 64 above. schemes had risen steeply in the five years since the consideration for goods or services Rule was promulgated. NCL also speculated that 413 See 16 CFR 313.65 (2000) (FTC’s Privacy consumers may be confused about whether and represented to improve a person’s Regulation). See also 17 CFR 160; 12 CFR 332; 12 under what circumstances fees are legitimately creditworthiness until: 1) the time frame CFR 715; 12 CFR 40; 12 CFR 573; and 17 CFR 248. required for different types of loans, as evidenced within which the seller has represented 414 See, e.g., 12 CFR 313.12. by the numerous complaints about advance fee that the promised services will be 415 See AARP-Supp. at 2 (describing the results of credit cards. NCL-RR at 11. The Commission noted provided has expired; and 2) the seller a survey AARP conducted in which the majority of in the NPRM its belief that the language of consumers reported that they did not believe § 310.4(a)(4) already prohibits such advance fee telemarketers could or should freely share their credit card offers via telemarketing and that 407 ICFA-NPRM at 3. account information). See also Dave Finlayson numerous federal and state law enforcement efforts 408 TSR Compliance Guide at 23 (noting that (Msg. 491) (‘‘I will cease doing business with any have been directed at such offers. See discussion at ‘‘[r]epeated calls to an individual who has declined firm which gives out my personal private 67 FR at 4510. to accept an offer may also be an act of information.’’); BL (Msg. 1175) (‘‘I also agree that 406 Original and amended Rule § 310.4(a). intimidation’’). Continued

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Indeed, trading in unencrypted cannot avoid the injury because they By ‘‘unencrypted,’’ the Commission consumer account numbers has been likely are unaware that their credit card means the actual account number, or uniformly condemned by virtually all numbers have been purchased and that lists of actual account numbers, or parties who participated in this a telemarketer possesses that encrypted information with a key to rulemaking proceeding. Although there information when they receive a unencrypt the data.421 ‘‘Consideration’’ was substantial debate regarding the telemarketing call. In addition, there is is not limited to cash payment for a list Commission’s proposal for a blanket no evidence on the record of any of account numbers. ‘‘Consideration’’ prohibition on the transfer or receipt of countervailing benefits to consumers or can take a variety of forms, including consumers’ billing information (i.e., competition by trafficking in lists of receiving a percentage of every ‘‘sale’’ ‘‘preacquired account information’’),416 account numbers. As a result, the using the unencrypted account there was no disagreement among Commission concludes that the practice information. commenters and forum participants of selling unencrypted lists of credit This provision allows processing a about the notion that trafficking in lists card numbers is likely to cause properly obtained payment for goods or of consumer account numbers was substantial and unavoidable consumer services pursuant to a transaction. In improper, in many cases illegal, and injury in the form of unauthorized addition, pursuant to the USA PATRIOT should be a violation of the Rule.417 As charges without any countervailing Act’s expansion of the TSR to cover ERA explained during the forum: benefits. Thus, the Commission has charitable solicitations, the provision [I]f there is a transfer of consumer determined to add Section 310.4(a)(5). also allows for the disclosure or receipt information without knowledge of and prior This provision is consistent with the of a donor’s account number to process to the consumers’ consent, which would basic prohibition in the GLBA, and in a payment for a charitable contribution encompass, for example, your scenario where essence, extends the ban on this practice pursuant to a transaction. By a list is compiled and a marketer [sold] its beyond financial institutions and ‘‘transaction,’’ the Commission means a list with its credit card numbers to another ensures that all sellers and telemarketers telemarketing transaction that complies marketer without telling the consumers on subject to the TSR are prohibited from with all applicable sections of the Rule, that list that they sold the list of account this practice. numbers, I think everyone at this table would including new § 310.4(a)(6), discussed The prohibition in § 310.4(a)(5) is not below, which prohibits any seller or agree . . . that this is a violation. . . . We’ve limited to compilation and disclosure of said in our comments that we would agree telemarketer from causing a charge to be to a ban on that. Legitimate marketers don’t lists of account numbers. Rather, any placed against a customer’s or donor’s do that. They don’t sell consumer credit card disclosure (or receipt) of unencrypted account without that customer’s or numbers for money.418 account information violates the Rule, donor’s express informed consent to the unless the disclosure is for purposes of Given that there is no legitimate charge.422 processing a payment for a transaction reason to purchase unencrypted credit to which the consumer has consented § 310.4(a)(6) — Causing a charge to be card numbers, the Commission believes after receiving all disclosures and other submitted for payment without the there is a strong likelihood that protections of the Rule. A seller or consumer’s express informed consent telemarketers who engage in this telemarketer could not, for example, practice will misuse the information in In the NPRM, the Commission provide or receive account numbers one a manner that results in unauthorized proposed a prohibition on ‘‘receiving at a time in order to circumvent this charges to consumers. This conclusion from any person other than the provision. Nor could a telemarketer is consistent with the Commission’s law consumer or donor for use in obtain account information from enforcement experience.419 Consumers telemarketing any consumer’s or donor’s consumers on behalf of one seller, and billing information, or disclosing any then retain it for sale or disclosure to they should not get a credit card or other account consumer’s or donor’s billing number except from the consumer who chooses to another seller in another telemarketing 420 information to any person for use in deal with them. . . . This should include not campaign. 423 SELLING (not just sharing as stated in our telemarketing.’’ This proposed provision was prompted by extensive newspaper article) these numbers.’’); Anonymous addition, given the evidence that preacquired (Msg. 3457) (‘‘This is not what any reasonable account telemarketing involving encrypted account comments during the Rule Review person would consider ‘‘public information.’. . . information can result in unauthorized charges (as concerning the severity and the scope of Why would ANYONE consider this information discussed in more detail below), the Commission harm to consumers related to that they can ‘‘share’’ without the customer’s believes that there is an even greater likelihood of express permission?’’). consumer injury when telemarketers have 416 Over 50 of the major organizational purchased consumers’ actual credit card numbers II at 193 (ERA) (‘‘[T]hat’s exactly the scenario that commenters addressed the issue of preacquired before contacting consumers about an offer. we’re talking about that would be prohibited account telemarketing, as did over 200 consumer 420 See, e.g., FTC v. Capital Club, No. 94-6335 because when that third-party telemarketer retained commenters. In addition, a session of the June 2002 (D.N.J. 1994). According to the FTC complaint in that account information, it did so as an agent for Forum was dedicated to the topic, and generated that case, two companies, National Media and the seller, so it was not that telemarketer’s account extensive discussion. See June 2002 Tr. II at 116- Media Arts, which marketed products through information to begin with. They were capturing that 212. infomercials, allegedly sold or rented their for the seller on whose behalf that call was made, 417 See, e.g., ERA/PMA-Supp. at 14-15; PMA- customer lists to third-party service companies that so if that telemarketer were then to call a consumer NPRM at 14; June 2002 Tr. II at 183 (ERA). See also sold products and services such as memberships in without knowledge and prior consent and use that ATA-Supp. at 6; NCTA-NPRM at 12 (‘‘[T]he shopping and travel clubs. The lists contained credit card information again, that would be the trafficking of customer account information by customers’ names, addresses, and telephone kind of a transfer prior to and without consumer unscrupulous telemarketers is a legitimate numbers, as well as their credit-card types, account consent that we’re talking about.’’) concern.’’). Also, the GLBA prohibits this practice numbers and expiration dates. The lists were 421 This, too, is consistent with the financial on the part of financial institutions. 15 U.S.C. provided to the service companies without the privacy regulations issued pursuant to the GLBA. 6802(d); and see, e.g. 12 CFR 313.12. customers’ knowledge or authorization. Some of the See 12 CFR 313.12(c)(1) (‘‘An account number, or 418 June 2002 Tr. II at 183. Capital Club defendants’ roles included similar form of access number or access code, does 419 See, e.g., FTC v. J.K. Publ’ns, Inc., 99 F. Supp. maintaining the lists, marketing them to the service not include a number or code in an encrypted form, 2d 1176 (C.D. Cal. 2000) (in which, outside the companies, and conducting telemarketing calls on as long as you do not provide the recipient with a telemarketing context, defendant purchased behalf of the service companies, according to the means to decode the number or code.’’) (emphasis unencrypted lists of consumer account numbers, complaint. Industry representatives at the June 2002 added). which it used to charge consumers, purportedly for Forum registered agreement that the Capital Club 422 See amended Rule § 310.4(a)(6) and discussion visits to adult websites, despite the fact that many scenario would run afoul of a ban on trafficking in of that provision, below. of those charged did not even own computers). In consumer account information. See June 2002 Tr. 423 Proposed Rule § 310.4(a)(5), 67 FR at 4543.

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preacquired account telemarketing.424 from abusive preacquired account help to quantify the benefits conferred The proposal also arose from the telemarketing practices.426 Their by this practice or better explain how Commission’s law enforcement comments strongly criticized a these benefits might outweigh the experience in this area, as well as that distinctive feature of preacquired substantial consumer harm it can of the states, which demonstrates the account telemarketing—that is, that it cause.430 By contrast, the record of consumer harm that can result from this fundamentally changes the customary consumer injury arising from practice.425 The comments received in bargaining relationship between seller preacquired account telemarketing response to the NPRM, however, and consumer by giving the seller the scenarios was extensive at the time of demonstrate that much preacquired means to bill charges to the consumer’s the Rule Review.431 account telemarketing does not account without the consumer divulging Three arguments echoed throughout necessarily give rise to consumer his or her account number to evidence virtually all industry comments injury—specifically, unauthorized consent to the transaction.427 received in response to the NPRM. First, charges—and in fact may benefit Industry commenters opposed the financial institutions, as well as other consumers. With this in mind, the proposed provision, making a number of industry members, argued that the Commission has focused more narrowly legal and factual arguments. Several proposal was unnecessary or improper on the tangible harm, and has crafted industry members suggested that in light of the enactment of the GLBA precise solutions to the specific abuses without specific legislative authority, and the various regulations evident in instances involving the Commission could not prohibit the thereunder.432 Specifically, these preacquired account information. transfer of account information under commenters argued that the issue of Section 310.4(a)(6) of the amended the TSR.428 A few commenters argued releasing account information for Rule is one of a number of provisions that the Commission lacked record marketing purposes already has been that collectively address the harm evidence sufficient to support the dispositively addressed in the GLBA caused by certain forms of preacquired proposed prohibition.429 It bears noting and its implementing regulations, with account telemarketing. The scope of this that, although business and industry a different result from that proposed by 433 section, however, extends beyond the representatives acknowledged during the Commission in the TSR. context of preacquired account the Rule Review that the practice of telemarketing to any instance where the preacquired account telemarketing was 430 See 67 FR at 4512-14; and June 2002 Tr. II at 211-12 (E. Harrington) (‘‘One of the reasons that the seller or telemarketer causes a charge to quite common, maintaining that it was Commission has proposed a prohibition is because be submitted for payment without first ‘‘very important’’ to them, they it looked very carefully at the record of the request obtaining the express informed consent provided scant information that would for justification for the practice and found it is sorely wanting. Why this needs to happen, in other of the customer or donor to be charged, words, has been a real mystery to us, why it is that 426 and to be charged using a particular AARP-NPRM at 6-7; AARP-Supp. at 4; EPIC- companies should be permitted to get account account or payment mechanism. This NPRM at 9; Horick-NPRM at 1 (endorsing EPIC’s information from third parties and have it at the NPRM comment); NAAG-NPRM at 30-41; NCLC- provision, along with several new time that they call a prospective customer, charge NPRM at 12-13. See also Covington-Supp. at 2-5; that account information and oftentimes not obtain definitions (amended Rule § 310.2(o) and NCL-NPRM at 6 (‘‘Checks and money orders are consent for that.’’). ‘‘free-to-pay conversion,’’ § 310.2(t) no longer the most common methods of payment 431 See 67 FR at 4512-14. Moreover, the evidence ‘‘negative option feature,’’ and in telemarketing complaints made to the NFIC. As continues to mount as the Commission and states NCL noted earlier, demand drafts, credit cards, § 310.2(w) ‘‘preacquired account continue to bring law enforcement actions debit cards, utility bills, and other types of accounts involving these practices. See, e.g., NAAG-NPRM at information’’), a new provision are increasingly used for payments. Sometimes 30, n.73; Minnesota-Supp. passim; Illinois-Supp. requiring specific disclosures of consumers contend that they never provided their passim. account numbers to the telemarketers; many of material information in any 432 Advanta-NPRM at 3; Allstate-Supp. at 2; ABA- these complaints say they never even heard of the NPRM at 8; ABIA-NPRM at 1; AFSA-NPRM at 11- telemarketing transaction involving a companies before they received their bills or bank negative option feature (amended Rule 12; AmEx-NPRM at 4-5; ATA-Supp. at 5; Assurant- statements.’’). NPRM at 6; BofA-NPRM at 7; Bank One-NPRM at § 310.3(a)(1)(vii)), and a new provision 427 NAAG-NPRM at 30; NCL-NPRM at 7. See also 2-3; Capitol One-NPRM at 8; Cendant-NPRM at 6- prohibiting misrepresentations Covington-Supp. at 2-5. 7; CBA-NPRM at 9; Citigroup-NPRM at 8-9; CCC- regarding any material aspect of a 428 ATA-NPRM at 18 (arguing that, because the NPRM at 9; CMC-NPRM at 13; Discover-NPRM at Telemarketing Act made no reference to 5-6; E-Commerce Coalition-NPRM at 2; Eagle Bank- negative option feature (amended Rule preacquired account telemarketing, the Commission NPRM at 4; FSR-NPRM at 7-8; Fleet-NPRM at 4-5; § 310.3(a)(2)(ix)), together are designed cannot regulate it); Cendant-NPRM at 6 (similar Household Auto-NPRM at 5; Household Bank- to address in a more narrowly-tailored argument to ATA); CCC-NPRM at 8; DMA-NPRM at NPRM at 2, 7-9; Household Finance-NPRM at 2, 5; manner the problem originally targeted 41-42 (arguing that the Commission lacks authority HSBC-NPRM at 3; KeyCorp-NPRM at 4; MasterCard- under Telemarketing Act to establish a law NPRM at 7; MBA-NPRM at 3; MBNA-NPRM at 5; by the blanket prohibition against violation based on unfairness standard); ERA- Metris-NPRM at 2-4; NRF-NPRM at 21; PCIC-NPRM receiving account information from any NPRM at 20 (same argument as DMA); Green at 2; VISA-NPRM at 6; Wells Fargo-NPRM at 3; person other than the consumer or Mountain-NPRM at 29-31; Household Auto-NPRM Letter from Reps. Ney, Sandlin, Jones, Cantor, and disclosing that information for use in at 5; PMA-NPRM at 16 (same argument as DMA and Shows to Chairman Timothy Muris, dated Apr. 15, ERA). Contrary to these assertions, the Commission 2002; Letter from Sens. Hagel, Johnson, and Carper telemarketing. has the authority to define and restrict deceptive to Chairman Timothy Muris, dated Apr. 17, 2002. The blanket prohibition proposed in and abusive telemarketing acts or practices, See also Letter from Rep. Manzullo to Chairman the NPRM, and the issue of preacquired pursuant to the Telemarketing Act. Moreover, the Timothy Muris, dated Apr. 12, 2002 (suggesting that account telemarketing generally, Commission has analyzed proposed Rule provisions the blanket prohibition on transferring or receiving addressing abusive practices under the FTC Act’s billing information ‘‘seems excessive’’); and Letter received substantial comment. unfairness standard to narrow, not expand, the from Sen. Inhofe to Chairman Timothy Muris, dated Consumer groups and law enforcement scope of activities brought under the purview of the Mar. 22, 2002 (same). agencies strongly supported the statute. 67 FR at 4511. The unfairness standard 433 ABA-NPRM at 8; BofA-NPRM at 7; Bank One- proposal, citing continued evidence of requires that several specific elements be met before NPRM at 2-3; CBA-NPRM at 9; Discover-NPRM at an act or practice may be deemed ‘‘unfair’’ under 5. See also CMC-NPRM at 14 ( ‘‘We see no reason substantial consumer injury resulting the FTC Act. See 15 U.S.C. 45(n) and discussion of why financial institutions should be subject to any § 310.4(a) above. If anything, the Commission is more stringent rules in connection with the use of 424 See 67 FR at 4512-14. taking a more conservative approach in analyzing consumer information for telemarketing purposes 425 See, e.g., FTC v. Smolev, No. 01-8922 CIV what constitutes an ‘‘abusive practice’’ than is than for other purposes, and for this reason, we ZLOCH (S.D. Fla. 2001); FTC v. Technobrands, Inc., required under the Telemarketing Act. think the Rule should impose no more stringent No. 3:02 cv 00086 (E.D. Va. 2002); NAAG-NPRM at 429 DMA-NPRM at 39, 41; Household Auto-NPRM limits on the sharing of billing information than the 30, n.73; Illinois-Supp. passim. at 5; MPA-NPRM at 21-22. Continued

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Commenters noted that the various commenter, having consumers provide commenter further suggested that the privacy regulations under the GLBA billing information over the telephone: best protection against individual prohibit sharing account numbers with will actually operate to introduce account telemarketers perpetrating identity theft telemarketers, but provide exceptions numbers into broader circulation. As is proper screening, training, monitoring for encrypted information, sale of an customers provide account numbers, and supervision of salespeople.441 In entity’s own product through an agent, employees of telemarketers, processors and addition, the vast majority of non-cash and co-branding and affinity programs. others in the distribution chain may have transactions in both telemarketing and access to them. This practice will actually Thus, they argued, ‘‘since the proposed face-to-face retail situations entail the Rule fails to include these exceptions, it increase the chances for unauthorized use. . . . Sophisticated encryption processes keep consumer’s disclosure of his or her is inconsistent with the GLBA account numbers out of circulation, and out account number to the seller’s regulations, rendering the regulations of the hands of potential unauthorized representative.442 The record does not 434 irrelevant.’’ NAAG challenged these users.438 reveal any reason to support the notion arguments, pointing out that the goals of A number of commenters pointed out that the risk of identity theft is any the GLBA and the TSR are very that the GLBA implementing regulations different in these transactions than in different. NAAG expressed the view that assume the confidentiality benefits of transactions where the seller has opted the GLBA did not address the economic transferring encrypted account to make use of preacquired account injury to consumers caused by information so that consumers would information. preacquired account telemarketing, as it not have to provide such information The third recurring theme in industry was focused on the privacy of account during the marketing transaction.439 comments on this issue was the information; thus there is no conflict Other commenters noted some existence of a variety of efficiencies for between the regulations, as they are contradiction in industry’s identity theft 435 aimed at different consumer harms. argument, suggesting it is illogical to both sellers and consumers. Among the According to NAAG: assert that a telemarketer cannot be most common examples cited was The essential characteristic of [preacquired trusted with a consumer’s account avoiding error in the transmission of account telemarketing] is the ability of the information, but that same telemarketer account numbers from consumer to telemarketer to charge the consumer’s can be trusted to tell the seller truthfully telemarketer, as either the consumer account without traditional forms of consent. that the consumer has provided express misstates or the telemarketer miskeys . . . The key is how the agreement between informed consent to the purchase, the account number.443 Another benefit a company controlling access to a consumer’s absent obtaining any part of the account cited by numerous industry commenters account and the telemarketer who 440 was the reduction of time on the preacquired the ability to charge a number from the consumer. One such consumer’s account affects the bargaining telephone to complete the transaction in 444 power between the telemarketer and the 438 AmEx-NPRM at 8. Accord Assurant-NPRM at the initial call, particularly in consumer. GLBA and implementing 5; Bank One-NPRM at 3-4. Additionally, several commenters suggested that the blanket prohibition regulations do not address this relationship. was ‘‘inconsistent with the longstanding and well during the telemarketing call. NAAG-RR at 11 and . . . [Indeed as] a result of the [GLBA and considered advice [of the Commission and other Exs. 2 - 4 attached thereto; NAAG-NPRM at 32, and implementing regulations] . . . vendors . . . consumer protection groups and law enforcement Ex. B attached thereto. See also Synergy Global- can still send through charges to consumers’ agencies] that they not release their account NPRM at 1-2 (comments from a former teleservices accounts without consumers giving their numbers to telemarketers. . . .’’ MasterCard-NPRM agent stating that he was encouraged by his superiors to ‘‘falsify sales in an attempt to credit card numbers. . . . This allows the at 7. Accord BofA-NPRM at 7; Bank One-NPRM at 3. See also ABA-NPRM at 8; Metris-NPRM at 6. In artificially inflate the statistics compiled nightly’’). same [preacquired account telemarketing] 441 NCL-NPRM at 7. 436 fact, the Commission’s advice has not been to refuse process to continue. . . . to divulge account information in any telemarketing 442 NAAG-RR at 10. Indeed, NEMA described its Another common theme in industry transaction, but rather only to divulge such own current procedures, under the Uniform information when the seller is known to the Business Practices guidelines created for the retail comments on this issue was that the use consumer. See, e.g., ‘‘Facts for Consumers: Are You energy market, whereby it obtains complete billing of preacquired account information in a Target of ... Telephone Scams,’’ http:// information directly from each customer as proof of telemarketing provides protection for www.ftc.gov/bcp/confine/pubs/tmarkg/target.htm; the customer’s intent to switch utility providers. consumers from identity theft and ‘‘Consumer Alert: Customized Cons Calling,’’ NEMA-NPRM at 8-9. http://www.ftc.gov/bcp/confine/pubs/alerts/ 443 ABA-NPRM at 8; Assurant-NPRM at 3-4; BofA- perpetrated by individual telemarketing consalrt.htm. Moreover, the reason for this advice NPRM at 7; Cendant-NPRM at 7; Cox-NPRM at 33; agents, and assuages consumers’ is not to avoid identity theft, but to protect Metris-NPRM at 7. concerns about divulging their account consumers from fraudulent telemarketers selling 444 See, e.g., MPA-NPRM at 24 (‘‘The Commission information.437 According to one such bogus goods or services. Id. In the identity theft must also not underestimate the economic context, the danger identified by the Commission efficiencies such practices afford to businesses. . . and discussed in its publications is not the . It is estimated that requiring consumers to retrieve GLBA and the Commission’s privacy rule potential misuse of account information that a and repeat their entire account number and impose.’’). consumer has provided in the course of a sale of verifying this information will increase the length 434 ABA-NPRM at 8. See also ABIA-NPRM at 2 goods or services, but rather ‘‘pretexting’’—i.e., the of the call substantially, with one provider (arguing that the proposed provision ‘‘would . . . practice of eliciting a consumer’s personal estimating an increase of 35 seconds and additional disrupt a coordinated body of federal and state information under false pretenses, such as claiming evidence suggesting that increase could be 60 privacy laws and regulations enacted since passage to be from the consumer’s bank, calling to confirm seconds or more.’’) See also Cox-NPRM at 33; of GLBA’’); AFSA-NPRM at 11; AmEx-NPRM at 4; the consumer’s account information. See Metris-NPRM at 6-7; NCTA-NPRM at 12; Tribune- BofA-NPRM at 7; Bank One-NPRM at 3; Cendant- ‘‘Pretexting: Your Personal Information Revealed,’’ NPRM at 8. MPA’s argument on this point is NPRM at 6-7; CMC-NPRM at 13. http://www.ftc.gov/bcp/confine/pubs/credit/ somewhat contradicted by its recommended 435 NAAG-NPRM at 41-43. pretext.htm. alternative to the prohibition, express verifiable 436 Id. at 43. Accord Covington-Supp. at 2-5. 439 Bank One-NPRM at 4; Cendant-NPRM at 7; authorization, which involves additional expense, 437 ABA-NPRM at 8; AmEx-NPRM at 5; Assurant- Household Auto-NPRM at 2-3; Metris-NPRM at 5; regardless of the method of express verifiable NPRM at 4; BofA-NPRM at 7; Bank One-NPRM at E-Commerce Coalition-NPRM at 3; VISA-NPRM at authorization selected. See MPA-NPRM at 26-29. 3-4; Capital One-NPRM at 9; Cendant-NPRM at 7; 6-7. NCL challenged this proposition, suggesting that, Household Auto-NPRM at 2, 5; Household Bank- 440 June 2002 Tr. II at 130-31 (AARP), 143 on the contrary, ‘‘[r]equiring telemarketers to ask for NPRM at 2, 7; Household Finance-NPRM at 2, 7; (NAAG), and 205 (NCL). Indeed, in both their Rule [the consumer’s account number] would benefit MasterCard-NPRM at 7; MPA-NPRM at 24; Metris- Review and NPRM comments, NAAG provided both parties by helping to confirm a consumer’s NPRM at 2, 5-7; NRF-NPRM at 20; Time-NPRM at several examples of instances where obviously intention to make the purchase and the correct 8-9; VISA-NPRM at 6-7; Wells Fargo-NPRM at 3. confused elderly consumers were charged for account that will be used for that purchase, See also June 2002 Tr. II at 124-25 (CCC); Id. at 133 products or services using preacquired account reducing the potential for billing disputes later.’’ (PMA) and 194-95 (DialAmerica). information, despite no clear evidence of consent NCL-NPRM at 7.

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upsells.445 As DMA noted, ‘‘it is a As it stated in the NPRM, the favored by consumers, who consistently significant benefit to consumers for Commission still believes that whenever state that, as a general proposition, they second businesses in an upsell to obtain preacquired account information do not believe it is or should be possible and use information such as address enables a seller or telemarketer to cause for them to be charged if they do not and credit card information. This charges to be billed to a consumer’s provide their account number in a eliminates the need for a consumer to account without the necessity of transaction.451 The Commission have to restate the information just persuading the consumer to understands this to mean that, generally provided. Transfer of information in demonstrate his or her consent by speaking, consumers believe they such scenarios with informed consent is divulging his or her account number, ordinarily signal their consent to an inherently efficient for both the the customary dynamic of offer and offer by providing their account merchant and the consumer.’’446 The acceptance is inverted. In such a case, information to the seller or telemarketer. final benefit cited in several comments what is customarily under the sole Although some commenters argue was that preacquired account control of the consumer—whether to that this shift in the normal paradigm of telemarketing helped consumers by divulge one’s account number, thereby offer and acceptance is, in and of itself, enabling them to avoid the determining whether to accept the offer inherently unfair,452 the record overall inconvenience of having to pull out and how to pay for it—is now in the suggests that, in general, it is not their wallets in order to make a hands of the seller or telemarketer.450 preacquired account telemarketing per purchase.447 This alleged benefit was This reversal in the traditional paradigm se that is harmful, but rather the abuse sharply questioned by consumer is not one that is generally expected or of preacquired account information that advocates, who argued that whatever causes the harm.453 Commenters time savings or convenience may accrue were about 25% lower than when the telemarketer persuasively note that there are many from the use of preacquired account read those digits to the consumer, but consumers transactions involving preacquired information does not offset the potential really understood that they were making purchases account information that are beneficial 448 . . . . My client believes that consumer complaints harm from its use. The record makes pertaining to their intent to purchase dropped, and to, indeed sometimes expected by, clear, in fact, that it is the very act of that his seller clients now experience an acceptable consumers. For example, as noted in the pulling out a wallet and providing an level of product returns.’’ Id. at 2-3. See also June NPRM, ‘‘a customer who places account number that consumers 2002 Tr. II at 139-44 (NAAG); NACAA-NPRM at 6 (‘‘That the consumer has to provide this 451 See 67 FR at 4513; AARP-Supp. at 4 (see note generally equate with consenting to information to the seller provides a check on the make a purchase, and that this is the 449 above, describing survey showing that the transaction, and an assurance that the consumer majority of consumers do not believe their accounts most reliable means of ensuring that a does indeed wish to enter the transaction.’’); can, or should, be charged by telemarketers without consumer has indeed consented to a Vermont-Supp. passim and attachment. AARP obtaining the account number directly from the transaction.449 commissioned a survey by telephone on June 14- consumers); June 2002 Tr. II at 131-32 (AARP); 19, 2002, among a nationally representative sample EPIC-NPRM at 9; NAAG-RR at 10-11; NAAG-NPRM of 1,240 respondents 18 years of age and older. 30-31; Vermont-Supp. at 2-3. As Minnesota 445 Associations-Supp. at 5-6; DMA-NPRM at 40. Participants were asked a handful of questions, explained during the June 2002 Forum: See also PMA-NPRM at 18-19; Time-NPRM at 8. such as, ‘‘Often telemarketers ask you to buy ‘‘In a preacquired situation, the consumer doesn’t 446 DMA-NPRM at 40. See also Time-NPRM at 8. something with a credit card or debit card. Do you have that control because we have shorthand ways 447 Assurant-NPRM at 6; June 2002 Tr. II at 125 think telemarketers are able to cause charges to your of signaling consent in our society. We aren’t many (CCC). credit card or debit card without getting your credit lawyers out there. Josh, who . . . has a trade school 448 See, e.g., June 2002 Tr. II at 131 (AARP) (‘‘To or debit card numbers directly from you?’’ Only 30 degree and comes home from a job and Esther is imply that . . . it’s more inconvenient for the percent of respondents stated that they were aware sitting on the couch at 85 years old doesn’t consumer to get their credit card than to have an that telemarketers have the ability to cause a charge understand all this. . . . They just get a call from unknown source debit their account without their to their credit or debit card accounts without getting somebody. What they know is I’ve got to sign my knowledge, I don’t think any consumer would ever the account numbers from them. AARP-Supp. at 2. name, I’ve got to give somebody my credit card or agree with that statement.’’) That number was higher in the instance of upsells, in the context of a telemarketing transaction, I have 449 Covington-Supp. at 2-5: but still less than half of the respondents to read my account number to the person or I have ‘‘The Commission is also correct that the best way understood that it was possible to be charged to pay cash, and what this does is by circumventing to be certain that a consumer really wants to make without providing account information to a seller those forms of consent, it makes it impossible for a purchase is to see if the consumer is willing to or telemarketer. Id. Additionally, the majority (80 consumers to control the transactions.’’ reach into a purse or pocket, open a wallet, take out percent) of respondents stated that they thought June 2002 Tr. II at 140. See also James Andris a credit card, and read from it. When that happens, telemarketers should only be able to cause charges (Msg. 171) (‘‘Our mortgage company has been there is nothing ambiguous about what’s taking to their credit or debit card accounts if the deducting a monthly premium, via our mortgage place; there can be no misunderstanding. . . . Even consumers expressly provide their account numbers payment, to a 3rd party insurance policy. I have during a chaotic dinner hour, a consumer cannot to the seller or telemarketer. Id. at 4; Vermont-Supp. written a letter demanding refunds for the payments open a wallet, pull out a credit card, and read from at 2-3. The survey addresses a fairly complex issue for 16 months. We, my wife and I, never gave it without knowing that he or she is making some in broad terms. For example, it does not tease out written or verbal permission for such payments to kind of purchase. . . . This short-hand method for the specific instances where a consumer might either parties [sic].’’); Albert Bruce Crutcher (Msg. consumers to signal assent to a deal leaves complete actually have an expectation that the seller will 229) (‘‘I also favor not allowing my credit card and control of the transaction in the hands of the retain and reuse the consumer’s account account numbers to be given out by anyone other consumer while preventing the industry burden information, such as the contact lens seller who, than ME!!’’); Harold D. Howlett (Msg. 300) (‘‘Do not from being any greater than necessary.’’ with the consumer’s permission, retains the allow telemarketers to obtain and use credit card or Indeed, this conclusion derives from the actual consumer’s account information to facilitate other account information from anyone except the experience of a telemarketing firm that engages in quarterly lens purchases. The results do, however, consumer. . . .’’); Carole & Cory Walker (Msg. 810) preacquired account telemarketing. See Letter from provide insight into the general expectations of (‘‘Every year we have at least one unauthorized Stephen Calkins to the FTC, dated October 28, 2002 consumers when engaging in telemarketing charge to our card and we are extremely cautious (‘‘Calkins Letter’’). This firm attempted to cure the transactions. with our information.’’). high customer return rates generated by this 450 State law enforcers, consumers and consumer 452 See, e.g., EPIC-NPRM at 9; NAAG-NPRM at 30; practice in several ways, including adjusting the groups, as well as some industry members, NCL-NPRM at 6-7. disclosures and reading at least four digits of the consistently voiced concerns over the shift of 453 ERA-NPRM at 16; Household Auto-NPRM at 5; account number to the consumers during the call. control over a transaction from the consumer to the PMA-NPRM at 17. Other commenters asserted that Id. at 2. The firm found that none of these attempted seller or telemarketer, and noted consumer disbelief using preacquired account information is not cures ensured that consumers ‘‘knowingly that purchases could actually be made without their inherently fraudulent. See Allstate-Supp. at 2; consented’’ to the purchase while maintaining a ever disclosing payment information. See 67 FR at Associations-NPRM at 4; ATA-NPRM at 19; ATA- competitive level of sales. Id. at 1-2. Only when the 4513; June 2002 Tr. II at 130-32 (AARP); Covington- Supp. at 5-6; ERA/PMA-Supp. at 10; ITC-NPRM at firm began requesting a portion of the account Supp. at 2, 5; EPIC-NPRM at 9; NAAG-RR at 10-11; 5; NCTA-NPRM at 11; Noble-NPRM at 3; NATN- number from the consumer herself did complaint NAAG-NPRM 30-31; June 2002 Tr. II at 139-44 NPRM at 3; NSDI-NPRM at 3; PMA-NPRM at 13-16; rates drop significantly, without an unacceptable (NAAG). But see CMC-NPRM at 13 (questioning this Technion-NPRM at 4; TRC-NPRM at 3; Time-NPRM drop in sales. According to the commenter, ‘‘Sales proposition). at 7.

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quarterly orders for contact lenses by not traditionally used to pay for meets the criteria for unfairness, and calling a particular lens retailer may purchases.458 Of course, unauthorized therefore violates Section 5 of the FTC provide her billing information in an charges are not exclusively associated Act.464 Yet until now, the Rule has not initial call, with the understanding and with preacquired account telemarketing. specified that unauthorized billing is an intention that the telemarketer will The Commission has brought numerous abusive practice and a Rule violation.465 retain it so that, in any subsequent call, law enforcement actions against sellers The Commission therefore has decided the retailer has access to this billing and telemarketers alleging violations of to add § 310.4(a)(6) to correct that information.’’454 Similarly, a customer the FTC Act for the unfair practice of deficiency. The new provision specifies who provides his account number to billing unauthorized charges to that it is an abusive practice and a make a purchase in an initial consumers’ accounts in a variety of violation of the Rule to cause a charge telemarketing transaction may be contexts not involving preacquired to be submitted for payment, directly or frustrated to have to repeat that account account information, including but not indirectly, without the express informed information to consummate certain limited to: advanced fee credit card consent of the customer or donor. This upsell transactions, particularly when offers,459 sweepstakes,460 vacation or prohibition is not limited to instances of the upsell is offered by the same travel packages,461 credit card loss unauthorized charges resulting from telemarketer. In that case, there may be protection offers,462 and magazine preacquired account telemarketing. an expectation that the telemarketer will subscriptions.463 Thus, in essence, Rather, this provision is applicable have retained, and be able to reuse, the preacquired account telemarketing has whenever a seller or telemarketer account information the customer proven in certain circumstances to be an subject to the Rule causes a charge to be provided only moments ago.455 As additional, but not the only, vehicle for submitted against a customer’s or another commenter pointed out during imposing unauthorized charges on donor’s account without obtaining the the Rule Review, the key to such consumers in telemarketing customer’s or donor’s express informed transactions is the fact that the transactions. consent to do so. This broader consumer makes the decision to supply One of the problems, therefore, with prohibition on unauthorized billing is the billing information to the seller, and the proposed prohibition on receiving supported by the Commission’s understands and expects that the billing information from a source other extensive law enforcement record of information will be retained and reused than the consumer or sharing it with instances of unauthorized billing in for an additional purchase, should the others for the purposes of telemarketing telemarketing transactions. consumer consent to that purchase.456 is that it fails to remedy patterns of Section 310.4(a)(6) also specifies that, The record shows that the specific unauthorized billing that occur even in every transaction, the seller or harm resulting from the use of though preacquired account information telemarketer must obtain the consumer’s preacquired account telemarketing is is not used. As our cases amply express informed consent to be charged manifested in unauthorized charges.457 demonstrate, the practice unequivocally for the goods or services or charitable These may appear not only on contribution, and to be charged using consumers’ credit card or checking 458 NAAG-NPRM at 31 (‘‘Fleet Mortgage the identified account. ‘‘Express’’ accounts, but also on mortgage Corporation, for instance, entered into contracts in consent means that consumers must which it agreed to charge its customer-homeowners statements and other account sources for membership programs and insurance policies affirmatively and unambiguously sold using preacquired account information. If the articulate their consent. Silence is not 454 67 FR at 4513. telemarketer told Fleet that the homeowner had tantamount to consent; nor does an 455 See, e.g., June 2002 Tr. II at 196 (Time) (‘‘[T]he consented to the deal, Fleet added the payment to ambiguous response from a consumer catalog clients that we deal with that are . . . selling the homeowner’s mortgage account.’’) equal consent.466 Consent is ‘‘informed’’ our magazines on our behalf . . . tell us that the cost 459 See, e.g., FTC v. Corporate Mktg. Solutions, would be loss of sales of the catalog products No. CIV-02 1256 PHX RCB (D. Ariz. filed July 8, only when customers or donors have because the customers would just be so annoyed 2002); FTC v. Capital Choice, No. 02-21050-CIV- received all required material about having to give the credit card number again Ungaro-Benages (S.D. Fla. filed Apr. 15, 2002); FTC disclosures under the Rule, and can that they just gave.’’) v. Fin. Servs. of N. Am., No. 00792 (GEB) (D.N.J. thereby gain a clear understanding that 456 67 FR at 4513, n.196. filed June 9, 2000); FTC v. SureCheK Sys., Inc., No. 457 In its supplemental comment, Minnesota 1:97-CV-2015-JTC (N.D. Ga. filed July 9, 1997); FTC they will be charged, and of the argued that evidence gathered in its law v. Thornton Communications, Inc., No. 1 97-CV- payment mechanism that will be used to enforcement actions showed that consumers 2047 (N.D. Ga. filed July 14, 1997). effect the charge. Of course, the best consistently stated that they had not authorized 460 See, e.g., FTC v. New World Servs., Inc., No. evidence of ‘‘consent’’ is consumers’ charges arising out of preacquired account CV-00-625 (GLT) (C.D. Cal. filed July 5, 2000); FTC telemarketing, particularly when the offers involved v. Hold Billing, Ltd., No. SA-98-CA-0629-FB (W.D. affirmatively stating that they do agree ‘‘free-to-pay conversion’’ features: Tex. filed July 15, 1998). to purchase the goods or services (or ‘‘The data we have reviewed in our investigations 461 See, e.g., FTC v. Lubell, No. 3-96-CV-80200 make the donation), identifying the uniformly supports our impression that underlying (S.D. Iowa filed Dec. 1996); FTC v. Disc. Travel, No. account they have selected to make the the high cancellation rates with preacquired 88-113-CIV-FtM-15C (M.D. Fla. filed Aug. 8, 1988); purchase, and providing part or all of account telemarketing is consumer sentiment that Citicorp Credit Servs., 116 F.T.C. 87 (1993). the charges were unauthorized. In addition to the 462 See, e.g., FTC v. Andrews, No. 6:00-CV-1410- that account number to the seller or survey of Fleet Mortgage Corporation customer ORL-28-B (M.D. Fla. filed Oct. 2000); FTC v. First service representatives presented in the prior Capital Consumer Membership Servs., No. 00 CV 464 See discussion and note 400 above of § 310.4 NAAG Comments [see NAAG-NPRM at 31-32], an 0905C(F) (W.D.N.Y. filed Oct. 23, 2000); FTC v. generally, and 67 FR at 4511, regarding the investigation of a subsidiary of another of the Consumer Repair Servs., Inc., No. 00-11218 Commission’s determination that, in specifying nation’s largest banks revealed a similar pattern. CM(RZx) (C.D. Cal. filed Oct. 23, 2000); FTC v. practices as abusive when they do not directly During a thirteen month period, this bank processed Capital Card Servs., No. CV 00 1993 PHX EHC (D. implicate the privacy concerns embodied in the 173,543 cancellations of membership clubs and Ariz. filed Oct. 23, 2000); FTC v. Forum Mktg. Telemarketing Act, it will demand that the practice insurance policies sold by preacquired account Servs., No. 00CV0905C(F) (W.D.N.Y. filed Oct. 26, meet the criteria for unfairness codified in § 5(n) of sellers. Of this number of cancellations, 95,573, or 2000); FTC v. 1306506 Ontario, Ltd., No. 00-CV-906 the FTC Act, 15 U.S.C. 45(n). 55 percent, of the consumers stated unauthorized (W.D.N.Y filed Oct. 23, 2000); FTC v. OPCO Int’l 465 Section 310.3(a)(4) specifies that it is a billing as the reason for the request to remove the Agencies, Inc., No. CO1-2053R (W.D. Wash. filed deceptive practice to make ‘‘a false or misleading charge. The other primary reason given for Feb. 2001). statement to induce any person to pay for goods or canceling (by 56,794 customers, or 32% of the total) 463 See, e.g., FTC v. Diversified Mktg. Servs. Corp., services.’’ was a general ‘‘request to cancel’’ code that may No. 1:96-CV-615-FM. (W.D. Okla. filed Mar. 12, 466 See Electronic Retailing Association, have also included many consumers claiming 1996); FTC v. Windward Mktg., No. 1:9 6-CV-615- GUIDELINES FOR ADVANCE CONSENT unauthorized charges.’’ FM. (N.D. Ga. filed May 26, 1996); FTC v. S.J.A. MARKETING, http://www.retailing.org/regulatory/ Minnesota-Supp. at 4. Soc’y, No. X97 0061 (E.D. Va. filed May 1997). publicpolicylconsent.html (‘‘ERA Guidelines’’).

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telemarketer for payment purposes (not of this notice, all of the law enforcement buyers club membership.471 In fact, the for purposes of ‘‘identification,’’ or to actions taken by the Commission and by majority of companies that have been prove ‘‘eligibility’’ for a prize or offer, the states that involved telemarketing targeted by state or FTC law for example). But in most instances, the using preacquired account information enforcement action market their ‘‘free- Commission leaves it up to sellers to also involved an offer with a ‘‘free-to- to-pay conversion’’ products or services determine what procedures to employ pay conversion’’ feature.469 via upsells, sometimes exclusively, and in order to meet the requirement for other times also using outbound It is noteworthy that the coupling of obtaining express informed consent. As telephone calls.472 explained below, however, in certain preacquired account information with a Consequently, the Commission has particularly problematic scenarios, the ‘‘free-to-pay conversion’’ offer is not determined that in any transaction Commission does impose specific limited to outbound telephone calls. In involving both preacquired account 470 procedures. FTC v. Smolev, for example, the information and a ‘‘free-to-pay Having treated the overall problem of defendants were alleged to have lured conversion,’’ the evidence of abuse is so unauthorized billing in new consumers to call by offering an clear and abundant that comprehensive § 310.4(a)(6), the Commission has inexpensive lighting product in general requirements for obtaining express included additional subsections to media advertisements, obtaining informed consent in such transactions address problems particularly account information from the consumer are warranted.473 Specifically, associated with preacquired account in the initial transaction, and then § 310.4(a)(6)(i) provides that a seller or telemarketing. As noted in the NPRM, upselling a ‘‘free-to-pay conversion’’ telemarketer making an offer involving evidence shows that, at least to date, both preacquired account information unquestionably the greatest risk of harm understand the way in which they would be billed and a ‘‘free-to-pay conversion’’ must (1) (i.e., unauthorized charges) to after listening carefully to a sales offer involving obtain from the customer, at a consumers is associated with preacquired account information and a ‘‘free-to-pay conversion’’ feature. See MemberWorks-Supp. at 1. minimum, the last four digits of the telemarketing involving the In addition, after asking whether the billing account number to be charged; (2) combination of preacquired account methods were understandable, the callers asked two obtain from the customer his or her information with an offer involving a questions structured in ways that strongly suggested express agreement to be charged for the ‘‘free-to-pay conversion.’’467 NAAG the desired result: first they asked, ‘‘And if you agree to join, and receive a welcome kit with all of goods or services and to be charged describes the ‘‘free-to-pay conversion’’ the rules in writing, who is responsible if you forget using the account for which the offer (which it refers to as an ‘‘opt-out to cancel and are billed,’’ then ‘‘If the company tells consumer provided the four digits; and free trial’’ offer) as the ‘‘constant you three times on the telephone call and then tells (3) make and maintain an audio companion’’ of the preacquired account you twice in writing that you can cancel your program membership anytime, but if you don’t recording of the entire telemarketing telemarketer in state law enforcement cancel, you will be charged, is the company acting transaction. Thus, in every instance 468 efforts to date. Indeed, as of the date fairly or not.’’ Id. (emphasis added). Moreover, where the combination of preacquired regardless of the merits of the survey results, they account information and ‘‘free-to-pay 467 The Commission has inserted a definition of do little to offset the extensive evidence of conversion’’ is involved in a ‘‘free-to-pay conversion’’ at § 310.2(o) of the consumer injury from this practice, the continuing amended Rule, which states that ‘‘free-to-pay flow of complaints into the offices of consumer telemarketing transaction, the customer conversion’’ means: ‘‘in an offer or agreement to sell groups and law enforcement officials at both the must be required to reach into his or her or provide any goods or services, a provision under state and federal levels, and the AARP survey wallet, and provide at least a portion of which a customer receives a product or service for evidence of consumer perceptions and opinions the account number to be charged.474 It free for an initial period and will incur an about preacquired account telemarketing. See notes obligation to pay for the product or service if he or 424-25 and 449 above. she does not take affirmative action to cancel before 469 For example, MemberWorks, Inc. (Assurances 471 Thus, the assertion of some commenters that the end of that period.’’ See discussion of § 310.2(o) of Discontinuance with the States of Nebraska and ‘‘the potential for abuse or confusion as to where above. New York; Consent Judgments with the States of the [account] information was obtained does not 468 NAAG-NPRM at 32. Accord AARP-NPRM at 6. California and Minnesota) (primarily ‘‘free-to-pay exist in upsells,’’ see, e.g., ANA-NPRM at 6, is not CCC attempted to counter this finding by presenting conversion’’ membership clubs); BrandDirect Mktg. supported by the record, at least in the context of the results of a survey, conducted on behalf of Corp. (Assurances of Discontinuance with the offers with a ‘‘free-to-pay conversion’’ feature, as MemberWorks, in April of 2001 by the Luntz States of Connecticut and Washington) (‘‘free-to-pay was the case in Smolev. Research Companies (the ‘‘Luntz Survey’’). CCC- conversion’’ membership clubs); Cendant 472 Unfortunately, the argument made by several NPRM at 10; June 2002 Tr. II at 127; MemberWorks- Membership Servs. (Consent Judgment with State of commenters that the abusive use of preacquired Supp. passim. In the survey, the caller told the Wisconsin) (same); Signature Fin. Mktg. (Assurance account information is limited to a discrete number consumer that the caller would read an offer, and of Discontinuance with State of New York) (same); of bad actors (see ATA-NPRM at 19; ERA-NPRM at would ask for the consumer’s reaction. So, it was Damark Int’l, Inc. (Assurances of Discontinuance 16; MPA-NPRM at 23-24) is not supported by the clear to the consumer that he or she was not buying with States of Minnesota and New York) (‘‘free-to- record. Law enforcement actions alleging injuries anything, and instead that the consumer should pay conversion’’ buyers club); Illinois v. Blitz caused by abuses of preacquired account listen carefully to the terms of the offer so that he Media, Inc., No. 2001-CH-592(Sangamon County) telemarketing have been brought against well- or she could answer the caller’s questions. Then, (‘‘free-to-pay conversion’’ membership club); New known, national companies and financial the caller read a script involving a ‘‘free-to-pay York v. Ticketmaster and Time, Inc. (Assurance of institutions, including but not limited to: U.S. conversion’’ feature (the script was not submitted Discontinuance) (‘‘free-to-pay conversion’’ Bancorp, Fleet Mortgage Corporation, with the survey results for the public record). The magazine subscription); Triad Discount Buying MemberWorks, Ticketmaster, and Time. See NAAG- caller then asked several questions about what the Service (sued by 29 states and the Commission) NPRM at 30, n.73. consumer just heard. CCC argued that the results of (‘‘free-to-pay conversion’’ membership clubs); 473 NAAG recommended prohibiting the use of this survey showed that 85 percent of the Minnesota v. U.S. Bancorp, Inc., No. 99-872 preacquired account information, even if that respondents said the billing methods were (Consent Judgment, D. Minn) (account information information was previously obtained by the same understandable, and that the seller was acting provider to seller/telemarketer of ‘‘free-to-pay seller or telemarketer from the consumer, in fairly. CCC-NPRM at 10. Examination of the Luntz conversion’’ membership/buyers clubs); Minnesota solicitations involving a ‘‘free-to-pay conversion’’ survey in greater detail suggests that the survey v. Fleet Mortgage Corp., 158 F. Supp. 2d 962 (D. feature. NAAG-NPRM at 39. The Commission does little to support these assertions. First, in fact, Minn. 2001) (same, plus insurance packages); FTC declines to adopt this recommendation at this time, none of the respondents said that the billing v. Technobrands, Inc.; No. 3:02-cv-00086 (E.D. Va. and is confident that the solution adopted will methods were understandable. According to the 2002) (‘‘free-to-pay conversion’’ membership clubs); provide consumers the information and command survey, 52 percent of the respondents said the U.S. v. Prochnow, No. 1:02-cv-917-JLF (N.D. Ga. over these transactions they need to protect billing methods were ‘‘mostly’’ understandable, 2002) (inbound calls from direct mail solicitations, themselves from unauthorized charges. while 33 percent said they were ‘‘somewhat’’ upsold ‘‘free-to-pay conversion’’ membership 474 See note 449 above. Moreover, industry’s understandable, and 13 percent said they were not clubs). argument that there is no evidence of problems understandable. This means that at least 46 percent 470 (a/k/a Triad Disc. Buying Serv.) No. 01-8922 where there is a transfer of account information of the respondents did not even ‘‘mostly’’ CIV ZLOCH (S.D. Fla. 2001). Continued

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must be clear that the customer is suggesting that the taping is ’to prevent Consequently, to ensure that the consent providing that account number to clerical error’ and critical information is provided by the consumer is not only revealed in ways that many consumers will authorize a purchase. This means that, 476 ‘‘express’’ but is also ‘‘informed’’ in this at a minimum, the disclosures required not grasp at the end of a conversation. limited, but problematic, context of in § 310.3(a)(1) in general, and also Thus, not only the material terms ‘‘free-to-pay conversion’’ features in § 310.3(a)(1)(vii) in particular, must be provided the consumer, but also the preacquired account telemarketing provided to the customer before the context and manner in which the offer offers, the amended Rule requires that customer provides express informed is presented are vital to determining that an audio recording of the entire consent—which, in the case of the consumer’s consent is both express transaction, from start to finish, be preacquired account telemarketing and and informed. Moreover, consumers’ created and maintained. A handful of a ‘‘free-to-pay conversion’’ feature, confusion about the nature of ‘‘free-to- commenters argued that such audio means before the customer provides pay conversion’’ offers—particularly in recording would be prohibitively account information and express the context of preacquired account expensive, particularly in the inbound agreement to be charged for the goods or telemarketing—is evidenced by the context, where some sellers and services on the account provided. It steady stream of complaints, as well as telemarketers have not traditionally must also be clear that the customer evidence uncovered in law enforcement recorded the telemarketing calls.479 agrees that the charge be placed on the actions by the states.477 Further, the Given the narrow category of calls to account whose digits the customer record contains compelling evidence of which this requirement applies, and the provided. The Commission expects that, cancellation patterns for membership rapidly growing use of inexpensive and to comply with this requirement, the programs offered on a ‘‘free-to-pay efficient digital audio recording seller or telemarketer shall expressly conversion’’ basis in preacquired technology,480 the Commission believes identify the account to be charged, and account telemarketing transactions. As that this requirement will not pose a inform the customer that it possesses explained by the Minnesota Attorney significant burden to sellers and the customer’s account number already, General, telemarketers who freely choose to or has the ability to charge that account [c]onsumers canceling within the 30-day free market their goods or services using a without obtaining the full account trial period likely indicate that [they] ‘‘free-to-pay conversion’’ feature and number from the customer. understood (either during the phone call or preacquired account information. Finally, the Commission is requiring with the follow-up material or both) the Moreover, the record is compelling that that the entire sales transaction be terms of the deal. If all consumers any incremental costs to industry of recorded. The record evidence shows understood the free trial offer, one would these requirements are likely that it is not adequate in offers involving expect to see a significant cancellation rate outweighed by the benefit to consumers both preacquired account information within the 30 day free trial offer period of curtailing the practice as it is and ‘‘free-to-pay conversions’’ to record followed by a scattered pattern of later cancellations. The data we have reviewed currently employed in the marketplace. a portion of the call that allegedly [from two financial institutions of In addition to the requirements noted includes some or all of the required cancellation dates relative to date of above, in any telemarketing transaction disclosures regarding cost and enrollment for Minnesota consumers charged involving preacquired account payment.475 Often, what law by the institutions as a result of preacquired information (but not a ‘‘free-to-pay enforcement efforts have gleaned is that account telemarketing transactions involving conversion’’ feature), § 310.4(a)(6)(ii) the necessary disclosures are grouped a ‘‘free-to-pay conversion’’] suggest this is not specifically requires that the seller or together during the ‘‘verification’’ the typical pattern. . . . The overall pattern telemarketer (1) at a minimum, identify process, at the end of a lengthy of [the data from each institution] is the account to be charged with strikingly similar. The largest concentration telemarketing pitch during which of cancellations occurs immediately after the consumers are led to reasonably believe free trial period but coincident with the first participating in these telemarketing campaigns, that they are not committing to a account charge for the service. The however, belies the purported conclusions of this survey. See note 457 above. purchase. As one commenter explained: cancellation rate in the free trial period is 479 ERA/PMA-Supp. at 3, 7 (‘‘We understand from less than half the cancellation rate in the 31- [C]onsumers are led to believe that they are certain of our members that imposing the record agreeing to accept materials in the mail, 90 day period, when consumers have been keeping requirement[s] on inbound [upsells] may preview a program along with a free gift, or billed for the service. This result is consistent require substantial investments of money and the like. As one telemarketer explicitly stated with the pattern of consumer complaints resources to develop the systems necessary to in its scripts: ‘we’re sending you the alleging unauthorized charges received by comply with these requirements.’’). 480 information through the mail, so you don’t Attorneys General and with the data See generally Contract Digital Recorder, by suggesting that most consumers cancel these Data-Tel Info Solutions, at http://www.datatel- have to make a decision over the phone.’ info.com/digicorder.html (describing affordable Only at the tail end of a lengthy call does the charges because they believe they are unauthorized.478 digital recording system for telemarketing telemarketer obliquely disclose that the operations); Veritape Call Centre-Case Study 2, at consumer’s preacquired account will be http://www.veritape.com/veritape/vtcccase.htm charged. By this time, many consumers have 476 Id. (describing a US call center that saved $70,000 already concluded that they understood the 477 See Illinois-NPRM at 2 (In Illinois’ lawsuit annually by switching from analog taping process deal to require their consent only after they against Blitz Media, Inc., the attorney general to digital recording); Ron Elwell, Streamlining Call review the mailed materials. . . . Preacquired initially received 146 consumer complaints. After Center Operations, Teleprofessional, Sept. 1998, at account telemarketing verification taping initiating the litigation, the Illinois attorney general 130-34 (discussing ‘‘how CTI-enabled digital found that approximately 45,000 Illinois consumers typically is preceded by statements recording technology is helping call centers of all had been enrolled in Blitz Media’s buyers club, but types be more productive and profitable’’); only about 8,000 of them remain ‘‘active’’ members Teleprofessional, Inc., CCPN’s System Owner ‘‘after consent’’ is belied by the record of law of the buyers club, since the rest had discovered Shootout, CALL CENTER PRODUCT NEWS, Fall enforcement actions in this area. See, e.g., FTC v. these charges and cancelled the membership, or 1998, at 52-54, 56 (explanations by several Smolev, No. 01-8922 CIV ZLOCH (S.D. Fla. 2001). initiated a chargeback, claiming the charge was telemarketers’ systems professionals of savings and In fact, in virtually all of the state and federal law unauthorized.). efficiencies experienced using improved digital enforcement actions in this area, consumers stated 478 Minnesota-Supp. at 4-5. One industry recording and monitoring systems); Michael Binder, that they did not recognize the billing entity or commenter submitted the results of a telephone The Evolution of Digital Recording in the Call understand how that seller obtained their account survey, which it asserted showed that consumers Center, TELEMARKETING & CALL CENTER information. See notes 450-51 above. do, in fact, understand the terms of these ‘‘free-to- SOLUTIONS, Nov. 1997, at 38. Cf. Duncan Furness, 475 NAAG-NPRM at 32-33 (discussing pay conversion’’ features. See note 469 above. The Choosing a Tape Technology, COMPUTER ineffectiveness of verification). data received in litigation from the institutions TECHNOLOGY REVIEW, Nov. 2000, at 40.

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sufficient specificity for the customer or entirely,482 industry commenters’ shown that these disclosures are donor to understand what account will primary recommendation was to meaningless to consumers—who either be charged, and (2) obtain from the substitute the express verifiable never receive the packets, or assume customer or donor his or her express authorization provision of § 310.3(a)(3), they are junk mail and discard them.487 agreement to be charged for the goods or or some variation on a disclosure and Moreover, in any telemarketing services and to be charged using the ‘‘consent’’ requirement,483 for the transaction, but most especially in account number identified during the proposed blanket prohibition on the preacquired account telemarketing, it is transaction. Again, the Commission transfer of billing information.484 The imperative that the seller or intends this to mean that the general theme was that disclosures and telemarketer ensure that the consumer telemarketer expressly inform the ‘‘consent’’ were sufficient to remedy the actively, and unequivocally, provides customer that the seller or telemarketer harm being caused consumers by the his or her consent to be charged, and to already has the number of the misuse of preacquired account be charged using a particular payment customer’s specifically identified information. It is unclear what these mechanism. The Commission has account or has the ability to charge that commenters mean by ‘‘consent’’ in this determined, therefore, that prohibiting account without getting the account context, as they also recommended that unauthorized charges, and laying out number from the customer. sellers and telemarketers be permitted to what is required to obtain express The Commission has taken a targeted use any of the three existing avenues for informed consent in certain approach in the amended Rule, focusing achieving express verifiable circumstances, is the most appropriate on the tangible harm caused by the authorization, including providing solution not only to the harm caused by practices identified as problematic in consumers a written confirmation after preacquired account telemarketing the rulemaking proceeding. It bears terminating the telephone call. In the abuses, but also by other exploitative noting, however, that the Commission context of ‘‘free-to-pay conversions,’’ the billing methods in telemarketing. recognizes preacquired account record shows, in no uncertain terms, that disclosures are not sufficient to § 310.4(a)(7) — Failing to transmit caller telemarketing as an emerging practice, identification information one that will receive close attention prevent widespread consumer injury.485 from the Commission, and, no doubt, Most sellers and telemarketers have Section 310.4(a)(7) of the amended the state Attorneys General. The been telling consumers at some point in Rule addresses transmission of caller Commission wishes to emphasize that, the conversation, in greater or lesser identification (‘‘Caller ID’’) information. particularly in transactions involving detail, that they will be charged at some This section prohibits any seller or ‘‘free-to-pay conversion’’ offers, so long point for the goods or services being telemarketer from ‘‘failing to transmit or as preacquired account information is offered on a ‘‘free-to-pay conversion’’ cause to be transmitted the telephone involved, there exists that fundamental basis; but, as noted above, these number, and, when made available by shift in the bargaining relationship disclosures come late in the the telemarketer’s carrier, the name of discussed above, and therefore potential conversation, and do not resonate with the telemarketer, to any caller for abuse.481 While the Commission is consumers who understand ‘‘free’’ to identification service in use by a confident that the majority of industry mean ‘‘free’’ and that to obligate oneself recipient of a telemarketing call.’’ A members will abide by the new to purchase something, the buyer must proviso to this section states that it is provisions, and that doing so will provide a payment mechanism to the not a violation to substitute the actual provide consumers the information and seller.486 Often, these disclosures come name of the seller or charitable control needed to shield them from the in writing in a ‘‘membership package’’ organization on whose behalf the call is abuses encountered in the past with sent to the consumer some time after the placed for the telemarketer’s name, or to these transactions, it also notes that the call. Law enforcement experience has substitute the seller’s customer service best practice in such circumstances is to number or the charitable organization’s ensure that the seller or telemarketer 482 ABA-NPRM at 8-9; ABIA-NPRM at 4; CMC- donor service number that is answered NPRM at 9-10; MBNA-NPRM at 6. during regular business hours for the does not have the ability to cause a 483 See, e.g., DMA-NPRM at 39-40 (specific to charge to a consumer’s account without upselling) (the Commission ‘‘should instead require number the telemarketer is calling from getting the account number from the that notice of transfer of billing information be or the number billed for making the call. consumer herself. This practice would, disclosed to the consumer and that consent be given Full compliance with the Caller ID in effect, be self-enforcing, as the control by the consumer prior to the transfer’’). provision will be required by January 484 See ATA-NPRM at 20; ATA-Supp. at 5-6; CCC- over the transaction (absent NPRM at 11-12; ERA-NPRM at 24-25; ERA/PMA- 29, 2004. misrepresentations by the telemarketer) Supp. at 11-15; ITC-NPRM at 5; MPA-NPRM at 26- The record includes several key would truly be with the consumer, 29; MPA-Supp. at 5-6; NATN-NPRM at 3 principles supporting the Commission’s where it belongs. Should it become (Supporting ERA Guidelines and recommendation); Noble-NPRM at 3 (same); NSDI-NPRM at 3 (same); decision to adopt this approach to Caller apparent that the remedies imposed by PMA-NPRM at 19 (same). See also Associations- ID information. First, transmission of the amended Rule are insufficient, or Supp. at 6. Caller ID information is not a technical that preacquired account telemarketing 485 Review of taped verifications obtained as impossibility, as some commenters had practices have evolved further in such a evidence in the Commission’s law enforcement argued or implied. Second, actions and in similar state actions convincingly way as to cause additional harm to demonstrates the inadequacy of disclosures in this telemarketers are able to transmit this consumers, the Commission will not context. information at no extra cost, or minimal hesitate to revisit its approach to the 486 See NCL-NPRM at 7 (‘‘Merely requiring cost. Third, consumers will receive practice and revise the Rule telemarketers to disclose that they have already substantial privacy protection as a result accordingly. obtained the billing account information from 488 another source or that they may share that of this provision. Fourth, consumers Other Recommendations information with other marketers would not and telemarketers will both benefit from provide consumers with adequate protection from the increased accountability in Other than those commenters who abuse. Express verifiable authorization to use the telemarketing that will result from this suggested deleting the prohibition billing account information is not enough in these instances because it comes into play after the fact; it does not give consumers prior knowledge of or 487 See discussion of § 310.3(a)(3)(iii) above. 481 NAAG-NPRM at 30; Covington-Supp. at 4-5. control over who has their account information.’’). 488 EPIC-NPRM at 11-12.

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provision.489 Fifth, law enforcement greatly value the privacy protection telemarketers who fail to transmit Caller groups will benefit from a vital new provided by receipt of Caller ID ID information.502 resource from the required transmission information is evidenced by the fact Industry commenters generally of Caller ID information in that, as of the year 2000, nearly half of supported the proposed prohibition on telemarketing.490 all Americans subscribed to a Caller ID blocking Caller ID, but urged the Background. The original Rule did service.496 Commission not to require Caller ID not address the issue of Caller ID, or the The Commission noted in the NPRM transmission,503 although one feasibility or desirability of requiring the conflict in opinion during the Rule telemarketer very strongly advocated telemarketers to transmit Caller ID Review regarding the feasibility of that the Commission do so in order to information. During the Rule Review, requiring Caller ID transmission by remove the cloak of anonymity from however, the Commission received telemarketers.497 Based on its telemarketers and thus promote numerous comments from consumers assessment of the information on the accountability for the greater benefit of and others expressing frustration about record at the close of the Rule Review, the industry as a whole.504 A number of telemarketers’ routine failure to transmit the Commission expressed its industry commenters wanted to make Caller ID information.491 Commenters uncertainty that telemarketers using ‘‘T- sure that ‘‘the prohibited practice is the complained that when telemarketers 1’’ trunk lines could transmit Caller ID deliberate manipulation of the Caller-ID called, consumers’ Caller ID devices information, and the Commission signal’’ and that ‘‘[a]s long as no overt would show a phrase like ‘‘unknown,’’ therefore did not at that time propose to actions are taken to disrupt the ‘‘out of area,’’ or ‘‘unavailable,’’ instead mandate such transmission.498 The information, there is no violation.’’505 of displaying the name and telephone NPRM also acknowledged Several commenters expressly urged number of the telemarketer or seller on telemarketers’ argument that, even if that purchasing or using telephone whose behalf the call was made.492 they could transmit Caller ID equipment that lacks Caller ID Based on the Rule Review record, the information, they would still face the functionality should not be a violation Commission proposed in the NPRM to challenge of transmitting a number that of the Rule.506 prohibit blocking, circumventing, or would be useful to consumers.499 Technical feasibility of mandatory altering the transmission of Caller ID The Commission received numerous transmission of Caller ID information. information.493 comments in response to the NPRM’s The rulemaking record as a whole In support of this proposal, the discussion of Caller ID. Some industry shows that telemarketers’ failure to Commission discussed in the NPRM the representatives simply posited that transmit Caller ID information need not benefits that accrue to consumers from transmission of Caller ID information be the result of their blocking its transmission of Caller ID information was not possible, or argued that it was transmission or some other affirmative and the technical considerations possible to transmit a telephone measure on their part.507 Rather, the implicated by transmission of this number, but that it was impossible or record indicates that non-transmission information.494 Consumers benefit prohibitively expensive to transmit a because Caller ID information allows telephone number that consumers could 502 See, e.g., Robert Hawrylak (Msg. 3382); Carl them to screen out unwanted callers and use to call the telemarketer that had Wallander (Msg. 861); George Kapnas (Msg. 2243); called them.500 Consumer groups and Tom Kaufmann (Msg. 2433); Bob Schmitt (Msg. identify companies that have contacted 3494); Bradley Davis (Msg. 3890); Toryface (Msg. them so that they can place ‘‘do not law enforcement representatives urged 19744). In all, more than 200 consumers stated that call’’ requests to those companies. These the Commission not to accept the Commission’s proposed approach in the NPRM features of Caller ID enable consumers telemarketers’ claims that mandatory was not adequate to protect consumers’ right to to protect their privacy and are clearly Caller ID transmission is impossible or privacy. 503 ABA-NPRM at 9; ARDA-NPRM at 6; ANA- within the ambit of the Telemarketing prohibitively expensive without NPRM at 6; Associations-NPRM at 3; BofA-NPRM Act’s mandate, set forth in 15 U.S.C. carefully examining the technical at 7; CBA-NPRM at 10; Comcast-NPRM at 4; DMA- § 6302(a)(3)(A), to prohibit telemarketers considerations involved.501 A number of NPRM at 48; ERA-NPRM at 48-49; Green Mountain- from undertaking a pattern of consumers expressed frustration with NPRM at 27; ITC-NPRM at 3; Lenox-NPRM at 6; MPA-NPRM at 49; NAA-NPRM at 17; Nextel-NPRM unsolicited telephone calls which a at 24-25; Synergy Solutions-NPRM at 3-4; Tribune- reasonable consumer would consider transmission. DMA-NPRM at 48-49. However, the NPRM at 10; VISA-NPRM at 13. In the NPRM, the coercive or abusive of their right to NPRM clearly explains that the harm to consumers Commission specifically asked, among other things, that arises from failure to transmit Caller ID privacy.495 The fact that consumers whether it would ‘‘be desirable to propose a date information falls within the areas of abuse that the in the future by which all telemarketers would be Telemarketing Act explicitly aimed to address. 67 required to transmit Caller ID information.’’ 67 FR 489 Make-A-Wish-NPRM at 6; Associations-Supp. FR at 4514-16. The Commission therefore rejects at 4538. at 7; DialAmerica-Supp. at 2. DMA’s ‘‘lack of authority’’ argument. 504 DialAmerica-NPRM at 24; DialAmerica-Supp. 490 Make-A-Wish-NPRM at 6; McClure-NPRM at 496 Dina ElBoghdady, Ears Wide Shut: at 10; June 2002 Tr. II at 83 (DialAmerica). 2; NACAA-NPRM at 9; NYSCPB-NPRM at 4; Researchers Get Punished for Telemarketers’ 505 Synergy Solutions-NPRM at 3. See also Patrick-NPRM at 2-3; TRA-NPRM at 11. Crimes, WASH. POST, Sept. 8, 2002, at H 2. Nextel-NPRM at 25; Noble-NPRM at 4; NATN- 491 See, e.g., Baressi-RR at 1; Bell Atlantic-RR at 497 67 FR at 4515. NPRM at 4; NSDI-NPRM at 4; ITC-NPRM at 3. 8; Blake-RR at 1; Collison-RR at 1; Lee-RR at 1; 498 Id. 506 AFSA-NPRM at 19; Comcast-NPRM at 4; CBA- LeQuang-RR at 1; Mack-RR at 1; Sanford-RR at 1. 499 Id. Some telemarketers asserted that the NPRM at 10; Cox-NPRM at 37; Household Bank- 492 See, e.g., Baressi-RR at 1; Blake-RR at 1; telephone number that would likely be displayed NPRM at 16; Nextel-NPRM at 25; Thayer-NPRM at Collison-RR at 1; Lee-RR at 1; LeQuang-RR at 1; on consumers’ Caller ID services would be the 5; Wells Fargo-NPRM at 3. But see EPIC-NPRM at Mack-RR at 1; Sanford-RR at 1. telemarketer’s central switchboard or trunk 11, 13-14; McClure-NPRM at 1; Patrick-NPRM at 2- 493 The Caller ID provision is found at exchange, rather than a customer service number or 3; Thayer-NPRM at 5 (Commenter raises issue of § 310.4(a)(7) of the proposed Rule; discussion of the a number where consumers could submit a ‘‘do not whether Internet telephony users could transmit proposed Rule provision is found at 67 FR at 4514- call’’ request. Caller ID information. There is nothing in the 16. 500 ANA-NPRM at 6; Associations-NPRM at 3; record indicating that telemarketers use Internet 494 67 FR at 4514-16. The Commission also asked DMA-NPRM at 49; NAA-NPRM at 17; Nextel-NPRM telephony. If they do use such technology, they are whether trends in telecommunications might one at 25; Synergy Solutions-NPRM at 3-4; Teledirect- reminded that all telemarketers subject to the Rule day permit the transmission of full Caller ID NPRM at 3; Associations-Supp. at 7. See also AFSA- must transmit Caller ID information. The FTC’s own information when the caller uses a trunk line or NPRM at 19; Assurant-NPRM at 6. But see EPIC- telephone system uses IP telephones, which do PBX system. Id. at 4538. NPRM at 11, 13; NAAG-NPRM at 45. provide Caller ID information.). 495 67 FR at 4514. DMA argued that the 501 EPIC-NPRM at 11-12; NAAG-NPRM at 45; 507 ATA-Supp. at 16-17; Chicago ADM-NPRM at Commission lacks authority to require Caller ID AARP-NPRM at 5-6. 1; Lenox-NPRM at 6; NRF-NPRM at 19.

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of Caller ID information may be a by- may transmit any number associated company through a ‘‘trunk.’’516 The product of purchasing or using with the telemarketer that allows the more modern type of trunk used in telephone equipment that lacks Caller called consumer to identify the caller. telemarketing is an ‘‘Integrated Services ID transmission functionality.508 This includes a number assigned to the Digital Network-Primary Rate Interface’’ In concluding that required telemarketer by its carrier, the specific (‘‘ISDN-PRI’’) trunk.517 It is clear from transmission of Caller ID information is number from which a sales the record that a telemarketer using technically feasible and not costly for representative placed a call, or a number such an ‘‘ISDN-PRI’’ trunk has no telemarketers, the Commission was used by the telemarketer’s carrier to bill difficulty in transmitting Caller ID persuaded in part by the example the telemarketer for a given call. In the information to a consumer.518 provided by DialAmerica. In its written alternative, a telemarketer may transmit The older kind of trunk used in comments and at the June 2002 Forum, the seller’s customer service number or telemarketing is a ‘‘T-1’’ trunk.519 DialAmerica explained how it transmits the charitable organization’s donor Telemarketers using a ‘‘T-1’’ trunk are Caller ID information to the consumers service number, provided that this perhaps most likely to follow it calls.509 DialAmerica’s carrier assigns number is answered during regular DialAmerica’s model by having their a telephone number to each of business hours. carriers assign a telephone number to DialAmerica’s call centers. When a sales Not every telemarketer will need to the trunk for transmission to consumers’ representative from a particular call follow DialAmerica’s approach for Caller ID services. This is true because, center calls a consumer, that call transmission of Caller ID information. in contrast to ‘‘ISDN-PRI’’ trunks, ‘‘T-1’’ center’s assigned telephone number is The record reflects various options in trunks do not routinely transmit the caller’s telephone number to Caller ID transmitted to the consumer’s Caller ID calling equipment used by devices.520 Some telemarketers stated service. SBC, a large provider of telemarketers.512 A telemarketer’s that it may be technically feasible (but common carriage services, provided choice of calling equipment is costly) for them to upgrade, reconfigure, support for the availability of determined in part by the telemarketer’s 510 or replace their PBX switches or their DialAmerica’s model. DialAmerica size. The smallest telemarketers, most ‘‘T-1’’ trunks in order to transmit a stated at the June 2002 Forum that it likely placing calls from home, may specific sales representative’s telephone does not pay its carrier any extra contact consumers using a ‘‘plain old number.521 However, the Commission’s amount to transmit this assigned telephone service’’ (‘‘POTS’’) line. A 511 approach does not require this level of telephone number to consumers. telemarketer calling consumers with a precision. Consequently, telemarketers The Commission believes the POTS line will have no difficulty argument by telemarketers that required will not have to absorb the expense transmitting Caller ID information.513 transmission of Caller ID information associated with achievement of this This is also true if, to call consumers, level of precision. would be impossible or prohibitively the telemarketer uses Integrated expensive is based substantially on an Regardless of telemarketers’ calling Services Digital Network-Basic Rate erroneous supposition that systems and carriers’ ability to assign a Interface (‘‘ISDN-BRI’’) technology, telemarketers would be required to telephone number to a telemarketer’s which, like POTS lines, is likely to be transmit the specific telephone number call center, there are occasions in which utilized only by the smallest from which a sales representative Caller ID information does not reach the telemarketers.514 placed a given call. The Commission’s called consumer even when citation to DialAmerica’s approach Larger telemarketers commonly use a telemarketers arrange for the should make it clear that the ‘‘private branch exchange’’ switch transmission of that information.522 Commission is not requiring this level (‘‘PBX’’), which enables them to place Two situations would seem to be of specificity. Under the amended large volumes of calls more outside the control of the telemarketer. 515 Rule’s Caller ID provision, telemarketers efficiently. For telemarketers using a First, the route traveled by a call could PBX, the primary determinant in pass through a switch that lacks Caller 508 EPIC-NPRM at 11; TRA-NPRM at 11. As is transmitting Caller ID information is the ID functionality, essentially dropping discussed below, non-transmission may also result telemarketer’s connection to its from errors in telephone companies’ equipment. telephone company. A telemarketer 516 SBC-Supp. at 8-9. An alternative to PBX 509 DialAmerica-Supp., Att. A at 1-2. See also using a PBX connects to its telephone available to telemarketers (but not widely used) is June 2002 Tr. II at 81-83. According to one of called ‘‘Centrex.’’ Telemarketers using Centrex DialAmerica’s written comments: ‘‘Caller ID connect to their telephone company using a information can be delivered over T-1’s today. We 512 See, e.g., Nextel-NPRM at 25 (proprietary telephone line; telemarketers using a PBX connect have been doing it for over two years. If the dialers); DialAmerica-Supp., Att. A at 1 (regular to their telephone company using a trunk. Because Commission does not mandate the delivery of trunk groups provisioned by carrier); Fiber Clean- Centrex users use a line rather than a trunk, Caller ID information, those who would want the NPRM at 1 (telemarketers working from home). telemarketers using Centrex (like telemarketers Commission to believe that it cannot be done will 513 SBC-Supp. at 8. using a POTS line or ISDN-BRI) should not find it have been successful.’’ DialAmerica-Supp. at 10. 514 http://www.bell-labs.com/technology/access/ difficult to transmit Caller ID information. See See also DialAmerica-NPRM at 25 (‘‘The conclusion http://www.granitestatetelephone.com/ ISDN-BRI.html. ISDN-BRI essentially uses a caller’s l stated in the NPRM . . . that trunk or T-1 lines will existing wiring to transmit calls digitally. As such, sfb centrex.html. 517 only display a term like ‘‘unavailable’’ is not its capability to transmit Caller ID information is June 2002 Tr. II at 76-77 (SBC). correct.’’) and NAAG-NPRM at 45 (‘‘We have been akin to a POTS line’s capability. 518 EPIC-NPRM at 12; SBC-Supp. at 8-9; June 2002 advised that all trunk lines . . . should be capable 515 SBC-Supp. at 8-9. This is also true of Tr. II at 80-81 (SBC). of supporting Caller ID.’’) telemarketers using predictive dialers. Predictive 519 Some telemarketers may use a ‘‘T3’’ or ‘‘DS3’’ 510 See SBC-Supp. at 8-10; June 2002 Tr. II at 80- dialers used by many telemarketers contain features trunk. This kind of trunk is essentially a collection 83. See also Cox-NPRM at 37; DMA-NPRM at 49; similar to a PBX, and the capacity of such a of ‘‘T-1’’ trunks; as such, it operates in a manner Green Mountain-NPRM at 28; Associations-Supp. at predictive dialer to transmit Caller ID information similar to a T-1 for purposes of Caller ID ~ 7. is essentially the same as the capacity of a PBX to functionality. See http://www.hal-pc.org/ ascend/ 511 June 2002 Tr. II at 83 (DialAmerica). Moreover, do so. See, e.g., Sytel-NPRM at 8 (arguing that MaxTNT/hwinst/tntt3.htm. other moderate-sized telemarketers reported that telemarketers using predictive dialers should 520 SBC-Supp. at 8-9. they currently transmit Caller ID information. transmit Caller ID information. This comment 521 Synergy Solutions-NPRM at 4; TeleDirect- Because they are not compelled to do this, the suggests that predictive dialers are capable of NPRM at 3. But see EPIC-NPRM at 11-12. Commission believes that doing so is not cost- transmitting Caller ID information). See also http:/ 522 See, e.g., ABA-NPRM at 9; Chicago ADM- prohibitive. See Aegis-NPRM at 5; Lenox-NPRM at /www.pbxinfo.com/portal/ NPRM at 1; IMC-NPRM at 9; Lenox-NPRM at 6; 6. See also ANA-NPRM at 6; ARDA-NPRM at 6. But modules.php?op=modload&name=Sections&file- Teledirect-NPRM at 3; Associations-Supp. at 7; see ATA-Supp. at 18. =index&req=viewarticle&artid=8. ATA-Supp. at 17.

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the Caller ID data but forwarding the transmission.526 Fiber Clean, for substantial benefit from receiving Caller rest of the call transmission.523 Second, example, uses telemarketers working ID information. Moreover, as the a malfunction within a carrier’s system from home; it advocates Caller ID Commission explained in the NPRM, could result in the failure to transmit blocking to protect its employees’ the transmission of Caller ID Caller ID information in a given call.524 privacy.527 Other telemarketers may information is necessary to protect Because these phenomena are outside block Caller ID transmission because consumers’ privacy under the the control of the telemarketer, the they are unable to transmit a telephone Telemarketing Act.532 Consumers in telemarketer would not be held liable number which would be useful to large numbers subscribe to, and pay for, for violating this provision of the Rule consumers.528 Caller ID services offered by their when the failure to transmit Caller ID The Commission has concluded that telephone companies.533 Many of these information results from such an some flexibility regarding what consumers subscribe to Caller ID occurrence. However, to avoid liability telephone number and name the specifically to identify incoming calls in such a case, a telemarketer must be telemarketer may transmit best from telemarketers and screen out able to establish that it has taken all accommodates the current state of unwanted telemarketing calls.534 available steps to ‘‘transmit or cause the telemarketing.529 A telemarketing Indeed, according to Private Citizen, transmission of’’ identifying service bureau calling on behalf of more consumers spend an aggregate of $1.4 information. This includes employing than one seller, for example, may billion annually on Caller ID services to technical means within the benefit from the option of transmitting limit unwanted telemarketing calls.535 telemarketer’s operation, ensuring that the seller’s name and telephone number Consumers who commented on the the telemarketer’s telephone company is rather than its own.530 Under record expressed frustration at the equipped to transmit Caller ID § 310.4(a)(7), telemarketers have the failure of telemarketers to provide Caller information, and not using any means to option of transmitting a telephone ID information.536 These consumers block Caller ID transmission. number associated with them that have, over time, come to the conclusion A very small number of telemarketers enables the consumer to identify who that an incoming call that fails to may be located in areas of the country called, or, in the alternative, the seller’s provide Caller ID information is that are served only by telephone customer service number or the commonly a telemarketing call.537 As a companies that are not capable of charitable organization’s donor service result, some consumers decline to transmitting Caller ID information or number. If the telemarketer transmits its answer these calls.538 In an attempt to assigning a telephone number to the own number, that number ideally protect their privacy from incoming telemarketer that can be transmitted to should enable the consumer to calls with no Caller ID information a called consumer.525 The Commission communicate with the caller to assert a provided, other consumers have gone does not intend to require such company-specific ‘‘do not call’’ request. beyond call screening with services telemarketers to relocate to areas of the Alternatively, telemarketers can forward such as Caller Intercept and Privacy country that are served by telephone consumers’ return calls to a customer Manager, both of which are offered by companies that do provide Caller ID service line.531 At-home callers with a telephone companies for a fee, that capability. Nonetheless, in enforcing POTS line cannot alter, but they can intercept incoming calls with no Caller this provision, the Commission would acquire a second line for business calls, ID information and require such callers take into account any telemarketer’s which would allay privacy concerns to identify themselves before their call relocation from an area where it can associated with transmission of the will be connected.539 At present, Caller transmit Caller ID information to a caller’s residential number. ID services are an ineffective solution location where it cannot. However, the Consumers benefit from transmission from consumers’ perspective: many Commission believes it is unlikely that of Caller ID information. The record, a telemarketer would go to such lengths taken as a whole, establishes that it is 532 67 FR at 4514. in order to avoid compliance with this neither technically nor economically 533 Dina ElBoghdady, Ears Wide Shut: new requirement. infeasible for telemarketers to transmit Researchers Get Punished for Telemarketers’ The Commission recognizes that Caller ID information. On the other side Crimes, WASH. POST, Sept. 8, 2002, at H2 (Noting that, according to a survey conducted in 2000, transmission of Caller ID information of the equation, consumers derive nearly half of all Americans subscribe to caller ID); does not depend on technical capability ACUTA-NPRM at 2. alone. Telemarketers who currently 526 Fiber Clean-NPRM at 1; Cox-NPRM at 37-38; 534 McClure-NPRM at 3; Private Citizen-NPRM at possess Caller ID capability may NRF-NPRM at 19. But see ERA-NPRM at 48; 2, Susannah Fox (Msg. 3624), CN Rhodine (Msg. deliberately decline to transmit this Teledirect-NPRM at 3; ATA-Supp. at 16. 480), Gautham Achar (Msg. 596), Brenda Hall (Msg. information to the consumers they 527 Fiber Clean-NPRM at 1. 825), Carl Wallander (Msg. 861). See also 67 FR at 528 4515, n.223 (citing Bell Atlantic survey finding that solicit. There is record evidence to Cox-NPRM at 37-38; NRF-NPRM at 19. 529 ARDA-NPRM at 6; Assurant-NPRM at 6; ATA- three out of four residential customers buy Caller support legitimate explanations for Supp. at 16; DMA-NPRM at 50; ERA-NPRM at 49; ID to help stop abusive telephone calls). deliberate blocking of Caller ID IMC-NPRM at 8; MPA-NPRM at 9, 49-50. See also 535 Private Citizen-NPRM at 2. See also Assurant-NPRM at 6 (Commenter asked that the Associated Press, Phone Companies Act as Double Agents in Telemarketing War, CHI. TRIB., Oct. 27, 523 ATA-Supp. at 16; SBC-Supp. at 13. Rule do more to prevent transmission of misleading Caller ID information. The Commission believes 2002, at C4. 524 SBC-Supp. at 13. that the amended Rule addresses this concern.). But 536 See, e.g., Robert Hawrylak (Msg. 3382), 525 The record reflects that with the exception of see AARP-NPRM at 6; NCL-NPRM at 8; Patrick- Patricia Frank (Msg. 223), Jo Ann Kilmer (Msg. 530), some small interexchange carriers (‘‘IXCs’’), NPRM at 10 (telemarketer should be required to Jim Kelly (Msg. 541), Carl Wallander (Msg. 861), competitive local exchange carriers (‘‘CLECs’’), and transmit the seller’s name whenever possible). See John G. Talafous (Msg. 1236), Louis Sarvary (Msg. some incumbent local exchange carriers (‘‘ILECs’’) 1319), George M. Kapnas (Msg. 2243), Bob Greene serving rural pockets of the country, all telephone also EPIC-NPRM at 12; Make-A-Wish-NPRM at 5-6; Worsham-NPRM at 4 (telemarketer should identify (Msg. 2716), FarmGirl16F3 (Msg. 14015). companies can pass along Caller ID information. 537 See June 2002 Tr. II at 78-79; FCC First Report and itself rather than the seller). See also BellSouth- See, e.g., Karen Peters (Msg. 3814), Chuck Order in the Matter of Access Charge Reform, CC NPRM at 4-5 (no flexibility in transmitted number Jackson (Msg. 209). Docket No. 96-262 (May 7, 1997), para. 137; http:/ should be permitted). 538 See, e.g., E Pereira (Msg. 214), Brenda Hall /www.ss7.net: Carriers connected to the Signaling 530 MPA-NPRM at 9; DMA-NPRM at 50. See also (Msg. 825), Victoria Brigman (Msg. 3889). System 7 (‘‘SS7’’) network can transmit Caller ID Green Mountain at 28; ATA-Supp. at 16. 539 See, e.g., http://www22.verizon.com/ information. SS7 is the predominant signaling 531 DialAmerica provides a model for the use of ForYourHome/SAS/reslfamlidentify.asp; Private system, and its use is increasing. But see Green call forwarding in this context. See DialAmerica- Citizen-NPRM at 2; DC-NPRM at 5; EPIC-NPRM at Mountain-NPRM at 28. Supp., Att. A at 2. 11; McClure-NPRM at 2.

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consumers pay added costs simply to Commenters noted that the increase enforcement efforts concerning some find out who is calling them, yet this in accountability that would accrue Rule provisions have been frustrated investment is useless when the from requiring transmission of Caller ID because of difficulty in identifying identifying information is not made information in telemarketing would violators.552 Sellers and telemarketers available.540 provide particular benefit in addressing that have failed to honor ‘‘do-not-call’’ With the exception of Fiber Clean, abandoned calls.546 Consumers whose requests have been particularly hard to which argued in favor of allowing at- privacy has been abused by dead air and identify.553 A number of comments in home telemarketers to block Caller ID call abandonment find it difficult, if not the record noted the need for greater transmission, comments from industry impossible, to ascribe those practices to ability to identify possible violators, and members on the whole did not argue a particular telemarketer unless Caller the advantages of Caller ID information that telemarketers have a reason to block ID information is provided.547 As in filling that need.554 AARP noted that Caller ID transmission which might explained by DialAmerica, mandatory required transmission of Caller ID override the substantial privacy transmission of Caller ID information information will also enable consumers protection afforded to consumers when will provide ‘‘a strong incentive for to contact government agencies and the their Caller ID service shows them who companies to keep abandonment rates Better Business Bureau to verify the is calling.541 To the contrary, comments low and eliminate ’dead air,’’’ as these legitimacy of the telemarketer, which from industry members supported the companies do not want to engage in will help to prevent fraud before it privacy principle behind the Rule’s practices that might encourage 555 Caller ID provision, but took issue with occurs. Therefore, the transmission of consumers to invoke their company- Caller ID information likely will aid law the proposition that they should be 548 specific ‘‘do-not-call’’ rights. enforcement’s ability to enforce the required to transmit or cause The enhanced accountability transmission of Caller ID information.542 TSR, and increase the Rule’s provided by Caller ID transmission effectiveness. Therefore, there is strong support for the extends beyond complaints about call Commission’s position that requiring abandonment and dead air. Caller ID Consistency with FCC regulations. Caller ID transmission in telemarketing information provides a record of FCC regulations require carriers using calls will help promote consumers’ identification that endures beyond the SS7556 to provide a mechanism by privacy by allowing them to know who telemarketing call. The prompt which a line subscriber can block the is calling them at home. disclosures required by 310.4(d) provide display of his or her telephone number Transmission of Caller ID information consumers with a needed introduction on a Caller ID device.557 SBC referenced will also promote accountability to a solicitation call, but do not provide the FCC’s approach to Caller ID blocking throughout the industry—a goal to argue that calling parties’ interest in 543 an enduring record of identifying championed by consumers and information, as most consumers do not privacy ‘‘outweighs the general industry members544 alike. The answer the phone with pen and paper usefulness of Caller ID service.’’558 As Commission is persuaded by the at the ready to write down the name of the NPRM made clear, the FCC’s argument DialAmerica presented in the calling party. Moreover, just as requirement that common carriers be favor of requiring transmission of Caller industry comments did not dispute the able to allow Caller ID blocking is meant ID in telemarketing calls. According to privacy protections provided by Caller to address specific calling situations in DialAmerica: ‘‘[d]elivery of Caller ID ID transmission, neither did they which protecting the calling party’s information, that will be displayed on a present a rebuttal to the argument that privacy takes on particular urgency.559 consumer’s Caller ID device or that can such transmission will promote Cited examples include undercover law be accessed through such services as accountability in telemarketing. Indeed, enforcement operations and calls placed *69, is essential to create accountability from battered women’s shelters.560 No in the outbound telemarketing the large majority of telemarketers— industry.’’545 entities built upon good business such privacy justification suggests itself practices and compliance with the in the case of telemarketers. Moreover, 540 AARP-NPRM at 5; EPIC-NPRM at 11; McClure- Rule—will benefit from a provision there is no conflict between the NPRM at 3. But see Lynn Gaubatz (Msg. 2769) designed to respond to deceptive and amended Rule’s Caller ID provision and (Consumer prefers current state of affairs where abusive practices aided by anonymity in FCC regulations. The FTC’s provision ‘‘most’’ telemarketers block transmission of Caller telemarketing.549 requires sellers and telemarketers to ID information because her Caller ID is programmed to refuse calls from parties who block such By eliminating anonymity in transmit Caller ID information; it does transmission. Using this arrangement, the consumer telemarketing, the Caller ID provision not create an obligation or a prohibition reports receiving few telemarketing calls.). will serve a third, equally important for common carriers. FCC regulations 541 Several comments from industry groups goal: it will provide law enforcement require certain carriers to provide a asserted that the Commission should yield to the 550 FCC’s standard on Caller ID blocking, under which with a significant new resource. In mechanism for blocking display of the calling party’s ability to block Caller ID the years following promulgation of the Caller ID information; they do not grant transmission is preserved. See, e.g., DMA-NPRM at original Rule, the Commission and the 48-49; SBC Supp. at 10-11. As is discussed below, states have created a substantial record 552 June 2002 Tr. II at 21. however, the concerns at stake in the FCC’s 551 553 regulation—law enforcement and safety—are not of enforcement. However, Donald Munson (Msg. 25516); EPIC-NPRM at implicated by telemarketing calls. 11; NYSCPB-NPRM Att. A at 4-5. 554 542 DMA-NPRM at 48; IMC-NPRM at 8. 546 DialAmerica-NPRM at 25; Sytel-NPRM at 8; DialAmerica-NPRM at 25-26; EPIC-NPRM at 11-12; Patrick-NPRM at 2-3; TRA-NPRM at 11; CN 543 See, e.g., Teresa Vargas (Msg. 1292) (‘‘I think AARP-NPRM at 9; ARDA-NPRM at 15. 547 Rhodine (Msg. 480); Charles Goodwin (Msg. 2079); telemarketers should NOT be able to block their http://www.opc-marketing.com/ Donald Munson (Msg. 25516). phone numbers on Caller ID screens or *69. This predictive.htm (‘‘[I]t is assumed that abandoned 555 will make the telemarketers more accountable, calls to anonymous consumers do not harm the call AARP-NPRM at 6. particularly if their tactics are in violation of a ‘‘do- center’s business.’’). 556 See note 526 above for more on SS7 not-call’’ request or if, [sic] the telemarketers 548 DialAmerica-Supp. at 3. technology. successfully scam consumers.’’); Lisa Bellanca 549 See, e.g., AARP-NPRM at 6. 557 47 CFR 64.1601. (Msg. 2007). 550 TRA-NPRM at 11; EPIC-NPRM at 11-12. 558 SBC-Supp. at 10-11. 544 See, e.g., DialAmerica-Supp. at 2; June 2002 551 FTC law enforcement actions alone total over 559 67 FR at 4515, n.228. See also ATA-Supp. at Tr. II at 91-92 (ERA). 139 cases, resulting in total judgments of over $200 16; EPIC-NPRM at 14. 545 DialAmerica-Supp. at 2. million since the Rule’s inception. 560 Id.

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sellers and telemarketers the right to not-call’’ list. In other instances, services and those soliciting charitable block transmission of that information. consumers complained that the contributions in accordance with the telemarketer had used other means to USA PATRIOT Act amendments.569 In § 310.4(b) — Pattern of calls hamper or impede these consumers’ addition, § 310.4(b)(1)(ii) prohibits Section 310.4(b)(1) of the original attempts to be placed on a ‘‘do-not-call’’ anyone from directing another person to Rule specifies that ‘‘[i]t is an abusive list. Participants in both the ‘‘Do-Not- deny or interfere with a person’s right telemarketing act or practice and a Call’’ Forum and the Rule Review to be placed on a ‘‘do-not-call’’ list. This violation of this Rule for a telemarketer Forum echoed these complaints.564 aspect of the provision is intended to to engage in, or for a seller to cause a A seller or telemarketer has an ensure that sellers who use third-party telemarketer to engage in,’’ several affirmative duty under the Rule to telemarketers cannot shield themselves practices deemed to be abusive of accept a ‘‘do-not-call’’ request, and to from liability under this provision by consumers. The proposed Rule process that request. Failure to do so by suggesting that the violation was a contained some modifications to various impeding, denying, or otherwise single act by a ‘‘rogue’’ telemarketer subsections of this provision. The interfering with an attempt to make where there is evidence that the seller responses received in response to the such a request clearly would defeat the caused the telemarketer to deny or NPRM, and the discussion at the June purpose of the ‘‘do-not-call’’ provision, defeat ‘‘do-not-call’’ requests.570 2002 Forum, are set forth below. and would frustrate the intent of the § 310.4(b)(1)(iii) — ‘‘Do-not-call’’ § 310.4(b)(1)(i) — Calling repeatedly or Telemarketing Act to curtail The original Rule prohibited a seller continuously telemarketers from undertaking unsolicited telephone calls which the or telemarketer from calling a person Section 310.4(b)(1)(i) specifies that it reasonable consumer would consider who had previously asked not to be is an abusive telemarketing act or coercive or abusive of the consumer’s called by or on behalf of the seller practice to cause any telephone to ring, right to privacy.565 whose goods or services were offered.571 or to engage any person in telephone Those commenters who addressed The proposed Rule added a second ‘‘do- conversation, repeatedly or this provision strongly supported the not-call’’ provision that would prohibit continuously, with intent to annoy, prohibition.566 For example, NAAG a seller or telemarketer from calling a abuse, or harass any person at the called stated that an express prohibition consumer who had placed his or her number. None of the comments against denying or interfering with a name and/or telephone number on a recommended that changes be made to consumer’s right to be added to a centralized registry maintained by the the current wording of company-specific ‘‘do-not-call’’ list Commission, unless the consumer had § 310.4(b)(1)(i).561 Therefore, the clarifies the seriousness of the provided express authorization for the language in that provision remains telemarketer’s obligation to process the seller to call him or her.572 To effectuate unchanged in the amended Rule.562 consumer’s request and will raise the USA PATRIOT Act amendments, However, the expansion in the scope of confidence in the system.567 the Commission also proposed that for- the Rule effectuated by the USA NAAG noted that the consumer who profit telemarketers who solicit PATRIOT Act brings within the ambit of receives the telemarketing call generally charitable donations be subject to the this provision telemarketers soliciting must rely exclusively on the proposed national registry.573 charitable contributions. telemarketer’s truthful disclosure of his The national ‘‘do-not-call’’ registry § 310.4(b)(1)(ii) — Denying or interfering or her identity and the nature of the call, proposal generated extensive with ‘‘do-not-call’’ rights and that consumers are often confused comment.574 Consumer and privacy because many company names are very advocates, as well as individual In the NPRM, the Commission similar.568 In this respect, the consumers, overwhelmingly supported proposed to prohibit a telemarketer from Commission’s determination to require the creation of such a registry.575 denying or interfering in any way with telemarketers to transmit Caller ID a person’s right to be placed on a ‘‘do- information, discussed above, will 569 Moreover, the Rule Review yielded evidence not-call’’ list, including hanging up the provide a valuable tool to both that, in some instances, telemarketers soliciting telephone when a consumer initiates a consumers and law enforcement charitable contributions are unwilling to honor request that he or she be placed on the donors’ ‘‘do-not-call’’ requests, even when agencies in identifying those threatened with withdrawal of future support. See seller’s list of consumers who do not telemarketers who fail to comply with Peters-RR at 1. wish to receive calls made by or on their obligation to process the 570 Because the USA PATRIOT Act amendments 563 behalf of that seller. In setting out the consumer’s request. do not give the Commission jurisdiction over non- proposed prohibition, the Commission Therefore, the Commission has profit organizations, the prohibition against causing noted that during the Rule Review, a telemarketer to deny or defeat ‘‘do-not-call’’ determined that it is an abusive requests applies only to sellers of goods or services, numerous individual consumers had telemarketing act or practice to deny or not to non-profit organizations. complained about being hung up on interfere in any way with a person’s 571 16 CFR 310.4(b)(1)(ii). This is termed a when they asked to be placed on a ‘‘do- right to be placed on a ‘‘do-not-call’’ list, ‘‘company-specific’’ approach to eliminating including hanging up on the individual unwanted telephone solicitations. 572 561 In its comments in the Rule Review, NASAA when he or she initiates such a request. Proposed Rule §§ 310.4(b)(1)(iii)(B) and stated that this provision strikes directly at one of 310.4(b)(1)(iii)(B)(1) and (2). the manipulative techniques used in high-pressure Section 310.4(b)(1)(ii) of the amended 573 67 FR at 4516, 4519. sales to coerce consumers to purchase a product, Rule prohibits this practice, and 574 As discussed above, the Commission received and noted that the organization advises consumers encompasses both telemarketers about 64,000 written and electronic comments in that one of the ‘‘warning signs of trouble’’ is the soliciting the purchase of goods or response to the NPRM, including over 45 ‘‘three-call’’ technique used by fraudulent sellers of supplemental comments from organizations and securities. NASAA-RR at 2. individuals and almost 15,000 comments from 564 562 Section 310.4(b)(1)(i) of the amended Rule Id. Gottschalks’ customers that were submitted by prohibits as an abusive practice ‘‘causing any 565 15 U.S.C. 6102(a)(3)(A). Gottschalks as its supplemental comment. The vast telephone to ring, or engaging any person in 566 See, e.g., ARDA-NPRM at 6; Assurant-NPRM majority of comments touched, at least in part, on telephone conversation, repeatedly or continuously at 7; NAAG-NPRM at 44; NCL-NPRM at 8; NYSCPB- the proposed national ‘‘do-not-call’’ registry. with intent to annoy, abuse, or harass any person NPRM at 5-6; Proctor-NPRM at 4. 575 See, e.g., DOJ-NPRM at 4-5; EPIC-NPRM at 2- at the called number.’’ 567 NAAG-NPRM at 44. See also NCL-NPRM at 8. 3; LSAP-NPRM at 12; NAAG-NPRM at 4, 6, 12, 29; 563 67 FR at 4516. 568 NAAG-NPRM at 44. NACAA-NPRM at 2; NCLC-NPRM at 13; NCL-

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Indeed, many recommended that the organizations depend upon to fulfill vast majority of individual commenters, Commission take a more restrictive their missions.581 however, joined by consumer groups ‘‘opt-in’’ approach, and prohibit Based on the entire record in this and state law enforcement telemarketing except to those consumers proceeding, the Commission has representatives, claimed that the TSR’s who expressly agree in advance to determined to retain the provision in company-specific ‘‘do-not-call’’ accept sales calls.576 State regulators the original Rule that prohibits a seller provision is inadequate to prevent the also supported a national registry, or telemarketer from calling a consumer abusive patterns of calls it was intended 583 provided it did not preempt the ‘‘do- who has previously asked not to be to prohibit. They cited several not-call’’ legislation already passed in called by or on behalf of that seller. The problems with the current ‘‘do-not-call’’ many states or preclude the states from Commission has also determined to scheme as set out in the FTC and FCC supplement that provision by amending 584 enforcing these laws.577 regulations: the company-specific the Rule to establish a national ‘‘do-not- approach is extremely burdensome to A number of industry commenters call’’ registry. For the reasons set forth consumers, who must repeat their ‘‘do- supported the general concept of a herein, the Commission has decided to not-call’’ request with every national ‘‘do-not-call’’ registry that limit coverage of the national registry to telemarketer that calls;585 consumers’ would preempt state ‘‘do-not-call’’ laws, telemarketing calls made by or on behalf repeated requests to be placed on a ‘‘do- provided an exemption for ‘‘existing of sellers of goods or services, thus not-call’’ list are ignored;586 consumers business relationships’’ were added to exempting telemarketing calls on behalf have no way to verify that their names the Rule. The need for an established of charitable organizations. Calls on have been taken off of a company’s business relationship exemption was behalf of charitable organizations will calling list;587 consumers find that using the most emphatic and consistent theme be subject to the company-specific ‘‘do- the TCPA’s private right of action588 is of industry comments, but other points not-call’’ provision. In addition, the very complex and time-consuming, and were raised as well. Some questioned Commission has decided to retain the places an evidentiary burden on the whether the Commission had the provision that allows consumers who consumer who must keep detailed lists statutory authority to establish such a sign up on the national ‘‘do-not-call’’ of who called and when;589 and finally, registry.578 Others argued that a national registry to provide express agreement to even if the consumer wins a lawsuit ‘‘do-not-call’’ registry would impose an specific sellers to call them, but has against a company, it is difficult for the unconstitutional restriction on modified that provision to require that consumer to enforce the judgment.590 evidence of such agreements be written, commercial speech.579 Still others felt In addition to the fact that it has not oral. Furthermore, the Commission that an FTC registry was not necessary proven ineffective, there is another has decided to supplement that express because the current system was problem that is not even addressed by agreement provision with a narrowly- the company-specific provision. In sufficient to protect consumer defined exemption for ‘‘established privacy.580 These commenters particular, because a great many business relationships.’’ The telemarketers are now placing huge supported increased enforcement of Commission is persuaded that these patterns of unsolicited telemarketing existing federal and state ‘‘do-not-call’’ provisions will work in a calls,591 many consumers find even an laws. Charitable organizations and the complementary fashion to effectuate the telemarketers who serve them uniformly appropriate balance between protecting NAA-RR at 2; NASAA-RR at 4; PLP-RR at 1. See opposed the national ‘‘do-not-call’’ consumer privacy and enabling sellers also DNC Tr. at 132-80. registry proposal if applicable to to have access to their existing 583 See NAAG-RR at 17-19; NCL-RR at 13-14; DNC charitable solicitations by for-profit customers. Of course, even a seller who Tr. at 132-80. See also, e.g., Anderson-RR at 1; Bennett-RR at 1; Card-RR at 1; Conway-RR at 1; telemarketers. They argued that such a is exempt from the prohibition against Garbin-RR at 1; A. Gardner-RR at 1; Gilchrist-RR at registry would violate the First calling a consumer based on the 1; Gindin-RR at 1; Harper-RR at 1; Heagy-RR at 1; Amendment and that it would have a existence of an ‘‘established business Johnson-RR at 1; McCurdy-RR at 1; Menefee-RR at devastating impact on the level of relationship’’ with that consumer must 1; Mey-RR passim; Mitchelp-RR at 1; Nova53-RR at 1; Peters-RR at 1; Rothman-RR at 1; Vanderburg-RR contributions that non-profit honor that consumer’s direct request not at 1; Ver Steegt-RR at 1; Worsham-RR at 1. to be called under the company-specific 584 The FCC’s ‘‘do-not-call’’ regulations under the NPRM at 8; NFPPA-NPRM at 1; Pelland-NPRM ‘‘do-not-call’’ provision. TCPA are at 47 CFR 64.1201. passim; Proctor-NPRM passim; PRC-NPRM at 2; Background. The original Rule’s 585 Garbin-RR at 1; NAAG-RR at 17; Ver Steeg-RR Private Citizen-NPRM at 1; TDI-NPRM at 4-5; company-specific approach, which at 1. Worsham-NPRM at 1. Of the approximately 49,000 prohibited a seller or telemarketer from 586 Harper-RR at 1; Heagy-RR at 1; Holloway-RR comments, about 33,000 supported the creation of at 1; Johnson-RR at 1; Menefee-RR at 1; Mey-RR a national registry, while about 13,700 opposed it. calling a person who had previously passim; Nova53-RR at 1; Nurik-RR at 1; Peters-RR Of the 14,700 comments from Gottschalks’’ asked not to be called, was intended to at 1; Rothman-RR at 1; Runnels-RR at 1; Schiber- customers, almost 11,500 supported the creation of prohibit abusive patterns of calls from a RR at 1; Schmied-RR at 1; Vanderburg-RR at 1. a ‘‘do-not-call’’ registry, while only about 1800 seller or telemarketer to a person. 587 McCurdy-RR at 1; Schiber-RR at 1. opposed the idea of a registry. During the Rule Review, industry 588 The TCPA permits a person who receives 576 See, e.g., EPIC-NPRM at 4; NCL-NPRM at 8. more than one telephone call in violation of the 577 See, e.g., Connecticut-NPRM at 1-2, 3; DC- representatives generally supported the FCC’s ‘‘do-not-call’’ regulations to bring an action NPRM at 4; Kansas-NPRM at 2; NAAG-NPRM at 4- Rule’s current company-specific in an appropriate state court to enjoin the practice, 29; NYSCPB-NPRM at 1; Tennessee-NPRM at 2, 9- approach, stating that it provides to receive money damages, or both. 47 U.S.C. 10; Texas PUC-NPRM at 1, 2; Virginia-NPRM at 1- consumer choice and satisfies the 227(b)(3). The consumer may recover actual 2. See also AARP-NPRM at 1; NCL-NPRM at 9-10; consumer protection mandate of the monetary loss from the violation or receive $500 in NCLC-NPRM at 13; PRC-NPRM at 4; Private Citizen- damages for each violation, whichever is greater. Id. NPRM at 2; TDI-NPRM at 4-5. Telemarketing Act while not imposing If the court finds that a company willfully or 582 578 See, e.g., Discover-NPRM at 2; ERA-NPRM at an undue burden on industry. The knowingly violated the FCC’s ‘‘do-not-call’’ rules, it 26; NRF-NPRM at 2-3; NAA-NPRM at 2; Paramount- can award treble damages. Id. NPRM at 1; PMA-NPRM at 6, 24-26. 581 See, e.g., DMA-NonProfit-NPRM passim; Not- 589 Kelly-RR at 1; NAAG-RR at 17-19; NACAA-RR 579 See, e.g., NAA-NPRM at 2; Paramount-NPRM for-Profit Coalition-NPRM passim; Hudson Bay- at 2; NCL-RR at 13-14. at 2; PBP-NPRM passim; Redish-NPRM passim. NPRM passim. See also June 2002 Tr. III at 110, 590 Kelly-RR at 1. 580 See, e.g., Craftmatic-NPRM at 3; ERA-NPRM at 205-10. 591 Based on figures provided by the 5, 28; PMA-NPRM at 6; TeleStar-NPRM at 2; Weber- 582 ARDA-RR at 2; ATA-RR at 8-10; Bell Atlantic- telemarketing industry, a study prepared for CCC NPRM at 2. RR at 4; DMA-RR at 2; ERA-RR at 6; MPA-RR at 16; Continued

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initial call from a telemarketer or seller The comments received in response to Consumer groups supported the to be abusive and invasive of privacy. the NPRM show that frustration with creation of a national ‘‘do-not-call’’ Several states responded to the growing unsolicited telemarketing calls registry,597 and some privacy advocates consumer frustration with unsolicited continues despite the efforts of the urged the Commission to take an even telemarketing calls and the DMA, the states, and the TCPA/TSR more restrictive ‘‘opt-in’’ approach by ineffectiveness of the company-specific company-specific approaches to the banning telemarketing to any consumer approach by passing legislation to problem. Individual commenters who has not expressly agreed to receive establish statewide ‘‘do-not-call’’ lists. overwhelmingly supported the telephone solicitations.598 With certain To date, 27 states have passed such establishment of a national ‘‘do-not- caveats, state regulators also supported legislation, and numerous other states call’’ registry.593 This was true even of the proposal for a national ‘‘do-not-call’’ have considered similar bills.592 those individuals who were already registry.599 Some states that already signed up on their state’s ‘‘do-not-call’’ have a state ‘‘do-not-call’’ list in place estimates that the annual number of outbound calls registry or on the DMA’s TPS.594 indicated that a national list would that are answered by a consumer is 16,129,411,765 Although many of these individuals complement the current regime of state (i.e., 16 billion calls). James C. Miller, III, Jonathan stated that they had found their state S. Bowater, Richard S. Higgins, and Robert Budd, legislation and could be an effective ‘‘An Economic Assessment of Proposed registry to be effective in reducing the addition to the arsenal of tools available Amendments to the Telemarketing Sales Rule,’’ number of unwanted calls, they thought to consumers in reducing unwanted June 5, 2002, (hereinafter ‘‘Miller Study’’) at 28, Att. that a national registry would be a calls.600 However, states and consumer 1. This figure does not include those calls that are beneficial addition to their state registry abandoned. advocates cautioned that such a system 592 DNC Tr. at 16, 137, 157-58. As of August, because, among other things, a central should be implemented in close 2002, 27 states had passed ‘‘do-not-call’’ statutes. registry would eliminate some of the coordination with the states and should Florida established the first state ‘‘do-not-call’’ list loopholes in the state laws, thus not supplant more restrictive state in 1987. (Fla. Stat. Ann. § 501.059). Oregon and increasing coverage, and would provide laws.601 Alaska followed with ‘‘do-not-call’’ statutes in 1989. the convenience of a one-stop method of Instead of a central registry, these two states opted Industry commenters generally 595 to require telephone companies to place a black dot reducing unwanted calls. Similarly, believed that the current system is in the telephone directory by the names of individuals who were signed up on the working and that a national ‘‘do-not- consumers who do not wish to receive DMA’s TPS list also said that the list call’’ registry is unnecessary.602 They telemarketing calls. (1999 Or. Laws 564; Alaska had been effective in reducing the Stat. Ann. § 45.50.475). In 1999, Oregon replaced its expressed the view that the DMA’s ‘‘black dot’’ law with a ‘‘no-call’’ central registry number of unwanted calls, yet they felt Telephone Preference Service (‘‘TPS’’) is program. (Or. Rev. Stat. § 464.567). See also article that a national registry was needed tantamount to a national ‘‘do-not-call’’ regarding Oregon law in 78 BNA Antitrust & Trade because they were still receiving registry. In fact, according to their Reg. Report 97 (Feb. 4, 2000). After those three unwanted calls.596 states adopted their statutes, there was little activity comments, the TPS has greater coverage at the state level for about a decade. Then, in 1999, than the FTC registry would have a new burst of legislation occurred as five more West Virginia. See CallCompliance table of state because it covers certain entities such as states passed ‘‘do-not-call’’ legislation—Alabama ‘‘do-not-call’’ laws and proposed legislation, http:/ common carriers, banks, and charitable (Ala. Code § 8-19C); Arkansas (Ark. Code Ann. § 4- /www.callcompliance.com/pages/STATElist.html 99-401); Georgia (Ga. Code Ann. § 46-5-27; see also (accessed July 24, 2002). The ‘‘do-not-call’’ issue organizations beyond FTC rules at Ga. Comp. R. & Regs. 515-14-1); Kentucky has also drawn the attention of federal legislators, jurisdiction.603 They argued that these (Ky. Rev. Stat. Ann. § 367.46955(15)); and who have introduced several bills aimed at addressing consumers’ concerns. For example, in Tennessee (Tenn. Code Ann. § 65-4-401; see also 597 AARP-NPRM at 1; CCA-NPRM at 1; the 106th Congress, H.R. 3180 (introduced by Rep. rules at Tenn. Comp. R. & Regs. Chap. 1220-4-11). ConsumerPrivacyGuide.com-NPRM at 1; EPIC- Salmon) would have required telemarketers to tell During 2000, six more states enacted ‘‘do-not-call’’ NPRM at 2-3; LSAP-NPRM at 12-15; NAAG-NPRM statutes—Connecticut (Conn. Gen. Stat. Ann. § 42- consumers that they have a right to be placed on either the DMA’s ‘‘do-not-call’’ list or on their at 4; NACAA-NPRM at 2; NARUC-NPRM at 1, 3; 288a); Idaho (Idaho Code § 48-1003); Maine (Me. NASUCA-NPRM at 2; NCL-NPRM at 8; NCLC- Rev. Stat. § 4690-A); Missouri (Mo. Rev. Stat. state’s ‘‘do-not-call’’ list. This proposal also would have required all telemarketers to obtain and NPRM at 13; PRC-NPRM at 1; Worsham-NPRM at § 407.1095); New York (N.Y. General Business Law 1. The U.S. Department of Justice also supported § 399-z; see also rules at NY Comp. R. & Regs. tit. reconcile the DMA and state ‘‘do-not-call’’ lists with their call lists. Similar legislation was introduced in the creation of a national ‘‘do-not-call’’ list 12 § 4602); and Wyoming (Wyo. Stat. Ann. § 40-12- maintained by the FTC. DOJ-NPRM at 4-5. 301). As of August, 2002, another eleven states had the 107th Congress by Rep. King (H.R. 232, the ‘‘Telemarketing Victim Protection Act’’). In 598 See, e.g., EPIC-NPRM at 3; Worsham-NPRM at joined the ranks—California (S.B. 771, to be 5. codified at Cal. Bus. & Prof. Code § 17590); addition, on December 20, 2001, Sen. Dodd 599 See, e.g., CCA-NPRM at 1; Connecticut-NPRM Colorado (H.B. 1405, to be codified at Colo. Rev. introduced S. 1881, the ‘‘Telemarketing Intrusive Practices Act of 2001,’’ which would require the at 1-2, 3; DC-NPRM at 4; Kansas-NPRM at 2; NAAG- Stat. § 6-1-901); Illinois (S.B. 1830, signed Aug. 9, FTC to establish a national ‘‘do-not-call’’ registry. NPRM at 4-29; NYSCPB-NPRM at 1-2; Tennessee- 2002); Indiana (H.B. 1222, to be codified at Ind. 593 NPRM at 2; Texas PUC-NPRM at 1, 2; Virginia- Code Ann. § 24.4.7); Kansas (S.B. 296, to be codified The Commission received approximately NPRM at 1-2. at Kan . Stat. Ann. 2001 Supp. § 50-670, signed May 64,000 email and written comments. Of those, 600 29, 2002); Louisiana (H.B. 175, to be codified at La. approximately 44,000 supported the proposed CCA-NPRM at 1; Connecticut-NPRM at 1; Rev. Stat. 45:844.11); Massachusetts (H.B. 5225, national ‘‘do-not-call’’ registry, while only about Kansas-NPRM at 1; NAAG-NPRM at 6, 12, 29; signed Aug. 10, 2002); Minnesota (S.B. 3246, to be 15,000 opposed the creation of such a registry. (The NYSCPB-NPRM at 1-2; Tennessee-NPRM at 2. codified at Minn. Stat. § 325E.311, signed May 15, remaining 5,000 comments did not address this 601 Connecticut-NPRM at 1-2, 3; Kansas-NPRM at 2002); Oklahoma (S.B. 950, to be codified at Okla. issue.) 1; NAAG-NPRM at 6-13; NACAA-NPRM at 4-5; Stat. tit. 15 § 775B.1, signed Apr. 15, 2002); 594 The Commission received approximately NCL-NPRM at 9; NYSCPB-NPRM at 2-4, 13-17; Pennsylvania (H.B. 1469, to be codified as 7,500 comments from consumers who live in states Private Citizen-NPRM at 2; Tennessee-NPRM at 2, amendment to Pa. Cons. Stat. § 2241; Texas (H.B. that have ‘‘do-not-call’’ statutes. See, e.g., Dan 9-10; Texas PUC-NPRM at 3-4. See also June 2002 472, to be codified at Tex. Bus. & Com. Code Ann. Seaman (AL) (Msg. 1127); Shawn Baumgartner (FL) Tr. I at 19-40. § 43.001); Vermont (S. 62, Pub. Act 120, to be (Msg. 2771); Edwin Rodriguez (CO) (Msg. 4573); 602 See, e.g., ATA-NPRM at 21-25; Craftmatic- codified at Vt. Stat. Ann. tit. 9 § 2464a, signed June Michelle Crouch (GA) (Msg. 4973); and Rona Owen NPRM at 3; DMA-NPRM at 7-8; ERA-NPRM at 5, 28; 5, 2002); and Wisconsin (Section 2435 of 2001 (TX) (Msg. 6247). Fleet-NPRM at 2; Green Mountain-NPRM at 21-23; Wisconsin Act 16, 2001 S.B. 55, to be codified at 595 See, e.g., Michelle Crouch (GA) (Msg. 4973); Lenox-NPRM at 4-5; MPA-NPRM at 34-35; Noble- Wis. Stat. 100.52). In addition, numerous states are Dan Seaman (AL) (Msg. 1127) (state registry has too NPRM at 2; NATN-NPRM at 2; NSDI-NPRM at 3; considering or recently have considered laws that many exemptions); Clive and Jane Romig (FL) (Msg. Pacesetter-NPRM at 2-3; PMA-NPRM at 6; Synergy would create state-run ‘‘do-not-call’’ lists, including 19125) (current remedies are inadequate). Solutions-NPRM at 2; Technion-NPRM at 4; Arizona, Delaware, District of Columbia, Hawaii, 596 See, e.g., Robert Winters (Msg. 18984) Teleperformance-NPRM at 2; TeleStar-NPRM at 2; Illinois, Iowa, Maryland, Michigan, Mississippi, (resurgence of calls after a while); Gregory Stahmer TRC-NPRM at 2; Weber-NPRM at 2. Montana, Nebraska, Nevada, New Jersey, North (Feb. 21, Part 6, Msg. 150) (continues to get 603 See, e.g., ATA-NPRM at 24-25; DMA-NPRM at Carolina, Ohio, Rhode Island, South Carolina, unwanted calls); Robert Baly (Feb. 27, Part 1, Msg. 8-11; ERA-NPRM at 27-28; MPA-NPRM at 34-35; South Dakota, Utah, Virginia, Washington, and 551). Noble-NPRM at 2; NATN-NPRM at 2; NSDI-NPRM

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gaps in the national registry’s coverage the appropriate approach to ‘‘do-not- exemptions. Consumers in those states due to the FTC’s limited jurisdiction call,’’ they also challenge the states’ have accepted the limitations of the would make a national ‘‘do-not-call’’ list authority to regulate interstate calls state ‘‘do-not-call’’ lists and have been more confusing than helpful to under the state ‘‘do-not-call’’ laws.608 satisfied at the prospect of at least consumers.604 Some industry members The Telemarketing Act grants the states reducing the number of unwanted suggested that the states are the more the authority to enforce the TSR in telephone solicitations that they appropriate forum for creation of ‘‘do- federal court.609 Therefore, a national receive.614 Indeed, an FTC registry may not-call’’ lists.605 Some of these ‘‘do-not-call’’ registry maintained by the be more inclusive than some state ‘‘do- commenters argued that, unlike a FTC pursuant to the TSR (and not-call’’ lists.615 The Commission national list, that must be ‘‘one size fits enforceable by the states) would quell believes that consumer education will all,’’ states can be more responsive to any challenges to state ‘‘do-not-call’’ minimize consumer confusion over the needs of their citizens and tailor enforcement with respect to interstate what calls will and will not be allowed their lists to those differing needs.606 telemarketing. under a national ‘‘do-not-call’’ registry. The record in this matter Some industry members would have Industry pointed to the economic overwhelmingly shows the contrary—as the FTC forget about a national registry importance of outbound telemarketing, detailed earlier, it shows that the and continue to let consumers use the which accounted for $274.2 billion in company-specific approach is seriously current national self-regulatory system 2001,616 and warned that a national inadequate to protect consumers’ set up through DMA’s TPS.610 DMA has ‘‘do-not-call’’ registry would have dire privacy from an abusive pattern of calls provided an important public service by economic consequences.617 In its placed by a seller or telemarketer. The administering the TPS, and the supplemental comments, DMA comments also show that consumers Commission applauds the efforts of the submitted a study showing ‘‘the face of continue to be angered by and frustrated industry to regulate itself. However, the the telemarketing industry.’’618 with the pattern of unsolicited self-regulatory model has two serious According to DMA predictions, job telemarketing calls they receive from the shortcomings which limit its use as an losses would impact most seriously on multitude of sellers and telemarketers. effective national ‘‘do-not-call’’ registry: women, minorities, and rural areas—the A national ‘‘do-not-call’’ registry a self-regulatory system is voluntary; groups and regions from which most addresses both types of abuse. It and to the extent that sanctions exist for telemarketers are drawn.619 Individual provides a mechanism that a consumer non-compliance, DMA may apply those sellers and telemarketing firms may use to indicate that he or she finds sanctions only against its members, not estimated that they might have to lay off unsolicited telemarketing calls abusive non-members.611 On the other hand, up to 50 percent of their employees if and an invasion of privacy. It will also lists established pursuant to the FTC such a registry were to go into effect.620 protect a consumer from repeated Act and the Telemarketing Act, as well Numerous individual telemarketers abusive calls from a seller or as those established pursuant to state submitted comments in which they telemarketer. These problems cannot be law, have the force of law, and violators talked about the pride they have in their fully addressed by state lists. While are subject to civil penalties. This type work and their fear of losing their state ‘‘do-not-call’’ lists may be effective of sanction makes it more likely that livelihood.621 in reducing calls for the citizens in companies will take their ‘‘do-not-call’’ those states, about half the states do not obligations seriously. WALL ST. J., Apr. 11, 2002, at A2. See also NAAG- have such legislation. A federal list The Commission recognizes that its NPRM at 4, n.3. would protect those consumers who are 614 See generally June 2002 Tr. I at 110-21. jurisdictional limitations will impact 615 See EPIC-NPRM at 19 (noting that some state not currently protected. In addition, as the effectiveness of a national ‘‘do-not- laws are ineffective due to the number of exempted EPIC pointed out in its comment, the call’’ registry. However, the Commission entities). state ‘‘do-not-call’’ lists vary with regard notes that while certain specific entities 616 DMA, ‘‘The Faces and Places of Outbound to exempt entities, with some are exempt from coverage, the Telemarketing in the United States,’’ (June 2002) containing so many exemptions that (‘‘DMA study’’) at 1. telemarketing companies that solicit on 617 See id. See also NATN-NPRM at 1; NSDI- virtually all telemarketers are their behalf are nonetheless covered by NPRM at 2; Success Marketing-NPRM at 2; Synergy exempt.607 A federal list would provide the TSR.612 Moreover, many consumers Solutions-NPRM at 1. uniformity with regard to those entities have signed up for state ‘‘do-not-call’’ 618 DMA study, see note 616 above. within the FTC’s jurisdiction. Finally, lists,613 all of which include various 619 The DMA study indicates that teleservices although industry touts the state lists as workers are overwhelmingly female, high-school educated, and African-American or Hispanic. 608 See, e.g., ATA-NPRM at 24. Almost 62 percent of all females working as at 3; Synergy Solutions-NPRM at 2; Technion- 609 15 U.S.C. 6108. teleservices agents are working mothers, and 30 NPRM at 4; Teleperformance-NPRM at 2; TRC- 610 See, e.g., ATA-NPRM at 21-25; Craftmatic- percent are part of a welfare-to-work program or NPRM at 2. NPRM at 3; DMA-NPRM at 7-8; ERA-NPRM at 5, 28; were recently on public assistance. DMA study at 604 See, e.g., ERA-NPRM at 28, 36; MPA-NPRM at Fleet-NPRM at 2; Green Mountain-NPRM at 21-23; 2. The study also indicates that outbound 34-35; Noble-NPRM at 2; NATN-NPRM at 2; NSDI- Lenox-NPRM at 4-5; MPA-NPRM at 34-35; Noble- telemarketing call centers can be found in every NPRM at 3; Synergy Solutions-NPRM at 2; NPRM at 2; NATN-NPRM at 2; NSDI-NPRM at 3; state, often in rural areas or small towns and cities Technion-NPRM at 4; Teleperformance-NPRM at 2; Pacesetter-NPRM at 2-3; PMA-NPRM at 6; Synergy that are economically distressed. Id. at 4. See also TRC-NPRM at 2. Solutions-NPRM at 2; Technion-NPRM at 4; NATN-NPRM at 1; NSDI-NPRM at 2; Success 605 See, e.g., ATA-NPRM at 23-25; Noble-NPRM at Teleperformance-NPRM at 2; TeleStar-NPRM at 2; Marketing-NPRM at 2; Synergy Solutions-NPRM at 2; NATN-NPRM at 2; NSDI-NPRM at 3; TRC-NPRM at 2; Weber-NPRM at 2. 1. possibleNOW.com-NPRM at 1; Success Marketing- 611 DMA has about 5,000 members. DMA-NPRM 620 See NATN-NPRM at 1; NSDI-NPRM at 2; NPRM at 2; Synergy Solutions-NPRM at 2; at 1. Success Marketing-NPRM at 2; Synergy Solutions- Technion-NPRM at 4; Teleperformance-NPRM at 2; 612 67 FR at 4497. NPRM at 1; Teleperformance-NPRM at 2; TRC- TRC-NPRM at 2. See also Tennessee-NPRM at 6-7. 613 For example, Missouri and Indiana each have NPRM at 2-3. However, the Commission notes that 606 See, e.g., ATA-NPRM at 23-25; Noble-NPRM at more than 1 million telephone numbers on their these companies offered no analysis to substantiate 2; NATN-NPRM at 2; NEMA-NPRM at 4; NSDI- lists; New York’s list contains more than 2 million their claims regarding the impact of the national NPRM at 3; possibleNOW.com-NPRM at 1; Success numbers. See Missouri No Call Tops 1 Million registry. Marketing-NPRM at 2; Synergy Solutions-NPRM at Three Days Before One-Year Anniversary of Law, 621 See, e.g., Alhafez (Mar. 22, part 1, Msg. 1712); 3; Teleperformance-NPRM at 2; TRC-NPRM at 2. Office of Missouri Attorney General, June 28, 2002, Cameron (Mar. 6, part 1, Msg. 951); Dillon (Mar. 21, See also Tennessee-NPRM at 6-7. http://www.ago.state.mo.us/062802.htm; and David part 2, Msg. 1622). See also, e.g., ACI Telecentrics- 607 EPIC-NPRM at 19. Wessel, On Hold: Gagging the Telemarketers, Continued

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The Commission recognizes that preemption, industry believed that a of information that should be collected, telemarketing is a legitimate method of national registry would only add and the accuracy of the Commission’s selling goods and services. It is another layer of bureaucracy and one cost estimates.630 These issues are important to remember that the ‘‘do-not- more list that they must purchase.626 discussed in the section below call’’ registry will impact only outbound The June 2002 Forum discussed in addressing implementation. telemarketing, and will have no effect depth the interplay between the Coverage of the ‘‘do-not-call’’ whatsoever on the greater portion of the national ‘‘do-not-call’’ registry and state provisions. A number of commenters industry devoted to inbound calls from laws. Participants agreed that the asked the Commission to clarify consumers.622 The Commission also Commission should seek comity with coverage of its ‘‘do-not-call’’ provisions. recognizes the importance of outbound state laws, and that a single list would Some queried whether calls to home telemarketing to federal, state, and local provide substantial benefits to both businesses would be subject to the ‘‘do- economies. Telemarketing provides industry and consumers.627 not-call’’ requirements.631 The Rule needed jobs to rural areas and small For example, Dr. James Miller, exempts telemarketing calls to towns that often face high testifying on behalf of CCC, estimated businesses (except for sellers or unemployment, and to people who that if the Commission’s ‘‘do-not-call’’ telemarketers of nondurable office or often face difficulties in obtaining other proposal were enacted as proposed, it cleaning supplies). Therefore, calls to employment, such as individuals would cost all firms that sell their home businesses would not be subject moving off of welfare. products via outbound telemarketing to the amended Rule’s ‘‘do-not-call’’ Although industry fears the economic combined a total of $6.6 million to requirements. impact a national registry might have, purchase access to the FTC’s ‘‘do-not- ironically, an FTC ‘‘do-not-call’’ registry Some commenters asked whether the call’’ registry and to check their calling ‘‘do-not-call’’ requirements would cover may actually benefit rather than harm lists against the ‘‘do-not-call’’ list to industry. For example, the federal calls to cellular or wireless telephones ensure that they do not call consumers and pagers. The Commission intends framework, with its exemptions, would who have asked not to be called.628 If provide greater consistency of coverage, that § 310.4(b)(1)(iii) apply to any call companies could comply with both FTC placed to a consumer, whether to a at least with regard to interstate calls. In and state regulations by purchasing addition, industry would benefit residential telephone number or to the access to the FTC’s list and not calling consumer’s cellular telephone or pager. because telemarketers would reduce consumers whose numbers appeared on time spent calling consumers who do Consumers are increasingly using that list, this would represent the total cellular telephones in place of regular not want to receive telemarketing calls burden on firms to avoid calling and would be able to focus their calls telephone service,632 which is borne out consumers who did not wish to be by the dramatic increase in cellular only on those who do not object to such called. However, Dr. Miller testified that 623 phone usage.633 The Commission calls. the total cost to comply with the state Industry emphasized the importance believes that it is particularly important regulations as well as the FTC of harmonizing federal and state laws. to allow consumers an option to reduce requirements, should firms still have to To the extent that industry members unwanted telemarketing calls to cellular purchase separate lists from each state supported creation of a national ‘‘do- telephones or to pagers because some having its own do-not-call provisions, not-call’’ list, they conditioned their cellular services charge the consumer could approximate $100 million.629 support on preemption of state laws.624 for incoming calls, thus adding insult to Finally, commenters raised various These commenters argued that the injury when the consumer is charged for issues and offered suggestions relating major, if not only, benefit to industry to the implementation of a national ‘‘do- from a national ‘‘do-not-call’’ registry 630 See, e.g., AFSA-NPRM at 4-10; Craftmatic- would be to eliminate the costs of not-call’’ registry. For example, various NPRM at 3; DC-NPRM at 5; DialAmerica-NPRM at purchasing multiple lists and complying commenters questioned the accuracy of 13; Discover-NPRM at 3; EPIC-NPRM at 14; ERA- NPRM at 29-32; HSBC-NPRM at 2; MBA-NPRM at with a patchwork of potentially 50 automatic number identification (‘‘ANI’’) verification, the length of time 2; NYSCPB-NPRM at 7-13. See also June 2002 Tr. different state laws.625 Absent I at 138-271. a consumer’s telephone number should 631 See, e.g., IBM-NPRM at 11-12; Pelland-NPRM Levie (Msg. 19322); InfoCision Management-Davis remain on the list, who should be able at 3. (Msg. 23968); HFC-Beneficial-Darst (Msg. 33709); to sign up for the list, whether the 632 See FCC Notice of Proposed Rulemaking and Household-Alioto (Msg. 27876); LTD Direct- Commission should allow third parties Memorandum Opinion and Order in the Matter of Rockwood (Msg. 27601); and TCIM Services Inc.- to submit telephone numbers, the type Rules and Regulations Implementing the Telephone Davis (Msg. 22871). Consumer Protection Act of 1991, CG Docket No. 622 In 2001, inbound telemarketing accounted for 02-278, CC Docket No. 92-90 (Sept. 18, 2002) 626 55 percent of total teleservice expenditures and was Id. (hereinafter ‘‘FCC TCPA 2002’’) at 27, para. 42 expected to grow to 62 percent by 2004. 627 See June 2002 Tr. I at 19-40. (citing a USA Today/CNN/Gallop poll showing that Winterberry Group, ‘‘Industry Map: Teleservice 628 See June 2002 Tr. I at 209. Dr. Miller’s one in five mobile telephone users use their Industry—Multi-Channel Marketing Drives testimony drew from the Miller Study (see note 591 wireless phone as their primary phone, Michelle Universal Call Centers’’ at 9 (Jan. 2001). above). As the study explains, the $6.6 million Kessler, 18 % See Cellphones as Their Main Phone, 623 Industry representatives also have indicated figure assumes that 3,000 firms will pay $1,000 USA TODAY, Feb. 1, 2002). See also Wendy that they do not wish to call consumers who do not each on average to obtain access to the list and that Ruenzel, More Cell Phone Users Dispense with want to receive telemarketing calls. See DNC Tr. at it will take the average firm approximately two Traditional Phone Line, POST CRESCENT, Aug. 6, 41, 51, 53-56, 61, 71. hours of effort at a cost of $50 per hour each time 2001; Simon Romero, When the Cellphone Is the 624 See, e.g., AFSA-NPRM at 3-5; Craftmatic- it is necessary to compare the firm’s calling list Home Phone, N.Y. TIMES, Aug. 29, 2002; Joelle NPRM at 3; Discover-NPRM at 2; HSBC-NPRM at against the ‘‘do-not-call’’ registry. As proposed in Tessler, Small But Growing Number of Cell Phone 1; MBA-NPRM at 2; NCTA-NPRM at 15-16; NRF- the NPRM, firms would have been required to do Users Abandon Land Lines, SAN JOSE MERCURY NPRM at 7-8; Nextel-NPRM at 3-4, 26-27; PMA- this comparison 12 times each year so that the NEWS, Aug. 15, 2002. NPRM at 28; SIIA-NPRM at 3; Time-NPRM at 3-4; average firm would have incurred a total expense 633 See FCC TCPA 2002 at 26-27, para. 42, n.160 Community Bankers-Supp. at 4; ARDA-Supp. at 1; of $2,200. Miller Study at 11-12. Because the (noting that, in the ten-year period between 1991 ICTA-Supp. at 1. See also June 2002 Tr. at 19-40. amended Rule does not require firms to compare and 2001, the number of wireless subscribers 625 See, e.g., AFSA-NPRM at 3-5; Craftmatic- their calling lists to the FTC’s ‘‘do-not-call’’ registry increased from about 7.5 million to approximately NPRM at 3; Discover-NPRM at 2; HSBC-NPRM at monthly as did the NPRM proposal, the estimated 128 million. From 1993 to 2001, the average 1; MBA-NPRM at 2; NCTA-NPRM at 15-16; NRF- cost using Dr. Miller’s methodology would now be minutes of use per subscriber per month increased NPRM at 7-8; Nextel-NPRM at 3-4, 26-27; PMA- around $4.5 million. from 140 minutes to 385 minutes.) (citations NPRM at 28; SIIA-NPRM at 3; Time-NPRM at 3-4. 629 See June 2002 Tr. I at 209. omitted).

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the unwanted telemarketing call to the proposed Rule was at odds with the Finally, industry commenters consumer’s cellular telephone.634 approach taken by the states with regard suggested that the Commission’s Established business relationship. to ‘‘do-not-call’’ registries. All state ‘‘do- rationale for not including an exemption Industry commenters overwhelmingly not-call’’ laws, except Indiana’s, include for ‘‘established business relationships’’ opposed as unworkable the such an exemption.641 State regulators was faulty.645 In adopting the original Commission’s proposal to allow noted that there have been few Rule, the Commission had expressed the consumers to give their express complaints from consumers about calls view that such an exemption was authorization to companies from which from companies with whom they have inappropriate because it was not they wished to receive calls. Industry an existing business relationship.642 In workable in the context of fraud.646 stated that it would be cost prohibitive addition, FCC regulations under the These commenters pointed out that the for them to contact their customers to TCPA exempt ‘‘established business ‘‘do-not-call’’ registry was driven by obtain authorization (although they relationships’’ from the company- privacy concerns, not concerns about provided no detailed support for this specific ‘‘do-not-call’’ regulations.643 fraud. Therefore, they argued, the argument) and that consumer inertia Individual commenters who expressed Commission’s stated rationale was would keep consumers from an opinion on this issue were divided inapplicable in the ‘‘do-not-call’’ independently providing that type of on whether there should be such an context.647 However, these commenters affirmative authorization.635 They also exemption. Analysis of individual misunderstood the Commission’s argued that consumers may not know in consumer comments that touched on rationale in not including an exemption advance which companies they want to this issue indicates that about 860 for ‘‘established business relationship’’ hear from.636 favored an exemption for calls from in the proposed ‘‘do-not-call’’ provision. Industry commenters noted that, firms with whom they already have an In fact, the Commission’s rationale for without an exemption permitting calls established relationship, while about not including such an exemption in its to existing customers, companies would 1080 opposed such an exemption.644 proposal was driven not by concerns be unable to conduct normal servicing Furthermore, over 13,000 of the nearly about fraud, but by the same privacy of customers’ accounts, since such 15,000 comments submitted by concerns that those commenters noted. customer service calls frequently are Gottschalks’ customers supported The Commission believed that the multiple purpose calls that also include allowing Gottschalks to call them even national registry should contain few attempts to sell additional goods or if they signed up on a ‘‘do-not-call’’ exemptions in order to provide services to the customer.637 registry to block other calls. consumers with the most Additionally, magazines and comprehensive privacy protection newspapers would be unable to contact 641 See, e.g., Ark. Code Ann. § 4-99-403(2)(A); possible. consumers whose subscriptions had Colo. Rev. Stat. § 6-1-903(10)(B)(II); Conn. Gen. Stat. Because the proposed Rule did not expired to offer them a new Ann. § 42-288a(a)(9); Fla. Stat. Ann. § 501.059(1)(c); contain any ‘‘established business subscription.638 Commenters from Ga. Code Ann. § 46-5-27(b)(3)(B); Mo. Rev. Stat. relationship’’ exemption, it is not § 407.1095(3)(b); and Tenn. Code Ann. § 65-4- financial institutions pointed out that, if 401(6)(B)(iii). surprising that few commenters raised not permitted to call current customers, 642 See June 2002 Tr. I at 118 (New York: ‘‘Well, this issue unless they were advocating they may run afoul of their fiduciary [consumers are not unhappy], and a lot of times that such an exemption be added. In relationship with those customers.639 they complain, and you could say that’s prima facie response to industry’s strong advocacy Sellers argued that it would be cost evidence they’re unhappy. We call them back and in favor of an ‘‘established business say, gee, did you have a transaction with these prohibitive for them to use direct mail folks? They claim you did on X, Y and Z, and they relationship’’ exemption, however, the or other means to contact their furnished us this paperwork. And then they say, oh, June 2002 Forum elicited comment on customers to obtain authorization to yeah. They don’t seem to be mad.’’); June 2002 Tr. whether such an exemption would be call.640 I at 118-19 (Missouri: ‘‘Most people when you call appropriate. Privacy advocates opposed them back are delighted that 70 to 80 percent of Industry commenters also pointed out their phone calls have been caused to not come in, any exemptions to the registry, stating that, in failing to include an exemption so when we explain to them that you had a that exemptions erode the effectiveness for existing business relationships, the relationship or you explain to them that some of of a ‘‘do-not-call’’ registry.648 These these calls are exempt, they understand when you commenters feared that, because of the explain that to them, and they’re delighted, because 634 See, e.g., Andy Vuong, Telemarketers tap our anecdotal information shows that 70 to 80 difficulty in crafting such an exemption cellphone: Complaints on rise as solicitors dial into percent of the calls people had been receiving, narrowly, an ‘‘established business no-call exemption, DENVER POST, July 30, 2002; they’re not receiving now.’’); and see generally, June Jennifer Bayot, Now, That Ringing Cellphone May relationship’’ exemption would provide 2002 Tr. I at 110-21. Be a Telemarketer’s Call, N.Y. TIMES, July 5, 2002. too great a loophole, and would severely 643 47 CFR 64.1200(c)(3). The TCPA requires such 635 See, e.g., AFSA-NPRM at 8; BofA-NPRM at 9; an exemption. 47 U.S.C. 227(a)(3). hamper the effectiveness of a national Cox-NPRM at 6; MBA-NPRM at 5. 649 644 See, e.g., GBELois (Msg. 44) (‘‘If a person is a ‘‘do-not-call’’ registry. One consumer 636 See, e.g., DialAmerica-NPRM at 14; member, subscriber, current customer, etc., of a spoke at the June 2002 Forum about the Roundtable-NPRM at 4-5. company and the company is calling regarding the 637 See, e.g., ACA-NPRM at 2; ARDA-NPRM at 17; dangers inherent in such an status of that relationship then the company should exemption.650 AARP noted in its Associations-NPRM at 2; Cendant-NPRM at 5; not be obligated to conform to the do not call Comcast-NPRM at 2; DMA-NPRM at 34; HSBC- registry.’’); Jerry Warnke (Msg. 371) (‘‘Have to be a supplemental comments that an NPRM at 1; MBA-NPRM at 1-2. way to exempt businesses or organizations when exemption appeared to be necessary, but 638 See NAA-NPRM at 12, June 28-Supp. at 1, and they are returning your phone calls or they have a July 31-Supp. at 1; NNA-NPRM at 3. need to call you with an ongoing relationship.’’). 645 See, e.g., DMA-NPRM at 34-36; NCTA-NPRM 639 See, e.g., ABA-NPRM at 10; ABIA-NPRM at 4; But see, e.g., Karl Engelberger (Msg. 331) (‘‘All pre- at 8; Nextel-NPRM at 13-15; Wells Fargo-NPRM at AFSA-NPRM at 13-14; AmEx-NPRM at 3; BofA- existing agreements and relationships should be 4. NPRM at 3; Bank One-NPRM at 4-5; VISA-NPRM voided and can, at the line subscribers discretion 646 See 60 FR at 43859. at 13; Wells Fargo-NPRM at 4. However, unless be re-established.’’); Don Price (Msg. 483) 647 such a customer service call includes an (‘‘Sometimes pre-existing relationships are those See, e.g., DMA-NPRM at 34-36; NCTA-NPRM inducement to purchase additional goods or hardest to communicate with regarding the fact that at 8; Nextel-NPRM at 13-15; Wells Fargo-NPRM at services, it would fall outside the definition of the individual wants to end the relationship with 4. ‘‘telemarketing’’ and, therefore, beyond the scope of the telemarketer business—once you give or buy 648 See, e.g., EPIC-NPRM at 20-21; NCL-NPRM at the Rule’s coverage. something, many telemarketers expect you to 10. 640 See, e.g., Comcast-NPRM at 2; CAP-Supp. at 1- continue what you started and make it a monthly 649 NCL-NPRM at 10. 2. habit—even if that was never your intent.’’). 650 June 2002 Tr. I at 278-82 (Diana Mey).

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urged that the Commission keep the of ‘‘established business relationship’’ commenters advanced a number of exemption very narrow and limit it to encompasses those affiliates of the seller criticisms of the proposal based upon existing relationships only, as opposed that the consumer would reasonably the practical effects it would foreseeably to prior relationships.651 expect to be included given the nature produce if adopted. They also argued Based on the record as a whole, the and type of goods or services offered that the proposal was fatally flawed Commission is persuaded that the and the identity of the affiliate. from the standpoint of First Amendment benefits of including an exemption for In addition to an exemption for analysis. Each of the major points made established business relationships ‘‘established business relationships,’’ by these commenters is discussed outweigh the costs of such an the Commission has decided to retain below. exemption. Therefore, the Commission the provision that allows sellers to Because of the central role of the has decided to provide an exemption for obtain the express agreement of telephone and of professional ‘‘established business relationships’’ consumers who wish to receive fundraisers in the non-profit arena, non- from the national ‘‘do-not-call’’ registry, telephone calls from that seller, but has profit organizations and their as long as the consumer has not asked modified the provision to require that representatives uniformly predicted to be placed on the seller’s company- such express agreement may be financial disaster for the non-profit specific ‘‘do-not-call’’ list. Once the evidenced only by a signed, written sector if such a proposal were consumer asks to be placed on the agreement. The Commission believes adopted.655 According to DMA- seller’s ‘‘do-not-call’’ list, the seller may that it is important to limit the NonProfit, a quarter of all charitable not call the consumer again regardless established business relationship to contributions raised in 2001 came from of whether the consumer continues to those where there is ongoing contact or telephone solicitation,656 and an do business with the seller. If the where the relationship has recently estimated 60 to 70 percent of that consumer continues to do business with lapsed or terminated. However, the solicitation was performed by the seller after asking not to be called, Commission recognizes that consumers professional fundraisers.657 These the consumer cannot be deemed to have may have ongoing relationships with commenters feared the detrimental waived his or her company-specific sellers where the contacts may be impact of a national ‘‘do-not-call’’ ‘‘do-not-call’’ request.652 infrequent. Therefore, the Commission registry on this important element of the The amended Rule limits the has decided to retain the provision that non-profit world’s financial support ‘‘established business relationship’’ would allow sellers to obtain the system.658 One commenter opined that exemption to relationships formed by consumer’s express agreement to call, the proposed ‘‘do-not-call’’ registry the consumer’s purchase, rental or lease regardless of whether there has been requirement would reduce the potential of goods or services from, or financial contact during the prior 18 months. In donor pool by between 40 to 50 percent, transaction with, the seller within 18 order to minimize the potential for and based on sign-up rates in some months of the telephone call or, in the abuse, the amended Rule does not states, possibly by as much as 70 or 80 case of inquiries or applications, to permit sellers or telemarketers to obtain percent.659 three months from the inquiry or the consumer’s oral authorization. The proposed registry’s impact on application. As indicated in the Rather, the amended Rule requires that non-profit organizations’ ability to discussion of the definition of the express agreement meet the same solicit previous donors was of particular ‘‘established business relationship’’ in standards as written authorization in concern. According to a number of § 310.2(n), this time frame is consistent § 310.3(a)(3)(i)—i.e., that the express commenters, it is axiomatic that persons with most state laws that include a time agreement be in writing, signed by the who have already contributed to a non- limit.653 The exemption is terminated consumer—and must also include the profit or charitable organization are by the consumer’s request to be placed telephone number to which the calls much more likely to contribute than are on the company’s ‘‘do-not-call’’ list, may be placed. Because the express persons who have never done so.660 In which is consistent with the FCC’s agreement requires the consumer’s regulations and those of many of the signature, the Rule makes it more 655 See, e.g., DMA-NonProfit-NPRM at 16; Not-for- states.654 As explained above in the difficult for sellers and telemarketers to Profit Coalition-NPRM at 7. See also Red Cross- bury the consent in the fine print of a NPRM at 3; APTS-NPRM at 2-3; Childhood discussion of § 310.2(n), the definition Leukemia-NPRM at 1; FireCo-NPRM at 1; California document where the consumer might FFA-NPRM at 2; Edwardsville FFA-NPRM at 1; 651 AARP-Supp. at 3. not notice it. The Commission intends HRC-NPRM at 1-2; Leukemia Society-NRPM at 1-2; 652 See June 2002 Tr. I at 278-82 (Consumer that the consent be clear and March of Dimes-NPRM at 1; Michigan Nonprofit- recounted that a telemarketer from a retailer conspicuous. This express agreement is NPRM at 1; Purple Heart-NPRM at 2; NC Zoo-NPRM at 1; NPR-NPRM at 2; AAST-NPRM at 5; FOP- telephoned her, notwithstanding the fact that she effective as long as the consumer has was on the retailer’s ‘‘do-not-call’’ list. When she NPRM at 2; Southern Poverty-NPRM at 2. questioned them about this apparent error, the not asked to be placed on the seller’s 656 DMA-NonProfit-NPRM at 2 (citing the Turner telemarketer said that she had recently made a company-specific ‘‘do-not-call’’ list. Study, see note 142 above). purchase at the retailer, which re-created an Once the consumer asks to be placed on 657 DMA-NonProfit-NPRM at 2. See also Not-for- ‘‘established business relationship,’’ which the seller’s ‘‘do-not-call’’ list, the seller Profit Coalition-NPRM at 6. 658 exempted them from complying with her ‘‘do-not- may not call the consumer again See, e.g., ACE-NPRM at 1; ADA-NPRM at 1; call’’ request.). Red Cross-NPRM at 3; Blood Centers-NPRM at 2; 653 See discussion of § 310.2(n) and note 135, regardless of whether the consumer Childhood Leukemia-NPRM at 1; LifeShare-NPRM above. continues to do business with the seller. at 1; March of Dimes-NPRM at 2; NPR-NPRM at 4- 654 See 47 CFR 64.1200(f)(4), and discussion in First Amendment and related 5; FOP-NPRM at 3, 4; Project Angel Food-NPRM at FCC TCPA 2002 (see note 633 above) at 8765, para. considerations applicable to ‘‘do-not- 1. 23, and at 8770, para. 34, n.63. In addition, several call’’ provisions. As noted above, the 659 Not-for-Profit Coalition-NPRM at 9. state ‘‘do-not-call’’ statutes contain a similar 660 AFP-NPRM at 4 (‘‘For nearly all nonprofit provision in their exemption for ‘‘established proposal to include charitable organizations, pre-existing donors and volunteers business relationships’’ which terminates the solicitation telemarketing by for-profit constitute the source of a majority of all gifts and exemption if the consumer has asked not to be telemarketers within the scope of a volunteer time. These individuals are most called. See, e.g., Alaska, California, Colorado, national ‘‘do-not-call’’ registry committed to a cause and best understand the Connecticut, Illinois, Kansas, New York, Oklahoma, organization. Donors should not lose the Texas, and Wyoming. See note 592, above, for requirement drew extensive negative opportunity to hear from organizations they citations to each state’s ‘‘no-call’’ laws and/or comment from non-profit organizations supported in the past.’’); March of Dimes-NPRM at regulations. and their representatives. These 3 (‘‘The most generous donors and volunteers are

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this regard, Not-for-Profit Coalition that are impermissible under the First Hudson’s criteria is satisfied. Finally, stated that ‘‘[c]ompounding the harm is Amendment.665 the national ‘‘do-not-call’’ registry is a the fact that the registry would apply The Commission believes that, with mechanism closely and exclusively equally to donors with a long history of respect to telemarketing that solicits fitted to the purpose of protecting supporting bona fide non-profit and sales of goods or services, the ‘‘do-not- consumers from unwanted charitable organizations as well as new call’’ registry provisions are consistent telemarketing calls. prospective donors. Depriving charities with the relevant First Amendment In Rowan v. Post Office Dept., the and non-profits of the ability to contact cases. In Central Hudson Gas & Elec. v. Supreme Court upheld a federal statute prior supporters will be financially Pub Serv. Comm. of N.Y., the Supreme empowering a homeowner to bar devastating.’’661 Court established the applicable mailings from specific senders by Not-for-Profit Coalition also argued analytical framework for determining notifying the Postmaster General that that the effect of the ‘‘do-not-call’’ the constitutionality of a regulation of she wished to receive no further registry requirement would be to drive commercial speech that is not mailings from that sender.672 The Court misleading and does not otherwise stated: non-profit organizations away from 666 efficient use of professional telefunders, involve illegal activity. Under that We therefore categorically reject the and toward inefficient in-house framework, the regulation (1) must serve argument that a vendor has a right under the operations.662 According to a substantial governmental interest; (2) constitution or otherwise to send unwanted commenters, the efficiency benefits of must directly advance this interest; and material into the home of another. If this using professional telefunders may be (3) may extend only as far as the interest prohibition operates to impede the flow of it serves667—that is, there must be ‘‘a even valid ideas, the answer is that no one substantial. For example, Hudson Bay ’fit’ between the legislative ends and the has a right to press even ‘‘good’’ ideas on an stated: means chosen to accomplish those ends unwilling recipient. That we are often HBC’s phone canvass is mostly for smaller . . . a fit that is not necessarily perfect, ‘‘captives’’ outside the sanctuary of the home non-profit organizations (and the state and subject to objectionable speech and other but reasonable . . . that employs not sound does not mean we must be captives chapters of large ones). Instead of renting necessarily the least restrictive means space, buying computers and phone everywhere. The asserted right of a mailer, equipment, hiring supervisors and so on, but . . . a means narrowly tailored to we repeat, stops at the outer boundary of 668 HBC’s clients find it cheaper to contact their achieve the desired objective.’’ every person’s domain. . . . To hold less members and donors by sharing these With regard to the first of these would tend to license a form of trespass and resources. Even after paying HBC’s fee, criteria, protecting the privacy of would make hardly more sense than to say which ranges from 4 to 7%, it is much consumers from unwanted commercial that a radio or television viewer may not cheaper for these non-profits to centralize telemarketing calls is a substantial twist the dial to cut off an offensive or boring these services. The savings achieved by governmental interest.669 ‘‘Individuals communication and thus bar its entering his home. Nothing in the Constitution compels phone company volume discounts alone pays are not required to welcome unwanted more than half of HBC’s fee.663 us to listen to or view any unwanted speech into their own homes and the communication, whatever its merit; we see Several representatives of non-profit government may protect this no basis for according the printed word or organizations argued that under relevant freedom.’’670 The ‘‘do-not-call’’ registry pictures a different or more preferred status First Amendment precedent, charitable is designed to advance the privacy because they are sent by mail. The ancient rights of consumers by providing them concept that ‘‘a man’s home is his castle’’ fundraising is fully protected speech, into which ‘‘not even the king may enter’’ has and that attempts by the government to with an effective, enforceable means to make known to sellers their wishes not lost none of its vitality, and none of the regulate it are subject to the highest recognized exceptions includes any right to level of scrutiny.664 These commenters to receive solicitation calls. Simply put, communicate offensively with another.673 sellers or telemarketers soliciting sales also noted that under the relevant Under Rowan, the First Amendment precedents, no distinction between the may not call persons who have placed themselves on the registry. The registry allows a statutory scheme whereby a speech of the non-profit organization person may block a sender’s mailings by and that of the professional telefunder is also designed to cure the inadequacies as a privacy protection notifying the Postmaster General, who actually making the calls is then will prevent that sender’s mailings recognized—both are equally protected. measure that became apparent in the company-specific ‘‘do-not-call’’ from being delivered to that person. The Several criticized the proposal’s Commission believes that the First exemptions for solicitations by provisions included in the original Rule.671 Thus, the second of Central Amendment similarly raises no ‘‘political clubs, committees, or parties’’ impediment to Rule provisions that will and ‘‘constituted religious 665 enable a person by signing up on a organizations’’ as making distinctions See, e.g., DMA-NonProfit-NPRM at 5, 6; Not- for-Profit Coalition at 41. national ‘‘do-not-call’’ registry to block based on the type of speech or speaker 666 447 U.S. 557 (1980). commercial communications via 667 Id. at 566. telephone, which are far more intrusive those who have a prior relationship with the 668 Bd. of Trs. of State Univ. of N.Y. v. Fox, 492 than the communications, at issue in Foundation . . . . If the Foundation cannot contact U.S. 469, 480 (1989). prior donors and volunteers on the basis of a 669 Rowan, via printed words and In some instances, the ‘‘do-not-call’’ registry 674 preexisting relationship, then the effectiveness of provisions will also serve another substantial images. our fundraising program will be jeopardized.’’ See governmental interest—prevention of fraud and also, e.g., APTS-NPRM at 2; ADA-NPRM at 1; abuse, as in cases where elderly consumers are 672 397 U.S. 728 (1969). AAST-NPRM at 3; FireCo-NPRM at 1; NTC-NPRM signed up on the registry to protect them from 673 Id., at 737-38 (internal citations omitted). at 3; Southern Poverty-NPRM at 2; NCLF-NPRM at exploitative or fraudulent telemarketers. Cf. 674 While the statute under consideration in 1. Metromedia v. San Diego, 453 U.S. 490, 509 (1981) Rowan was focused on mailed advertisements of a 661 Not-for-Profit Coalition-NPRM at 10. (holding, inter alia, that San Diego’s ‘‘twin goals sexual nature, the Court specifically rejected 662 Id. at 18, 19. that the ordinance seeks to further—traffic safety arguments that it should be read narrowly to cover 663 Hudson Bay-Goodman-NPRM at 2. See also, and the appearance of the city—are substantial only ‘‘salacious’’ or ‘‘pandering’’ advertisements— e.g., APTS-NPRM at 3; Not-For-Profit Coalition- government goals.’’) or even all advertisements. Instead, the court NPRM at 19. 670 Frisby v. Schultz, 487 US 474, 485 (1988). upheld the statute interpreted as covering all 664 See, e.g., Hudson Bay-Goodman-NPRM at 4, 5; 671 The shortcomings of the company-specific mailings from the sender, regardless of whether DMA-NonProfit-NPRM at 7; Not-For-Profit approach are set forth above in the discussion of they were advertisements, and regardless of Coalition-NPRM at 15. § 310.4(b)(1)(iii). Continued

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With respect to telemarketing that themselves or the viewpoints of the interest and the regulatory means solicits charitable contributions, the organizations on whose behalf the employed to advance that interest: The Commission believes that the applicable solicitation calls are made. Thus, these consumer requests a specific caller not analytical framework is more provisions are content-neutral.678 to call again, and the regulation requires stringent.675 ‘‘[C]haritable solicitations As in the case of commercial speech, the caller to make a record of and honor involve a variety of speech interests . . the analysis applicable to charitable that request in the future. . that are within the protection of the solicitations also inquires into the The Commission approaches with First Amendment and therefore have nature of the governmental interest that extreme care the issue of tailoring ‘‘do- not been dealt with as purely the regulation seeks to advance. The not-call’’ requirements narrowly to commercial speech.’’676 In considering case law indicates that with respect to advance its legitimate interest in privacy the more stringent analysis, the the higher level of scrutiny applicable to protection and yet minimize the impact Commission notes, preliminarily, that charitable solicitation, privacy on the First Amendment rights of the company-specific ‘‘do-not-call’’ protection is a sufficiently strong charitable organizations and the provisions that apply to charitable governmental interest to support a telemarketers who solicit on their solicitation telemarketing are content- regulation that touches on protected behalf. The Commission is concerned neutral. ‘‘Laws that confer benefits or speech.679 However, the case law also that subjecting charitable solicitation impose burdens on speech without indicates that, in the case of charitable telemarketing—along with commercial reference to the ideas or views solicitation, greater care must be given telemarketing to solicit sales of goods expressed are in most instances content to ensuring that the governmental and services—to national ‘‘do-not-call’’ neutral.’’677 The company-specific ‘‘do- interest is actually advanced by the registry requirements may sweep too not-call’’ provisions apply equally to all regulatory remedy, and tailoring the broadly, because it could, for example, for-profit solicitors, regardless of regulation narrowly so as to minimize prompt some consumers to accept the whether they are seeking sales of goods its impact on First Amendment rights. blocking of charitable solicitation calls or services or charitable contributions, In Riley and Schaumburg, the Court that they would not mind receiving, as and regardless of what may be rigorously examined laws that regulated an undesired but unavoidable side- expressed in the solicitation calls the percentage of charitable effect resulting from signing up for the contributions raised by a professional registry to stop sales solicitation whether they were sexually provocative. The fundraiser that could be retained as the calls.680 In the NPRM, the Commission determinative factor was that the mailings were fundraiser’s fee. The Court struck down proposed to resolve this problem by unwanted. The Commission does not advance a theory, however, that Rowan should be read here the laws because there was, in the including in the Rule a provision to cover any non-commercial communications. Court’s view, at best an extremely enabling consumers who signed up for 675 Metromedia makes clear that a less exacting tenuous correlation between charity the ‘‘do-not-call’’ registry nonetheless to standard is applied in analyzing a regulation’s fraud and the percentage of funds paid choose selectively to receive calls from constitutionality with respect to commercial speech as a professional fundraiser’s fee; the than in analyzing the same regulation’s specific entities from whom they would constitutionality with respect to noncommercial laws therefore were unlikely to achieve welcome solicitation calls. This speech. ‘‘[I]nsofar as it regulates commercial their intended purposes of preventing proposed solution met with uniform speech, the San Diego ordinance meets the fraud and protecting charities. The condemnation from non-profit constitutional requirements of Central Hudson.... It Court also found that these laws were does not follow, however, that San Diego’s ban on organizations, who opined that it would signs carrying noncommercial advertising is also not tailored narrowly enough to be too costly for non-profit valid . . . . Commercial speech cases have minimize the impact on the charities’ organizations to obtain prospective consistently accorded noncommercial speech a First Amendment rights. donors’ express permission to call, and greater degree of protection than commercial By contrast, a very tight nexus exists speech.’’ Metromedia, 453 U.S. at 513. In too difficult for consumers to exercise Watchtower Bible and Tract Soc’y v. Village of between the Commission’s legitimate their right to hear from them.681 The Stratton, ll U.S. ll, 122 S. Ct. 2080 (2002), interest in protecting consumers’ Commission is persuaded that these where the Court invalidated an ordinance that privacy against unwanted telemarketing objections may be well-founded, and required anyone who wanted to engage in door-to- calls and the company-specific ‘‘do-not- door canvassing or soliciting to obtain a permit that this, therefore, would not be an before doing so, the Court went out of its way to call’’ provisions that apply to adequate approach to narrow tailoring. suggest that the ordinance might have been telemarketing to solicit charitable Another solution alluded to in a constitutional if it were limited to commercial contributions. This nexus does not rely specific question posed in the NPRM speech. Id. at 2089. This may be dicta, but it is on an attenuated theoretical connection significant because the Court seems to have might be to bifurcate the registry into approved a distinction between commercial and between fraud and the percentage of separate categories, one for commercial noncommercial speech—the same distinction funds raised that a telefunder takes as solicitation and another for charitable drawn in the amended Rule—and to have done so its fee. Rather, there is a direct solicitation, enabling consumers to sign in the same context as the Rule, i.e., solicitation that correlation between the governmental threatens to invade the privacy of the home. up separately to stop commercial calls 676 Riley v. Nat’l. Fed. of the Blind, 487 U.S. 781 while allowing charitable 678 (1988) (internal quotation marks omitted). Similarly, the ‘‘do-not-call’’ registry provisions solicitations.682 At this time, however, 677 Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622, are also content-neutral, because they apply equally to all sellers and telemarketers engaged in the 648 (1994). ‘‘[R]egulations that are unrelated to the 680 content of speech are subject to an intermediate solicitation of sales of goods or services, regardless Childhood Leukemia-NPRM at 1 (‘‘I firmly level of scrutiny because in most cases they pose of the content of the calls, or the viewpoints of the believe if this change is implemented, people a less substantial risk of excising certain ideas or telemarketers or the sellers. attempting to avoid calls from those who sell goods viewpoints from the public dialogue.’’ Turner at 679 ‘‘The Village argues that three interests are and services over the telephone will put themselves 642, citing Clark v. Cmty. for Creative Non- served by its ordinance: the prevention of fraud, the out of reach of our organization, thereby threatening Violence, 468 U.S. 288, 293 (1984). See also Ward prevention of crime, and the protection of residents’ our financial foundation. The victims will be the v. Rock Against Racism, 491 U.S. 781, 791 (1989) privacy. We have no difficulty concluding, in light children because we will no longer have the (‘‘[The] principal inquiry in determining content of our precedent, that these are important interests resources to help them.’’) neutrality is whether the government has adopted that the village may seek to safeguard through some 681 Non-profit organizations also argued that this a regulation of speech because of disagreement with form of regulation.’’ Watchtower, 122 S. Ct. 2080 proposal was tantamount to a constitutionally the message it conveys.’’). See also Am. Target (2002); Schaumburg v. Citizens for Better Env’t., 444 impermissible requirement for non-profits to seek Adver. v. Giani, 199 F.3d 1241 (10th Cir. 2000), cert. U.S. 620, 637 (1980) (protecting the public from permission to speak before speaking. denied, 531 U.S. 811 (200) (applying this principle fraud, crime, and undue annoyance are indeed 682 ‘‘Should the ‘‘do-not-call’’ registry be in the context of solicitation). substantial). structured so that requests not to receive

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the Commission believes that such an to ask for a charitable contribution.685 recipient of the call against the cause not just approach may be impractical because of Thus, the Commission rejects the against the caller or their organization.687 cost considerations and because of the suggestion from numerous non-profit Nevertheless, if experience indicates difficulty for consumers to understand organizations and their representatives that the company-specific approach and deal with the complications of such that no privacy protection measures are does not in fact provide adequate a system. Thus, these factors may render necessary with respect to charitable protections for consumers’ privacy in a bifurcated registry an insufficient or solicitation telemarketing, and that the context of charitable solicitation excessively cumbersome response to the telefunders should be exempt from even telemarketing, the Commission may imperative of narrow tailoring. the company-specific ‘‘do-not-call’’ revisit this decision in the future, and After careful consideration of the provisions.686 reconsider whether to require record as a whole and the relevant case The Commission believes that even telemarketing calls soliciting charitable law, the Commission has determined though the company-specific approach donations to comply with the national that the best approach to achieve narrow has not been fully adequate to the task ‘‘do-not-call’’ registry requirements. tailoring of the ‘‘do-not-call’’ provisions of protecting consumers’ privacy rights FTC authority to establish a ‘‘do-not- at this time is to exempt from the ‘‘do- against an onslaught of commercial call’’ registry. Several industry members not-call’’ registry requirements solicitations, this more limited approach questioned whether the FTC had the solicitations to induce charitable does provide some privacy protection in statutory authority to establish a contributions via outbound telephone national ‘‘do-not-call’’ registry.688 They calls,683 and instead to bring charitable the context of charitable fundraising, and works better to accommodate both argued that the Telemarketing Act does solicitation telemarketing only within not mention the creation of a ‘‘do-not- the right of privacy and the right of free the ambit of the company-specific ‘‘do- call’’ registry and that, in fact, another speech. The Commission is persuaded not-call’’ regime contained in the statute (TCPA) had directed another by the arguments of Hudson Bay that original Rule.684 agency (the FCC) to explore the fundamental differences between The Commission believes that the possibility of establishing such a commercial solicitations and charitable encroachment upon consumers’ privacy registry.689 They noted that the FCC had solicitations may confer upon the rights by unwanted solicitation calls is considered such a registry and rejected company-specific ‘‘do-not-call’’ not exclusive to commercial it in 1992 in favor of a company-specific requirements a greater measure of telemarketers; consumers are disturbed approach that required consumers to tell success with respect to preventing a by unwanted calls regardless of whether those companies from which they did pattern of abusive calls from a the caller is seeking to make a sale or not wish to receive calls to place them fundraiser to a consumer than it was on the company’s ‘‘do-not-call’’ list.690 telemarketing calls to induce the purchase of goods able to produce in the context of Congress passed the Telemarketing and services are handled separately from requests commercial fundraising: not to receive calls soliciting charitable Act three years after the FCC rejected a contributions?’’ Question 5 i, 67 FR at 4539. Few When a pure commercial transaction is at national registry. As noted in the NPRM, commenters addressed this question, and those who stake, callers have an incentive to engage in the Telemarketing Act authorizes the did so expressed only the most general views, all the things that telemarketers are hated for. Commission to prescribe rules without advocating or opposing the concept of But non-commercial speech is a different bifurcation. See, e.g., NYSCPB-NPRM at 23 (‘‘[T]he ‘‘prohibiting deceptive telemarketing technical problems and costs of implementing such matter. The success of an advocacy call does acts or practices and other abusive a system might be prohibitive.’’); NCLC-NPRM at not hinge entirely on whether the recipient telemarketing acts or practices,’’ and 19; NCL-NPRM at 9; NAAG-NPRM at 20. Only decides to part with a sum of money. A specifically mandates that these rules about 100 individual consumer email comments calling center employee working for a prohibit telemarketers from undertaking received by the Commission responded to a direct citizens’ group is less interested in the question on the issue included on the Commission’s ‘‘a pattern of unsolicited telephone calls volume of calls than in effective website. A minority of these commenters (about 40 which the reasonable consumer would communication of the group’s concerns. That percent) expressed the view that the ‘‘do-not-call’’ consider coercive or abusive of such registry should not treat calls from charitable is the reason the money is needed in the first 691 fundraisers differently, while about 60 percent place, not for profit. consumer’s right to privacy.’’ Thus, expressed the view that it should do so. * * * establishment of the national ‘‘do-not- 683 ‘‘Solicitations to induce charitable In a non-commercial call the recipient is call’’ registry is squarely within the contributions via outbound telephone calls are not authority granted by the statute. covered by § 310.4(b)(1)(iii)(B) of this Rule.’’ more than a potential source of income. Section 310.6(a) of the amended Rule. Rather he or she is also a voter, a constituent, The goal in both the TCPA and 684 The comments of many non-profit or a consumer, a source of information to § 6102(a)(3) of the Telemarketing Act is charitable organizations indicate that these others, and a potential source of a future to protect consumer privacy. When organizations have a policy of maintaining a ‘‘do- contribution, even if not in the current call. Congress directed the FTC to include in not-call’’ list even though not legally required to do There is more than a sale, there is a cause so. Lautman-NPRM at 1 (‘‘[Professional fundraisers] the TSR a prohibition against a pattern use the Direct Marketing Association’s ‘do not call’ at stake. It is, therefore, self-defeating for the of unsolicited telephone calls which the database, in addition to client maintained ‘do not advocacy caller to engage in the abusive reasonable consumer would consider call’ lists.’’); HRC-NPRM at 1 (‘‘[W]e have (like most telemarketing practices that motivated the nonprofit organizations) eliminated unwanted calls draft TSR. Such a caller risks alienating the 687 See also HRC-NPRM at 1 (‘‘Most importantly, to our donors by requiring our telemarketing nonprofits are dependent upon the revenue partners to keep a ‘do-not-call’ list. We also require generated by their supporters and will do nearly them to use the Direct Marketing Association’s ‘do 685 One indication of this is that, even though the anything to honor their requests and treat them not call’ list.’’); Telefund-NPRM at 1 (‘‘Most non- FTC web page advising consumers on how to with the utmost respect.’’) profit organizations maintain lists of their own comment specifically included a direct question 688 donors who prefer to be contacted via the mail. calling attention to the possibility of a separate See, e.g., Advanta-NPRM at 2; ATA-NPRM at Telefund Inc. also maintains such a database for its database for charitable fundraisers, only about 100 6-10, 20-21; DMA-NPRM at 16-22; ERA-NPRM at clients.’’). See also ADA-NPRM at 1; American consumer email comments responded to it. A great 26-27; MPA-NPRM at 34-38; PMA-NPRM at 25-26. Rivers-NPRM at 1; Angel Food-NPRM at 1; APTS- many consumer email comments expressed the See also ARDA-Supp. at 1; ATA-Supp. at 7. NPRM at 3; Childhood Leukemia-NPRM at 1; FOP- view that unsolicited calls disturb their privacy, 689 See, e.g., DMA-NPRM at 16-22; ERA-NPRM at NPRM at 1; Italian American Police- NPRM at 1; and did not distinguish between sales calls and 26; MPA-NPRM at 34-38; PMA-NPRM at 25-26. Illinois Police-NPRM at 1; Leukemia Society-NPRM other types of solicitation calls, such as those for 690 FCC Report and Order, CC Docket No. 92-90, at 2; SO-CN-NPRM at 1; SO-CO-NPRM at 1; charities. 7 FCC Rcd 8752 at 8762-67 (Oct. 16, 1992). National Children’s Cancer-NPRM at 1; Southern 686 See generally Not-For-Profit Coalition-NPRM; 691 15 U.S.C. 6102 (a)(1) and (a)(3)(A) (emphasis Poverty-NPRM at 2; Stage Door-NPRM at 1. DMA-NonProfit-NPRM. added).

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coercive or abusive of such consumer’s provisions establishing a national ‘‘do- the accuracy and validity of the right to privacy, Congress knowingly not-call’’ registry, the national registry consumer telephone numbers added to put the FTC on the same path that the must preempt similar state the registry, and to build a system that FCC had trod three years earlier, but did requirements.696 can handle the potential volume of not mandate that the two agencies arrive At this time, the Commission does not consumer requests to be placed on the at the identical conclusion. Instead, the intend the Rule provisions establishing registry.699 Equally important, the Telemarketing Act is written broadly a national ‘‘do-not-call’’ registry to system must ensure the security of the and does not limit how the Commission preempt state ‘‘do-not-call’’ laws. information maintained in the registry. is to effectuate the Congressional Rather, the Commission’s intent is to The registry also must be easily mandate; it leaves the method of work with those states that have enacted accessible to both telemarketers and achieving the goal of protecting privacy ‘‘do-not-call’’ registry laws, as well as appropriate law enforcement agencies. to the Commission’s discretion.692 with the FCC, to articulate requirements In addition, the Commission seeks to There is nothing in the TCPA that and procedures during what it develop the system with the lowest would lead to the conclusion that the anticipates will be a relatively short possible costs. FCC was the only federal agency transition period leading to one The Commission conducted extensive authorized to create a national registry. harmonized ‘‘do-not-call’’ registry research to determine the feasibility of In fact, although Congress had passed system and a single set of compliance a national ‘‘do-not-call’’ registry and to the TCPA only three years earlier, it obligations.697 The Commission is develop a plan for implementing such a mandated in the Telemarketing Act that actively consulting with the individual registry. The NPRM asked for comment the FTC promulgate provisions similar states to coordinate implementation of on a number of specific implementation to those that the FCC had promulgated the national registry to minimize questions.700 The staff contacted the pursuant to TCPA. For example, duplication and maximize efficiency for states with their own registries, and also although FCC regulations already consumers and business. The contacted many of the contractors used restricted the times that telemarketers Commission’s goal is a consistent, by those states to develop their can call consumers,693 Section efficient system whereby consumers, in registries. On February 28, 2002, as part 6102(a)(3)(B) of the Telemarketing Act a single transaction, can register their of its research, the Commission issued directed the FTC to also include in its requests not to receive calls to solicit a Request for Information (‘‘RFI’’) to regulations a provision that would sales of goods or services, and sellers contractors capable of assisting the FTC prohibit telemarketers from making and telemarketers can obtain a single in the development, deployment, and unsolicited phone calls to consumers list to ensure that in placing calls they operation of the national registry.701 during certain hours of the day or night. do not contravene those consumers’ Thirty-six different companies Thus, Congress clearly intended to requests. In adopting the ‘‘do-not-call’’ responded to the RFI. In August 2002, provide the FTC with sufficient provisions in the amended Rule, the the Commission issued a Request for authority to remedy the problem of Commission intends to advance that Quotes (‘‘RFQ’’) to selected vendors.702 unwanted telemarketing calls by means goal. At this time, the Commission A number of those vendors have of a national registry, notwithstanding specifically reserves further action on submitted proposals and quotes to the that the FCC had earlier decided not to the issue of preemption until sufficient Commission; the agency is currently exercise its own authority to do so. time has passed to enable it to assess the evaluating those proposals.703 Interplay between the national ‘‘do- success of the approach outlined Based on all of the information not-call’’ registry and state ‘‘do-not-call’’ above.698 gathered during this process, the laws. The NPRM specifically requested Commission plans to develop a national comment on how the proposed Implementation of a National Do-Not- registry with three components: establishment of a national ‘‘do-not- Call Registry consumer registration; access to the call’’ registry should interplay with In developing an implementation plan consumer registration database by similar requirements on the state for a national ‘‘do-not-call’’ registry, the telemarketers and sellers; and law level.694 In response, NAAG and Commission has been guided by a enforcement access to both the representatives of individual states with number of concerns. Most importantly, consumer registration database and the ‘‘do-not-call’’ laws expressed concern the Commission has sought to ensure list of telemarketers and sellers who about the possible preemptive effect of have accessed the consumer registration 695 a national ‘‘do-not-call’’ registry. On 696 See, e.g., ATA-NPRM at 28-29; DMA-NPRM at database. The entire system will be fully the other hand, industry representatives 3, 14; ERA-NPRM at 34. automated to simplify the process and urged that if, despite their opposition, 697 In this regard, the Commission notes that in keep costs to a minimum. the Commission adopted TSR September 2002, the FCC published an NPRM to Consumer registration. Consumers review its TCPA regulations, including, among will be able to add their telephone other things, whether its company-specific ‘‘do-not- 692 See KENNETH CULP DAVIS & RICHARD J. call’’ requirement has been effective and whether a numbers to the national ‘‘do-not-call’’ PIERCE, JR., ADMINISTRATIVE LAW TREATISE national registry would better serve the public registry through two methods: either § 3.2 (3rd ed. 1994) (noting that agencies have the interest. See FCC TCPA 2002. through a toll-free telephone call or over power to ‘‘fill any gaps’’ that Congress either 698 See generally English v. Gen. Elec. Co., 496 expressly or implicitly left to the agency to decide U.S. 72, 78-79 (1990) (preemption can occur ‘‘where 699 Consumer interest in state ‘‘do-not-call’’ pursuant to the decision in Chevron v. Natural Res. it is impossible for a private party to comply with registries has varied from a few percent to over 40 Def. Council, 467 U.S. 837 (1984)). It is, therefore, both state and federal requirements, see, e. g., percent of all telephone lines within the state. permissible for agencies to engage in statutory Florida Lime & Avocado Growers, Inc. v. Paul, 373 700 construction to resolve ambiguities in laws U.S. 132, 142-143 (1963), or where state law ‘stands 67 FR at 4538-39. directing them to act, and courts must defer to this as an obstacle to the accomplishment and execution 701 See http://www.ftc.gov/procurement. administrative policy decision. of the full purposes and objectives of Congress.’ 702 The Commission issued the RFQ to those 693 47 CFR 64.1200(e)(1). See also discussion at 7 Hines v. Davidowitz, 312 U.S. 52, 67 (1941).’’); vendors that expressed an interest in developing the FCC Rcd at 8767-68. Crosby v. Nat’l. Foreign Trade Council, 530 U.S. national registry and that were on General Service 694 67 FR at 4539. 363, 372-73 (2000); Ass’n of Banks in Ins. v. Duryee, Administration (‘‘GSA’’) schedules to provide goods 695 See, e.g., NAAG-NPRM at 6-14; Connecticut- 270 F.3d 397, 404 (6th Cir. 2001) (where state and or services to the federal government. NPRM at 3; DC-NPRM at 4-5 (District of Columbia); federal laws are inconsistent, state law can be pre- 703 All vendor responses to both the RFI and RFQ NYSCPB-NPRM at 13-17 (New York); Texas PUC- empted even if it was enacted to protect its citizens contain confidential proprietary business NPRM at 3-4. or consumers). information and therefore cannot be made public.

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the Internet. Consumers who choose to third-party abuse, because the person Consumers who choose to register via register by phone will have to call the registering will have to be present the Internet will go to a website registration number from the telephone physically in the household with which dedicated to the registration process, line that they wish to register. Their the telephone number being registered where they will be asked to enter the calls will be answered by an Interactive is associated. telephone number they wish to register. Voice Response (‘‘IVR’’) system. After a Other commenters suggested that only Consumers will be told that they may brief introductory message, the the line subscriber or person who is register only their household or consumer will be asked to enter on his billed for the telephone line be allowed personal telephone number(s). As with or her telephone keypad the telephone to register that number in the national the telephone registration system, they number from which the consumer is registry.706 In fact, one commenter will be reminded that if they share a calling. The number entered will be suggested that the FTC should ‘‘permit household number with others, they are checked against the automatic number each adult user of the telephone to registering on behalf of all household information (‘‘ANI’’) that is transmitted prevent calls to him or herself, but not members. The Commission is with the call. If the telephone number to be able to bar all calls to all adults considering two possible methods for the consumer enters on the keypad using that telephone.’’707 The verifying consumers’ information. One matches the ANI of the line from which Commission does not believe this is a possible option is that a consumer will the consumer is calling, then the IVR realistic approach. Because numerous be asked to enter certain address system will inform the consumer that people in a household often share a information, such as his or her zip code the number is registered and the call common telephone number, the and the numeric portion of his or her will end. If the telephone number does Commission has determined that the street address, which the system would not match, the IVR system will advise decision to be part of the ‘‘do-not-call’’ then check against a national database the consumer to call back from the registry does not rest with the line to ensure that it matches the telephone telephone the consumer wishes to subscriber (or any single resident) alone. number provided. The second possible register. In the small percentage of calls In such a shared-number situation, the option is that the consumer will be in which ANI is not available, the privacy rights of all are affected by asked to enter his or her email address; system will offer other verification unwanted telemarketing calls. Thus, the the system will send a confirming email options. decision to register the household to that address, and the consumer will Using this process, the Commission telephone number in the national then have to respond to reconfirm his or will verify, at a minimum, that each registry is a joint decision of all her registration decision. consumer is calling from a telephone household members. The Commission’s The Commission will use one or both line assigned the number the consumer telephone registration system will of these verification methods for is attempting to register. The accept the registration from any member Internet registrations. Such verification Commission has determined that this is of the household, but will remind processes will enhance the likelihood sufficient verification for the limited consumers that they are registering on that individuals will register their own purposes involved here — ensuring that behalf of all household members.708 telephone numbers. If the email a telephone number in the national verification process is used, the registry was entered by someone in the 706 See, e.g., DialAmerica-NPRM at 13; Nextel- Commission will also develop household to which that telephone NPRM at 26. procedures to prevent large numbers of 707 AFSA-NPRM at 8. 704 registrations from being confirmed number is assigned. A number of 708 Several commenters supported allowing any commenters stated that the FTC should household member to register the household through the same email account. Once prohibit third parties from registering telephone number. See, e.g., NCL-NPRM at 9 (allow again, the Commission has determined consumers’ preferences not to receive registration requests to be made by the line that these are sufficient verification subscriber, spouse, roommate, care giver, or others procedures for the limited purpose of telemarketing calls with the national with a legitimate interest). One telemarketer that ‘‘do-not-call’’ registry, citing concerns calls on behalf of non-profit organizations opposed adding telephone numbers to the that such third-party registrations could this view, commenting that ‘‘each person has an national ‘‘do-not-call’’ registry, and lead to abuse.705 The Commission individual, separate constitutional right to speak should help prevent the potential and be in association with other like-minded abuses cited concerning massive third- agrees that third-party registrations people, and the groups to which they belong also should not be permitted, and believes have the right to contact their members and the party registrations. that the verification procedures to be public at large. When dealing with fully protected, established for telephone registrations non-commercial speech, any do-not-call list that specific entities to receive telemarketing calls from keeps track only of numbers, rather than names and them, regardless of their national registry status, will prevent these potential types of numbers, needs some way to be certain that pursuant to § 310.4(b)(1)(iii)(B)(i) of the amended everyone who is lawfully and regularly reached at Rule. The Commission notes that the ‘‘do-not-call’’ 704 Unlike the Commission’s cases challenging the a telephone number has consented to be cut off provisions will not ‘‘cut off’’ individuals from unauthorized billing of goods or services to from the organizations to which they belong.’’ organizations or sellers because it will not foreclose consumers’ telephone numbers based solely on ANI Hudson Bay-Goodman-NPRM at 13 (emphasis other means of communication with any member of verification, see, e.g., FTC v. Verity Int’l, Ltd., No. omitted). As an initial matter, non-commercial the household, such as by conventional mail, email, 00 Civ. 7422 (LAK) (S.D.N.Y. 2000); FTC v. speech is not covered by the national ‘‘do-not-call’’ or door to door solicitation. The ‘‘do-not-call’’ American TelNet, Inc., No. 99-1587 CIV:KING (S.D. provisions of the amended Rule. See amended Rule provisions are strongly analogous to laws requiring Fla. 1999), the verification process needed to ensure § 310.6(a) (exempting solicitations to induce solicitors to honor a ‘‘no solicitation’’ sign posted the validity of numbers in the national registry is charitable contributions via outbound telephone by a homeowner, which the Supreme Court has much less stringent. Here, only the right not to calls from § 310.4(b)(1)(iii)(B) of the Rule). approved in such cases as Martin v. Struthers, 319 receive unwanted telemarketing calls is being Moreover, the Commission has determined that to U.S. 141 (1941), involving ‘‘a form of regulation . asserted; the line subscriber is not incurring charges accomplish its privacy protection objectives, there . . which would make it an offense for any person for goods and services, possibly purchased by is no workable alternative to allowing any member to ring the bell of a householder who has unauthorized third parties, based on ANI of a household to exercise the ‘‘do-not-call’’ rights appropriately indicated that he is unwilling to be information. of the entire household using a shared telephone disturbed.’’ According to the Court, ‘‘[t]his or any 705 See, e.g., DialAmerica-NPRM at 13; number. Households in which one member wants similar regulation leaves the decision as to whether Household-NPRM at 13; Texas PUC-NPRM at 2; to sign up with the national ‘‘do-not-call’’ registry distributers of literature may lawfully call at a home PMA-NPRM at 29. NAAG also cited recent state and another does not have the option of subscribing where it belongs—with the homeowner himself. A cases against companies that have deceptively to an additional telephone line that is not on the city can punish those who call at a home in offered to add consumers’ numbers, for a fee, to registry and may therefore receive telemarketing defiance of the previously expressed will of the ‘‘do-not-call’’ lists. See NAAG-NPRM at 19, n.47. calls, or they can provide express authorization to occupant.. . .’’ Id. at 148.

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For both telephone and Internet the national registry.712 A number of provisions, telemarketers and sellers registrations, the only personal commenters stated that 16 percent of all must gain access to the telephone identifying information that will be telephone numbers change each year, numbers in the national registry so that maintained by the national ‘‘do-not- and that 20 percent of all Americans they can ‘‘scrub’’ their call lists to call’’ registry will be the consumer’s move each year.713 Unless the system eliminate the telephone numbers of telephone number. Based on our includes a process to counteract this consumers who have registered a desire discussions with the states, that appears effect, numbers in the national registry not to be called. For the telemarketer to be the only piece of information that that have been disconnected and then and seller access component of the is needed by telemarketers.709 reassigned to other line subscribers registry, the Commission plans to Moreover, the Commission has would remain in the registry even develop a fully-automated, secure determined that it has no need for though those line subscribers to whom website dedicated to providing this consumer names or addresses in the the numbers are reassigned may not information to telemarketers and sellers. registry.710 Thus, the Commission will object to receiving telemarketing calls. The first time a telemarketer or seller not collect that information. To guard against this possibility, the accesses the system, the company will Consumers will be able to verify or system will include a procedure to be asked to provide certain limited cancel their registration status using periodically check all telephone identifying information, such as either the telephone or Internet. The numbers in the national registry against company name and address, company same verification procedures national databases, and those telephone contact person, and the contact person’s established for the initial registration numbers that have been disconnected or telephone number and email address. If will apply to these requests as well. reassigned will be purged from the a telemarketer is accessing the registry Allowing consumers to verify their registry. This procedure will help on behalf of a client seller, the registration status and to cancel their maintain the accuracy of the national telemarketer will also need to identify registrations if they so wish offers yet registry, while limiting the number of that client. another method to enhance the accuracy times consumers must go through the The only consumer information of the national registry. registration process.714 The Commission telemarketers and sellers will receive The Commission has determined that believes that a five-year registration from the national registry is the consumer registrations will remain valid period coupled with the periodic registrants’ telephone numbers. Those for five years, with the registry purging of disconnected telephone telephone numbers will be sorted and periodically being purged of all numbers from the registry adequately available by area code. Telemarketers numbers that have been disconnected or balances, on the one hand, the need to and sellers will be able to access as reassigned. The Commission wishes to maintain a high level of accuracy in the many area codes as desired, by minimize the inconvenience to national registry and, on the other hand, selecting, for example, all area codes consumers entailed in periodically re- the onus on consumers to periodically within a certain state or region of the registering their preference not to re-register their telephone numbers. country. Of course, telemarketers and 711 receive telemarketing calls. However, Access to consumer registration sellers will also be able to access the the Commission is also aware that the information. To comply with the entire national registry, if desired. length of time registrations remain valid amended Rule’s ‘‘do-not-call’’ When a seller or telemarketer first directly affects the overall accuracy of submits an application to access registry 712 Commenters citing this concern over the information, the company will be asked 709 In fact, based on discussions between the accuracy of the national registry reached various states and the Commission staff, it appears that in conclusions concerning the time period for which to specify the area codes that they want 715 states where additional information is provided to registrations remain should remain valid. Some to access. Each company accessing telemarketers, the states have received requests to suggested registrations remain valid for only one the registry data will be required to pay strip their lists of all information except the year. See DialAmerica-NPRM at 13; NCTA-NPRM at an annual fee for that access, based on 16; Nextel-NPRM at 26. Others stated that telephone number. the number of area codes of data the 710 Some commenters stated that the Commission registrations should remain valid for two years, 716 would have to collect consumers’’ names, addresses unless the Commission can ensure greater accuracy company accesses. Fees will be and telephone numbers for the national registry to through some purging process. See NRF-NPRM at payable via credit card (which will remain accurate. See, e.g., NAA-NPRM at 12; 18; PMA-NPRM at 29. Still others suggested that a permit the real-time transfer of data) or Household-NPRM at 13. Another stated that to keep five-year registration period is sufficient. See the registry accurate, ‘‘the Commission must be NAAG-NPRM at 18; Household-NPRM at 13. State electronic funds transfer (which will prepared to accept a data stream from every local registration periods vary from one year to five years, require the telemarketer or seller to wait exchange carrier in the country on a daily basis.’’ while, as stated in the previous footnote, fourteen approximately one day for the funds to SBC-NPRM at 11. The Commission has learned that states impose no expiration on consumer clear before data access will be this is not necessarily true. National databases with registrations. Three states require consumers to sufficient accuracy that contain only telephone renew their registration annually (Arkansas, provided). numbers now exist, permitting the Commission to Florida, and Oregon). Two states (Georgia and After payment is processed, the purge a telephone number from the national registry Wisconsin) have a two-year registration, and two telemarketer or seller will be given an when that number is disconnected or the party in others (Texas and Idaho) have registrations that are account number and permitted access to good for three years. Six states require consumers whose name the number is registered changes. the appropriate portions of the registry. 711 Consumer inconvenience includes not just to re-register after five years (Connecticut, Illinois, their time and effort necessary to register, but also Kansas, Maine, Vermont, and Wyoming). their need to remember when it is time to re- 713 See DMA-NPRM at 12; Nextel-NPRM at 26; 715 They will be able to amend the list of area register. Of course, requiring frequent consumer re- Household-NPRM at 13; SBC-NPRM at 11. Of codes for which they seek data on future visits, registrations also increases the costs of operating course, not all consumers who move change their provided they pay the appropriate fee for the the national registry. Several commenters supported telephone numbers. For consumers who keep their additional area codes. allowing registrations to continue indefinitely, until existing telephone numbers when they move, no 716 On May 29, 2002, the Commission issued a the consumer’s phone number is disconnected or he action by either the consumer or the Commission Notice of Proposed Rulemaking to add a new requests that his number be removed. See, e.g., New is necessary to maintain the registry’s accuracy. section 310.9 to the Rule, which would establish a Orleans at 9; NCL at 9. In addition, 14 states with 714 The DMA TPS is operated in a similar manner. ‘‘user fee’’ for telemarketer access to the national ‘‘do-not-call’’ registries do not specify a renewal TPS registrations remain valid for five years. During do-not-call registry. 67 FR. 37362. After reviewing period for registrations in their ‘‘do-not-call’’ that five-year period, the DMA checks the the comments received in response to that NPRM, statutes (Alabama, Alaska, California, Colorado, information in the TPS against the U.S. Postal the Commission has decided that it will issue a Indiana, Kentucky, Louisiana, Massachusetts, Service’s National Change of Address List, purging revised NPRM seeking additional comment on the Minnesota, Missouri, New York, Oklahoma, the telephone numbers of those registered fee issue in the near future. Section 310.8 of the Pennsylvania, and Tennessee). consumers who have moved. DMA-NPRM at 7, 12. amended Rule has been reserved for the fee section.

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That account number will be used in anticipates allowing telemarketers and the sixth month after the contract is future visits to the website, to shorten sellers to access that consumer awarded, allowing themselves sufficient the time needed to gain access. On registration information through one time to scrub their calling lists before subsequent visits to the website, visit to a national website, developed for placing outbound telemarketing calls in telemarketers and sellers will be able to that purpose. the seventh month after the date the download either an entire updated list To further those goals, the contract is awarded. of numbers from their selected area Commission will allow all states, and As stated below in the Effective Date codes, or a more limited list, consisting the DMA if it so desires, to download section, in the future the Commission only of additions to or deletions from into the national registry—at no cost to will announce the date by which full the registry that have occurred since the the states or the DMA—the telephone company’s last download. This would numbers of consumers who have compliance with the national ‘‘do-not- limit the amount of data that a company registered with them their preference call’’ registry provisions of the amended needs to download during each visit. not to receive telemarketing calls. Rule will be required. As noted Telemarketers and sellers will be Telemarketers and sellers will be elsewhere in this document, full permitted to access the registry as often allowed to access that data through the compliance with all other provisions of as they wish for no additional cost, once national registry as the information is the amended Rule—with the exception the annual fee has been paid. As received. of the Caller ID provision indicated in the discussion of Section It will take some time to achieve these (§ 310.4(a)(7))—will be required by the 310.4(b)(3)(iv), however, the Rule goals completely, however. Some states date on which the amended Rule is requires a seller or a telemarketer to will be able to transfer their state ‘‘do- effective, March 31, 2003. Full employ a version of the ‘‘do-not-call’’ not-call’’ registration information, and compliance with the Caller ID registry obtained from the Commission will cease requiring telemarketers to provisions will be required by January no more than three months prior to the access the state registries, by the time 29, 2004. date any telemarketing call is made. telemarketers first gain access to the Law enforcement access to the national registry. For other states, it may § 310.4(b)(1)(iv) — Abandoned calls & registry. Any law enforcement agency take from 12 to 18 months to achieve § 310.4(b)(4) — Safe harbor for that has responsibility to enforce either those results. At least one state, Indiana, abandoned calls may need up to three years before it can the Rule or any state do-not-call statute In the NPRM, the Commission become part of the national system. In or regulation will be permitted to access explained that ‘‘abandoned calls’’ appropriate information in the national any event, the Commission will violate § 310.4(d) of the original Rule registry. This information will be continue to work diligently with the because such calls failed to provide the provided through a secure Internet states in an effort to harmonize these requisite prompt disclosures.718 In website, with access obtained through different systems. the Commission’s existing Consumer Implementation time line. As stated providing this explanation, the Sentinel system. Law enforcers will be above, the Commission has issued an Commission noted that ‘‘abandoned able to query the registry to determine RFQ to vendors to develop and operate calls’’ include two distinguishable if and when a particular telephone a national ‘‘do-not-call’’ registry. The scenarios: ‘‘hang up’’ calls, in which number was registered by a consumer. implementation time line for the telemarketers hang up on consumers They will also be able to query if and registry begins on the date the contract whom they have called without when a particular telemarketer or seller is awarded to a vendor in response to speaking to them; and ‘‘dead air’’ calls, accessed the registry, and the that RFQ. The Commission anticipates in which there is a prolonged period of information accessed by that awarding the contract as soon as the silence between the consumer’s telemarketer or seller. Such law agency receives appropriate authority answering a call and the connection of enforcement access to data in the and funding from Congress to begin that call to a sales representative.719 The national registry is critical to enable building the national registry. record shows that both types of state Attorneys General and other Consumers will be allowed to begin to abandoned calls arise from the use of appropriate law enforcement officials to register their preference not to receive predictive dialers, which promote gather evidence to support enforcement telemarketing calls approximately four telemarketers’ efficiency by calling actions under the Telemarketing and months after a contract for the national multiple consumers for every available Consumer Fraud and Abuse Prevention ‘‘do-not-call’’ registry is awarded. To sales representative.720 Doing so Act,717 and, as discussed below, once avoid an unmanageable surge of calls maximizes the amount of time harmonization between the national when the national registry is initially representatives spend speaking with registry and state do-not-call programs opened, the Commission anticipates consumers and minimizes the amount has been completed, to support law phasing in registry availability to of time representatives spend waiting to enforcement action under state law as consumers one geographic region at a reach a prospective customer.721 An well. time throughout the United States over inevitable ‘‘side effect’’ of predictive Harmonization of various do-not-call a period of approximately two months. dialers’ functionality is that the dialer registries. As discussed above, the Telemarketers and sellers will be given will reach more consumers than can be Commission is working with the states access to the telephone numbers in the connected to available sales to develop a single, national ‘‘do-not- national registry approximately six call’’ registry. The Commission months after the contract is awarded. 718 67 FR at 4524. envisions allowing consumers The effective date for the ‘‘do-not-call’’ 719 67 FR at 4522. throughout the United States to register provisions of the amended Rule will be 720 ABA-NPRM at 12; ATA-NPRM at 32; CADM- their preference not to receive approximately seven months after the NPRM at 3; DialAmerica-NPRM at 22; Pelland- telemarketing calls in a single date the contract to develop and NPRM at 2; Sytel-NPRM at 3; Miller Study at 13; transaction with one governmental implement the system is awarded. Thus, http://www.predictive-dialers.com/home/faq.html. 721 ATA-NPRM at 31; ERA-NPRM at 41; MPA- agency. In addition, the Commission to comply with the amended Rule, NPRM at 31; NAA-NPRM at 14; Private Citizen- telemarketers will need to obtain the list NPRM at 3; PMA-NPRM at 30; TeleDirect-NPRM at 717 15 U.S.C. 6101 et seq. of registered telephone numbers during 2.

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representatives.722 In those situations, or telemarketer’s conduct meets certain ‘‘prank call.’’733 However, the the dialer will either disconnect the call specified standards designed to Commission is persuaded that a total or keep the consumer connected in case minimize call abandonment. These ban on abandoned calls, which would a sales representative becomes standards are: (1) the seller or amount to a ban on predictive dialers, available.723 telemarketer must employ technology would not strike the proper balance According to one consumer that ensures abandonment of no more between addressing an abusive practice organization, the Rule’s prohibition on than three percent of all calls answered and allowing for the use of a technology abandoned calls as set forth in the by a consumer, measured per day per that provides substantially reduced NPRM addresses ‘‘one of the most calling campaign; (2) the seller or costs for telemarketers. At the June 2002 invasive practices of the telemarketing telemarketer must allow each Forum, one telemarketing group posited industry.’’724 ‘‘Hang up’’ calls and telemarketing call placed to ring for at that consumers who make purchases via ‘‘dead air’’ frighten consumers,725 least fifteen seconds or four complete the telephone ultimately benefit from invade their privacy,726 cause some of rings before disconnecting an these reduced costs in the form of lower them to struggle to answer the phone unanswered call; (3) whenever a sales prices.734 Therefore, taking into account only to be hung up on,727 and waste the representative is not available to speak the record as a whole, and arguments time and resources of consumers with the person answering the call raised by both sides of this issue, the working from home.728 within two seconds of that person’s Commission has determined to prohibit The amended Rule prohibits completed greeting, the seller or abandoned calls from continuing abandoning outbound telephone calls, telemarketer must promptly play a without regulation, and has created but constructs a safe harbor allowing recorded message; and (4) the seller or requirements that, in effect, closely telemarketers to continue using telemarketer must retain records, in govern the use of predictive dialers. predictive dialers in a regulated manner. accordance with § 310.5(b)-(d), Under this approach, consumers will Under § 310.4(b)(1)(iv), an outbound establishing compliance with benefit from a substantial reduction in telephone call is abandoned if, once the § 310.4(b)(4)(i)-(iii). the number of abandoned calls they call has been answered by a consumer, Telemarketers voiced strong objection receive,735 but telemarketers will not be the telemarketer fails to connect the call to the NPRM discussion of abandoned deprived of a large part of the efficiency 729 to a sales representative within two calls as violative of § 310.4(d), and benefits that accrue from the use of seconds of the consumer’s completed argued that this interpretation would in predictive dialers.736 The Commission greeting. (As explained herein, ‘‘hang effect ban the use of predictive also notes that the amended Rule’s 730 up’’ calls and delays of more than two dialers, causing the loss of efficiency establishment of a national ‘‘do-not- seconds before connecting the call to a benefits that arise from the use of call’’ registry should significantly 731 sales representative are prohibited by predictive dialers. The Commission reduce the number of calls received by this section of the Rule.) The is mindful of the benefits of increased consumers who place their numbers on Commission’s prohibition of abandoned efficiency, but believes that the the registry, thereby reducing the calls is authorized by § 6102(a)(3)(A) of increased efficiency of predictive dialers number of abandoned calls these the Telemarketing Act, which directs must be balanced against the abusive consumers must contend with as well. the Commission to prohibit nature of abandoned calls. The abuses of ‘‘Abandoned call’’: Section telemarketers from undertaking a abandoned calls were delineated in the 310.4(b)(1)(iv) of the amended Rule pattern of unsolicited telephone calls 732 NPRM and elsewhere in the record. defines a prohibited abandoned which the reasonable consumer would As NAAG asserted at the June 2002 outbound call as one in which the consider coercive or abusive of such Forum, an abandoned call is basically a recipient of the call answers the call, consumer’s right to privacy, and by and the telemarketer does not connect § 6102(a)(3)(C), which directs the 729 ABA-NPRM at 12; ACA-NPRM at 9; ATA- the call to a sales representative within Commission to require telemarketers to NPRM at 30; Associations-NPRM at 3; Capital One- NPRM at 6; DialAmerica-NPRM at 24-25; DMA- two seconds of the person’s completed promptly and clearly disclose certain NPRM at 44; ERA-NPRM at 40-41; Gannett-NPRM greeting. This definition of abandoned material information. Section 6102(a)(3), at 4; Infocision-NPRM at 6-7; Metris-NPRM at 10; call covers ‘‘dead air’’ and ‘‘hang up’’ which directs the Commission to MPA-NPRM at 29-30; NAA-NPRM at 13, 15; Time- calls, in which the telemarketer hangs consider recordkeeping requirements in NPRM at 11; Tribune-NPRM at 9. 730 up on a called consumer without prescribing rules regarding deceptive June 2002 Tr. I at 211 (CCC); ABA-NPRM at 12; Advanta-NPRM at 4; Aegis-NPRM at 5; AFSA- connecting that consumer to a sales and abusive telemarketing acts or NPRM at 16; Capital One-NPRM at 6; Gannett- representative. This approach to practices, is the authority for the NPRM at 4; Household Auto-NPRM at 12; ICT- abandoned calls clarifies several issues required recordkeeping related to NPRM at 2; PMA-NPRM at 30; PCIC-NPRM at 2; raised by telemarketers in the record. predictive dialers. VISA-NPRM at 12; Miller Study at 14. But see EPIC- NPRM at 23. The amended Rule removes any Section 310.4(b)(4), the amended 731 ACA-NPRM at 8-9; ARDA-NPRM at 15; ANA- possibility of doubt that a call placed by Rule’s safe harbor provision, provides NPRM at 6; ATA-NPRM at 31; BofA-NPRM at 9; a telemarketer is an outbound telephone that the Commission will refrain from BRI-NPRM at 3; Discover-NPRM at 6; Fleet-NPRM call within the meaning of the Rule, bringing a Rule enforcement action at 6; FPIR-NPRM at 2; Household Auto-NPRM at 11- 12; ICT-NPRM at 2; ITC-NPRM at 2-3; KeyCorp- even if the telemarketer hangs up on the against a seller or telemarketer based on NPRM at 6; Marketlink-NPRM at 3; MPA-NPRM at called consumer without speaking to violations of § 310.4(b)(1)(iv) if the seller 8; NAA-NPRM at 14; Noble-NPRM at 4; NATN- NPRM at 4; NSDI-NPRM at 4; SHARE-NPRM at 4; him or her, or subjects the called 722 June 2002 Tr. I at 211 (CCC); Time-NPRM at Synergy Solutions-NPRM at 4; Technion-NPRM at consumer to dead air. The Rule’s 11; ATA-Supp. at 11; Miller Study at 13-14. 5; TeleDirect-NPRM at 2; Teleperformance-NPRM at disclosure requirement is triggered once 3; TRC-NPRM at 4; TeleStar-NPRM at 2; Time- 723 NASUCA-NPRM at 12-13; Sytel-NPRM at 4-7; a recipient of a telemarketing call NPRM at 10; Allstate-Supp. at 2; Miller Study at 15. ATA-Supp. at 11; Miller Study at 13-14. See also Citigroup-NPRM at 10; IMC-NPRM at 7 724 PRC-NPRM at 3. (Predictive dialers enhance dialing accuracy); NAA- 733 June 2002 Tr. II at 27 (NAAG). See also 725 67 FR at 4523. NPRM at 7 (Predictive dialers help with ‘‘do not NAAG-NPRM at 47; McKenna-Supp. at 2. 726 AARP-NPRM at 9. call’’ compliance). 734 June 2002 Tr. I at 212-13 (CCC). But see June 727 67 FR at 4523; Texas PUC-NPRM at 5; 732 67 FR at 4522-24; AARP-NPRM at 9; NAAG- 2002 Tr. I at 222-23 (EPIC). Worsham-NPRM at 5. NPRM at 47; NACAA-NPRM at 10; PRC-NPRM at 735 AFSA-NPRM at 16; Sytel-NPRM at 7-8. 728 PRC at 3. 3. 736 See KeyCorp-NPRM at 6; PCIC-NPRM at 2.

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answers the phone.737 This approach is Accordingly, the Commission has argument, ATA took the most extreme consistent with the treatment of this clarified, in § 310.4(b)(1)(iv), that an position, arguing against any regulation issue in the NPRM.738 The Commission outbound call is ‘‘abandoned’’ if, once of abandonment rates.746 The rejects the argument, advanced by ACA, answered by a consumer, it is not Commission rejects this position in light ATA, DMA, and ERA, that abandoned connected to a sales representative of the record of conduct affiliated with calls cannot be regulated by the Rule within two seconds of the consumer’s abandoned calls and predictive dialers because they are not ‘‘outbound completed greeting (i.e., no more than under the current regulatory scheme.747 telephone calls.’’739 If this theory were two seconds of ‘‘dead air’’).743 As was Other industry comments recommended valid, telemarketers could abuse explained above, this definition of that the Commission set a ‘‘reasonable’’ consumers in a variety of ways without ‘‘abandoned call’’ also includes or ‘‘acceptable’’ abandonment rate above violating the Rule as long as they did situations in which the telemarketer zero percent that would curb abuses not also engage in a sales pitch. That hangs up on a consumer who has while allowing use of predictive dialers interpretation and that result are answered the telemarketer’s call without to continue.748 A third group of contrary to the overall purpose and connecting that call to a sales telemarketers argued that the intent of the Telemarketing Act and representative. Commission’s abandonment rate should plainly at odds with the Rule’s Abandoned call ‘‘safe harbor’’: The be consistent with DMA’s current definition of ‘‘outbound telephone call’’ abandoned call safe harbor consists of guideline, which calls for an and with the Rule generally. A four components, each of which is abandonment rate no higher than five telemarketer initiates a telephone call by supported by record evidence. A seller percent.749 Consumer groups and law causing the called consumer’s telephone or telemarketer will not be deemed to enforcement representatives advocated to ring. Abandoning the call after the have violated § 310.4(b)(1)(iv) by strongly for a zero abandonment rate.750 consumer answers but before the sales abandoning calls, provided that the Taking all of these viewpoints into representative begins a sales pitch is an seller or telemarketer can show that its account, the Commission has concluded abusive telemarketing act or practice. conduct conforms to the standards that neither extreme strikes the right Certainly this is the type of practice that specified in this safe harbor. balance on this issue. The Commission prompted Congress, in the Under the first subsection of the safe believes that a maximum abandonment Telemarketing Act, to direct the harbor, the seller or telemarketer must rate of three percent strikes a reasonable Commission to prohibit telemarketers employ technology that ensures balance between curbing a very abusive from undertaking ‘‘a pattern of abandonment of no more than three practice and preserving some of the unsolicited telephone calls which the percent of all calls answered by called substantial economic benefits that reasonable consumer would consider consumers. The safe harbor’s three accrue from the use of predictive coercive or abusive of such consumer’s percent abandonment rate is measured dialers. Two telemarketers essentially right to privacy.’’740 The record contains per day per calling campaign. The ‘‘per supported this abandonment rate as ample evidence that consumers find day per campaign’’ unit of measurement being ‘‘feasible, realistic’’ and ‘‘fully abandoned calls to be coercive or is consistent with DMA’s guidelines capable’’ of being achieved.751 ATA abusive of their privacy rights.741 addressing its members’ use of asserted that the three percent standard 744 ATA, in its comment and at the June predictive dialer equipment. Under would result in ‘‘a significant drop in 2002 Forum, requested guidance from this standard, a telemarketer running efficiency’’ among some of its the Commission on how ‘‘abandoned two or more calling campaigns members.752 Sytel, a leading provider of 742 call’’ would be defined in the Rule. simultaneously cannot offset a six predictive dialer technology, urged the percent abandonment rate on behalf of Commission not to set a rate below three 737 The safe harbor, which, among other things, one seller with a zero percent directs how long telemarketers must allow a called abandonment rate for another seller in 746 consumer’s telephone to ring before disconnecting ATA-NPRM at 33; ATA-Supp. at 14. See also the call, addresses telemarketers’ practices before order to satisfy the Rule’s safe harbor TeleDirect-NPRM at 2. the consumer answers the phone. provision. Each calling campaign must 747 67 FR at 4522-23. In the present environment, 738 67 FR at 4524. record a maximum abandonment rate of telemarketers have engaged in predictive dialer 739 ACA-NPRM at 9-10; ATA-NPRM at 30; DMA- practices that frighten, disturb, and aggravate three percent per day to satisfy the safe consumers. See, e.g., June 2002 Tr. II at 17-18 NPRM at 43-44; ERA-NPRM at 40. DMA, ERA, and harbor. PMA argued that the FTC lacks authority to regulate (AARP); June 2002 Tr. II at 21 (NAAG); June 2002 telemarketers’ use of predictive dialer technology. What constitutes an ‘‘acceptable’’ Tr. II at 22 (DialAmerica). [See DMA-NPRM at 4, 42-48; ERA-NPRM at 38-40; abandonment rate was the subject of 748 BofA-NPRM at 9; Citigroup-NPRM at 10; ITC- PMA-NPRM at 29-30.] Specifically, DMA, ERA, and substantial comment on the record. A NPRM at 3; KeyCorp-NPRM at 6; MasterCard-NPRM PMA argued that the FCC has authority to regulate number of telemarketers urged the at 13; Time-NPRM at 11. automatic telephone dialing systems through the 749 http://www.the-dma.org/library/guidelines/ TCPA. But nothing in the TCPA limits the authority Commission to alter the position dotherightthing.shtml#38; ABA-NPRM at 12; AFSA- of the FTC under the Telemarketing Act. The Rule’s implied in the NPRM that the NPRM at 16; ARDA-NPRM at 16; CBA-NPRM at 10; regulation of abandoned calls falls squarely within appropriate standard is a zero percent Citigroup-NPRM at 10; Discover-NPRM at 6; ERA- the FTC’s authority to regulate abusive abandonment rate.745 Among industry NPRM at 43; MPA-NPRM at 8, 32-33; June 2002 Tr. telemarketing acts or practices under the II at 24 (ERA). See also NAA-NPRM at 15; PMA- Telemarketing Act. As the Commission stated in the representatives who advanced this NPRM at 31; ERA-Supp. at 22-23; MPA-Supp. at 6, NPRM, the harm to consumers that arises from 23; NAA-Supp. at 2; Miller Study at 2. But see abandoned calls is very real and falls within the 743 DialAmerica-NPRM at 19; Sytel, Outbound NASUCA-NPRM at 14; Tribune-NPRM at 9. areas of abuse that the Telemarketing Act explicitly Focus Issue 16, http://www.outboundfocus.com. 750 EPIC-NPRM at 22-23; NAAG-NPRM at 47; aimed to address. [See 67 FR at 4524.] The 744 See http://www.the-dma.org/library/ NASUCA-NPRM at 14; NCL-NPRM at 11; PRC- Commission therefore rejects the argument offered guidelines/dotherightthing.shtml#38. See also NPRM at 3; Private Citizen-NPRM at 4; June 2002 by DMA, ERA, and PMA that it lacks the legal MBNA-NPRM at 8. But see ATA-NPRM at 35: Tr. I at 220 (Junkbusters). See also Horick-NPRM at authority to address call abandonment in the TSR. Commenter advocated a unit of measurement 1; McKenna-Supp. at 2. But see McClure-NPRM at 740 15 U.S.C. 6102(a)(3)(A). incorporating ‘‘a broad period of time’’ to allow for 1. 741 AARP-NPRM at 8-9; EPIC-NPRM at 23; Private variances in abandonment rates caused by such 751 PCIC-NPRM at 2; Aegis-NPRM at 5. See also Citizen-NPRM at 4; McKenna-Supp. at 2. See also factors as the time of day a call is placed; ERA- ARDA-Supp. at 1: ‘‘A rate between three and five Pelland-NPRM at 2. NPRM at 44; MPA-NPRM at 30, 32; NAA-NPRM at percent is reasonable.’’ 742 ATA-NPRM at 34; June 2002 Tr. II at 38 15; PMA-NPRM at 31; ERA-Supp. at 24. 752 June 2002 Tr. II at 49 (ATA). See also ATA- (ATA). See also Convergys-NPRM at 6; MPA-NPRM 745 DialAmerica-NPRM at 24; NAA-NPRM at 15; Supp. at 15; Associations-Supp. at 6-7; ERA-Supp. at 32-33. PMA-NPRM at 31. at 23; MPA-Supp. at 23; NAA June 28-Supp. at 2.

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percent to allow for continuing use of call.760 This ring time standard will give amended Rule provision allows two predictive dialers.753 The three percent consumers, including the elderly or seconds of dead air before a call standard is also consistent with the infirm who may struggle to get to the answered by a consumer will be California Public Utilities Commission’s telephone, a reasonable opportunity to considered ‘‘abandoned.’’ Interim Opinion regarding predictive answer telemarketing calls while Consumers on the receiving end of dialer use and abandoned calls.754 preventing the undesirable result of dead air may wonder if ‘‘someone is The second component of the consumers’ privacy being disrupted by waiting to get into my home when I’m abandoned call safe harbor addresses ringing phones with no caller present on away, or . . . determining when I’m ‘‘ring time’’ or ‘‘early hang ups.’’ the other end of the line. home alone.’’768 The Commission According to Sytel, some telemarketers The third component of the believes it is not so much the pause that using predictive dialers may disconnect abandoned call safe harbor requires frightens consumers, it is the silence. By calls to consumers after allowing the telemarketers to play a recorded playing a recorded message giving the phone to ring for only a very short message whenever a sales representative name and telephone number of the period of time before hanging up, is not available to speak with a seller responsible for the call, the fear without giving consumers a reasonable consumer within two seconds of the generated by telemarketers’ dead air is opportunity to answer the phone; these consumer’s completed greeting. The substantially mitigated, and disconnected calls are not considered silence that consumers face when the telemarketers are able to continue using ‘‘abandoned’’ by predictive dialers.755 sales representative is unavailable and predictive dialer technology.769 Employing a short ‘‘ring time’’ is yet does not respond after the consumer The ‘‘recorded message’’ component another way for telemarketers to says, ‘‘hello’’, is ‘‘dead air.’’761 The of the safe harbor must be read in maximize the efficiency of their sales recorded message will significantly tandem with the prohibition of representatives; the predictive dialer mitigate the problems associated with abandoned calls, under which calls many more consumers than the ‘‘dead air’’ by identifying the caller telemarketers must connect calls to a telemarketer can handle to minimize the responsible for the extended silence. sales representative within two seconds chance that a sales representative will According to the record amassed in of the consumer’s completed greeting to remain idle.756 This kind of call is this proceeding, dead air is an avoid a violation of the Rule. Clearly, abusive of a consumer’s right to privacy, unavoidable feature of predictive telemarketers cannot avoid liability by as consumers’ lives at home are dialers.762 Some dead air in connecting calls to a recorded interrupted without any benefit or telemarketing calls is caused by solicitation message rather than a sales purpose whatsoever. One runs to the answering machine detection (‘‘AMD’’): representative. The Rule distinguishes phone only to have it stop ringing before consumers are met with silence as the between calls handled by a sales one can pick it up; or answers it only dialer determines whether the call was representative and those handled by an to find no one there. Surprisingly, one answered by a person or an answering automated dialing-announcing commenter, MPA, actually argued in machine.763 Dead air also results when device.770 The Rule specifies that favor of allowing telemarketers to hang the dialer waits for a sales telemarketers must connect calls to a up after one ring if no sales representative to become available to sales representative rather than a representatives were available to handle speak with the called consumer.764 recorded message.771 the call.757 Sytel recommends that the Sytel argued in favor of setting a The record reflects a range of views Commission follow DMA guidelines on maximum dead air standard of two regarding the prospect of using recorded predictive dialers, which recommend seconds.765 DMA’s predictive dialer messages in telemarketing. A consumer allowing the phone to ring at least four guidelines also set a two second advocacy group, a law enforcement times or for twelve seconds before maximum for dead air.766 This standard body, and some telemarketers expressed disconnecting the call.758 Sytel stated is consistent with the recent CPUC support for recorded messages as a way that the practice of ‘‘early hangups’’ is Interim Opinion governing predictive to mitigate the abuses arising from dead widespread, and it urged the dialers.767 Based on the record air.772 Others opposed requiring the use Commission to set a ‘‘ring time’’ established on this issue—that use of of recorded messages.773 DMA opposed standard that allows consumers a predictive dialers inevitably entails it based on the assumption that reasonable length of time to answer the some dead air and that two seconds of telemarketers’ messages would need to phone.759 The Commission has dead air allows predictive dialers to include all of the prompt disclosures concluded that a modified version of the impart significant efficiencies—the required by § 310.4(d).774 DMA noted DMA guidelines presents a reasonable 768 approach. Under this part of the safe 760 According to Sytel, the 15-second standard AARP-NPRM at 9. harbor, telemarketers must let the phone has been adopted by the United Kingdom DMA. 769 ARDA-NPRM at 15-16; Household Auto- NPRM at 12; NACAA-NPRM at 10; PCIC-NPRM at ring either four times or for fifteen Outbound Focus Issue 16, http:// www.outboundfocus.com. 2; TeleDirect-NPRM at 3; Texas PUC-NPRM at 5. 770 seconds before disconnecting the 761 ARDA-NPRM at 15. But see Kans. Rev. Stat. 50-670(b)(6), which does not distinguish between the two. 762 Sytel, Outbound Focus Issue 16, http:// 771 753 June 2002 Tr. II at 53 (Sytel). www.outbound.focus.com; Sytel-NPRM at 4-5. See This comports with the CPUC Interim Opinion 754 CPUC Interim Opinion, Rulemaking 02-02-020 also ATA-NPRM at 34; Cendant-NPRM at 9; DMA- governing predictive dialers, DMA’s guidelines for (June 27, 2002) at 20. The CPUC concluded that, NPRM at 42. predictive dialers, and Sytel’s recommended approach. See CPUC Interim Opinion at 10-12; based on comments it had received in its 763 DialAmerica-NPRM at 19-20; Private Citizen- http://www.the-dma.org/library/guidelines/ rulemaking process, ‘‘most responsible users of NPRM at 3; Sytel-NPRM at 4-5; Time-NPRM at 10. dotherightthing.shtml#38; Sytel-NPRM at 3. predictive dialing equipment are either already at 764 ARDA-NPRM at 15; DialAmerica-NPRM at 20- 772 or near a 3 percent error rate or can achieve it with AARP-NPRM at 9; ARDA-NPRM at 15; BofA- 21; Sytel-NPRM at 4. NPRM at 9; CADM-NPRM at 1; Household Auto- minimum reprogramming effort.’’ 765 Sytel-NPRM at 5-6. 755 NPRM at 12; PCIC-NPRM at 2; Texas PUC-NPRM Sytel-NPRM at 4; Sytel, Outbound Focus Issue 766 See http://www.the-dma.org/library/ at 5. See also McClure-NPRM at 2. But see 16, http://www.outboundfocus.com. guidelines/dotherightthing.shtml#38. But see ATA- MasterCard-NPRM at 13. 756 Private Citizen-NPRM at 3. Supp. at 14 (supporting a four-second dead air 773 DMA-NPRM at 44; EPIC-NPRM at 24; Time- 757 June 2002 Tr. II at 25 (MPA). standard); ERA-Supp. at 25, MPA-Supp. at 23 NPRM at 11; Worsham-NPRM at 5. 758 Sytel-NPRM at 4; http://www.the-dma.org/ (Commenters’ proposed definition of ‘‘abandoned 774 DMA-NPRM at 44. See also Capital One- library/guidelines/dotherightthing.shtml#38. call’’ has no dead air time limit). NPRM at 6-7; NASUCA-NPRM at 13-14; NCL-NPRM 759 Sytel-NPRM at 4. 767 CPUC Interim Opinion at 11-12. at 11; Private Citizen-NPRM at 4.

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that recorded messages containing these requirements, the Commission would 310.4(b)(1) also prohibited sellers from disclosures could violate the TCPA.775 encounter similar difficulty in enforcing causing telemarketers to engage in the Time similarly opposed it based on this aspect of the amended Rule. prohibited practices. However, the concern for requiring the recorded Furthermore, the record does not Commission believes that it is important message to include the prompt contain opposition to a recordkeeping for all persons, not just sellers and disclosures and, in addition, posited requirement associated with the use of telemarketers, to use the ‘‘do-not-call’’ that consumers would not support predictive dialers, and the records lists properly. Therefore, the amended receiving recorded-message disclosures required by the Commission in this Rule retains this provision, renumbered on their answering machines.776 The provision of the Rule are similar to as § 310.4(b)(2), but extends the Commission’s approach to the recorded those supported by industry prohibition to ‘‘any person,’’ in order to message component of this safe harbor representatives in the CPUC’s predictive prohibit all entities, not just sellers and should allay these concerns.777 The dialer rulemaking proceeding.782 The telemarketers, from misusing ‘‘do-not- recorded message need not include all Commission believes that predictive call’’ lists. By extending the prohibition required prompt disclosures; rather, the dialer technology can capture and to ‘‘any person,’’ the Commission message need contain no more than the preserve abandonment rate records as a intends that the provision apply to such seller’s name and telephone number.778 matter of routine;783 records showing parties as list brokers and other entities Of course, it must comply with compliance with the ring time and that do not fall within the definitions of applicable state and federal laws recorded message requirements will not ‘‘seller’’ or ‘‘telemarketer.’’ In addition, governing the use of recorded messages, impose a significant burden on the amended Rule adds a provision that such as the FCC’s TCPA regulations. telemarketers who wish to take permits a person to use either seller- Moreover, telemarketers are not advantage of this safe harbor. specific lists, or the national registry, required to leave a recorded message on § 310.4(b)(2) — Restrictions on use of not only to comply with the ‘‘do-not- the answering machines of consumers list call’’ provisions of the Rule, but also ‘‘to who are not home to answer the prevent telephone calls to telephone telemarketer’s call. In light of the Section 310.4(b)(1)(iv) of the proposed numbers on such lists.’’ This provision limited nature of the elements of the Rule prohibited any seller or will permit an entity not subject to the recorded message component of the safe telemarketer from selling, purchasing, or amended Rule for whatever reason (e.g., harbor, the Commission’s approach also using a seller’s ‘‘do-not-call’’ list for any because it is outside of the resolves Sytel’s caution against allowing purpose other than complying with the Commission’s jurisdiction) to access the the use of recorded messages without Rule’s ‘‘do-not-call’’ provision. The national registry in order to scrub its regulation.779 amended Rule retains the provision but calling lists, if it wants to avoid calling The fourth component of the modifies the language to also prohibit consumers who have expressed a abandoned call safe harbor is a the sale, purchase, rental, lease, or use preference not to receive telemarketing recordkeeping requirement. of the national registry maintained by calls. Specifically, telemarketers using the Commission for any purpose other predictive dialers under this safe harbor than compliance with the Rule’s ‘‘do- § 310.4(b)(3) — Safe harbor for ‘‘do-not- must keep records documenting not-call’’ provision or otherwise to call’’ compliance with the first three prevent telephone calls to telephone Section 310.4(b)(3) provides sellers components of this safe harbor in a numbers on either the sellers’ lists or and telemarketers with a limited safe manner that is in accordance with the the national registry. harbor from liability for violating the Those commenters who addressed recordkeeping requirements of the Rule ‘‘do-not-call’’ provision found in this provision supported such a set out in § 310.5(b)-(d). The record § 310.4(b)(1)(iii).786 During the original prohibition.784 NCL stated that, since clearly establishes the need for this rulemaking, the Commission consumers who sign up for a ‘‘do-not- requirement. According to statements at determined that sellers and call’’ list are seeking to preserve their the June 2002 Forum, some telemarketers should not be held liable privacy, it would be an invasion of their telemarketers routinely exceed DMA’s for calling a person who previously privacy to use any information that asked not to be called if they had made recommended maximum abandonment would identify those consumers (e.g., rate of five percent.780 At the June 2002 a good faith effort to comply with the names or telephone numbers) for any Rule’s ‘‘do-not-call’’ provision and the Forum, DMA explained that purpose other than to ensure that those call was the result of error. The Rule enforcement of its guideline was individuals do not receive unsolicited difficult despite receiving 785 established four requirements that a 781 telemarketing calls. complaints. The Commission foresees In addition to expanding the seller or telemarketer must meet in that, absent recordkeeping provision to cover the sale, purchase, order to avail itself of the safe harbor: rental, lease, or other use of the registry, (1) it must establish and implement 775 DMA-NPRM at 44. See also Sytel-NPRM at 6; the amended Rule has made this written procedures to comply with the Worsham-NPRM at 5. ‘‘do-not-call’’ provision; (2) it must train 776 Time-NPRM at 11. See also ANA-NPRM at 6; prohibition a separate and distinct abusive practice. In the proposed Rule, its personnel in those procedures; (3) it Associations-NPRM at 3. must maintain and record lists of 777 Capital One-NPRM at 6-7. this provision was part of § 310.4(b)(1), persons who may not be contacted; and 778 When consumers receive this information, which sets out prohibited practices by they will not have to wonder whether the call has telemarketers, including adherence to (4) any subsequent call must be the been placed by someone with sinister motives, as the ‘‘do-not-call’’ provision. Section result of error. described by AARP. See AARP-NPRM at 9; ATA- These criteria tracked the FCC’s Supp. at 11. regulations, which set forth the 779 782 CPUC Interim Opinion at 20-22. Sytel-NPRM at 6. minimum standards that companies 780 June 2002 Tr. II at 29 (ATA); June 2002 Tr. II 783 TeleDirect-NPRM at 2. at 45 (DialAmerica); June 2002 Tr. II at 52 (Sytel). 784 See, e.g., AARP-NPRM at 3; EPIC-NPRM at 16; must follow to comply with the TCPA’s See also Capital One-NPRM at 6; DialAmerica- NCL-NPRM at 8-9; NYSCPB-NPRM at 6-7; Texas NPRM at 23; NASUCA-NPRM at 14; Sytel-NPRM at PUC-NPRM at 1-2; Verizon-NPRM at 5. See also 786 This provision has been renumbered in the 7. June 2002 Tr. I at 215-25. amended Rule. In the original Rule and in the 781 June 2002 Tr. II at 51 (DMA). 785 NCL-NPRM at 8-9. NPRM, the ‘‘safe harbor’’ provision is § 310.4(b)(2).

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‘‘do-not-call’’ provision.787 In the § 310.4(b)(1)(iii) prohibits calling a have been and are implemented in the NPRM, the Commission proposed three person who has previously requested to regular course of business. Thus, a seller additional requirements which have to be placed on such a list. or telemarketer cannot take advantage of be met by sellers or telemarketers or Although the Commission has the safe harbor exemption in others acting on behalf of a seller or extended the ‘‘safe harbor’’ provision to § 310.4(b)(5) unless it can demonstrate charitable organization before they may cover the additional practice of denying that it actually trains employees in avail themselves of the ‘‘safe harbor:’’ or interfering with a consumer’s right to implementing its ‘‘do-not-call’’ policy, (1) they must use a process to prevent be on a ‘‘do-not-call’’ list, it has also and enforces that policy. telemarketing calls from being placed to tightened the provision by adding the Finally, in the ‘‘safe harbor’’ provision any telephone number included on the requirement that sellers and in the proposed Rule, the Commission Commission’s national registry using a telemarketers monitor compliance and required that the seller or telemarketer version of the registry obtained not more take disciplinary action for non- use a process to prevent calls to than 30 days before the calls are made; compliance in order to be eligible for telephone numbers on the national ‘‘do- (2) they must maintain and record the safe harbor. Section § 310.4(b)(5)(v) not-call’’ list, employing a version of the consumers’ express verifiable of the amended Rule requires the seller ‘‘do-not-call’’ registry obtained from the authorizations to call; and (3) they must or telemarketer to monitor and enforce Commission not more than 30 days monitor and enforce compliance with compliance with the procedures before the calls are made, and to their ‘‘do-not-call’’ procedures. established in § 310.4(b)(5)(i). maintain records documenting this Based on the record in this matter, During the Rule Review, numerous process.795 Virtually all comments on and for the reasons set forth below, the commenters described the problems the safe harbor provision were directed amended Rule retains the ‘‘safe harbor’’ they had encountered in attempting to at the proposed 30-day requirement for assert their ‘‘do-not-call’’ rights and requirement to monitor and enforce using the registry, which would have with companies that continued to call compliance. However, the amended required sellers and telemarketers to after the consumer asked not to be Rule deletes the ‘‘safe harbor’’ provision reconcile or ‘‘scrub’’ the names on the called.791 Several commenters echoed expressly requiring maintenance and registry with their customer list every 30 these complaints in their responses to recording of express verifiable days. Industry commenters were the NPRM.792 This anecdotal evidence authorizations.788 In addition, unanimous in their view that a 30-day indicates that some entities may not be § 310.4(b)(3)(iv), the ‘‘safe harbor’’ requirement would be extremely enforcing employee compliance with requirement to purchase and reconcile burdensome.796 They also pointed out their ‘‘do-not-call’’ policies. In fact, one the registry, has been modified to delete that a 30-day requirement would be consumer reported that telemarketers the 30-day requirement and, instead, virtually impossible to meet without require that telemarketers employ a for two different companies told her that it was not necessary that a company’s shutting down operations for a day to version of the registry which has been ‘‘do-not-call’’ policy be effective, only scrub their lists, and would be obtained no more than three months that such a policy exist.793 particularly burdensome for small before a call is made, and to maintain businesses with few employees or those 789 To clarify this apparent records documenting that process. misconception about the Rule’s that do not use sophisticated 797 The Commission continues to believe requirements, the Commission proposed technology. Industry commenters that the Rule should contain a ‘‘safe that, in order to avail themselves of the urged the Commission to require harbor’’ from liability for violations of ‘‘safe harbor’’ provision, sellers and quarterly updating, which is the its ‘‘do-not-call’’ provision. Commenters telemarketers must be able to standard adopted by the majority of 790 generally agreed with this position. demonstrate that, as part of ordinary states in implementing their ‘‘do-not- Sellers or telemarketers who have made business practice, they monitor and call’’ statutes.798 They pointed out that, a good faith effort to provide consumers enforce compliance with the written after an initial period of ‘‘volatility’’ or donors with an opportunity to procedures required by § 310.4(b)(5)(i). when consumers sign up for the new exercise their ‘‘do-not-call’’ rights The Commission received few registry, the number of names on the should not be liable for violations that comments on this proposal, and those registry will stabilize and there may not result from error. Further, as discussed commenters supported the proposal.794 be as great a need for frequent in the NPRM, the Commission believes Therefore, the Commission retains updating.799 that the same rationale applies to § 310.4(b)(5)(v) unchanged, except for potential violations of § 310.4(b)(1)(ii), renumbering. It is not enough that a 795 This requirement was in § 310.4(b)(2)(iii) of and therefore has, in the introductory seller or telemarketer has written the proposed Rule. 796 sentence of § 310.4(b)(5), extended the procedures in place; the company must See, e.g., ABA-NPRM at 12; AFSA-NPRM at 9- ‘‘safe harbor’’ to cover violations of both 10; ARDA-NPRM at 13; Capital One-NPRM at 5-6; be able to show that those procedures Cox-NPRM at 38; Discover-NPRM at 3; Household amended §§ 310.4(b)(1)(ii) and (iii). Auto-NPRM at 8; Household Credit-NPRM at 13; Section 310.4(b)(1)(ii) prohibits a seller 791 See, e.g., Bennett-RR at 1; A. Gardner-RR at 1; Household Finance-NPRM at 13; HSBC-NPRM at 2; or telemarketer from denying or Gilchrist-RR at 1; Gindin-RR at 1; Harper-RR at 1; Nextel-NPRM at 26; NFIB-NPRM at 2; NRF-NPRM interfering with a person’s right to be Heagy-RR at 1; Johnson-RR at 3; McCurdy-RR at 1; at 16. See also June 2002 Tr. I at 234-72. Menefee-RR at 1; Mey-RR, passim; Nova53-RR at 1; 797 See, e.g., ABA-NPRM at 12; AFSA-NPRM at 9- placed on a ‘‘do-not-call’’ list, whereas Peters-RR at 1; Runnels-RR at 1. 10; ARDA-NPRM at 13; Capital One-NPRM at 5-6; 792 See, e.g., Synergy Global-NPRM at 1-2 (ex- Cox-NPRM at 38; Discover-NPRM at 3; HSBC- 787 47 CFR 64.1200(e)(2). telemarketer says firm ignored ‘‘do-not-call’’ lists); NPRM at 2; Nextel-NPRM at 26; NFIB-NPRM at 2; 788 This requirement was in § 310.4(b)(2)(v) of the Denny (Feb. 21, Msg. 970); Connolly (Mar. 6, Msg. NRF-NPRM at 16. See also June 2002 Tr. I at 234- proposed Rule. 961); Young (Feb. 27, Msg. 165); Jackson (Feb. 2, 72. 789 This requirement was in § 310.4(b)(2)(iii) of Msg. 521); Horowitz (Feb. 27, Msg. 598); Truitt (Feb. 798 See, e.g., ABA-NPRM at 12; AFSA-NPRM at 9- the proposed Rule. 28, Msg. 687); Griffin (Feb. 28, Msg. 708); Loeher 10; ARDA-NPRM at 13; Capital One-NPRM at 5-6; 790 See, e.g., ARDA-NPRM at 13; BofA-NPRM at (Feb. 28, Msg. 729). Cox-NPRM at 38; Discover-NPRM at 3; Household 6; NACAA-NPRM at 9; Verizon-NPRM at 4-6. But 793 Mey-RR at 2. See also DC-NPRM at 6-7. Auto-NPRM at 8, 10; Household Credit-NPRM at 13, see CATS-NPRM at 2; Patrick-NPRM at 5-6 794 See, e.g., DC-NPRM at 6-7; Verizon-NPRM at 15; HSBC-NPRM at 2; Nextel-NPRM at 26; NFIB- (cautioning that the standards set forth in the ‘‘safe 5. But see Patrick-NPRM at 5-6 (cautioning that the NPRM at 2; NRF-NPRM at 16. See also June 2002 harbor’’ should be obligatory for all telemarketers standards set forth in the ‘‘safe harbor’’ should be Tr. I at 234-72. subject to the Rule). obligatory for all telemarketers subject to the Rule). 799 See June 2002 Tr. I at 237-39.

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The Commission is persuaded that the evidence of express verifiable written current hours, but critical of the notion costs of requiring monthly updating authorization to accept telemarketing that allowing consumers to customize outweigh any additional benefits that calls. Thus, the proposed Rule would their preferred calling times via the might accrue to consumers from such a not conflict with the FCC’s regulations. national ‘‘do-not-call’’ registry would be provision. Based on the record in this Furthermore, as discussed more fully workable.806 EPIC noted that it favored matter, the amended Rule modifies the above, the Commission believes that it retaining the current calling times ‘‘safe harbor’’ requirement that lists be is necessary for the amended Rule to provision, but found it desirable to reconciled every 30 days. Instead, re- diverge from FCC regulations by allow consumers who wish to do so to numbered § 310.4(b)(3)(iv) of the imposing a monitoring requirement in set other preferred times via the national amended Rule requires that the seller or the ‘‘safe harbor’’ provision in order to ‘‘do-not-call’’ registry.807 telemarketer employ a version of the clarify the applicability of the safe As noted in the NPRM, the registry obtained not more than three harbor. Commission believes the current calling months before any call is made, and hours provide a reasonable window for § 310.4(c) — Calling time restrictions maintain records documenting the telemarketers to reach their existing and process it uses to prevent telemarketing Section 310.4(c) of the original Rule potential customers. The Commission to any number on the list. Thus, proscribes the making of outbound recognizes that while some consumers telemarketers will be required to update telemarketing calls before 8:00 a.m. and may find it objectionable to receive their lists at least every three months, a after 9:00 p.m. local time at the called telemarketing calls between 8:00 a.m. time period that is consistent with most person’s location.801 In response to and 9:00 p.m., the majority of state requirements. Instead of making comments received during the Rule consumers would not find calls within the list available on specific dates, the Review suggesting further limitations on these hours to be particularly abusive of registry will be available for calling times, the Commission noted in their privacy. Furthermore, consumers downloading on a constant basis, 24 the NPRM that it declined to adopt who wish to avoid telemarketing calls hours a day, seven days a week, so further restrictions because the original will, under the amended Rule, have the telemarketers can access the registry at Rule’s calling times strike the option of placing their telephone any time. As a result, each appropriate balance between protecting numbers on the national ‘‘do-not-call’’ telemarketer’s three-month period may consumer privacy and not unduly registry, thus blocking most unwanted begin on a different date. The burdening industry. calls at all times.808 Therefore, the Commission intends that the records In response to the NPRM, the Commission declines to modify the documenting the process to prevent Commission received more than 100 calling hours prescribed by § 310.4(c), telemarketing calls to telephone comments from consumers on this and retains this provision without numbers on the ‘‘do-not-call’’ registry issue, the vast majority of which amendment. recommended that the calling times be will include copies of any express § 310.4(d) — Required oral disclosures agreements the seller has obtained from limited in some fashion. Many consumers giving their permission for consumers urged that the calling times Section 310.4(d) of the original Rule the seller to call, as well as provision further restrict calls during requires that a telemarketer in an documentation showing when and how the ‘‘dinner hour,’’802 or at either end of outbound call make certain oral often the seller has reconciled its list of the day, arguing that calls that come at disclosures promptly, and in a clear and names and/or telephone numbers 8:00 a.m. or 9:00 p.m. are inconvenient, conspicuous manner. The NPRM against the national ‘‘do-not-call’’ particularly for families with small proposed to make two minor registry. children.803 Some commenters urged modifications to the wording of this The Commission is confident that the the Commission to prohibit section. First, the Commission proposed additional criteria in the amended Rule telemarketing on Saturdays, Sundays, or inserting, after the phrase ‘‘in an do not conflict with FCC regulations. the entire weekend.804 Still others urged outbound telephone call,’’ the phrase FCC regulations are silent as to the the Commission to consider the plight ‘‘to induce the purchase of goods or process to be used, or the specific time of those shift workers for whom the services.’’ This would clarify that frame within which the company must current calling hours provide little or no § 310.4(d) applies only to telemarketing reconcile the names on its ‘‘do-not-call’’ protection from calls during ‘‘sleep calls made to induce sales of goods or list with its list of prospective customers time.’’805 services (in contrast to proposed new to be called in a telemarketing The few industry comments regarding § 310.4(e), which contains an analogous campaign.800 Therefore, any FTC calling times were supportive of the phrase clarifying that § 310.4(e) will requirement that there be a process in apply to calls made ‘‘to induce a place to prevent calls to telephone 801 See 16 CFR 310.4(c). charitable contribution’’). Second, the 802 See, e.g., Harvey Butler (Msg. 197); Roy numbers on a ‘‘do-not-call’’ list would Broman (Msg. 452); Robert Clifton (Msg. 3762); Commission proposed to add the word not conflict with the FCC’s regulations. Ernie and Helen Darrow (Msg. 9941); SSMBOYLE ‘‘truthful’’ to clarify that it is not enough Similarly, FCC regulations are silent as (Msg. 14401); Worsham-NPRM at 4. that the disclosures be made; the to the requirement to monitor 803 See, e.g., John Hallberg Jones (Msg. 1644); Jim disclosures must also be made compliance and take action to correct Coupal (Msg. 3504); Adam Block Willow (Msg. 3513); Donald Nelson (Msg. 4225); Lolla469 (Msg. any non-compliance, or to maintain 5115); Anonymous (Msg. 27184). 806 See ARDA-NPRM at 13 (noting it felt no need 804 See, e.g., Sjkble (Msg. 12060) (no Saturday to comment on this provision because the 800 FCC regulations require companies to calls); OMEGA217 (no Sunday calls); David Meads Commission had proposed no modification, and reconcile ‘‘do-not-call’’ requests for company- (Msg. 13726) (no Sunday calls); Lisa Hallman (Msg. urging that no customizable calling preferences be specific lists on a continuing or ongoing basis. 20291) (no Sunday calls); H00Kie (Msg. 1040) (no allowed); NAA-NPRM at 17. Specifically, 47 CFR § 64.1200(e)(2)(iii) requires the weekend calls); Lee C. Clayton (Msg. 1950) (no 807 See EPIC-NPRM at 18, 22 (noting that while seller or telemarketer to record the consumer’s ‘‘do- weekend calls); Sherrell Goggin (Msg. 2247) (no generally acceptable, the current calling times not-call’’ request and place the consumer’s name weekend calls); Henry Miller (Msg. 10173) (no ‘‘represent only the Commission’s judgment on and telephone number on the company’s ‘‘do-not- weekend calls); Nanagusgus (Msg. 12471) (no what time of day people most value their privacy,’’ call’’ list at the time the request is made. The TSR weekend calls). and urging the Commission to allow for is silent as to how frequently a company must 805 See, e.g., Paul Merchant, Jr. (Msg. 387); Bobby customizable calling time preferences). reconcile ‘‘do-not-call’’ requests for company- Morris (Msg. 639); Gayle Tanner (Msg. 4505); 808 See amended Rule § 310.4(b)(1)(iii)(B), specific lists. Anonymous (Msg. 27196). discussed above.

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truthfully. The amended Rule adopts Therefore, the Commission declines to ‘‘any multiple purpose call where the both modifications, but also provides create exemptions to § 310.4(d). seller or telemarketer plans, in at least additional guidance on when the oral DOJ recommended that an additional some of those calls, to sell goods or disclosures should be made in upsell disclosure—the ‘‘seller’s title or position services, the [§ 310.4(d) disclosures] transactions and what information in the company’’—be added to this must be made ’promptly,’ during the should be disclosed in those situations. section, arguing that such a disclosure first part of the call, before the non-sales The Commission received very few would directly address the fraudulent portion of the call takes place.’’817 The comments on these proposed changes. practice wherein a telemarketing sales Commission does not believe that any NAAG expressed its support for agent misrepresents that he or she holds change in the text of the Rule is inclusion of the word ‘‘truthfully’’ in a position of great authority within the necessary to achieve clarity regarding this section, noting that however company on behalf of whom the call is these two issues, nor does it believe the obvious it might seem that mandatory made, such as a claim that he or she is suggested modifications would provide disclosures be made truthfully, abuses the president of the company.813 greater clarity; thus, the Commission have occurred when, for example, a Although the Commission agrees that declines to modify this section. telemarketer misstates the purpose of such misrepresentations could be A few commenters suggested that an the call, claiming it is a ‘‘courtesy’’ call injurious to consumers, the Commission additional disclosure—of the seller’s rather than a sales call.809 The does not believe that in non-fraudulent telephone number—should be added.818 Commission agrees that the express solicitations a prompt, truthful NASUCA suggested that this number be requirement that the required disclosure of the telemarketing sales one useful to consumers who wish to be disclosures be ‘‘truthful’’ will benefit representative’s position within the placed on a seller’s ‘‘do-not-call’’ list, consumers, and should impose no company would be so beneficial to while Patrick suggested that the number additional burden on telemarketers. consumers as to outweigh the costs to be one consumers could use to report Thus, this requirement is adopted in the business of making such an additional violations of the Rule. Patrick suggested, amended Rule. disclosure. Further, the Commission in the alternative, that the Rule prohibit A few commenters recommended believes that it is highly likely that the failure to provide name, address, limiting or expanding the provision. fraudulent telemarketers who resort to and telephone number information for ASTA urged the Commission to limit such prevarication to induce sales will the seller or telemarketer, if such the applicability of parts of the oral be in violation of other provisions of the information is requested by the disclosure provision so that sellers with Rule as well.814 Therefore, the consumer. The Commission previously whom a customer had a prior business Commission declines to add a has expressed its concern that if too or personal relationship would be disclosure regarding the telemarketing many disclosures are required, exempt from making two particular sales agent’s position within the particularly in the beginning of the call, disclosures: 1) that the purpose of the company. their effectiveness is diluted. Further, call is to sell goods and services A few commenters requested further the Commission believes that amended (§ 310.4(d)(2)); and 2) the nature of the clarification regarding the meaning of § 310.4(a)(7), regarding transmission of goods and services (§ 310.4(d)(3)).810 the term ‘‘promptly,’’ suggesting that it Caller ID, and § 310.4(b)(1)(iii)(B), ASTA argued that it does not believe is too vague to be a useful guideline in creating a national ‘‘do-not-call’’ ‘‘situations in which there is a prior the Rule.815 One of these commenters registry, will help to mitigate the business or personal relationship also sought to clarify the timing of the problem these commenters have between the parties, are, in practice, prompt oral disclosures required by this proposed to cure. Therefore, the subject to the same sort of abuses that section in a multiple purpose call.816 Commission declines to require a the Rule seeks to address by way of [the These two issues were discussed at disclosure of the seller’s telephone § 310.4(d)(2) and (3) disclosures].’’811 length in the NPRM, and the number in this section. Tribune made a similar argument, Commission reiterates here what it has As explained in the discussion of requesting an exemption from previously stated: 1) the term § 310.2(dd) above, regarding the compliance with the § 310.4(d) ‘‘promptly,’’ as used in the Rule, means definition of ‘‘upselling,’’ the disclosures for newspapers with whom ‘‘at once or without delay, and before Commission believes that upsell a customer has a prior business any substantive information about a transactions are analogous to outbound relationship. According to Tribune, in prize, product or service is conveyed to telephone calls. Therefore, the amended many instances, newspapers call current the customer,’’ a standard which allows Rule requires that the oral disclosures subscribers to ascertain whether the for some flexibility without sacrificing mandated by § 310.4(d) must be customer is satisfied, and then to offer the consumer’s need to know certain promptly disclosed at the initiation of additional services, such as the weekday material information prior to the the upsell if any of the information in paper in addition to an existing Sunday- beginning of any sales pitch; and 2) in these disclosures differs from the only subscription; Tribune also believes disclosures made in the initial the required oral disclosures may be off- 813 DOJ-NPRM at 5 (also noting that some transaction. For example, in an external fraudulent telemarketers claim to be with 812 upsell (where there is a second seller), putting to customers. The government agencies. The Commission notes that Commission does not believe that the such a misrepresentation would violate amended the consumer must be told the identity existence of a prior or even an ongoing Rule § 310.3(a)(2)(vii)). of the second seller—the one on whose business or personal relationship 814 For example, such a ‘‘false and misleading’’ behalf the upsell offer is being made. In statement, if made to ‘‘induce any person to pay for an internal upsell, however, the identity obviates the need for the required goods or services or to induce a charitable prompt oral disclosures in calls that are, contribution,’’ would violate amended Rule of the seller remains the same in both in whole or in part, designed to induce § 310.3(a)(4). transactions and need not be repeated in the purchase of goods or services. 815 LSAP-NPRM at 17 (urging that the term the second transaction. Thus, the ‘‘promptly’’ be defined as ‘‘at the outset of the Commission has inserted the phrase ‘‘or call’’); NASUCA-NPRM at 16; Patrick-NPRM at 3 809 See NAAG-NPRM at 47. (suggesting that at least the identity of the seller be internal or external upsell’’ after the 810 See ASTA-NPRM at 2. disclosed ‘‘first, before any other information is 811 ASTA-NPRM at 2. disclosed’’). 817 67 FR at 4526 (citing the original SBP). 812 See Tribune—NPRM at 9–10. 816 See NASUCA-NPRM at 16. 818 NASUCA-NPRM at 15; Patrick-NPRM at 4.

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term ‘‘outbound telephone call’’ in evidence in the record to support participate in a prize promotion, that § 310.4(d) of the amended Rule; and has adding the disclosure.822 Nonetheless, any purchase or payment will not inserted the requirement that ‘‘in any PMA stated that, as a gesture of good increase the customer’s chances of internal upsell for the sale of goods or faith, they would not oppose the winning, and, upon request, the no- services, the seller or telemarketer must change.823 They asked, however, that purchase/no-payment method of provide the disclosures listed in this the Commission allow them flexibility participating in the prize promotion. section only to the extent the on when to make the disclosure, rather information in the upsell differs from than mandating that it be made § 310.4(e) — Required oral disclosures the disclosures provided in the initial ‘‘promptly,’’ as required by § 310.4(d), in charitable solicitations telemarketing transaction.’’ The goal in because the disclosure would be more As noted in the NPRM, § 1011(b)(2)(D) this provision is to ensure that meaningful if it were delivered in of the USA PATRIOT Act mandates that consumers receive all of the information conjunction with the sales solicitation the TSR include a requirement to they need in order to make an informed rather than the discussion about the address abusive practices in the decision whether to make a purchase,819 sweepstakes.824 solicitation of charitable without requiring duplicative or The Commission believes that it is contributions.829 Specifically, the USA irrelevant disclosures. important that consumers promptly be PATRIOT Act directs the Commission to put on notice when a call promoting a include in the Rule: § 310.4(d)(4) — Sweepstakes disclosure sweepstakes also includes a sales a requirement that any person engaged in Section 310.4(d)(4) of the original solicitation. The Commission does not Rule required that a telemarketer telemarketing for the solicitation of charitable believe it necessary to script the contributions, donations, or gifts of money or promptly disclose that no purchase or telemarketing call or to define with any other thing of value, shall promptly and payment is necessary to be eligible to finite specificity within how many clearly disclose to the person receiving the win a prize or participate in a prize seconds particular disclosures must be call that the purpose of the call is to solicit promotion if a prize promotion is made. As with the Rule’s requirement charitable contributions, donations, or gifts, offered. In the NPRM, the Commission that the telemarketer promptly disclose and to make such other disclosures as the proposed to modify § 310.4(d)(4) to that no purchase or payment is Commission considers appropriate, including require that the telemarketer disclose necessary to win a prize,825 the the name and mailing address of the that a purchase will not enhance a Commission believes that the disclosure charitable organization on behalf of which the solicitation is made.830 customer’s chances of winning a prize that a purchase will not enhance the or sweepstakes, which would make the consumer’s chances of winning may In response to this mandate, the amended Rule’s disclosure requirement occur ‘‘before or in immediate Commission included in the proposed consistent with the requirements for conjunction with the description of the Rule new § 310.4(e), which requires in direct mail solicitations under the prize.’’826 As the Commission stated in calls to solicit charitable contributions Deceptive Mail Prevention and the original Rule’s SBP, this language the truthful, prompt, clear and Enforcement Act (‘‘DMPEA’’).820 As was included in § 310.4(d)(4) ‘‘to conspicuous disclosure of two pieces of discussed above with regard to the same prohibit deceptive telemarketers from information: 1) the identity of the disclosure in § 310.3(a)(1)(iv), separating the disclosure (in that charitable organization on behalf of commenters generally supported this instance, of the fact that no purchase or which the request is being made; and 2) proposal.821 payment is necessary to win a prize) that the purpose of the call is to solicit PMA maintained that the disclosure from the description of the prize, a charitable contribution.831 The was unnecessary and that there was no thereby negating or diluting its salutary Commission declined to require the oral effect.’’827 Although this guidance does disclosure of a charitable organization’s 819 As the Commission noted in the NPRM: not alter the imperative that the mailing address because it was dubious ‘‘[I]n external up-selling, when calls are disclosures be made ‘‘promptly’’—i.e., transferred from one seller or telemarketer to that requiring disclosure of this another, or when a single telemarketer solicits on ‘‘at once or without delay,’’ but ‘‘[a]t a information in every instance would behalf of two distinct sellers, it is crucial that minimum. . . before any sales pitch is prove sufficiently beneficial to consumers . . . clearly understand that they are given’’828—it should provide consumers to justify the costs incurred dealing with separate entities. In the original Rule, telemarketers of prize promotions the the Commission determined that a disclosure of the by telemarketers, and the charities for seller’s identity was necessary in every outbound necessary flexibility in making the whom they solicit, of making this call to enable the customer to make a fully-informed requisite disclosures. disclosure.832 However, the Commission purchasing decision. In the case of a call transferred Therefore, the Commission has did pose specific questions on this by one telemarketer to another to induce the determined that it is an abusive purchase of goods or services, or one in which a issue, including whether the disclosure single telemarketer offers the goods or services of telemarketing act or practice to fail to requirement should be triggered only two separate sellers, it is equally important that the disclose truthfully, promptly, and in a when a donor asks for such consumer know the identity of the second seller, clear and conspicuous manner, in any information.833 and that the purpose of the second call is to sell prize promotion, that no purchase or Few comments addressed the goods or services.’’ payment is required to win a prize or 67 FR at 4500. The proposed Rule also required proposed requirements for disclosures telemarketers on behalf of charitable organizations in the solicitation of charitable to adhere to the requirements for upsell 822 PMA-NPRM at 4-8. transactions. However, the record in this 823 PMA-NPRM at 5, 7; ARDA-NPRM at 14-15. proceeding does not show any evidence that See also June 2002 Tr. II at 106, 108 (PMA and 829 See 67 FR at 4522 (discussing the USA upselling is prevalent in the solicitation of ARDA state that they do not oppose the disclosure). PATRIOT Act’s mandate to include in the TSR charitable contributions. Therefore, the Commission 824 June 2002 Tr. II at 106-07. ARDA also certain prompt disclosures in the solicitations of has deleted any reference to charitable solicitations requested flexibility in the timing of the disclosure. charitable contributions). from the upselling provisions. The Commission will ARDA-NPRM at 14-15 and June 2002 Tr. II at 108. 830 Section 1011(b)(2)(D), Pub. L. 107-56 (Oct. 26, continue to monitor this issue, and, if necessary, 825 This provision is found at § 310.4(d)(4) of the 2001). may address it in future rule reviews. original and amended Rules. 831 Proposed Rule § 310.4(e); see also 67 FR at 820 Id. 39 U.S.C. 3001(k)(3)(A)(II). 826 16 CFR 310.4(d)(4); 60 FR at 43856. 4522 (including the discussion of the rationale for 821 NAAG-NPRM at 54-55; NACAA-NPRM at 6-7; 827 60 FR at 43856-57. including these specific disclosures). NCL-NPRM at 4. See also June 2002 Tr. II at 105- 828 TSR Compliance Guide at 15. See also 60 FR 832 67 FR at 4522. 15. at 43856. 833 67 FR at 4522, 4539.

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contributions.834 AFP agreed that the purpose. Moreover, the Commission these suggested disclosure requirements proposed Rule struck the appropriate believes there is a tight nexus between would be the triggering role they would balance, by requiring disclosure of both this purpose and the statutory and serve, prompting consumers to inquire, the identity of the charity and the fact regulatory means employed to achieve of the telefunder or of a state regulatory that the purpose of the call was to solicit this purpose. The Commission also agency, about the amount of their a charitable contribution, but not believes that these disclosure contribution that will go to charity after requiring disclosure of the mailing requirements are very narrowly tailored the fundraiser takes its share.847 address of the charity.835 AFP also to impinge as little as possible on The Commission declines to add a noted that the required disclosures are protected speech while still mandatory disclosure of the name of the consistent with its own ethics standards accomplishing the purpose Congress caller in calls to induce charitable and its belief that these disclosures are intended. The Commission has contributions. In the initial proposed sufficient to effectuate the purposes of exercised restraint in implementing this TSR, the Commission had included the USA PATRIOT Act.836 AFP statutory mandate, keeping the such a requirement for all outbound recommended against including a disclosure requirements for charitable telephone calls;848 but it was deleted required disclosure of the charitable solicitation telemarketing to the bare because commenters noted that ‘‘‘desk organization’s mailing address, arguing minimum necessary to fulfill the names’ are commonly used in the that such information would be of little purpose of the USA PATRIOT Act industry to protect the safety and use to consumers in discerning whether amendments. The Commission notes privacy of employees, and to protect a charity was legitimate, and that the that the Supreme Court has specifically against potential prejudice and time and distraction involved in noted that requiring a professional harassment.’’849 The Commission disclosing an address would be fundraiser ‘‘to disclose unambiguously concluded that the disclosure of the ‘‘counterproductive to the charitable his or her professional status . . . [is a] seller’s identity is most meaningful to contribution process.’’837 narrowly tailored requirement [that] consumers, not the name of the Hudson Bay expressed its view that would withstand First Amendment individual with whom they are both of the proposed disclosures are scrutiny.’’842 The Commission believes speaking. The Commission can conceive unconstitutional.838 According to that if a requirement to disclose one’s of no reason why this analysis would Hudson Bay, the requirement that a status as a professional fundraiser not apply with equal force in the telefunder promptly disclose that the would pass First Amendment scrutiny, context of charitable solicitations. call is to solicit a charitable contribution then so would a requirement to make Moreover, the Commission is not runs afoul of the First Amendment the disclosures now required by the persuaded that disclosure of this because it mandates not only what must Rule to fulfill the mandate of the USA information is necessary to advance the be said, but when.839 Hudson Bay PATRIOT Act amendments. privacy objectives underlying the further argues that the mandatory Some commenters recommended that Commission’s authority to prohibit disclosure of the name of the charitable the Commission expand the provision to ‘‘abusive’’ practices pursuant to organization on behalf of which the require additional disclosures in certain § 6102(a)(3) of the Telemarketing Act.850 solicitation is made strips charitable circumstances. For example, NAAG Therefore, the Commission declines to organizations of their right to anonymity recommended that, in the event a paid include in the amended Rule a and violates the First Amendment’s telefunder is making the charitable requirement that the caller’s name be guarantee of freedom of association.840 solicitation, three additional disclosures disclosed in charitable telemarketing As previously noted, the USA be required: ‘‘(1) the name of the caller; solicitations. PATRIOT Act directs the Commission to (2) the name of the telemarketing The Commission also declines to include these specific disclosures in the company; and (3) the fact that the caller adopt the suggestion that it mandate TSR.841 Congress’ purpose in the is being paid to solicit.’’843 NCL disclosure of the name of the Telemarketing Act, in requiring concurred, suggesting that the Rule telemarketing company.851 In adopting telemarketers to disclose basic require fundraisers to ‘‘identify the original Rule, the Commission identifying information in unsolicited themselves as well as the charities on rejected such a disclosure in the context outbound telemarketing calls, is to whose behalf they are operating.’’844 of the sale of goods or services because ensure that the consumer is given NAAG and NCL argued that this it was deemed unnecessary; rather, a information promptly that will enable additional set of disclosures would requirement to disclose the identity of the consumer to decide whether to provide three distinct benefits. First, the seller—which is clearly material to allow the infringement on his or her such disclosures would prevent donors the consumer—was included. In the time and privacy to go beyond the from being deceived about the identity charitable fundraising context, the initial invasion. The Commission of the solicitor. NAAG noted that in Commission believes the identity of the believes that the USA PATRIOT Act many instances, for-profit fundraisers charity is the analogous material item of amendments are consistent with this ‘‘misrepresent that they are affiliated with, or members of, the charity or 847 NAAG-NPRM at 52; see also NCL at 11. 834 As noted above in the section discussing public safety organization in whose 848 See 60 FR at 8331 (§ 310.4(d)(1)(i)). amended § 310.3(d), AARP and NCL noted in their name they are calling.’’845 Second, the 849 60 FR at 30418. comments in response to the NPRM that they 850 See discussion of § 310.4 above, describing the supported the goal of expanding the Rule’s ambit information would serve as an Commission’s analysis of its authority to prohibit to cover charitable solicitations. important means of identifying potential ‘‘abusive’’ practices. 835 See AFP-NPRM at 3. Rule violators.846 The third benefit from 851 The Commission notes, however, as discussed 836 Id. by NAAG, that at least 20 states have statutes requiring such a disclosure. NAAG-NPRM at 52. 837 Id. (noting, however, that it had no objection 842 Riley, 487 U.S. at 799, n.11. The Commission believes that the states, which to requiring the disclosure of the mailing address, 843 NAAG-NPRM at 52. have extensive regulatory authority over charities, provided the donor asked for such information). 844 NCL-NPRM at 11. See also Make-A-Wish- 838 and extensive experience in such regulation, may See Hudson Bay-Goodman-NPRM at 6-7. NPRM at 6 (recommending adding a disclosure that continue to require disclosures beyond those 839 Id. (citing Riley, 441 [sic] U.S. at 791). the professional fundraiser is being paid for its mandated by the TSR, and notes that compliance 840 Id. at 7 (citing Talley v. California, 362 U.S. services); NASCO-NPRM at 6. with the TSR will not fulfill telemarketers 60 (1960)). 845 NAAG-NPRM at 52. obligations under any such state laws or 841 USA PATRIOT Act, § 1011. 846 NCL-NPRM at 11. regulations.

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information. The Commission believes organization’s mission, while the prison-based telemarketing. there is a limit to the number of distinct telefunder’s fee gobbles up the lion’s Commenters also raised other issues: items of information that can reasonably share. This occurs in some instances,855 telemarketers’ use of courier services to be absorbed at the beginning of a but the record does not support an pick up payments from consumers; solicitation call. This being the case, the inference that such a scenario inevitably telemarketers’ targeting of vulnerable Commission believes that the charity’s follows from the use of paid telefunders groups; and the sale of victim lists. Each identity is a more meaningful piece of by charitable organizations, and there is of these issues, and the reasoning information than the name of the evidence on the record tending to show behind the Commission’s responses to professional fundraising company. In that the opposite is often true: the use them, are discussed in detail below. this regard, it is noteworthy that the of professional telemarketers saves Prisoner telemarketing: During the USA PATRIOT Act did not specifically charitable organizations money—as Rule Review, the Commission received require such a disclosure.852 Arguably, compared with in-house telephone several comments describing problems disclosure of the identity of the fundraising.856 that had occurred when sellers or telemarketer may be beneficial to Additionally, the Commission is telemarketers used prison inmates to potential donors because it may prompt concerned here, as it is with the other telemarket goods or services. These them to think and inquire about the recommended disclosures, about the commenters recommended that the portion of a contribution that will be potential negative consequences that Commission ban the use of prisoners as consumed by a professional fundraiser’s derive from overloading the beginning telemarketers or, in the alternative, fee; but the Commission believes the of a charitable solicitation call. Further, tightly regulate it, including requiring record falls short of showing that the it is notable that the USA PATRIOT Act that inmates disclose their status as benefits of mandating such a disclosure did not specifically require such a prisoners when they make calls to, or would outweigh the burdens it would disclosure.857 While disclosure of the receive calls from, the public.859 These impose upon legitimate charities who identity of the telemarketer may, commenters cited several graphic choose to conduct their fundraising arguably, be beneficial to potential incidents in which inmates have abused efforts using professional donors because it may prompt them to consumers’ information and other telemarketers.853 Therefore, the think and inquire about the proportion resources to which they had access Commission does not believe the of a contribution that will be consumed through inmate telemarketing to make current record supports a finding that by a professional fundraiser’s fee, the improper, invasive, and illegal contact disclosure of this information is Commission believes the record does with members of the public.860 necessary to prevent ‘‘abusive’’ practices not support mandating such a Specifically, these commenters pursuant to § 6102(a)(3) of the disclosure because of the burden the pointed out that, while working as Telemarketing Act.854 disclosure would impose on legitimate telemarketers, inmates inevitably gain For similar reasons, the Commission charities who choose to conduct their access to personal information about also declines to require a mandatory fundraising efforts using professional individuals, including minors, that may disclosure that the telemarketer is a paid telemarketers.858 A showing of these endanger the lives and safety of those fundraiser. The comments on this issue benefits would be necessary to support they call.861 In the NPRM, the reflect considerable concern about a requirement for disclosure of this Commission stated that it was extremely instances where only a minuscule information. Therefore, the Commission concerned about the potential misuse of portion of contributions are devoted to declines at this time to add a personal information and abusive the actual support of a charitable requirement that the telemarketer telemarketing activity in connection disclose that he or she is being paid to with prison-based telemarketing, but 852 See USA PATRIOT Act § 1011(b)(2)(D). The solicit charitable contributions. absence of such a requirement from the USA 859 See generally Jordan-RR, S. Gardner-RR, PATRIOT Act is noteworthy because such a Other issues regarding abusive practices Budro-RR, and Warren-RR. In addition, this issue disclosure was specifically approved in Riley. 487 raised in response to the NPRM. received considerable attention during the Rule U.S. at 799, n.11. Review Forum. See RR Tr. at 220-45, 367-75, 443- 853 As noted by Not-for-Profit Coalition, Hudson Commenters responded to the 47. Bay and others, telefunders play a critical role in Commission’s questions in the NPRM 860 For example, in its 1997 report to Congress on enabling charitable organizations, particularly regarding additional issues related to the privacy implications of individual reference smaller ones, to raise funds necessary to fund their abusive practices that had surfaced services, the FTC cited an example where a prison missions. Not-for-Profit Coalition-NPRM at 17-20; during the Rule Review, in particular, inmate (and convicted rapist), who was employed Hudson Bay-Goodman-NPRM at 2. as a data processor, used his access to a database 854 The Commission believes that, as in the case containing personal information to compose and of the required oral disclosures in the sale of goods 855 See, e.g., Pennies for Charity, 2001, New York send a threatening letter to an Ohio grandmother. or services, the failure to make certain material Attorney General, http://www.oag.state.ny.us/ See FTC, ‘‘Individual Reference Services: A Report disclosures in the solicitation of a charitable charities/pennies01/penintro.html (accessed Oct. 8, to Congress’’ (Dec. 1997), at 16. Several states, contribution rises to the level of an abusive practice 2002) (stating that ‘‘charities retained an average of including Wisconsin, Nevada, and Massachusetts, under the Rule. As noted in the NPRM, the 31.5% of the funds raised by telemarketers have considered legislation that would require their Commission believes that the prompt disclosure of registered to solicit contributions in New York in Departments of Correction to restrict prisoners’ certain information in a telemarketing call to induce 2000. Some of the charities received much less than access to personal information about individuals the sale of goods or services is necessary to enable that and some received nothing at all.’’); NASCO- who are not prisoners and/or to require prisoners a consumer ‘‘to decide whether to allow the NPRM at 2 (citing the New York Attorney General’s conducting telephone solicitations or answering infringement on his or her time and privacy to go report as well as a 1999 report by the California inbound calls to identify themselves as prisoners. beyond the initial invasion.’’ 67 FR at 4511. Attorney General showing charities received only The Utah State Prison stopped using inmates as Similarly, a consumer who receives a telemarketing 48.2 percent of funds raised by telemarketers who telemarketers after conceding that they could not solicitation to induce a charitable contribution must solicited on their behalf in California that year). See ensure that prisoners would not misuse personal have certain information to determine if he or she also Private Citizen-NPRM at 5. information they obtain. See Prison to End wishes to continue the call. At this time, the 856 Hudson Bay-Goodman-NPRM at 2. Telemarketing By Inmates, SALT LAKE TRIB., June Commission believes it prudent to require only the 857 See USA PATRIOT Act § 1011(b)(2)(D). This 1, 2000, at B1. In addition, DMA noted that it had disclosure of the name of the charity on whose omission, too, is conspicuous in light of the fact supported legislation banning the use of inmates in behalf the fundraising is occurring and that the call that numerous states have included this mandatory remote sales situations because these sales require is being made to induce a charitable contribution. disclosure and that such a disclosure is, at least in the telemarketer to get personal information from However, the Commission will continue to study dicta, sanctioned by the Court in Riley. See NAAG- the consumer. See RR Tr. at 371-72. the issue and will revisit it during the next Rule NPRM at 52; Riley, 487 U.S. at 799, n.11. 861 See generally Jordan-RR, Gardner-RR, Warren- Review. 858 See note 856 above. RR, and Budro-RR.

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also that some public benefit likely prison-based telemarketing would be inmates, repay taxpayers for the came from inmate work programs that outside the ambit of the Rule because it inmates’ room and board, and are an entail telemarketing. The Commission does not involve ‘‘telemarketing’’ as that effective tool for rehabilitation and noted that the record contained term is defined in the Rule.867 reducing recidivism.875 They maintain insufficient information upon which to EPI estimates that there are only ten that inmate jobs are ‘‘vital to helping base a proposal regarding prisoner private companies in the United States keep prisons safe and secure and telemarketing or to assess the costs and who use prisoners as telemarketers, that offering meaningful educational and benefits of such a proposal. Therefore, these ten companies employ vocational training to aid in successful the NPRM posed several questions to approximately 300 inmates in prison- re-entry.’’876 These commenters elicit comment on what action by the based telemarketing programs, and that outlined the significant precautions Commission, if any, might be all these programs use inmates housed taken in screening and monitoring appropriate regarding this issue. in state prisons.868 Commenters noted inmates for these jobs.877 In response to the NPRM, the that the state prison work programs are Based on the record in this Commission received several comments heavily regulated by the state proceeding, the Commission believes on this issue.862 In addition, the June legislatures and Departments of that, while there is some evidence of 2002 Forum devoted a session to the Correction.869 EPI points out that the consumer injury in a very few topic.863 Based on the entire record in federally-administered Prison Industry documented cases, it is not possible to this proceeding, the Commission has Enhancement (‘‘PIE’’) program was conclude that the risk of consumer harm determined that any problems created to encourage the states and local associated with the use of prison-based governments to establish inmate work outweighs the countervailing benefits. telemarketing would be more programs that mimic the private work Such a conclusion would be necessary to condemn prison-based telemarketing appropriately handled by the state environment. In passing the legislation, 878 legislatures and regulatory agencies than Congress elected to have the states as an abusive practice. The extensive by adding a provision to the TSR. manage these programs.870 system of state regulation, coupled with The comments show that the number Opponents of the use of prison-based the local nature of the work programs, of inmates used for commercial telemarketing cited the potential for persuades the Commission that any telemarketing purposes is a small misuse of consumers’ personal problems associated with prison-based percentage of the prisoners who are information by inmates, but were unable telemarketing would best be handled at employed in inmate work programs.864 to point to actual incidents other than the state level. The majority of prison-based the isolated example raised during the Use of couriers: In response to the telemarketing programs are used by Rule Review.871 EPI noted that, after an NPRM, AARP again raised its concern federal and state governments, often for exhaustive search, the 1999 GAO study that the Commission ban the practice of such tasks as providing information to was able to identify only nine incidents allowing couriers, including overnight consumers who call state tourist of misuse over an eight-year period, and mail delivery services, to pick up bureaus.865 A 1999 GAO Report reveals only three of those nine incidents were payment for goods and services that only seven percent of the inmates the result of telemarketing for a private purchased through telemarketing.879 who had access to consumer firm.872 Commenters noted that similar AARP points out that the use of couriers information were performing work for problems occur, perhaps with even in sweepstakes and lottery scams is private firms, while 93 percent were more frequency, among non-prisoner or prevalent, and that some unscrupulous working for government agencies, civilian telemarketers.873 telemarketers use couriers not only to performing tasks such as answering The proponents of prison-based quickly separate the consumer from his calls from the public to state tourist telemarketing pointed out the or her money, but to make a ‘‘contest centers.866 Thus, the vast majority of significant social and economic benefits seem more ‘official.’’’880 AARP notes that accrue to the inmates, to the states, that, in some instances, even legitimate 862 DialAmerica-NPRM at 28; Spiegel-NPRM at 1; and to society as a whole by having companies benefit unfairly from the use Worsham-NPRM at 6. In addition, see generally inmates engage in productive work that of couriers by avoiding oversight by the CURE-NPRM; CCA-NPRM; UNICOR-NPRM; EPI- develops skills that can later be U.S. Postal Service, and by ensuring that NPRM; and EPI-Supp. transferred to a private sector job once 863 non-refundable ‘‘deposits’’ are secured, June 2002 Tr. III at 115-57. the inmate is released.874 They indicate 864 The comments indicate that federal inmates diminishing the likelihood, in many are not used as telemarketers except in connection that inmate jobs serve as a source of instances, that a consumer would back with sales to the federal government. (UNICOR is funds to compensate crime victims, out of a transaction.881 NACAA the trade name for Federal Prison Industries, Inc., provide financial support to children of a wholly-owned government corporation within the concurred, and noted its further concern U.S. Department of Justice, Federal Bureau of that in-person payment pickups by 867 ‘‘Telemarketing’’ is defined, in part, as a Prisons. UNICOR sells its products primarily to those posing as public safety officers is ‘‘plan, program or campaign which is conducted to federal agencies and uses federal prisoners in induce the purchase of goods or services or a a practice perhaps even more harmful to connection with those sales. In addition to calling charitable contribution . . .’’ The prison-based UNICOR’s federal government agencies, the federal consumers who are intimidated into telemarketing used by government agencies does 882 prisoners also call the businesses that support quickly giving a contribution. not appear to involve calls to ‘‘induce the purchase UNICOR’s federal sales.) UNICOR-NPRM at 2; see of goods or services.’’ also EPI-Supp. at 1. UNICOR’s sales using prisoner- 868 875 Id. based telemarketing would not be covered by the EPI-NPRM at 2, 3, 9. 869 876 CCA-NPRM at 1. See also EPI-NPRM at 5-8; TSR. Section 310.6(g) of the Rule exempts CCA-NPRM at 2; EPI-NPRM at 3, 14 870 and generally CURE-NPRM; and UNICOR-NPRM. telemarketing sales to businesses. In addition, sales EPI-NPRM at 3. See also June 2002 Tr. III at 115-57. to government entities do not fall within the Rule’s 871 DialAmerica-NPRM at 28; Spiegel-NPRM at 1; 877 definition of ‘‘person.’’ Worsham-NPRM at 6. See also June 2002 Tr. III at EPI-NPRM at 5-8. See also June 2002 Tr. III at 115-57. 865 EPI-Supp. at 1. 115-57. 872 878 See 67 FR at 4510-12. 866 ‘‘Prison Work Programs, Inmates’’ Access to EPI-NPRM at 10. 879 Personal Information,’’ GAO/GGD-99-146, cited in 873 CURE-NPRM at 1; EPI-NPRM at 13-14. See AARP-NPRM at 9-10. EPI-NPRM at 13, n.18. See also EPI-Supp. at 1 (All also June 2002 Tr. III 115-57. 880 Id. (citing NAAG’s comment in the original prisoners employed as telemarketers by the private 874 See generally CURE-NPRM; CCA-NPRM; EPI- rulemaking proceeding). sector are inmates in state prisons, regulated by NPRM; and UNICOR-NPRM. See also June 2002 Tr. 881 AARP-NPRM at 9-10. state agencies.). III at 115-57. 882 See NACAA-NPRM at 10-11.

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The record does not contain any new unnecessary to include an explicit current provisions are adequate.’’894 evidence regarding the potential harm prohibition against Rule violators DMA-NonProfit stated that ‘‘imposing that accrues from the use of couriers, or purchasing lists of prospective contacts burdensome and lengthy (two-year) any new evidence regarding the benefits to provide the benefits detailed by DOJ recordkeeping responsibilities’’ on to legitimate companies of being able to in its comment. In numerous cases, the charities would hurt the ability of use couriers to collect payment. Commission has already included a charities, especially small ones, because Although the Commission recognizes similar prohibition in final orders that it would divert funds away from that fraudulent telemarketers often use achieves the goals articulated by DOJ.889 fulfillment of charities’ missions.895 The couriers to collect payment, it continues Thus, the Commission declines to Commission believes that the to believe that ‘‘[t]here is nothing include a provision to this effect in the recordkeeping burden on telemarketers inherently deceptive or abusive about amended Rule. who solicit on behalf of charities will be the use of couriers by legitimate minimal. As noted in the SBP for the business.’’883 Moreover, the E. Section 310.5 — Recordkeeping original Rule, the recordkeeping Commission reiterates its view that Section 310.5 of the original Rule provision was already tailored to ‘‘strike telemarketers who seek to use courier identifies the kinds of records that must a balance between minimizing the services to defraud consumers are likely be kept by sellers and telemarketers, and recordkeeping burden on industry and to ‘‘engage in other acts or practices that the time period for retention of these retaining the records necessary to clearly are deceptive or abusive, and records.890 In the NPRM, the pursue law enforcement actions. . .’’896 that are prohibited by this Rule.’’884 Commission noted that it had declined In addition, the Commission believes Therefore, the Commission declines to to adopt any of the suggested that the records required to be adopt the recommendation to ban the modifications to this section submitted maintained are those commonly use of couriers to collect payment for pursuant to the Rule Review. maintained by businesses in the goods or services sold through Specifically, the Commission declined ordinary course of business.897 The telemarketing. to: (1) reduce the record retention Commission believes that, as applied to Targeting vulnerable groups and the period to less than 24 months; or (2) tie telemarketers who solicit on behalf of sale of victim lists: DOJ proposed that the duration of record retention either to charities, the burden of compliance with the Commission include in the amended the value of the goods or services sold the recordkeeping provision will be Rule a provision that ‘‘would prohibit a or the refund policy of the seller, further lessened because many of the seller or telemarketer who is engaged in believing that such modifications would recordkeeping provisions will be any act or practice that violates minimize the effectiveness of this inapplicable in the charitable §§ 310.3(a), (c), or (d) or 310.4(a)-(e) provision in law enforcement.891 The solicitation context, or are burdens from purchasing lists of prospective Commission did note that the effect of typically borne by the telemarketer, not contacts from any source.’’885 This the USA PATRIOT Act amendments the organization on whose behalf the suggested change responds to the was to extend the recordkeeping calls are made.898 problems of the sale of victim lists and requirement to include not only calls to NEMA requested that the Commission the targeting of vulnerable groups. As induce the purchase of goods or consider the recordkeeping burden on DOJ explains, such a provision would services, but also calls to induce energy marketers who must, pursuant to ‘‘ensure that any injunctive relief it charitable contributions.892 The only their self-regulatory guidelines, already sought in enforcement proceedings explicit change to the language of the would include a prohibition on any 894 ARDA-NPRM at 17. ARDA did reiterate, section to implement the USA PATRIOT however, its concern that ‘‘overlapping, further purchases of ‘mooch lists’ by any Act amendments was to add the phrase inconsistent, and conflicting state laws create a individual or corporate defendants in ‘‘or solicitations of charitable substantial burden.’’ the action,’’ and lay the foundation for contributions’’ to § 310.5(a)(4) following 895 DMA-NonProfit-NPRM at 16. criminal contempt proceedings if such the phrase ‘‘employees directly involved 896 60 FR at 43857. 897 an injunction were violated.886 DOJ also in telephone sales.’’893 Id. 898 For example, § 310.5(a)(2) only applies when argued that such an injunction, served Very few comments addressed the the offer includes a prize promotion, a circumstance on ‘‘any list provider known to have recordkeeping requirements set forth in unlikely to be implicated in most charitable done business with the fraudulent § 310.5. ARDA noted that it ‘‘agrees with solicitations. Section 310.5(a)(3) only applies in the telemarketer,’’ would limit such commercial solicitation context, as it requires the Commission and feels that the maintenance of records showing information about telemarketer’s ability to resume ‘‘customers.’’ Section 310.5(a)(4) is a requirement 887 fraudulent solicitations. Finally, DOJ 889 See, e.g., FTC v. Fed. Data Servs., No. 00-6462- typically borne by telemarketers, and the noted that such a provision ‘‘would CV-Ferguson (S.D. Fla. filed Apr. 3, 2000) Commission believes that charitable organizations enable the Commission to address, at (Stipulated final judgment entered Jan. 9, 2001); are unlikely to incur additional costs of compliance FTC v. Data Med. Capital, Inc., No. SA-CV-99- with this provision as a result of the Rule’s least in part, the targeting of vulnerable 1266AHS (EHC) (S.D. Cal. filed Oct. 14, 1999) inclusion of charitable solicitations. The victims by fraudulent telemarketers, (Stipulated final order for permanent injunction Commission does not believe that compliance with without having to grapple with the and other settlement of claims entered July 13, amended § 310.5(a)(5), which requires that all 2001); FTC v. RJB Telecom, Inc., No. verifiable authorizations or records of express difficulties of defining what constitutes informed consent or express agreement required to 888 CIV002017PHXEHC (D. Ariz. filed Oct. 25, 2000) ‘‘vulnerability’’ or ‘‘targeting.’’ (Stipulated final judgment and order for permanent be provided under the Rule be maintained will be After careful consideration, the injunction filed Aug. 27, 2001); FTC v. Story d/b/ unduly burdensome to charities who are less likely Commission has determined not to a Network Publ’ns., No. 3-99CV0968-L (N.D. Tex. to avail themselves of the marketing methods that adopt the provision proposed by DOJ. filed Apr. 25, 1999) (Stipulated order for permanent implicate these Rule requirements. Therefore, the injunction and civil penalty filed June 6, 2000). only provision of the recordkeeping section that is The Commission believes that it is likely to affect charities is § 310.5(a)(1), the 890 16 CFR 310.5. requirement that ‘‘[a]ll substantially different 891 67 FR at 4527-28. 883 60 FR at 30415. advertising, brochures, telemarketing scripts, and 892 67 FR at 4528. promotional materials’’ be maintained. To the 884 Id. 893 Due to an oversight, the text of the NPRM 885 extent that retention of such materials is not already DOJ-NPRM at 7. noted the correct language of the provision (‘‘or customary in the non-profit sector, the Commission 886 Id. solicitations of charitable contributions’’), while the believes that the burden of compliance is offset by 887 Id. text of the proposed Rule included an abbreviated the corresponding law enforcement benefits that 888 Id. version (‘‘or solicitations’’). accrue from this provision.

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maintain certain records.899 As noted were designed to ensure that legitimate cleaning supplies need not comply with above in the discussion of the express businesses are not unduly burdened by the amended Rule’s ‘‘do-not-call’’ verifiable authorization provision, the Rule.902 Based on the record in this provisions. § 310.3(a)(3)(ii), the Commission proceeding, and on its law enforcement In addition, the amended Rule believes that sellers, when they accept experience, the Commission has removes the proposal that would have payment via methods that are novel or determined to add an exemption, made the business-to-business lack certain fundamental consumer § 310.6(a), to specifically exempt exemption unavailable to the protections, must obtain express outbound calls to solicit charitable telemarketing of Web services, Internet verifiable authorization by any of the contributions from the national ‘‘do-not- services, and charitable solicitations to three means allowed by the amended call’’ registry provisions of the amended businesses. Pursuant to the USA Rule. The maintenance of such records Rule. In addition, the Commission has PATRIOT Act amendments to the is also necessary to ensure the law determined to modify each of the Telemarketing Act, the Commission enforcement goals of the recordkeeping subsections of the original Rule that are amends the Rule to expand several of provision. now found in renumbered § 310.6(b). the exemptions to encompass calls to Finally, ERA noted in its The Commission amends newly induce charitable solicitations. Thus, supplemental comment that it believed renumbered §§ 310.6(b)(1), (2), and the amended Rule exempts: charitable 903 that it would be expensive for (3) to require telemarketers and solicitation calls that are followed by telemarketers conducting upsells to sellers of pay-per-call services, face-to-face payment, § 310.6(b)(3); comply with the Rule’s recordkeeping franchises, and those whose sales prospective donors’ inbound calls not 900 requirements. As addressed above in involve a face-to-face meeting before prompted by a solicitation, § 310.6(b)(4); the discussion of § 310.4(a)(6), the consummation of the transaction, to charitable solicitation calls placed in Commission believes that both because comply with the ‘‘do-not-call’’ and response to general media advertising, the cost of digital audio recording and certain other provisions of § 310.4. § 310.6(b)(5); and donors’ inbound calls The Commission amends renumbered storage is decreasing, and because of the placed in response to direct mail § 310.6(b)(4),904 which exempts limited circumstances in which such solicitations that comply with inbound calls that are not a result of a recording is required under the Rule, § 310.4(e). In the NPRM, the the burden on sellers who choose to solicitation, to make this exemption unavailable to upsell transactions and to Commission proposed to make the market goods and services using a business-to-business exemption combination of a ‘‘free-to-pay calls in response to a message left pursuant to the abandoned call safe unavailable for charitable solicitation conversion’’ coupled with preacquired calls. Based upon the record in this account information is offset by the harbor provision in § 310.4(b)(4)(iii). The Commission amends the general proceeding, the Commission has consumer protection benefits that will determined that it should not proceed accrue from recording and maintaining media exemption, now renumbered 905 with this proposal. consumers’ express informed consent in § 310.6(b)(5), and the direct mail these circumstances. exemption, now renumbered §§ 310.6(b)(1), (2), and (3) — Thus, the only modification to the § 310.6(b)(6),906 to make these Exemptions for pay-per-call services, language of § 310.5(a)(5) in the amended exemptions unavailable to upsells, and franchising, and face-to-face Rule is to require that in addition to to telemarketers of credit card loss transactions retaining all verifiable authorizations, a protection plans and business Section 310.6(a) of the original Rule seller or telemarketer must keep all opportunities other than business exempts all transactions subject to the ‘‘records of express informed consent or arrangements covered by the Franchise Commission’s Pay-Per-Call Rule.908 express agreement’’ for 24 months. This Rule. In addition, the amended Rule Similarly, § 310.6(b) exempts modification is necessitated by the makes clear that email and facsimile transactions subject to the Commission’s introduction of these two terms in messages are direct mail for purposes of Franchise Rule.909 Section 310.6(c) § 310.4(a)(6), dealing with unauthorized the Rule. Finally, the amended Rule exempts transactions in which the sale billing, and § 310.4(b)(1)(iii)(B)(i), modifies the proposed business-to- of goods or services is not completed, addressing permission to a seller to call business exemption, now at 907 and payment or authorization of despite a consumer’s inclusion on the § 310.6(b)(7) to clarify that sellers and payment is not required, until after a national ‘‘do-not-call’’ registry. The telemarketers of nondurable office or face-to-face sales presentation by the Commission believes it is necessary for telephone calls in response to a general media seller.910 In the NPRM, the Commission a seller or telemarketer to retain such advertisement (except those related to investment proposed to retain the exemptions for records of express informed consent and opportunities, credit repair, ‘‘recovery,’’ or advance pay-per-call services, franchising, and express agreement to enable the fee loan services); (5) inbound telephone calls in face-to-face transactions,911 and require Commission and the states to determine response to direct mail solicitations that truthfully disclose all material information (except compliance with these provisions of the solicitations relating to prize promotions, 908 The renumbered exemption in the amended Rule. investment opportunities, credit repair, ‘‘recovery,’’ Rule is found at § 310.6(b)(1). or advance fee loan services); and (6) business-to- 909 F. Section 310.6 — Exemptions The renumbered exemption in the amended business telemarketing (except calls involving the Rule is found at § 310.6(b)(2). retail sale of nondurable office or cleaning Section 310.6 exempts certain 910 Face-to-face transactions are also covered by supplies). the Commission’s Rule Concerning Cooling-Off telemarketing activities from the Rule’s 902 60 FR at 43859. 901 Period for Sales Made at Homes or at Certain Other coverage. The exemptions to the Rule 903 These exemptions were found at § § 310.6(a), Locations, 16 CFR 429. This exemption has been (b), and (c) of the original Rule. renumbered in the amended Rule and is now found 899 NEMA-NPRM at 8-10. 904 This provision was § 310.6(d) in the original at § 310.6(b)(3). 900 ERA-Supp. at 7. Rule. 911 No modifications to § § 310.6(b)(1) and (2) are 901 Specifically, the original Rule exempts: (1) 905 The general media exemption was at § 310.6(e) necessary to implement the USA PATRIOT Act goods and services subject to the Commission’s Pay- in the original Rule. amendments because charitable solicitations are not Per-Call Rule and Franchise Rule; (2) telemarketing 906 The direct mail exemption was at § 310.6(f) in likely to be combined with pay-per-call or franchise sales consummated after face-to-face transactions; the original Rule. sales. Therefore, there is no need to expressly (3) inbound telephone calls that are not the result 907 The business-to-business exemption was at exempt such an unlikely scenario from TSR of any solicitation by the seller or telemarketer; (4) § 310.6(g) in the original Rule. coverage. However, it is necessary to amend

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telemarketers selling these exempted voiced so strongly by the public. For this provide arguments showing why they goods and services to comply with reason, telemarketing abuses can only be should be exempted from regulations § 310.4(a)(1) (prohibiting threats, curtailed if the practice itself— rather than covering the particular abusive practices intimidation, or use of profane or the type of business involved—is subject to the Commission’s rules.915 set forth in the Commission’s obscene language), § 310.4(a)(7) proposal— i.e., a national ‘‘do-not-call’’ (requiring transmission of Caller ID), The Commission received no registry, calling time restrictions, the § 310.4(b) (prohibiting abusive pattern comments opposing application of the prohibition against denying or of calls and requiring compliance with ‘‘do-not-call’’ and other abusive interfering with a consumer’s right to be ‘‘do-not-call’’ provisions), and § 310.4(c) practices provisions to pay-per-call placed on a ‘‘do-not-call’’ list, the (calling time restrictions). transactions. With regard to transactions requirement to transmit Caller ID The NPRM pointed out that the Rule subject to the Commission’s Franchise information, and the prohibition against Review record contained ample Rule, industry commenters expressed threats and intimidation. evidence of consumers’ increasing concern about ambiguities on how the NAR argued that Congress intended frustration with unwanted telemarketing ‘‘do-not-call’’ and calling time the TSR to address abusive, deceptive, calls, including those soliciting for pay- restrictions would be applied when and fraudulent telemarketing practices, per-call services or sales inbound calls are converted to outbound not to regulate or prohibit a single 916 appointments.912 A number of calls. The Commission has addressed telephone call from a real estate participants in the Rule Review Forum this issue in its discussions above of the professional that simply provides concurred that the ‘‘do-not-call’’ definition of ‘‘outbound call’’ and information to a consumer.920 provision of the Rule should also be required disclosures in upsell Transactions subject to the applicable to calls where a seller transactions. IFA also noted that Commission’s amended Rule (and thus attempts to set up an in-person sales compliance with a national ‘‘do-not- subject to the national ‘‘do-not-call’’ meeting at a later date.913 For these call’’ registry would be costly, registry) are those that fall within the reasons, the Commission proposed particularly if the registry does not definition of ‘‘telemarketing,’’ i.e., ‘‘a making face-to-face, franchise, and pay- contain an exemption for established plan, program, or campaign which is business relationships and does not per-call transactions subject to the ‘‘do- conducted to induce the purchase of preempt state ‘‘do-not-call’’ laws.917 The not-call,’’ calling time restriction, and goods or services or a charitable Commission has addressed these issues certain other abusive practices contribution, by use of one or more in its discussion above regarding the provisions in § 310.4. telephones and which involves more national ‘‘do-not-call’’ registry. Consumer and privacy advocates, as than one interstate telephone call.’’921 A well as state regulators, supported the Face-to-face transactions: Industry commenters generally opposed making single, isolated telephone call would not Commission’s proposal to make these be part of a plan, program, or campaign transactions subject to the ‘‘do-not-call’’ face-to-face transactions subject to the and thus would not fall within the and certain other provisions of ‘‘do-not-call,’’ calling time restriction, definition of ‘‘telemarketing.’’ § 310.4.914 They recommended that, in and certain other abusive practices Furthermore, it is unlikely that the order to be effective, a ‘‘do-not-call’’ provisions.918 These commenters argued majority of real estate agents conduct registry should have as few exemptions that face-to-face transactions should campaigns of outbound calls to solicit as possible. PRC pointed out: continue to be exempt because their potential customers who live out-of- practices are already heavily regulated [T]elemarketing as a business practice state. Most of the outbound solicitation by the states and by the Commission transcends the boundaries of regulated and calls made by real estate agents are through other FTC rules and thus are unregulated industries. So-called ‘‘cold probably intrastate calls that would be calling’’ is a common marketing technique, less susceptible to abusive practices.919 excluded from the Rule’s coverage. used by the most established regulated entity However, the national ‘‘do-not-call’’ However, if a real estate agent routinely down to the fraudulent ‘‘boiler room’’ that is registry is not focused on fraud, but places outbound calls to solicit potential here today and gone tomorrow. rather on consumer privacy. The Each type of entity—and all those in between customers in other states, those calls, in Commission agrees that the incidence of that make unwanted telephone calls to a the aggregate, would fall within the fraud may be diminished in face-to-face private home—contribute to privacy definition of ‘‘a plan, pattern, or transactions, where the transactions are invasions, costs for devices to stop the campaign’’ of outbound calls and would invasions, and the overall annoyance factor subject to regulation by other be subject to the Rule. Commission rules or by state NAR also argued that a call to set up § 310.6(b)(3) to exempt charitable solicitations that regulations. For that reason, the a meeting does not fall within the entail a face-to-face meeting before the donor pays. Commission has retained the exemption 912 definition of ‘‘telemarketing’’ because 67 FR at 4516-18. One consumer who spoke for face-to-face transactions from the during the public participation portion of the DNC such calls do not involve the provisions of the Rule that address Forum noted frustration about her inability to inducement to purchase using the invoke her right not to be called again by a deceptive or other abusive practices. telephone, but rather non-deceptive company that called her to solicit a sales However, the commenters failed to appointment. See generally DNC Tr. at 241-46 (Mey). See also FTC v. Access Resource Servs., No. 920 NAR-NPRM at 1-2. Similarly, DSA notes that 915 02-60226 CIV GOLD (S.D. Fla. filed Feb. 13, 2002) PRC-NPRM at 3-4. many of the calls by direct sellers involve single (regarding Miss Cleo’s psychic services where 916 Car Wash Guys-NPRM at 51-56; IFA-NPRM at telephone calls to individuals with whom the seller psychics continued to call consumers despite 2; NFC-NPRM at 3. has a personal relationship. DSA maintains that repeated requests from the consumer to stop 917 IFA-NPRM at 2. calls to individuals with whom an on-going calling). 918 See generally Craftmatic-NPRM; DSA-NPRM; commercial or personal relationship exists are 913 See RR Tr. at 291-96. NAR-NPRM; ICFA-NPRM at 2-3; Insight-NPRM. See reasonable, frequently welcome, and expected by 914 EPIC-NPRM at 20; PRC-NPRM at 3-4 (there also June 2002 Tr. III at 157-226. But see ARDA- the consumer, and therefore suggests that the should be no exemptions whatsoever from ‘‘do-not- NPRM at 2, 7-9, which supports creation of a Commission provide an exemption for a prior call’’ registry); FCA-NPRM at 1-2 (intrastate calls national ‘‘do-not-call’’ registry as long as the business or personal relationship. DSA-NPRM at 5- should not be exempt); NAAG-NPRM at 57; NFDA- registry preempts state laws and the Commission 8. As discussed above in the section regarding the NPRM at 5 (in connection with the face-to-face provides an exemption for established business national ‘‘do-not-call’’ registry, the amended Rule transaction exemption, telemarketers should also be relationships. provides an exemption for ‘‘established business required to comply with the oral disclosure 919 See, e.g. DSA-NPRM at 6-7; NAR-NPRM at 4; relationships.’’ requirements of § 310.4(d)). June 2002 Tr. III 157-226. 921 Amended Rule § 310.2(cc).

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communication of information about payment or donation is made information or customer technical services that are not offered or made subsequently in a face-to-face setting. support.927 available for purchase in a phone However, the amended Rule requires Furthermore, in these calls, the conversation.922 However, the definition that, even when a call falls within these consumer presumably is in control of of ‘‘telemarketing’’ does not require that exemptions, a telemarketer may not the transaction that the consumer the purchase be made during the engage in the following practices: initiated, absent any outbound call or telephone conversation. The definition • threatening or intimidating a direct mail piece. simply states that the call be customer, or using obscene language; In contrast, the upsell is a direct ‘‘conducted to induce the purchase of • failing to transmit Caller ID solicitation for a product or service goods or services.’’ The inducement information; other than that for which the consumer could be made during the telephone • causing any telephone to ring or initiated the call. As such, upsells are call, or it could be in the form of setting engaging a person in conversation with part of a telemarketing ‘‘plan, program, up a subsequent face-to-face meeting at intent to annoy, abuse, or harass the or campaign to induce the purchase of which an additional sales presentation person called; goods or services’’ and thus do fall could take place. • denying or interfering with a within the definition of In summary, the Telemarketing Act persons’s right to be placed on a ‘‘do- ‘‘telemarketing.’’ Furthermore, in mandates that the Commission’s Rule not-call’’ registry; upsells, the consumer does not initiate address abusive telemarketing practices • calling persons whose telephone the sales transaction; the sales and specifically mandates that the numbers have been placed on the solicitation is initiated by the seller. Commission’s Rule include a national ‘‘do-not-call’’ registry When the consumer initiates an prohibition on calls that a reasonable maintained by the Commission, unless unsolicited inbound call, the consumer consumer would consider coercive or an established business relationship does not necessarily expect to be offered abusive of the consumer’s right to exists between the seller and the person a good or service during the course of privacy, as well as restrictions on (telemarketers seeking charitable that call (such as in the case of a calling times.923 The rulemaking record solicitations are exempted from this technical support call), or to be offered shows that face-to-face transactions are requirement); additional goods or services (in the case not less susceptible to certain abusive • calling persons who have placed their where the consumer was calling to make practices prohibited in § 310.4.924 For names on that seller’s or charitable a purchase). Some commenters this reason, the Commission has organization’s ‘‘do-not-call’’ list; and suggested that upsells appended to determined that telemarketing calls to • calling outside the time periods inbound calls should be exempted.928 solicit a face-to-face presentation or the allowed by the Rule. However, the Commission’s experience purchase of pay-per-call services should § 310.6(b)(4) — Inbound calls not in indicates that upsells appended to be subject to certain Rule provisions response to a solicitation unsolicited inbound calls open the door designed to limit abusive practices. to potential deception and abuse in the Because franchise sales generally The amended Rule revises subsequent upsell transaction.929 involve a face-to-face meeting at some § 310.6(b)(4) to expressly except from Accordingly, the amended Rule excepts point, these transactions are simply the exemption any upsell following an upsell transactions from the exemption another type of face-to-face transaction exempt transaction initiated by the provided for unsolicited inbound calls and thus the telemarketing of franchises consumer. When the Commission by consumers in § 310.6(b)(4). should be held to the same standard. issued the original Rule in 1995, this There was substantial comment on Therefore, the Commission retains the exemption was intended to apply to a the potential cost of subjecting upsells exemptions for pay-per-call services, single telemarketing transaction associated with inbound calls to any franchising, and face-to-face initiated by the consumer without any provisions beyond the Rule’s disclosure transactions set out in §§ 310.6(b)(1)-(3), solicitation by the seller or telemarketer. requirements.930 The original Rule but amends the TSR to require that Since then, the practice of upselling has exempted most inbound calls entirely, telemarketers making these types of emerged, and has grown dramatically, since most would fall within either this calls comply with §§ 310.4(a)(1) and (7), particularly in the inbound exemption for calls initiated by the and §§ 310.4(b) and (c). The amended telemarketing context. The reasons for consumer, or into renumbered Rule continues to exempt such calls exempting a telemarketing transaction §§ 310.4(b)(5) or (6) for general media from the requirements of § 310.3 relating pursuant to § 310.6(b)(4) do not apply to advertisements or certain direct mail to deceptive practices and from the an upsell linked to that initial solicitations—each of which is recordkeeping requirements set out in transaction. discussed below. As a result, sellers and § 310.5.925 These calls would also Section 310.6(b)(4) of the amended telemarketers were not required to continue to be exempt from providing Rule exempts calls initiated by the oral disclosures required by consumers without solicitation by the 927 60 FR at 43860. § 310.4(d). Similarly, telemarketers seller or telemarketer because such calls 928 See, e.g., AFSA-NPRM at 15. soliciting charitable donations would be are not part of a ‘‘plan, program, or 929 Indeed, NAAG noted that the states’ law exempt from § 310.4(e) when the campaign to induce the purchase of enforcement experience revealed that upsells often proved problematic when appended to inbound 926 goods or services.’’ Thus, these calls calls initiated by the consumer, or by general media 922 NAR-NPRM at 3-4. See also ICFA-NPRM at 1- do not fall within the definition of advertisements. NAAG-NPRM at 33 (‘‘[Upsells] are 2 (regarding funeral goods and services). ‘‘telemarketing.’’ The exemption was usually inbound calls during which the company 923 15 U.S.C. 6102(a)(1) and (3)(A)-(B). intended to cover receiving the call completes the purpose for which 924 See Gindin-RR at 1; Mey-RR generally; DNC the consumer initiated the call and then entices the Tr. at 241-46; RR Tr. at 291-95. incidental uses of the telephone that are not consumer to consider another seller’s products. The 925 Of course, a seller or telemarketer would have in response to a direct solicitation, e.g., calls upsell can follow either a sales call or a call related to keep documentation in order to successfully raise from a customer to make hotel, airline, car to customer service such as a call about an account payment or product repair.’’) See, e.g., New York v. the ‘‘safe harbor’’ defense in § 310.4(b)(3) regarding rental, or similar reservations, to place carry- compliance with the amended Rule’s ‘‘do-not-call’’ Ticketmaster and Time, Inc., (Assurance of requirements. The safe harbor relating to abandoned out or restaurant delivery orders, or to obtain Discontinuance). calls, discussed in § 310.4(b)(4), also includes a 930 See, e.g., DMA-NPRM at 38; ERA-NPRM at 11; requirement to maintain certain records. 926 See S. REP. NO. 103-80, at 8 (1993). PMA-NPRM at 9-13.

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comply with the Rule’s recordkeeping burdensome.937 While the Commission goods or services to the list of its requirements with respect to these recognizes that, to the extent exceptions: credit card loss protection exempt telephone calls. While the telemarketers have not been subject to plans, and business opportunities other amended Rule retains these exemptions the Rule, there is potential for than those covered by the Franchise (although with some modification), additional burdens, the obligations of Rule or any subsequent rule covering upsell transactions are excluded from the Rule are minimal, and generally business opportunities the Commission those exemptions. Thus, to the extent reflect regular practices already in place may promulgate.939 The proposed that the Rule requires that records be for most sellers and telemarketers in the expansion of the exemption to cover maintained, including recordings of ordinary course of business—such as charitable solicitations pursuant to the express verifiable authorization or the basic disclosure requirements, USA PATRIOT Act yielded no express informed consent, such records prohibition on misrepresentations, and comments. must be maintained regarding these recordkeeping requirements.938 Several of the commenters who inbound upsells. Moreover, the taping requirement is addressed the general media exemption opposed having any exemption at all for Commenters expressed concern limited to those transactions that general media, and therefore supported primarily about the potential need for involve both preacquired account any effort to narrow it.940 NCL stated sellers and telemarketers to record information and a ‘‘free-to-pay conversion’’ offer. Thus, only those that if the Commission determined to certain inbound transactions.931 These sellers and telemarketers that choose to retain the general media exemption, it commenters suggested that call centers structure their upselling campaigns in supported the addition of credit card accustomed to handling only inbound this fashion will be subject to this loss protection plans and business telemarketing calls were not necessarily additional requirement. The opportunities other than those covered equipped with recording equipment, Commission therefore believes that any by the Franchise Rule to the list of and that obtaining and implementing additional burden caused by these new goods and services excepted from the the necessary systems would be requirements will be minimal. exemption. In support of its position, prohibitively expensive for many such Ultimately, the Commission believes NCL noted that in 35 percent of the organizations.932 However, the that the benefits to consumers of work-at-home complaints made to the Commission notes that taping is receiving the appropriate disclosures in NFIC in the year 2001, consumers required only in one circumstance: an upsell transaction outweigh the costs reported that they were solicited under new § 310.4(a)(6)(i)(C), the seller to industry of providing those through print media.941 Since work-at- or telemarketer must make and maintain disclosures and ensuring that any home solicitations are not ‘‘business a recording of the entire sales charges are authorized by the consumer. arrangements covered by the Franchise transaction any time a telemarketing Additionally, it should be clear that Rule,’’ the exception from the general transaction involves both preacquired telephone calls initiated by a customer media exemption will now ensure that account information and a ‘‘free-to-pay or donor in response to a telemarketer’s 933 inbound calls in response to general conversion’’ feature. In instances transmission of Caller ID information or media advertisements touting work-at- where it is necessary to obtain the use of a recorded message under the home opportunities will be subject to consumer’s express verifiable abandoned call safe harbor provision the Rule. NCL also noted that although authorization pursuant to § 310.3(a)(3), described in § 310.4(b)(4) are excepted most of the solicitations for credit card the amended Rule provides alternatives from this exemption, as the customer or loss protection plans were made by to making a recording of the consumer’s donor in this context would have had 934 telephone, these services should be oral authorization. Thus, the number no reason to initiate a telephone call but covered by the Rule regardless of how of industry members who would be for the solicitation efforts of the seller, they are promoted ‘‘given the egregious required to obtain recording equipment charitable organization, or telemarketer. nature of these complaints.’’942 is relatively limited. Moreover, with the The transmission of Caller ID While commenters and forum growth of digital recording technology, information and the use of a recorded participants generally endorsed the the capital investment in recording message are considered forms of proposed narrowing of the general equipment and record storage is rapidly solicitation by a seller, charitable media exemption, some urged the 935 declining. organization, or telemarketer under this Commission to reconsider whether a CCC argued that in inbound calls not exemption because they are part of a general media exemption is currently subject to the Rule, the impact telemarketer’s efforts to induce the ‘‘appropriate and workable,’’ arguing of these amendments would be to purchase of goods or services or a that consumers who call in response to ‘‘unnecessarily increase inbound call charitable contribution. Although the such advertisements are vulnerable to length by 50 percent or more and information displayed on a consumer’s fraud and deception unless certain thereby increase the cost of goods or caller identification service or provided minimal disclosures are made.943 NCL services to consumers.’’936 CCC also via a recorded message will not include acknowledged that the Commission suggested that additional recordkeeping, a sales pitch, it is a ‘‘result of [a] could combat such deception using its ‘‘public disclosure,’’ and taping solicitation’’ and therefore outside the authority under Section 5 of the FTC requirements will be overly scope of the exemption described in this Act, but argued that consumer injury section. could better be prevented if disclosures 931 CCC-NPRM at 12-13; June 2002 Tr. II at 224 310.6(b)(5) — Exemption for general (CCC); June 2002 Tr. II at 232-33 (MPA). 939 This section was found at § 310.6(e) in the 932 CCC-NPRM at 12-13; June 2002 Tr. II at 224 media advertisements proposed Rule. (CCC); MPA-NPRM at 28-29; June 2002 Tr. II at 232- The Commission received few 940 See, e.g., EPIC-NPRM at 25-26; NCL-NPRM at 33 (MPA). comments addressing its proposal to 12; NAAG-NPRM at 58; June 2002 Tr. III at 177, 933 See discussion of § § 310.2(o) and (w), and 182-83 (NAAG has historically opposed the § 310.4(a)(6) above for a detailed explanation of narrow the general media exemption by exemption; AARP supports NAAG position). these provisions. adding two additional categories of 941 NCL-NPRM at 12. 934 See discussion of § 310.3(a)(3) above. 942 Id. 935 See note 480 above. 937 Id. 943 Id. See also June 2002 Tr. III at 177-83 (NAAG 936 CCC-NPRM at 16. 938 60 FR at 32682-83 (June 23, 1995). and AARP).

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were required. NCL further advanced media advertisement.949 The customers or salespeople through the proposition that all telemarketers Commission agrees that this scenario general media advertisements.953 DSA should be subject to the express would be an unwelcome consequence of argues that ‘‘[t]here is nothing verifiable authorization requirements the provision’s wording and thus has inherently deceptive or abusive about when consumers’ accounts will be amended this provision to clarify that communications over the telephone billed, regardless of whether calls are the exemption may not be claimed in (particularly those initiated by the outbound or inbound, and, in the latter any instances of upselling that occur in consumer) regarding a business instance, even when such calls are in the call. opportunity’’ and that ‘‘there should be response to an advertisement delivered NAAG also recommended that the list even fewer concerns about by general media or direct mail.944 EPIC of exceptions to the general media communications related to prospective noted its position that ‘‘[g]eneral media exemption be expanded to include other transactions involving activities clearly advertising may be deceptive, abusive or transactions that involve a high risk of deemed de minimis by the Franchise merely lack the information required to abuse, such as discount buyers clubs Rule.’’954 As the Commission stated in be disclosed under the Rule, thus and offers involving ‘‘opt out free the NPRM, it has determined, based on substantially reducing the level of trials.’’950 The Commission agrees that the record and in particular on its protection otherwise afforded to the telemarketing of these products or extensive law enforcement experience consumers by the Rule.’’945 services frequently involves fraudulent in this area, that ‘‘telemarketing fraud The Commission declines to adopt or deceptive practices. However, there is perpetrated by the advertising of work- these recommendations to further no evidence on the record indicating at-home and other business opportunity regulate inbound calls resulting from that these products or services are schemes in general media sources is a general media advertisements. In the telemarketed through general media prevalent and growing SBP issued with the original Rule, the advertisements. Rather, the states and phenomenon.’’955 Outbound telephone Commission explained that in its the Commission have brought law calls to induce the purchase of a experience ‘‘calls responding to general enforcement actions challenging the business opportunity not regulated by media advertising do not typically deceptive telemarketing of these the Franchise Rule have been subject to involve the forms of deception and products predominantly when they are the Rule’s coverage since it was abuse the Act seeks to stem.’’946 The sold via outbound cold calls or in promulgated, and the new exception for Commission’s experience since the upselling, after the consumer has called general media advertisements merely promulgation of the Rule continues to to purchase another product or service expands that requirement when an support the exemption for general in response to a general media inbound call results from the media advertising, with targeted advertisement.951 As discussed above, advertisement of such ventures in the exceptions for certain goods or services the amended Rule contains a modified general media.956 Moreover, if a direct that have routinely been touted by general media exemption, which makes seller is marketing its underlying fraudulent sellers using general media the exemption unavailable to upselling product to customers, the exception advertising to generate inbound calls. In transactions that occur in a call in would not bring such activity under the response to the suggestion that express response to a general media Rule because it would not implicate the verifiable authorization be required in advertisement. In addition, the amended sale of a business opportunity.957 all telemarketing transactions when the Rule contains specific requirements for Furthermore, as the Commission noted consumer’s account will be billed, the negative option, ‘‘free-to-pay in the SBP for the original Rule, DSA’s Commission notes that the parameters conversion,’’ and upselling concern about recruitment of persons to of the amended express verifiable transactions.952 Therefore, the engage in the direct sale of goods or authorization provision, and the Commission finds it unnecessary to services is likely unfounded because the Commission’s rationale in adopting it, except discount buyers clubs and offers face-to-face exemption takes such efforts are discussed above in the analysis of involving ‘‘opt out free trials’’ from the outside the Rule’s coverage.958 § 310.3(a)(3).947 general media exemption. Based on its review of the record in NAAG expressed concern about the DSA opposed the amendment of the this matter, and its law enforcement growing number of sellers of general media exemption provision, experience, the Commission has membership or buying club expressing the concern that the determined to retain the proposed opportunities that operate using an exception for ‘‘business opportunities general media provision in the amended ‘‘upsell’’ technique after an initial other than business arrangements inbound call is placed by consumers in covered by the Franchise Rule’’ will 953 DSA-NPRM at 8-9. require individual direct sellers to 954 Id. response to an advertisement for a 955 948 comply with the Rule when they solicit 67 FR at 4530-31 (this determination is equally completely different product. NAAG applicable to the advertisement by direct mail of suggested that the Commission amend business opportunities other than business the general media exemption to ensure 949 Id. See also EPIC-NPRM at 25 (agreeing that arrangements covered by the Franchise Rule). upselling calls should be subject to the Rule). Cf. that the Rule does not inadvertently 956 The Commission noted in the original SBP Capital One-NPRM at 5 (requesting clarification that that ‘‘[w]hen a business venture is not covered by exempt upselling transactions that occur upselling calls are exempt, at least in an internal the Franchise Rule, then consumers do not receive when a consumer calls a seller or upsell). the protection afforded by that Rule’s pre-sale telemarketer in response to a general 950 NAAG-NPRM at 59. disclosure requirements. Therefore, it is appropriate 951 See, e.g., FTC v. Smolev., No. 01-8922 CIV that telephone sales of such ventures should be ZLOCH (S.D. Fla. 2001); New York v. covered by this Rule, so that consumers may receive 944 NCL-NPRM at 12. MemberWorks, Inc., Assurance of Discontinuance the benefit of its protections.’’ 60 FR at 4360. The 945 EPIC-NPRM at 25-26. (Aug. 2000); Minnesota v. MemberWorks, Inc., No. addition of the exception provisions to the direct 946 60 FR at 43860. MC99-010056 (4th Dist. Minn. June 1999); mail and general media exemptions merely expands 947 The Commission also notes that new Minnesota v. Damark Int’l, Inc., No C8-99-10638, upon the initial requirement. § 310.4(a)(6) requires that, in every instance, a seller Assurance of Discontinuance (Ramsey County Dist. 957 For example, the exception to the general or telemarketer secure the consumer’s express Ct. Dec. 3, 1999); FTC v. S.J.A. Soc’y, Inc., No. 2:97 media exemption would bring under the Rule an informed consent to be charged for the goods or CM 472 (E.D. Va. filed May 31, 1997). effort by a direct seller to recruit others to market services or charitable contribution, and to be 952 See amended Rule § § 310.3(a)(1)(vii), its products, but not the sale by the direct seller of charged using the identified account. 310.3(a)(2)(ix), 310.3(a)(3)(iii), 310.4(a)(6), cosmetics to its own end-customers. 948 NAAG-NPRM at 58-59. 310.4(a)(7), and 310.4(d). 958 60 FR at 43860, n.185.

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Rule with two changes. First, the phrase that clearly, conspicuously, and any item contained in § 310.3(d) in ‘‘or any subsequent rule covering truthfully disclosed all material charitable solicitations sent by direct business opportunities the Commission information required by § 310.3(a)(1). mail to donors. may promulgate’’ has been deleted in Certain categories of transactions, In the proposed Rule, the Commission the amended Rule. Should the specifically those in which the stated that the direct mail exemption Commission promulgate a rule covering solicitation was for a prize promotion, would be applicable to inbound calls business opportunities, the nexus investment opportunity, credit repair made in response to a direct mail between the TSR and any such rule will service, ‘‘recovery’’ service, or advance charitable solicitation that complies be considered, and any necessary fee loan, were excepted from this with § 310.3(a)(1). NAAG suggested that conforming amendments made to the exemption because the record and the inbound calls resulting from a direct TSR at that time. Second, § 310.6(b)(5) Commission’s law enforcement mail charitable solicitation be exempt has also been amended to expressly experience made clear that these instead if the direct mail piece clearly, except from the general media particular products and services were so conspicuously, and truthfully sets forth exemption any upsell following the often subject to abuse by fraudulent the disclosure in § 310.4(e)(1) (the exempt transaction associated with the telemarketers that regulation under the identity of the charitable organization) general media solicitation. As with TSR was appropriate. and the fact that the organization is telephone calls initiated by the The proposed Rule retained the direct soliciting a charitable contribution.963 consumer without any solicitation by mail exemption provision, but clarified NAAG further recommended that, at a the seller or telemarketer, the reasons that advertisements sent via facsimile or minimum, several categories of for exempting a telemarketing electronic mail were considered direct information (including the nature of the transaction following certain general mail for purposes of this exemption.962 goods or services and the facts relating media solicitations do not apply to an The proposed Rule also added two new to a charitable contribution) deemed upsell linked to that initial categories of transactions to be excepted important to consumers and donors be transaction.959 The original Rule from the direct mail exemption: credit expressly referenced in § 310.6(f).964 exempts calls in response to a general card loss protection plans and business The Commission agrees that the specific media advertisement because ‘‘calls opportunities other than those covered disclosures required by § 310.3(a)(1)— responding to general media advertising by the Franchise Rule or any subsequent targeted at the sale of goods or do not typically involve the forms of Rule covering business opportunities services—are an imperfect fit with the deception and abuse the Act seeks to the Commission may promulgate. type of information a potential donor stem.’’960 However, the Commission Finally, pursuant to the USA PATRIOT would need to determine if he or she recognized that some fraudulent Act, the proposed Rule expanded the wished to contact a charitable telemarketers and sellers have used exemption to exclude from the Rule’s organization in response to a solicitation general media advertisements to entice coverage inbound calls to solicit a received via direct mail. Therefore, the victims to call, and thus has excepted charitable contribution made in amended Rule requires that, in order for those problem areas from the response to a direct mail solicitation the telemarketer to take advantage of the exemption. Upselling is one of the that complies with § 310.3(a)(1). direct mail exemption for inbound calls The Commission has determined, problem areas where general media in response to any direct mail charitable based on a review of the record and its advertisements have provided the solicitation, such solicitation contain no own law enforcement experience, to opening for subsequent deception and material misrepresentation regarding adopt the proposed amendments to the abuse.961 In addition, an upsell any item contained in § 310.3(d) of the direct mail exemption, renumbered in transaction is not similar to a general Rule. the amended Rule as § 310.6(b)(6). The media advertisement. It is a wholly new Section 310.6(b)(6) has also been amended Rule, however, differentiates sales offer targeted at the consumer a amended to expressly except from the between the requirements for direct seller or telemarketer has on the line for direct mail exemption any upsell mail solicitations for goods or services some other purpose, whether it be in following the exempt transaction and direct mail solicitations for response to a general media associated with the direct mail charitable contributions. The amended advertisement about a different product advertisement. As with telephone calls Rule retains unchanged the or service, or a customer service call initiated by the consumer without any requirements of the original Rule—i.e., initiated by the consumer. Accordingly, solicitation by the seller or telemarketer, the direct mail solicitation must clearly, the amended Rule excepts upsell or in response to general media conspicuously, and truthfully disclose transactions from the general media solicitations, the reasons for exempting all material information required by exemption in § 310.6(b)(5). a telemarketing transaction triggered by § 310.3(a)(1). However, because a direct mail advertisement do not apply § 310.6(b)(6) — Exemption for direct § 310.3(a)(1) applies only to goods and to an upsell linked to that initial mail solicitations services and not to charitable transaction.965 Section 310.6(b)(6) of the solicitations, the amended Rule Section 310.6(b)(6) of the original amended Rule exempts direct mail modifies the direct mail exemption Rule exempts from the Rule’s solicitations only if the disclosures language to ensure that prospective requirements inbound telephone calls required by § 310.3(a)(1) are truthfully, donors who receive direct mail resulting from a direct mail solicitation clearly, and conspicuously provided in solicitations for charitable contributions the direct mail piece. The Commission 959 The reasons for this exception are explained have protections similar to those in greater detail in the discussion of amended Rule enjoyed by consumers who purchase 963 NAAG-NPRM at 59-60. § 310.6(b)(4) above. goods or services. Thus, the amended 964 Id. 960 60 FR at 43860. Rule adds language to the direct mail 965 The reasons for this exception are discussed 961 FTC v. Smolev (a/k/a Triad Discount Buying exemption provision prohibiting in greater detail in the explanation of §§ 310.6(b)(4) Service) is one example of an internal upsell and (5) above. Capital One requested clarification triggered by consumer response to a general media material misrepresentations regarding of the applicability of this exemption to upselling advertisement. Smolev, No. 01-8922-CIV ZLOCH transactions. Capital One-NPRM at 5-6. EPIC (S.D. Fla. 2001). New York v. Ticketmaster 962 The direct mail exemption provision is found requested that upselling be subject to the Rule. (Settlement announced on Jan. 7, 2002). in the proposed Rule at § 310.6(f). EPIC-NPRM at 25.

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exempted these direct mail solicitations reported to NCL, faxes and emails are FCC’s regulations. To be entirely clear, because such solicitations the primary methods of solicitation.970 however, the Commission wishes to are not uniformly related to the forms of NCL noted that faxes and email are also state that its interpretation of the term deception and abuse the Act seeks to stem, used to solicit businesses for a variety ‘‘direct mail’’ in no way alters the nor are they uniformly related to such of telemarketing scams.971 DMA also legality of the underlying direct mail misconduct. Rather, in certain discrete areas supported the interpretation that contact. Rather, the new TSR provision of telemarketing, such solicitations often advertisements sent via fax or email will require that, to the extent that a fax provide the opening for subsequent should be considered as ‘‘direct mail’’ or email solicitation is allowed by law, deception and abuse. The Commission has pieces for purposes of the Rule.972 these direct mail solicitations must drawn upon its enforcement experience, Some commenters opposed the include the required disclosures, or else identified those problem areas, and excluded inclusion of fax and email them from this exemption.966 resulting inbound calls from consumers advertisements in the exemption,973 and will be subject to the entire TSR.979 Upselling transactions are one of the some expressed concern that the Although it favored the Commission’s problem areas where direct mail Commission’s interpretation could proposed interpretation which viewed solicitations have provided the opening actually increase the number of faxes and email as ‘‘direct mail’’ for for subsequent deception and abuse.967 unwanted solicitations sent to purposes of the Rule, DMA argued that Upon receiving a direct mail solicitation consumers by fax and email.974 NCL the Rule should allow the disclosures of in which all of the material terms of the stated that unsolicited fax material information to be made in the offer may be available to evaluate in the advertisements were prohibited under telephone call, rather than in the fax or direct mail piece, the consumer has the the TCPA because of their intrusive email advertisement.980 As support for time and the information necessary to impact on recipients’ privacy, and its position, DMA stated that to do make an informed decision whether to expressed concern that exempting calls otherwise could result in increased call and inquire further or make a in response to unsolicited faxes from the expense to sellers who use email to purchase. By contrast, an upsell Rule, even if the information in them is reach their target audience, due to the presentation provides the consumer no accurate and complete, ‘‘would ignore increased length of the message. DMA opportunity to review the material this important public policy further argued that the Commission disclosures pertinent to the offer. Once determination.’’975 NCL recommended lacks authority to dictate the content of again, the upsell is more akin to an that the Commission ban the sending of either email or fax advertisements. unsolicited outbound call to the unsolicited fax advertisements as an Finally, DMA posited that, if the intent consumer, who does not necessarily abusive practice under the Rule.976 of the provision is to mandate expect to be solicited for a purchase, The record in this matter provides no disclosures, the NPRM failed to evaluate and who has none of the material support for the assertion that the the costs of requiring such disclosures, information he or she needs to evaluate number of unwanted, but truthful, fax particularly in email solicitations.981 the offer and make a purchasing and email solicitations may increase as The Commission believes that, to decision. Accordingly, the amended a result of being exempted from the warrant exemption of the inbound call Rule excepts upselling transactions from TSR. The Commission notes that the in response to a direct mail solicitation the direct mail exemption in TCPA, enforced by the FCC, already from the Rule, it is critical that a § 310.6(b)(6). bans unsolicited fax messages.977 The consumer receive the required Finally, the phrase ‘‘or any FCC has promulgated rules effectuating disclosures (or, in the case of a subsequent rule covering business the Congressional ban and has enforced charitable solicitation, that the opportunities the Commission may those regulations.978 Thus, the solicitation not contain promulgate’’ has been deleted in the Commission’s determination that, for misrepresentations) at the time the amended Rule. Should the Commission the purposes of the TSR, faxes and consumer contemplates contacting the promulgate a rule covering business email are forms of ‘‘direct mail’’ should seller or charitable organization by opportunities, the nexus between the have no impact on the number of telephone. The amended Rule follows TSR and any such rule will be unsolicited faxes that are sent. To the reasoning of the original Rule, considered, and any necessary presume such would be to anticipate which requires that any direct mail conforming amendments made to the that sellers would blatantly ignore the TSR at that time. 979 If the fax or email advertisement is sent in Facsimile and electronic mail 970 Id. violation of state or other federal law, the sender 971 Id. would be liable under those federal or state laws, solicitations as ‘‘direct mail’’: NCL and but not under the TSR, unless the fax or email also 972 See DMA-NPRM at 56. ARDA supported the Commission’s failed to include the requisite disclosures and the 973 view that facsimile and electronic mail See, e.g., EPIC-NPRM at 26. seller or telemarketer, in any subsequent 974 solicitations are analogous to direct mail See, e.g., CNO-NPRM at 6; NCL-NPRM at 12. telemarketing effort, failed to abide by the Rule. 975 See NCL-NPRM at 12-13. 980 sent via the U.S. Postal Service, and DMA-NPRM at 58 (‘‘The types of disclosures 976 NCL-NPRM at 13. proposed by the Commission are worthwhile, so should be considered direct mail for 977 47 U.S.C. 227(b). In its recent Notice of long as they can be provided over the phone by the purposes of the exemption.968 NCL Proposed Rulemaking, the FCC noted that telemarketer.’’). See also Associations-NPRM at 4; noted that facsimile (‘‘fax’’) or electronic complaints about unsolicited faxes have been Associations-Supp. at 8. mail (‘‘email’’) solicitations are often steadily increasing, from 519 in 1996 to over 2100 981 In their supplemental comment, Associations, in 2000. FCC TCPA 2002 (see note 633 above), at of which DMA is a member, noted only that sent to promote fraudulent goods or para. 8. There is no suggestion in the FCC’s NPRM inclusion of the required disclosures in an email or 969 services. For example, in ‘‘Nigerian that a spike in the actual number of unsolicited fax ‘‘imposes significant costs on businesses. money offer’’ schemes, the fastest faxes has occurred or that any increase is Particularly on email communications, ‘real estate’ growing category of telemarketing fraud attributable to the FTC’s determination that faxes and location have significant financial value.’’ and email are forms of direct mail for purposes of Associations-Supp. at 8. This mere assertion the TSR. remains all that exists on the record regarding the 966 60 FR at 43860. 978 47 CFR 64.1200(a)(3). See also FCC Press cost of requiring the § 310.3(a)(1) disclosures in an 967 See, e.g., United States v. Prochnow, No. 1 02- Release: ‘‘FCC Cracks Down on ‘Junk Fax’ email or fax, and the Commission finds this cv-917 (N.D. Ga. 2002). Violations,’’ http://www.fcc.gov/cgb/news/ insufficient to cause it to reconsider its position 968 See ARDA-NPRM at 17; NCL-NPRM at 12. 080802.junkfax.html; FCC’s 2002 NPRM at para. 7, based on the financial harm argument asserted by 969 See NCL-NPRM at 12. n.40. Associations.

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solicitation contain the required that by simply narrowing the categories amended express verifiable disclosures in order to afford the of offers eligible for the exemption, the authorization provision, and the consumer an opportunity to know proposed Rule did not go far enough to Commission’s rationale in adopting it, certain material information before protect consumers.985 Instead of are discussed above in the analysis of determining whether to call the narrowing the exemption, NCL § 310.3(a)(3). Finally, the Commission telemarketer. Apart from DMA’s recommended that the Commission declines to add the sale of discount comment, the Commission finds no eliminate the direct mail exemption buyers club memberships and record evidence to support alteration of altogether,986 a position with which solicitations in which there is a negative this requirement simply because the NAAG and AARP concurred at the June option feature to the exceptions to the direct mail solicitations are sent by 2002 Forum.987 NCL argued that direct mail exemption. The record does email rather than the U.S. Postal telemarketing fraud and abuse could be not demonstrate that the sale of Service. It is not the intent of the prevented if those currently exempt membership clubs or solicitations in Commission to use this provision to from the Rule’s coverage were required which there is a negative option feature require new disclosures surreptitiously; to adhere to its provisions, particularly are particularly subject to abuse in indeed, the disclosures required (and those Rule provisions mandating conjunction with direct mail misrepresentations prohibited, in the material disclosures and express solicitations, and thus does not support case of a charitable solicitation) are verifiable authorization.988 As an including such exceptions.992 alternative to eliminating the direct mail merely those that a telemarketer must Other suggested changes make in the course of any non-exempt exemption, NCL suggested that all telemarketing transaction. Sellers telemarketers should be required to Some commenters raised concerns remain free to choose the most obtain customers’ express verifiable about the situation where there is a advantageous method by which to authorization in every call, even those disparity between the disclosures made contact consumers, and those opting for that would otherwise be exempt, such in a direct mail solicitation and those direct mail solicitations sent by email as inbound calls in response to a direct made in the subsequent telephone call. must determine whether the costs of mail solicitation.989 NAAG suggested NAAG urged the Commission to clarify making the relevant disclosures982 are that the Rule should also except from that a pre-call mailing is not truthful if the direct mail exemption transactions it is inconsistent in some material way offset by the savings attained by being 993 exempt from the rest of the Rule. that involve a high risk of abuse, such with what is stated during the call. Exceptions to the direct mail as the sale of memberships for discount In order to avail itself of the exemption: Commenters were generally buyers clubs and for transactions exemption, a direct mail solicitation 990 must provide the material disclosures supportive of the Commission’s involving negative option features. required by § 310.3(a)(1) to ensure that proposal to narrow the direct mail Based on a review of the record, the the material information about the offer exemption to make it unavailable to Commission declines to adopt these is in the hands of the consumer when sellers of credit card loss protection and suggestions. In the SBP of the original the consumer elects whether to place a business opportunities other than Rule, the Commission noted that the call to a telemarketer, including business arrangements covered by the direct mail exemption was included in information about the total cost and Franchise Rule or any subsequent rule the Rule because, in its experience, quantity of the goods or services, all covering business opportunities the direct mail solicitations were not material restrictions, limitations or Commission may adopt. In expressing ‘‘uniformly related to the forms of conditions to the offer, and certain its support, NCL noted that, although deception and abuse the Act seeks to stem.’’991 Based on this understanding, information regarding refund policies most solicitations for credit card loss and prize promotions. By its very protection plans were made via and in an effort to strike the appropriate balance between reining in fraudulent definition, this material information is outbound telephone calls, it endorsed presumed ‘‘likely to affect a person’s excepting such plans from the telemarketers and not unduly burdening legitimate industry, the Commission choice of goods or services, or their exemption to ensure that they will be conduct regarding them.’’994 Thus, in covered by the Rule regardless of how included the direct mail exemption in the original Rule. While it may be true order to meet the Rule’s requirement they are promoted.983 Similarly, NCL that fraudulent telemarketing scams that the information in the direct mail supported the exclusion from the direct might be reduced if the direct mail solicitation be ‘‘truthful,’’ the mail exemption of work-at-home exemption were excised from the Rule, information provided to the consumer solicitations, noting that in 2001, 42 the Commission believes that to do so in the telemarketing call should not vary percent of the victims of work-at-home would tip the balance and unnecessarily in any material respect from the scams said that the initial method of disclosures provided in the direct mail 984 burden legitimate telemarketers without contact was direct mail. Because 995 bringing commensurate benefits to solicitation. work-at-home solicitations are not consumers. Therefore, the Commission ‘‘business arrangements covered by the 992 declines to eliminate the exemption The record does show that buyers club Franchise Rule,’’ the exception from the memberships have frequently been associated with entirely. complaints regarding preacquired account direct mail exemption will now ensure The Commission also declines to that inbound calls in response to direct telemarketing, a practice that is addressed by require express verifiable authorization amended Rule § § 310.4(a)(5) and (6). Similarly, mail advertising work-at-home in all calls. The parameters of the goods or services offered in conjunction with a opportunities will be subject to the ‘‘free-to-pay conversion’’ negative option feature have been shown to result in complaints of Rule. 985 See NCL-NPRM at 12 (expressing concern that Some consumer advocates and law unauthorized charges, and are addressed by increasing the number of exceptions to exemptions amended Rule § 310.4(a)(6) and § § 310.3(a)(1)(vii) enforcement officials argued, however, is confusing to businesses and consumers). and 310.3(a)(2)(ix). 986 NCL-NPRM at 12. 993 NAAG-NPRM at 59-60. 987 982 Presumably in the solicitation of a charitable June 2002 Tr. III at 177, 182-83. 994 Cliffdale, 103 F.T.C. at 165. 988 contribution, there is no cost associated with NCL-NPRM at 12. 995 The Commission recognizes that, in some refraining from making misrepresentations. 989 Id. instances, prices may be subject to change, or may 983 NCL-NPRM at 12. 990 See NAAG-NPRM at 59. only be in effect for a specified period of time. A 984 Id. 991 60 FR at 43860. Continued

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AFSA expressed concern over the call to benefit from the § 310.6(b)(6) the exemption as much as possible so ‘‘specter of vicarious liability’’ for exemption. that sellers and telemarketers of those telemarketers who receive inbound calls Finally, NFC requested that the products or services that have in response to direct mail solicitations Commission clarify whether the direct particularly been subject to abuse would sent by another party in which the mail exemption applies to not benefit from the exemption.1001 required disclosures are not made franchisors.999 The Commission Thus, these commenters generally ‘‘truthfully.’’ The Commission believes believes that § 310.6(b)(2) makes clear supported the Commission’s proposal to that under § 310.3(b), the assisting and that sales of franchises subject to the ‘‘carve out’’ the telemarketing of Internet facilitating provision, liability would Commission’s Franchise Rule are and Web services from the business only attach if a telemarketer knew or exempt from the TSR. The sale of exemption, citing extensive law consciously avoided knowing that there business opportunities not covered by enforcement efforts to combat the was a disparity between the material the Franchise Rule, however, is subject proliferation of fraudulent telemarketing representations in a direct mail piece to regulation by the Rule. Section of website design, hosting, and and the telemarketing script being used 310.6(b)(6) of the amended Rule maintenance services to small in inbound calls in response to that expressly states that a seller of businesses.1002 solicitation. ‘‘business opportunities other than On the other hand, industry EFSC requested, in connection with business arrangements covered by the commenters uniformly opposed the the proposal to broaden the direct mail Franchise Rule’’ would not be able to ‘‘carve out’’ of Internet and Web services provision to include solicitations by avail itself of the direct mail exemption, from the business-to-business email and fax, that the Commission and thus would be required to comply exemption.1003 These commenters explicitly state that ‘‘a telemarketer’s with the Rule’s provisions. Therefore a argued that the proposed definitions of electronic disclosure of the material business opportunity seller, if not these services were overly broad and information satisfies’’ the telemarketer’s eligible for exemption pursuant to that there was insufficient record obligation under the Rule.996 EFSC § 310.6(b)(2), would be ineligible for the evidence to support regulation of all 1004 argued that the E-SIGN Act makes such direct mail exemption because of the Internet and Web services. They electronic disclosures permissible, and specific exception for the sale of such noted that federal and state law that the Commission should explicitly services under § 310.6(b)(6). enforcement efforts had focused on state that such is the case.997 As noted website design, development, hosting, § 310.6(b)(7) — Business-to-business and maintenance services, but that the above, in the response to DMA’s telemarketing suggestion that it should be permissible record does not reveal a pattern of fraud to make the required disclosures in the Section 310.6(g) of the original Rule in the sale of Internet access services, email or fax or in the subsequent exempts from the Rule’s requirements including wireless Internet access 1005 telemarketing call, the Commission telemarketing calls to businesses, except services. Industry commenters believes that to avail itself of the direct calls to induce the sale of nondurable argued that if the Commission persisted mail exemption, the seller must include office or cleaning supplies. Based on the in requiring that the telemarketing of the required disclosures in the direct Commission’s law enforcement Internet and Web services comply with mail piece itself, for to make these experience, the Commission proposed the TSR, the effect would be to chill disclosures outside that context would in the NPRM to add two more categories innovation and development in a defeat the consumer protection purpose to the list of exceptions to the nascent industry that is rapidly changing.1006 They also argued that of that requirement.998 Thus, for the exemption for calls to businesses: the such an action would be same reason, the Commission believes sale of Internet or Web services, and 1000 anticompetitive because it would that in the case of any direct mail charitable solicitations. The subject those sellers and telemarketers solicitation conveyed by email or fax, Commission has determined, however, who are within the FTC’s jurisdiction to the required disclosures would have to based upon comments received in the TSR’s requirements, while be included in the email or fax itself in response to the NPRM, not to include in exempting competitors who happen to order for any subsequent telemarketing the amended Rule the exception of the sale of Internet or Web services and be common carriers.1007 Furthermore, these commenters stated that although disclosure to that effect in the direct mail charitable solicitations from the solicitation should provide the consumer with business-to-business exemption. The the Commission’s goal is to protect sufficient notice that the price may fluctuate or may amended Rule retains unchanged the small business from fraud in the sale of not be available after a particular date. wording in the original Rule, except to Internet and Web services, the 996 EFSC-NPRM at 12. add language clarifying that the Commission’s proposal would actually 997 Id. 998 The Commission believes that for purposes of Commission’s national ‘‘do-not-call’’ 1001 See, e.g., NAAG-NPRM at 60; NCL-NPRM at § 310.6(b)(6), it is critical that telemarketing calls in registry provisions do not apply to the 11. response to direct mail solicitations be exempt only telemarketing of nondurable office or 1002 NAAG-NPRM at 60; NCL-NPRM at 11. on the condition that the direct mail piece contains cleaning supplies to businesses. The 1003 the requisite disclosures. The requirement that See, e.g., Comcast-NPRM at 5; Cox-NPRM at these disclosures be displayed in the direct mail provision is also renumbered, and can 30-32; ICC-NPRM at 1-2; Nextel-NPRM at 23, 24; piece itself ensures that these disclosures are be found at § 310.6(b)(7) of the amended Reed-Elsevier-NPRM at 5; SBC-NPRM at 2, 13; SIIA- proximate in time and location to the direct mail Rule. NPRM at 1-2; YPIMA-NPRM at 5. See also June solicitation, which makes it more likely that Consumer groups and state law 2002 Tr. III at 210-20, 222-23, 226. 1004 See, e.g., Nextel-NPRM at 23; SBC-NPRM at consumers will be made aware of certain material enforcement officials argued that the information that is useful or necessary to evaluate 3; SIIA-NPRM at 1-2. June 2002 Tr. III at 210-20, the sales transaction proposed in the solicitation Rule should not contain any exemption 222-23, 226. before responding to it. The Commission notes that for business-to-business telemarketing, 1005 See, e.g., Nextel-NPRM at 23; SIIA-NPRM at this outcome is consistent with § 101(f) of the E- but if the Commission were to retain the 1-2. See also June 2002 Tr. III at 213-14, 217-18, 224. SIGN Act, which states that, ‘‘Nothing in this title exemption, they supported narrowing affects the proximity required by any statute, 1006 Nextel-NPRM at 24; Reed-Elsevier-NPRM at regulation, or other rule of law with respect to any 7; SBC-NPRM at 14; SIIA-NPRM at 1-2. See also warning, notice, disclosure, or other record required 999 NFC-NPRM at 4-5. June 2002 Tr. III at 210-24. to be posted, displayed, or publicly affixed.’’ 1000 See NPRM discussion regarding proposed 1007 See, e.g., DMA-NPRM at 9. See also June 2002 (emphasis added). § 310.6(g), 67 FR at 4531-32. Tr. III at 213-14, 217-18, 224.

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harm those small businesses because it extensive problems with telefunders businesses—from fraudulent would increase their costs and hamper soliciting on behalf of public safety fundraising, without burdening their use of Web-based advertising such organizations (so-called ‘‘badge fraud’’ legitimate non-profit organizations with as online Yellow Pages.1008 Industry operators) who often target small the cost of complying with unnecessary commenters argued that current law businesses.1011 DMA-NonProfit and regulations. As some commenters enforcement tools, coupled with active Not-For-Profit Coalition were among the pointed out, many legitimate non-profit industry self-regulation, are sufficient to few non-profit organizations that organizations operate on a very narrow challenge deceptive and fraudulent addressed the business-to-business margin, and such costs may have a very telemarketing of Internet or Web exemption,1012 arguing that the significant impact on the viability of an services.1009 legislative history of the USA PATRIOT organization’s fundraising efforts or The Commission finds persuasive Act does not support extending the even the very viability of the industry’s arguments that the proposal Rule’s coverage to charitable organization itself.1016 to make the business-to-business solicitations directed to businesses, The Commission also notes that law exemption unavailable to telemarketing particularly in the absence of substantial enforcement actions attacking badge of Internet and Web services is evidence of abuse.1013 As discussed fraud under Section 5 and analogous overbroad and likely to produce above, the Commission already has state laws have been effective on a case- perverse results for the small businesses determined to exempt telemarketing on by-case basis.1017 Furthermore, several it was intended to protect. The behalf of charitable organizations from of the entities that were targets of these Commission believes that, although the national ‘‘do-not-call’’ registry, thus law enforcement efforts also coverage by the Rule would provide addressing the principal concern of the telemarketed to individuals, which benefits to law enforcement efforts, non-profit organizations. would bring them within the purview of current federal and state consumer The Commission notes that ‘‘badge the amended Rule with respect to those protection statutes have been effective fraud’’ telemarketing directed at transactions.1018 In addition, the tools in challenging fraudulent practices businesses has been a particularly Commission recognizes that there are in this industry.1010 Furthermore, the pernicious practice that has been many legitimate public safety Commission believes that it is preferable attacked on a regular basis by both the organizations that solicit funds for their to move cautiously so as not to chill Commission and state regulators.1014 charitable purposes in a non-deceptive innovation in the development of cost- Commenters have made it clear, manner. Therefore, the Commission efficient methods for small businesses to however, that many legitimate non- believes that the more prudent course is join in the Internet marketing profit organizations rely heavily on to continue to rely upon its authority revolution. Therefore, the Commission business contributions as a major under Section 5 and the states’ authority has removed the proposed exception for portion of their donor base.1015 The under their analogous laws to address Internet and Web services sales to Commission seeks to protect fraudulent fundraising, and, at this time, businesses by telephone, which will businesses—particularly small to leave beyond the scope of the TSR continue to be exempt from the Rule’s legitimate charitable fundraising coverage. The Commission will, 1011 See, e.g., NAAG-NPRM at 60-61; NCL-NPRM directed to businesses. This issue could however, continue to monitor closely at 11. See also June 2002 Tr. III at 224-25. be revisited in subsequent Rule Reviews 1012 the practices in the telemarketing of Most non-profit organizations commented on should evidence develop that the Internet and Web services, and may the application of the national ‘‘do-not-call’’ registry to their solicitation efforts, not on whether they Commission has not struck the correct revisit this issue in subsequent Rule should be otherwise excepted from the business-to- balance in making this determination. Reviews should circumstances warrant. business exemption. See, e.g., Childhood Leukemia- Consumer groups and state law NPRM at 1; Community Safety-NPRM at 1-2; Other recommendations by commenters enforcement officials also supported the California FFA-NPRM at 1-2; FPIR-NPRM at 1-2; Some commenters recommended that Commission’s proposal to make the HRC-NPRM at 1-2; OSU-NPRM at 1; SO-AZ-NPRM at 1-2. the Rule be amended to include more business-to-business exemption 1013 See DMA-NonProfit-NPRM at 14-15; Not-for- exemptions. For example, several unavailable to entities soliciting Profit Coalition-NPRM at 46-48. There is scant commenters advocated that their charitable contributions, citing the legislative history on the USA PATRIOT Act with industry be exempt from compliance regard to this issue. 1014 with the national ‘‘do-not-call’’ registry 1008 See, e.g., SBC-NPRM at 15; SIIA-NPRM at 2. See, e.g., FTC. v. Southwest Mktg. Concepts, See also June 2002 Tr. III at 213-14, 217-18, 224. Inc., No. H-97-1070 (S.D. Tex. filed 1999) and/or from all of the Rule’s 1019 1009 See, e.g., Reed-Elsevier-NPRM at 4-5 (noting, (Stipulated Final Judgment and Order for provisions. The Commission notes for example, that industry has adopted the Best Permanent Injunction and Monetary Relief entered that many of those who requested Billing Practices guidelines set forth by the FCC to May 28, 1999); FTC v. Saja, No. CIV-97-0666 PHX address unauthorized billing or ‘‘cramming’’ SMM (D. Ariz. filed Apr. 1997); FTC v. Dean Thomas Corp., Inc., No. 1:97CV0129 (N.D. Ind. 1016 Id. problems); SBC-NPRM at 14. See also June 2002 Tr. 1017 III at 213-14, 217-18, 224. 1997) (Stipulated Final Judgment entered Jan. 19, See note 1015 above. 1018 1010 See E-Commerce Fraud Targeted at Small 1998); FTC v. Century Corp., No. 1:97CV0130 (N.D. See, e.g., Saja, No. CIV-97-0666 PHX SMM; Business: Hearings on Web Site Cramming Before Ind. filed Apr. 7, 1998) (Stipulated Final Judgment and Eight Point Communications, No. 98-74855. the Senate Committee on Small Business (Oct. 25, and Order entered April 8, 1998); FTC v. Image 1019 See, e.g., Tribune-NPRM at 2-3 (exempt 1999) (statement of Jodie Bernstein, Director of the Sales & Consultants, Inc., No. 1:97CV0131, (N.D. newspapers because of their ‘‘unique position and Bureau of Consumer Protection, FTC); FTC Press Ind.) (Stipulated Final Judgment and Order entered mission in our society’’); Herald Bulletin-NPRM at Release: ‘‘FTC Cracks Down on Small Business June 9, 1998); FTC v. Omni Adver., Inc., No. 1 (exempt newspapers); CNHI-NPRM at 1-2 (exempt Scams: Internet Cramming is Costing Companies 1:98CV0301 (N.D. Ind. filed Oct. 9, 1998); FTC v. newspapers); AFSA-NPRM at 10 (exempt debt Millions,’’ June 17, 1999, http://www.ftc.gov/opa/ T.E.M.M. Mktg., Inc., No. 1:98CV0300, (N.D. Ind. collection calls); ACA-NPRM at 2-4 (expressly 1999/small9.htm. See also, e.g., FTC v. Shared filed Oct. 5, 1998); FTC v. Tristate Adver. exempt debt collection activities from the Rule); Network Servs., LLC., No. S-99-1087-WBS JFM (E.D. Unlimited, Inc., No. 1:98CV0302 (N.D. Ind. filed Oct DBA-NPRM at 5 (expressly exempt debt collectors Cal. filed June 12, 2000); FTC v. U.S. Republic 5, 1998); FTC v. Gold, No. CV 99-99-2895-WDK from the ‘‘do-not-call’’ registry provision); AFSA- Communications, Inc., No. H-99-3657 (S.D. Tex. (AlJx) (C.D. Calif. filed 1998); FTC v. Eight Point NPRM at 14 (exempt financial services companies filed Oct. 21, 1999) (Stipulated Final Order for Communications, Inc., No. 98-74855 (E.D. Mich. with an established business relationship); CASE- Permanent Injunction and Other Equitable Relief filed Nov. 10, 1998). See also Pa. Stat. Ann. tit. 10 NPRM at 3 (exempt educational institutions from entered Oct. 25, 1999); FTC v. WebViper LLC, No. § 162.15(A)(11) (West 2000). ‘‘do-not-call’’ registry provision); ANA-NPRM at 7 99-T-589-N, (M.D. Ala. June 9, 1999); FTC v. Wazzu 1015 See, e.g., DMA-NonProfit-NPRM passim; Not- (explicitly exempt market researchers); Green Corp., No. SA CV-99-762 AHS (ANx) (C.D. Cal. filed for-Profit Coalition-NPRM passim. See also June Mountain-NPRM passim (exempt energy June 7, 1999). 2002 Tr. III at 110, 205-10, 220-21. marketers).

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exemptions already are exempt from the provisions—the prohibition on blocking specific provision regarding review Rule and, therefore, there is no reason Caller ID information, and the within the text of the amended Rule. to expressly restate that exemption in prohibition on denying or interfering K. Effective Date. the Rule.1020 The Commission also with a consumer’s right to be placed on declines to add additional exemptions a ‘‘do-not-call’’ list—would be beneficial The amended Rule is effective on on behalf of specific industry segments, in addressing these concerns.1025 March 31, 2003, and full compliance with the exception of charitable The Commission received no with all provisions of the amended organizations. As noted above in the comments on this section in response to Rule—except § 310.4(a)(7), the caller discussion on exempting charities from the NPRM, and thus no modifications identification transmission provision, compliance with the national ‘‘do-not- are included in the amended Rule.1026 and § 310.4(b)(1)(iii)(B), the national call’’ registry provision, the Commission ‘‘do-not-call’’ registry provision—is believes that charitable solicitations H. Section 310.8 — Fees. required by that date. The Commission present unique circumstances that make This section of the Rule, now believes that making the amended Rule an exemption necessary and allocated for the new provision on fees, effective on March 31, 2003 will provide appropriate. The Commission declines, is reserved. When completed, the fee more than sufficient time for sellers and however, to introduce further section will be included here. telemarketers to change their practices limitations to the applicability of the to conform to the amended Rule. The I. Section 310.9 — Severability. ‘‘do-not-call’’ registry because it believes publication of the proposed Rule in such action would be inconsistent with This provision of the Rule is retained January 2002 provided industry the privacy mandate of the in the amended Rule, but renumbered as members with ample notice of the Telemarketing Act and would likely § 310.9. Section 310.8, formerly the proposed changes in the Rule, and result in consumer confusion and section number for the Severability making the amended Rule effective on frustration. provision, now contains the provision March 31, 2003 will give industry regarding fees for the national ‘‘do-not- members sufficient additional time to G. Section 310.7 — Actions by States call’’ registry. familiarize themselves with the and Private Persons. requirements of the amended Rule, and Section 310.7 in the original and J. Rulemaking Review Requirement. to ensure that their operations are in full proposed Rules sets forth the The original Rule required that a Rule compliance with all except two procedures by which the states and Review proceeding be commenced provisions of the amended Rule. private persons may bring actions under within five years of the effective date of The Commission has determined that the Rule, as is provided for in the the original Rule. The amended Rule additional time may be required to Telemarketing Act.1021 In the NPRM, does not contain an equivalent allow sellers and telemarketers to come the Commission noted that it received provision. The Commission has a policy into full compliance with the caller no comments directly on this section, of reviewing all of its Rules and guides identification transmission requirement. but that commenters were generally on a periodic basis to ensure that they Therefore, full compliance with supportive of the Rule’s enforcement continue to meet their goals and provide § 310.4(a)(7) is required by January 29, scheme allowing the Commission, the the protections that were intended when 2004. The Commission will announce at states, and private parties to bring they were promulgated. This periodic a future time the date by which full actions under the TSR.1022 The review also provides an opportunity to compliance with § 310.4(b)(1)(iii)(B), the Commission noted that the record at examine the economic costs and ‘‘do-not-call’’ registry provision, will be that time contained evidence of two benefits of the particular Rule or guide required. The Commission anticipates sources of frustration regarding under review. The Commission believes that full compliance with the ‘‘do-not- enforcement of the Rule: 1) the $50,000 that this periodic review should be call’’ provision will be required monetary threshold required for a sufficient for the amended Rule, and approximately seven months from the private party to bring suit under the that it is unnecessary to include a date a contract is awarded to create the Rule; and 2) the difficulty in identifying national registry. Rule violators, particularly those who 1025 Id. IV. Paperwork Reduction Act violate the abusive practices section of 1026 Some commenters did advocate for the Rule.1023 The Commission noted meaningful Rule enforcement, including random In light of both changes to the Rule then that the amount in controversy monitoring and publicity regarding enforcement. following the NPRM and public See AARP-NPRM at 10 (meaningful enforcement comments received on Commission requirement was included in the and publicity); EPIC-NPRM at 27 (suggesting Telemarketing Act, and it is therefore up random monitoring and also recommending staff’s prior PRA burden analysis for the to Congress to make any change to this registration and bonding requirements, which the NPRM, staff will submit for OMB review amount.1024 With regard to the difficulty Commission declines to adopt noting the states and clearance a supporting statement already have such requirements in many instances, detailing its revised burden analysis. in identifying violators, the Commission and that further duplication of that effort would not expressed its belief that two proposed enhance the Commission’s law enforcement efforts). V. Regulatory Flexibility Act The Commission believes that the enforcement record for the TSR to date, with over 139 cases 1020 For example, debt collection and market A. Need for and Objectives of the Rule. brought and $200 million in judgments, shows that research activities are not covered by the Rule the Commission and its state law enforcement The amendments to the TSR because they are not ‘‘telemarketing’’—i.e., they are partners have made enforcement of the Rule a top announced here are the result of a not calls made ‘‘to induce the purchase of goods or priority. Moreover, enforcement actions under the services.’’ Of course, if the debt collection or market review of the existing Rule as required Rule often have been conducted as part of a research call also included an upsell, the upsell by the Telemarketing Act.1027 As ‘‘sweep’’ of cases, often accompanied by a media portion of the call would be subject to the Rule as advisory and public education campaign, which discussed above in this SBP, and in the long as it met the criteria for ‘‘telemarketing’’ and serves as a means of raising public awareness of NPRM, the objective of the amendments was not otherwise exempt from the Rule. certain kinds of telemarketing fraud. In regard to the is to fulfill the mandate of the 1021 15 U.S.C. 6103 (states) and 6104 (private suggestion that call centers be randomly monitored Telemarketing Act to ensure that persons). for compliance with the Rule, the Commission 1022 67 FR at 4532-33. notes that it has used, and will continue to use, a consumers are protected from 1023 67 FR at 4533. variety of law enforcement techniques to ensure 1024 Id. compliance with the Rule. 1027 15 U.S.C. 6108.

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‘‘deceptive telemarketing acts or a form that would permit them to sellers and telemarketers to scrub their practices and other abusive economically compare the telephone calling lists against the national ‘‘do- telemarketing acts or practices.’’1028 numbers of their customers with those not-call’’ registry on a monthly basis. Other amendments, relating to the on the national ‘‘do-not-call’’ registry Instead, such updating will only be solicitation of charitable contributions and avoid calling those numbers that required on a quarterly basis.1036 through telemarketing, are made appear on the registry.1032 According to Commenters argued that this change pursuant to the USA PATRIOT Act.1029 NRF, converting their customer lists to was necessary to reasonably limit the B. Summary of the Significant Issues. a form that can be feasibly compared to costs imposed by the ‘‘do-not-call’’ the numbers on the national ‘‘do-not- registry.1037 It should significantly The public comments on the call’’ registry could cost small reduce the expense associated with proposed Rule are discussed above businesses up to $1.00 per name. complying with the ‘‘do-not-call’’ throughout the SBP, as are the changes Furthermore, even after the records are requirements since firms will not need that have been made in response to converted, the NRF reports that the cost to scrub their lists twelve times per year comments indicating that the costs of of eliminating names that appear on the at an expense that has been estimated at some of the proposed amendments ‘‘do-not-call’’ registry would be higher around $100 per seller or telemarketer would be excessive. Many of the for small firms than for larger ones. each time its lists must be scrubbed.1038 commenters did not focus specifically Whereas, it might cost $0.01 per name Harmonization with state ‘‘do-not-call’’ on the costs faced by small businesses to purge a large list, the cost for a small regulations. relative to those that would be borne by list is put at $0.10 to $0.15 per other firms. Rather, they argued that the name.1033 Many industry representatives argued costs to be borne by all firms—including As discussed above in the SBP, the that in order to avoid imposing an small firms—would be excessive. In Commission has decided to alter the undue burden on business, particularly response to these comments, the ‘‘do-not-call’’ provision proposed in the small businesses, it was essential that Commission has made a number of NPRM. One of the changes is to create the proposed national ‘‘do-not-call’’ modifications in the amended Rule. an exemption that will allow a seller registry not simply be added on to the These changes should significantly and its telemarketer to call consumers existing set of state ‘‘do-not-call’’ lists. reduce the burden on all businesses, with whom the seller has an established Rather, in the view of industry, the including small businesses. business relationship, even if the national registry should incorporate Calls permitted where there is an consumer has placed his or her existing and any future state lists and all existing business relationship. telephone number on the ‘‘do-not-call’’ of the lists should operate under a 1034 single, unified set of regulations.1039 One proposal that commenters registry. The effect of this change While many industry representatives contended would impose particularly will be that businesses—and in argued that the way to achieve the great costs on small businesses was the particular small businesses—will not necessary level of coordination between proposed national ‘‘do-not-call’’ need to check their lists of existing the state and federal lists was for the registry. Commenters were particularly customers against the national ‘‘do-not- Commission to preempt inconsistent concerned with the requirement that call’’ registry. There will also be no need state regulations, the Commission has businesses could only call consumers to obtain express verifiable permission declined to do so at this time. Instead, who had put their telephone numbers before calling someone with whom the as discussed above in the SBP, the on the ‘‘do-not-call’’ registry if they had business has an established business obtained the consumer’s express relationship. Thus, most, if not all, of Commission is engaged in a process of verifiable authorization to make calls to the costs described above will not be active consultation with the states that 1035 that consumer. For example, faced by small businesses. have enacted ‘‘do-not-call’’ statutes and Community Bankers expressed the with the FCC in order to develop Quarterly access to ‘‘do-not-call’’ procedures that will result in one concern that its members would be registry. 1040 unable to use outside telemarketers to harmonized ‘‘do-not-call’’ registry. In addition, as discussed above, the contact their existing customers. This Once fully effectuated, this would, they suggested, force community Commission has decided not to require harmonization should substantially reduce the burden of having to scrub banks to do their own telemarketing, at 1032 higher cost, because calls made by third See, e.g., Ameriquest-NPRM at 9. against a large number of separate lists. 1033 NRF-NPRM at 4-5. ERA placed the cost of party telemarketing bureaus would be comparing a company’s calling lists against the ‘‘do- For-profit fundraisers exempted from covered by FTC regulations.1030 Another not-call’’ registry at $3 to $5 per 1,000 names, while national ‘‘do-not-call’’ registry commenter noted that small firms may CCC suggested that the cost would be in the compliance. not have the recording equipment that neighborhood of $50 per hour and that it would take two hours for the average firm to compare their The burden placed on small charities would be needed to establish that they calling lists to the national ‘‘do-not-call’’ registry by the ‘‘do-not-call’’ requirements has had obtained the consumer’s express and delete from the company’s lists any numbers also been significantly reduced. As verifiable authorization to accept calls that appear on the ‘‘do-not-call’’ registry. ERA- from that seller.1031 NPRM at 36; Miller Study at 11-12. discussed above, the Commission has Furthermore, many small businesses 1034 See discussion of § 310.4(b)(1)(iii) above. determined that for-profit firms that 1035 While small businesses that wish to make fundraising calls on behalf of may not keep their customer records in telemarket their products to consumers who are not existing customers will still have to check their 1036 Amended Rule § 310.4(b)(3). 1028 15 U.S.C. 6102. calling lists against the ‘‘do-not-call’’ registry, they 1037 1029 Pub. L. 107-56 (Oct. 26, 2001). will not necessarily have to perform this work Household Bank-User Fee at 2. 1038 1030 Community Bankers-User Fee at 3. themselves. It is the Commission’s understanding Miller Study at 11-12. 1031 AmEx-NPRM at 2. One small company that small businesses often find it more economical 1039 See, e.g., Household Bank-User Fee at 2-3; reported that in order to comply with Oregon’s ‘‘do- to employ telemarketing bureaus who make such ARDA-User Fee at 1; Ameriquest-User Fee at 9-10; not-call’’ requirements, they had been forced to calls on the behalf of these businesses. A seller that ICIA-User Fee at 1; NEMA-User Fee at 4. spend $12,500 to get a computer program written employs a telemarketing bureau can arrange to have 1040 This approach is consistent with the and have hired two additional employees at a cost the telemarketer compare the names and/or recommendation of the Small Business of approximately $800 per week. (Celebrity Prime telephone numbers on its lists against the ‘‘do-not- Administration (‘‘SBA’’), Office of Advocacy. See Foods-User Fee at 1). call’’ registry. SBA-User Fee at 5-6.

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charitable organizations will not be authorization.1046 However, account number or because the required to ensure that they are not commenters indicated that this was not telemarketer makes a mistake in taking making calls to consumers who have the case and that many smaller firms— down the number.1052 placed their telephone numbers on the particularly newspapers—used this As discussed in the SBP above, the national ‘‘do-not-call’’ registry.1041 method.1047 In response, the Commission has decided not to prohibit Rather, they will only have to honor Commission has decided to retain the the acquisition and use of preacquired individual consumer requests not to be written confirmation method of account information. Instead, the called by the particular charity.1042 obtaining express verifiable Commission is limiting the prohibition This change is likely to be of authorization, with certain to unencrypted account information and significant benefit to smaller charitable modifications, including an exception is requiring that telemarketers and organizations since these organizations that makes it unavailable in cases where sellers obtain the consumer’s express often find it more efficient to employ the transaction involves a ‘‘free-to-pay informed consent before any purchase is for-profit firms to make their calls rather conversion’’ feature and preacquired charged to a consumer’s account using than developing and maintaining the account information.1048 preacquired account information. capacity to make such calls using their Except for transactions that involve a own staff.1043 For example, APTS No ban on preacquired account ‘‘free-to-pay conversion’’ feature reported that 75 percent of their information. combined with preacquired account members chose to hire other firms to Another proposal in the NPRM that information, the only steps a seller or manage their telemarketing operations. attracted considerable business telemarketer is required to undertake to They further reported that the average opposition was the prohibition on the obtain this consent are to provide the annual cost of outsourcing these disclosure or receipt of any consumer’s consumer with sufficient information operations was $182,000, whereas the billing information. Commenters argued for the consumer to understand the estimated cost of the stations doing the that such a prohibition on the use of account that will be charged and to same amount of telemarketing with its preacquired account information would obtain the consumer’s express own personnel was $224,000, an increase the costs of telemarketing. agreement to have the purchase charged increase of almost 25 percent.1044 While these costs were not argued to be to that account. Since both of these are Similarly, Red Cross commented that it specific to small businesses, the costs practices that an honest business would is more economical to hire a third party faced by small businesses would be follow even in the absence of a rule to operate short term blood-donor increased along with those of larger provision, it is clear that the costs recruitment programs than to hire and ones. According to CCC, requiring the businesses argued would follow from maintain a full-time staff to perform consumer to provide an account number the original proposal have been such functions. According to Red Cross would add between 60 and 90 seconds eliminated. ‘‘[s]uch trained third party professionals to the length of a telemarketing call in Relaxed regulation of abandoned calls. offer expertise and operational those instances where the telemarketer efficiencies that cannot be rapidly already has the consumer’s account Another proposal contained in the duplicated by Red Cross to respond to information.1049 MPA estimated the cost NPRM that businesses argued would the volatile demand for blood.’’1045 of requiring consumers to repeat their significantly increase the costs of account information in the case of an telemarketing was the proposal to Written confirmation as express upsell to be between 35 and 60 prohibit telemarketers from verifiable authorization. seconds.1050 In addition, MPA suggested ‘‘abandoning’’ telemarketing calls—that Another change that should reduce that requiring consumers to read their is, to prohibit making a call unless a the burden on small firms involves the account numbers in all instances would telemarketing sales representative is procedures a firm may use to obtain the lead some consumers to decide not to available to talk to the consumer if the consumer’s express verifiable purchase the item being offered. The consumer answers. Critics of this authorization to use an account other effect could be, they suggested, a proposal argued that it would effectively than the consumer’s credit card or debit reduction of five to 30 percent in ban the use of predictive dialers.1053 card to pay for a purchase. In the NPRM, consumer purchases in response to This would, they argued, significantly the Commission proposed to eliminate a particular offers.1051 Finally, a ban on reduce the amount of time the procedure by which a firm was the use of preacquired account individual telemarketing sales person permitted to obtain authorization by information could increase the costs of spends talking to consumers. According sending the consumer written engaging in telemarketing because of to CCC, a telemarketing sales person can confirmation prior to the time the errors in the account information handle 13 to 14 calls per hour using a account was charged. In part this obtained from the consumer—either predictive dialer set to abandon five proposal was based on the impression because the consumer misreads the percent of calls. Without a predictive that very few firms used this method of dialer, the same agent can only handle obtaining express verifiable 1046 67 FR at 4508. around eight calls per hour—a reduction 1047 See, e.g., June 2002 Tr. III at 32-33 (NAA). of about 40 percent.1054 Another source 1048 See amended Rule § 310.3(a)(3)(iii), and 1041 Amended Rule § 310.6(a). suggested that a telemarketer using a discussion of that provision above. 1042 predictive dialer could make 20 calls Amended Rule § 310.4(b)(1)(iii). 1049 Miller Study at 17. According to the Miller 1043 Hudson Bay-Goodman-NPRM at 2. Hudson Study, the total cost of this prohibition would have per hour, whereas only five calls per Bay noted that ‘‘[i]nstead of renting space, buying been approximately $1.5 billion. However, this hour would be possible without the computers and phone equipment, hiring estimate appears to be based on the incorrect dialer.1055 supervisors and so on, HBC’s clients find it cheaper assumption that the prohibition on the use of to contact their members and donors by sharing preacquired account information would add 60 to these resources. Even after paying HBC’s fee, which 90 seconds to every sale made in an outbound 1052 ABA-NPRM at 8; Assurant-NPRM at 3-4; ranges from 4 to 7%, it is much cheaper for these telemarketing call. In fact, the only sales that would BofA-NPRM at 7; Cendant-NPRM at 7. non-profits to centralize these services. The savings be affected are those where the seller would 1053 June 2002 Tr. I at 211 (CCC); PMA-NPRM at achieved by phone company volume discounts otherwise obtain payment using preacquired 30; PCIC-NPRM at 2. alone pays more than half of HBC’s fee.’’ account information. 1054 Miller Study at 15. 1044 APTS-NPRM at 3-4. 1050 MPA-NPRM at 24. 1055 Marketlink-NPRM at 3. This estimate, and 1045 Red Cross-NPRM at 3-4. 1051 Id. at 19. perhaps the estimate of CCC, may overestimate the

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As discussed in the SBP, the solicit charitable contributions. That is, because such firms generally think of Commission has determined to create a the Rule will primarily impact entities themselves as producers or sellers of safe harbor to the prohibition on that make outbound calls to consumers. particular products and not as abandoned calls. This safe harbor will Also affected will be firms that provide telemarketers. Similarly, in the available allow firms to avoid being cited for such services for others on a contract statistics, these firms will be classified violation of this provision of the Rule basis. It has been estimated that as producers or sellers of particular provided they play a recording that outbound calls to consumers resulted in products and not as telemarketers.1063 identifies the seller and provides the total sales of $274.2 billion in 2001, and D. Description of the Projected seller’s phone number when a sales that the telemarketing industry that Reporting, Recordkeeping, and Other representative is not available to handle markets to consumers employs 4.1 Compliance Requirements of the Rule. a call and provided that this occurs in million workers.1059 three percent or less of calls that are The number of firms making such As discussed above in the SBP, the answered by a consumer. This change outbound telemarketing calls, and the amended Rule alters some collection of should substantially reduce the burden number that qualify as small entities, information requirements. The effect of that would have been imposed by a total cannot be reliably estimated. According those requirements on all businesses is prohibition on abandoned calls.1056 to the Office of Advocacy of the SBA, discussed in detail in the PRA section United States Census data shows that of this Notice. First, the amended Rule Regulation of upselling. there are 2,305 firms that are identified requires firms that use preacquired Finally, the Commission has as telemarketing bureaus. Of these, account information in conjunction eliminated an unintended burden that 1,279 are classified as being small with a ‘‘free-to-pay conversion’’ feature would have resulted from treating any businesses because they have sales of to tape record all such transactions to upsell as a separate outbound less than $5 million per year.1060 These show that they have obtained the telemarketing call. As several people are firms that provide telemarketing consumer’s express informed consent to have noted, this would have required services for other firms. However, not charge the consumer’s account.1064 telemarketers who receive inbound calls all of these firms will be impacted by Section 310.5(a)(5) requires that the to comply with the ‘‘do-not-call’’ the Rule to the same extent. According seller or telemarketer maintain copies of provisions of the Rule as well as the to NAICS, firms that are classified as such audio recordings for 24 months. calling hours provision before offering telemarketing bureaus include firms that Similarly, § 310.5(a)(5) requires that any upsell product.1057 Such a provide ‘‘telemarketing services on a firms retain for 24 months copies of any requirement would have imposed contract or fee basis for others, such as written express agreements received substantial burdens on sellers who (1) promoting clients’ products or from consumers permitting the receive inbound telemarketing calls. services by telephone, (2) taking orders company to call the consumer even However, it was never the intention of for clients by telephone, and (3) though the consumer’s phone number is the Commission to require compliance soliciting contributions or providing included on the ‘‘do-not-call’’ with either the ‘‘do-not-call’’ provisions information for clients by registry.1065 Finally, the amended Rule or the calling hour provisions in this telephone.’’1061 Firms that take orders extends the recordkeeping requirements context,1058 and this requirement has for clients by telephone, as well as some of § 310.5 to include charitable been eliminated in the amended Rule firms that provide information for their solicitations in a non-sales context, as which provides a separate definition of clients by telephone, are going to be required by the USA PATRIOT Act. All an upsell and clarifies that these responding to calls made by consumers other amendments to the Rule relate to provisions do not apply to an upsell. and not making calls themselves. Unless the Rule’s disclosures or other such firms are engaging in upselling of compliance requirements and are C. Description of Small Entities to products or services that involve a ‘‘free- necessary to prevent telemarketing fraud Which the Rule Will Apply. to-pay conversion’’ feature, they will not and abuse. This Rule will primarily impact firms be impacted by the proposed Rule to The classes of small entities affected that make telephone calls to consumers any significant extent. by the amendments include in an attempt to sell their products or In addition to firms that provide telemarketers or sellers engaged in acts services or entities that make calls to telemarketing services for others, the or practices covered by the Rule. The Rule will have an effect on firms that types of professional skills required to efficiency losses from prohibiting abandoned calls use telemarketing as a way to market comply with the Rule’s recordkeeping, in that the five calls per hour figure is based on the their own products. These may include, disclosure, or other requirements would assumption that calls are dialed ‘‘manually.’’ This suggests that the estimate may be based on an among others, retailers, manufacturers, include attorneys or other skilled labor operation in which the individual sales and financial service providers.1062 The needed to ensure compliance. representative actually dials the number to be number of such firms—and the number called. A requirement not to abandon calls would of those that are classified as small E. Steps Taken to Minimize Impact on not require that sales representatives dial their own Small Entities. calls. It would still be possible, if it were cost businesses—cannot be determined efficient, to use computer systems to dial the calls, As discussed above, the and this could generate some efficiencies relative to 1059 DMA-NPRM at 5. ATA estimates employment Telemarketing Act directs the manual dialing. What would not be permitted is to in business-to-consumer telemarketing at 5.4 Commission to enact ‘‘rules prohibiting dial a call prior to the time a sales representative million. ATA-NPRM at 3. deceptive telemarketing acts or practices becomes available or to dial more than one call at 1060 SBA-User Fee at 3. The size of telemarketing a time for each available sales representative. bureaus that qualify as being small businesses was and other abusive telemarketing acts or 1056 As CCC testified at the workshop, ‘‘[W]hat we increased to $6 million as of October 2, 2002. See found out is that ... below 5 percent or 4 percent SBA, Small Business Size Standards Matched to 1063 Some commenters suggested that small firms or 3 percent [rate of abandonment], you’re really North American Industry Classification System are more likely to rely on telemarketing to sell their beginning to raise costs....’’ June 2002 Tr. I at 212 (NAICS), http://www.sba.gov/size/ products because they cannot afford other, more (CCC). sizetable2002.html. expensive forms of advertising. See, e.g., 1057 See, e.g., June 2002 Tr. I at 210 (CCC); June 1061 U.S. Census Bureau, 1997 NAICS Definitions, Ameriquest-User Fee at 6; ATA-NPRM at 4. 2002 Tr. II at 214-15 (DMA). 561 Administrative and Support Services, http:// 1064 See § 310.4(a)(6)(i)(C). 1058 June 2002 Tr. I at 210-11 (FTC); June 2002 Tr. www.census.gov/pub/epcd/naics/NDEF561.HTM. 1065 The provision allowing for such consent is at II at 215 (FTC). 1062 ATA-User Fee at 2. § 310.4(b)(1)(iii)(B)(i).

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practices.’’1066 Each of the amendments not necessary in every circumstance. calling to survive],1072 consumers’ ability to in the amended Rule is intended to For example, in circumstances when the themselves purchase via catalogs may be better protect consumers from deceptive ‘‘environmental effects, if any, would compromised as well, as ‘‘call centers’’ are and abusive telemarketing practices. In appear to be . . . so uncertain that forced to close in the face of insufficient ‘‘outbound telemarketing work.’’ Either event order to achieve this end, the environmental analysis would be based would force consumers to climb into their Commission believes that it is necessary on speculation,’’ no ‘‘environmental cars and return to the mall for their wares, to enact regulations that cover small and assessment’’ is required.1069 The a result that itself would increase gas large firms equally. Based on the Commission believes, for the reasons set consumption and cause more air Commission’s enforcement experience, forth below, that this exception is pollution.1073 it is clear that many of the firms that applicable in the instant case, and that DeHart concluded, based on its belief engage in fraudulent telemarketing because the environmental effects, if that the ‘‘do-not-call’’ registry provision activities are small firms. A failure to any, of the amended TSR are uncertain would increase the number of include such small firms within the and based on speculation, the consumers driving to shopping at malls requirements of the regulations would, Commission is not required to prepare as a result of the implementation of the therefore, fail to prohibit deceptive an environmental assessment. national ‘‘do-not-call’’ registry practices by the types of firms that The amended TSR would modify the provision, that the Commission must account for a significant share of the original Rule in several ways. Each of prepare an EIS or, at minimum, an these is outlined above in Section I (F), problems the Commission encounters. environmental assessment.1074 At the same time, as discussed above which summarizes the changes in the The underlying premise in the DeHart both in the SBP and in the ‘‘Summary amended Rule. However, the only comment, that a national ‘‘do-not-call’’ of Significant Issues Raised by the comment that raised the issue of the registry will have a negative impact on Public Comments in Response to the environmental effects of the Rule did so call centers that rely in part on inbound IRFA,’’ the Commission has sought to solely with regard to the national ‘‘do- telemarketing and in part on outbound minimize as much as possible the not-call’’ registry provision. Because the telemarketing for their livelihood, is burdens imposed on all affected entities, Commission does not believe that any unsupported in the comment. No including small businesses. In general, other modification in the amended Rule evidence, other than a mere allusion to implicates any impact on the the changes made in response to public a study that purportedly shows that environment, the analysis is confined to comments have further reduced the some firms’ cost of providing inbound this provision. burdens. The amendments to the call center service would increase if disclosure and recordkeeping provisions The ‘‘do-not-call’’ registry provision will establish a centralized means for their outbound telemarketing load of the TSR are generally consistent with decreased, is provided by DeHart, nor is the business practices that most sellers consumers across the country to notify sellers and telemarketers of their support for this proposition found in the and telemarketers, regardless of size, record as a whole. Therefore, the would choose to follow, even absent preference not to receive unsolicited outbound telemarketing calls.1070 As fundamental assumption on which legal requirements. DeHart’s argument is based is one that The Commission has taken care in discussed in greater detail above, in the section discussing § 310.4(b)(1)(iii), the appears to be mere speculation. developing the amendments to the Rule The Commission believes that to set performance standards, which ‘‘do-not-call’’ registry provision supplements the original Rule’s speculation, and indeed, logic, could as establish the objective results that must easily lead to the conclusion that a be achieved by regulated entities, but do provision that allows consumers to exercise their ‘‘do-not-call’’ rights on a diminution in outbound calling, not establish a particular technology resulting from consumers’ decision to that must be employed in achieving company-by-company basis. The Commission determined, based on the place their telephone numbers on the those objectives. For example, the national ‘‘do-not-call’’ registry, could Commission does not specify the form extensive record evidence from the rulemaking proceeding, that a national lead sellers to use other channels of in which records required by the TSR distance marketing to sell their must be kept. It also allows a seller and ‘‘do-not-call’’ registry is necessary to effectuate the purposes of the products, including channels that a telemarketer making calls on the would significantly increase inbound seller’s behalf to allocate between Telemarketing Act.1071 The comment that addressed the telemarketing, such as direct mail, themselves the responsibility for catalog sales, and Internet sales. This maintaining required records. potential environmental impact of the proposed national ‘‘do-not-call’’ registry would mean that, even if many VI. National Environmental Policy Act stated, in relevant part, consumers utilize the ‘‘do-not-call’’ Under the Commission’s Rules of registry, inbound calling may benefit, For obvious reasons the FTC’s proposed not suffer, from such a result. Moreover, Practice implementing the National action may drastically reduce the ability to Environmental Policy Act of 1969 sell goods and services via telemarketing. In DeHart cites no authority for the (‘‘NEPA’’),1067 no ‘‘major action addition, and for the reasons stated above [wherein the commenter argues that the 1072 DeHart-NPRM at 2-3 (although the significantly affecting the quality of the commenter alludes to a study that corroborates its human environment will be instituted national ‘‘do-not-call’’ registry will negatively impact inbound call centers who rely upon assertion on this point, no title or citation is provided for such study). unless an environmental impact a combination of inbound and outbound statement (’EIS’) has been prepared,’’ if 1073 DeHart-NPRM at 3. such is required.1068 To determine if 1074 Id. The Commission believes that this 1069 16 CFR 1.83. See also National Citizens allegation would constitute, at most, ‘‘indirect such an impact statement is required, Comm. for Broad. v. FCC, 567 F.2d 1095, 1098 n.3 effects’’ under the NEPA implementing regulations, the Commission generally prepares an (D.C. Cir. 1977). or those ‘‘which are caused by the action and are ‘‘environmental assessment.’’ However, 1070 See discussion of § 310.4(b)(1)(iii) above. later in time or farther removed in distance, but are such an environmental assessment is 1071 15 U.S.C. 6102(a)(3)(A) (mandating that the still reasonably foreseeable.’’ 40 CFR 1508.8(b). The Commission include in its Rule ‘‘a requirement that Commission does not believe that the ‘‘do-not-call’’ telemarketers may not undertake a pattern of registry provision has been or could reasonably be 1066 15 U.S.C. 6102(a)(1). unsolicited telephone calls which the reasonable alleged to have ‘‘direct effects’’ or those ‘‘caused by 1067 42 U.S.C. 4321 et seq. consumer would consider coercive or abusive of the action and occur at the same time and place.’’ 1068 16 CFR 1.81, 1.82. such consumer’s right to privacy’’). 40 CFR 1508.8(a).

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proposition that local retail shopping determined, in accordance with § 1.83 of or in addition to the person to whom has, to date, been reduced as a result of of the FTC’s Rules of Practice, that no the credit card is issued. inbound or outbound telemarketing. environmental assessment or EIS is (f) Charitable contribution means any And, the fact remains that, other than required.1075 donation or gift of money or any other DeHart, none of the commenters, thing of value. List of Subjects in 16 CFR Part 310. including major sellers, telemarketers, (g) Commission means the Federal and industry groups, provides any Telemarketing, Trade practices. Trade Commission. evidence relating to the potential for a Accordingly, title 16, part 310 of the (h) Credit means the right granted by national ‘‘do-not-call’’ registry to result Code of Federal Regulations, is revised a creditor to a debtor to defer payment in a reduction in service or an increase to read as follows: of debt or to incur debt and defer its in cost for inbound telemarketing, nor in payment. a concomitant increase in retail PART 310—TELEMARKETING SALES (i) Credit card means any card, plate, shopping done in local malls. RULE coupon book, or other credit device Moreover, the Commission believes existing for the purpose of obtaining there can be no hard evidence on which Sec. money, property, labor, or services on to base a prediction of consumers’ 310.1 Scope of regulations in this part. credit. actions following the implementation of 310.2 Definitions. (j) Credit card sales draft means any 310.3 Deceptive telemarketing acts or record or evidence of a credit card the ‘‘do-not-call’’ registry provision. It practices. seems likely, based on the experience of 310.4 Abusive telemarketing acts or transaction. states that have implemented statewide practices. (k) Credit card system means any ‘‘do-not-call’’ lists, and the 310.5 Recordkeeping requirements. method or procedure used to process overwhelmingly high response of 310.6 Exemptions. credit card transactions involving credit consumers to the Commission’s 310.7 Actions by states and private persons. cards issued or licensed by the operator proposal, that many consumers will 310.8 Reserved: Fee for access to ‘‘do-not- of that system. avail themselves of the opportunity to call’’ registry. (l) Customer means any person who is place their telephone numbers on the 310.9 Severability. or may be required to pay for goods or national ‘‘do-not-call’’ registry. Authority: 15 U.S.C. 6101–6108. services offered through telemarketing. However, as noted above, this may or (m) Donor means any person solicited may not have any impact on consumers’ § 310.1 Scope of regulations in this part. to make a charitable contribution. decision to shop at local malls, or on This part implements the (n) Established business relationship their choice of transportation. Thus, Telemarketing and Consumer Fraud and means a relationship between a seller while consumer behavior may change as Abuse Prevention Act, 15 U.S.C. 6101- and a consumer based on: a result of the promulgation of 6108, as amended. (1) the consumer’s purchase, rental, or amendments to the Rule, such changes lease of the seller’s goods or services or § 310.2 Definitions. cannot be quantified or even reasonably a financial transaction between the estimated because consumer decisions (a) Acquirer means a business consumer and seller, within the are influenced by many variables other organization, financial institution, or an eighteen (18) months immediately than existence of the ‘‘do-not-call’’ agent of a business organization or preceding the date of a telemarketing registry. Any indirect impact of the financial institution that has authority call; or amended Rule on the environment from an organization that operates or (2) the consumer’s inquiry or would therefore be highly speculative licenses a credit card system to application regarding a product or and impossible to accurately predict or authorize merchants to accept, transmit, service offered by the seller, within the measure. or process payment by credit card three (3) months immediately preceding The Commission does not believe that through the credit card system for the date of a telemarketing call. any alternative to creating a national money, goods or services, or anything (o) Free-to-pay conversion means, in ‘‘do-not-call’’ registry would both else of value. an offer or agreement to sell or provide provide the benefits of the registry and (b) Attorney General means the chief any goods or services, a provision under ameliorate all potential concerns legal officer of a state. which a customer receives a product or regarding environmental impact. For (c) Billing information means any data service for free for an initial period and example, the Commission does not that enables any person to access a will incur an obligation to pay for the believe that given its justification for the customer’s or donor’s account, such as product or service if he or she does not necessity of the registry, eliminating the a credit card, checking, savings, share or take affirmative action to cancel before provision from the amended Rule would similar account, utility bill, mortgage the end of that period. be appropriate based solely on the loan account, or debit card. (p) Investment opportunity means unsupported allegations of indirect (d) Caller identification service means anything, tangible or intangible, that is environmental effect raised in the a service that allows a telephone offered, offered for sale, sold, or traded DeHart comment. Furthermore, the subscriber to have the telephone based wholly or in part on Commission can think of no alternative number, and, where available, name of representations, either express or other than eliminating the national ‘‘do- the calling party transmitted implied, about past, present, or future not-call’’ registry that would address contemporaneously with the telephone income, profit, or appreciation. DeHart’s unsupported and highly call, and displayed on a device in or (q) Material means likely to affect a speculative concern. connected to the subscriber’s telephone. person’s choice of, or conduct regarding, In sum, although any evaluation of (e) Cardholder means a person to goods or services or a charitable the environmental impact of the whom a credit card is issued or who is contribution. amendments to the TSR is uncertain authorized to use a credit card on behalf (r) Merchant means a person who is and highly speculative, the Commission authorized under a written contract finds no evidence of avoidable adverse 1075 16 CFR 1.83. See also National Citizens with an acquirer to honor or accept impacts stemming from the amended Comm. for Broad. v. FCC, 567 F.2d 1095, 1098 n.3 credit cards, or to transmit or process for Rule. Therefore, the Commission has (D.C. Cir. 1977). payment credit card payments, for the

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purchase of goods or services or a conducted to induce the purchase of or services that are the subject of the charitable contribution. goods or services or a charitable sales offer;2 (s) Merchant agreement means a contribution, by use of one or more (ii) All material restrictions, written contract between a merchant telephones and which involves more limitations, or conditions to purchase, and an acquirer to honor or accept than one interstate telephone call. The receive, or use the goods or services that credit cards, or to transmit or process for term does not include the solicitation of are the subject of the sales offer; payment credit card payments, for the sales through the mailing of a catalog (iii) If the seller has a policy of not purchase of goods or services or a which: contains a written description or making refunds, cancellations, charitable contribution. illustration of the goods or services exchanges, or repurchases, a statement (t) Negative option feature means, in offered for sale; includes the business informing the customer that this is the an offer or agreement to sell or provide address of the seller; includes multiple seller’s policy; or, if the seller or any goods or services, a provision under pages of written material or telemarketer makes a representation which the customer’s silence or failure illustrations; and has been issued not about a refund, cancellation, exchange, to take an affirmative action to reject less frequently than once a year, when or repurchase policy, a statement of all goods or services or to cancel the the person making the solicitation does material terms and conditions of such agreement is interpreted by the seller as not solicit customers by telephone but policy; acceptance of the offer. only receives calls initiated by (iv) In any prize promotion, the odds (u) Outbound telephone call means a customers in response to the catalog and of being able to receive the prize, and, telephone call initiated by a during those calls takes orders only if the odds are not calculable in telemarketer to induce the purchase of without further solicitation. For advance, the factors used in calculating goods or services or to solicit a purposes of the previous sentence, the the odds; that no purchase or payment charitable contribution. term ‘‘further solicitation’’ does not is required to win a prize or to (v) Person means any individual, include providing the customer with participate in a prize promotion and group, unincorporated association, information about, or attempting to sell, that any purchase or payment will not limited or general partnership, any other item included in the same increase the person’s chances of corporation, or other business entity. catalog which prompted the customer’s winning; and the no-purchase/no- (w) Preacquired account information call or in a substantially similar catalog. payment method of participating in the means any information that enables a (dd) Upselling means soliciting the prize promotion with either instructions seller or telemarketer to cause a charge purchase of goods or services following on how to participate or an address or to be placed against a customer’s or an initial transaction during a single local or toll-free telephone number to donor’s account without obtaining the telephone call. The upsell is a separate which customers may write or call for account number directly from the telemarketing transaction, not a information on how to participate; customer or donor during the continuation of the initial transaction. (v) All material costs or conditions to telemarketing transaction pursuant to An ‘‘external upsell’’ is a solicitation receive or redeem a prize that is the which the account will be charged. made by or on behalf of a seller different subject of the prize promotion; (x) Prize means anything offered, or from the seller in the initial transaction, (vi) In the sale of any goods or purportedly offered, and given, or regardless of whether the initial services represented to protect, insure, purportedly given, to a person by transaction and the subsequent or otherwise limit a customer’s liability chance. For purposes of this definition, solicitation are made by the same in the event of unauthorized use of the chance exists if a person is guaranteed telemarketer. An ‘‘internal upsell’’ is a customer’s credit card, the limits on a to receive an item and, at the time of the solicitation made by or on behalf of the cardholder’s liability for unauthorized offer or purported offer, the telemarketer same seller as in the initial transaction, use of a credit card pursuant to 15 does not identify the specific item that regardless of whether the initial U.S.C. 1643; and the person will receive. (vii) If the offer includes a negative (y) Prize promotion means: transaction and subsequent solicitation (1) A sweepstakes or other game of are made by the same telemarketer. option feature, all material terms and chance; or conditions of the negative option § 310.3 Deceptive telemarketing acts or feature, including, but not limited to, (2) An oral or written express or practices. implied representation that a person has the fact that the customer’s account will won, has been selected to receive, or (a) Prohibited deceptive telemarketing be charged unless the customer takes an may be eligible to receive a prize or acts or practices. It is a deceptive affirmative action to avoid the charge(s), purported prize. telemarketing act or practice and a the date(s) the charge(s) will be (z) Seller means any person who, in violation of this Rule for any seller or submitted for payment, and the specific connection with a telemarketing telemarketer to engage in the following steps the customer must take to avoid transaction, provides, offers to provide, conduct: the charge(s). or arranges for others to provide goods (1) Before a customer pays1 for goods (2) Misrepresenting, directly or by or services to the customer in exchange or services offered, failing to disclose implication, in the sale of goods or for consideration. truthfully, in a clear and conspicuous services any of the following material (aa) State means any state of the manner, the following material information: United States, the District of Columbia, information: (i) The total costs to purchase, receive, Puerto Rico, the Northern Mariana (i) The total costs to purchase, receive, or use, and the quantity of, any goods Islands, and any territory or possession or use, and the quantity of, any goods or services that are the subject of a sales of the United States. offer; (bb) Telemarketer means any person 1 When a seller or telemarketer uses, or directs a who, in connection with telemarketing, customer to use, a courier to transport payment, the 2 For offers of consumer credit products subject initiates or receives telephone calls to or seller or telemarketer must make the disclosures to the Truth in Lending Act, 15 U.S.C. 1601 et seq., required by § 310.3(a)(1) before sending a courier to and Regulation Z, 12 CFR 226, compliance with the from a customer or donor. pick up payment or authorization for payment, or disclosure requirements under the Truth in Lending (cc) Telemarketing means a plan, directing a customer to have a courier pick up Act and Regulation Z shall constitute compliance program, or campaign which is payment or authorization for payment. with § 310.3(a)(1)(i) of this Rule.

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(ii) Any material restriction, upon request to the customer or donor, credit card system, it is a deceptive limitation, or condition to purchase, and the customer’s or donor’s bank or telemarketing act or practice and a receive, or use goods or services that are other billing entity, and which violation of this Rule for: the subject of a sales offer; evidences clearly both the customer’s or (1) A merchant to present to or (iii) Any material aspect of the donor’s authorization of payment for the deposit into, or cause another to present performance, efficacy, nature, or central goods or services or charitable to or deposit into, the credit card system characteristics of goods or services that contribution that are the subject of the for payment, a credit card sales draft are the subject of a sales offer; telemarketing transaction and the generated by a telemarketing transaction (iv) Any material aspect of the nature customer’s or donor’s receipt of all of that is not the result of a telemarketing or terms of the seller’s refund, the following information: credit card transaction between the cancellation, exchange, or repurchase (A) The number of debits, charges, or cardholder and the merchant; policies; payments (if more than one); (2) Any person to employ, solicit, or (v) Any material aspect of a prize (B) The date(s) the debit(s), charge(s), otherwise cause a merchant, or an promotion including, but not limited to, or payment(s) will be submitted for employee, representative, or agent of the the odds of being able to receive a prize, payment; merchant, to present to or deposit into the nature or value of a prize, or that a (C) The amount(s) of the debit(s), the credit card system for payment, a purchase or payment is required to win charge(s), or payment(s); credit card sales draft generated by a a prize or to participate in a prize (D) The customer’s or donor’s name; telemarketing transaction that is not the promotion; (E) The customer’s or donor’s billing result of a telemarketing credit card (vi) Any material aspect of an information, identified with sufficient transaction between the cardholder and investment opportunity including, but specificity such that the customer or the merchant; or not limited to, risk, liquidity, earnings donor understands what account will be (3) Any person to obtain access to the potential, or profitability; used to collect payment for the goods or credit card system through the use of a (vii) A seller’s or telemarketer’s services or charitable contribution that business relationship or an affiliation affiliation with, or endorsement or are the subject of the telemarketing with a merchant, when such access is sponsorship by, any person or transaction; not authorized by the merchant government entity; (F) A telephone number for customer agreement or the applicable credit card (viii) That any customer needs offered or donor inquiry that is answered system. goods or services to provide protections during normal business hours; and (d) Prohibited deceptive acts or a customer already has pursuant to 15 (G) The date of the customer’s or practices in the solicitation of charitable U.S.C. 1643; or donor’s oral authorization; or contributions. It is a fraudulent (ix) Any material aspect of a negative (iii) Written confirmation of the charitable solicitation, a deceptive option feature including, but not limited transaction, identified in a clear and telemarketing act or practice, and a to, the fact that the customer’s account conspicuous manner as such on the violation of this Rule for any will be charged unless the customer outside of the envelope, sent to the telemarketer soliciting charitable takes an affirmative action to avoid the customer or donor via first class mail contributions to misrepresent, directly charge(s), the date(s) the charge(s) will prior to the submission for payment of or by implication, any of the following be submitted for payment, and the the customer’s or donor’s billing material information: specific steps the customer must take to information, and that includes all of the (1) The nature, purpose, or mission of avoid the charge(s). information contained in any entity on behalf of which a (3) Causing billing information to be §§ 310.3(a)(3)(ii)(A)-(G) and a clear and charitable contribution is being submitted for payment, or collecting or conspicuous statement of the requested; attempting to collect payment for goods procedures by which the customer or (2) That any charitable contribution is or services or a charitable contribution, donor can obtain a refund from the tax deductible in whole or in part; directly or indirectly, without the seller or telemarketer or charitable (3) The purpose for which any customer’s or donor’s express verifiable organization in the event the charitable contribution will be used; authorization, except when the method confirmation is inaccurate; provided, (4) The percentage or amount of any of payment used is a credit card subject however, that this means of charitable contribution that will go to a to protections of the Truth in Lending authorization shall not be deemed charitable organization or to any Act and Regulation Z,3 or a debit card verifiable in instances in which goods or particular charitable program; subject to the protections of the services are offered in a transaction (5) Any material aspect of a prize Electronic Fund Transfer Act and involving a free-to-pay conversion and promotion including, but not limited to: Regulation E.4 Such authorization shall preacquired account information. the odds of being able to receive a prize; be deemed verifiable if any of the (4) Making a false or misleading the nature or value of a prize; or that a following means is employed: statement to induce any person to pay charitable contribution is required to (i) Express written authorization by for goods or services or to induce a win a prize or to participate in a prize the customer or donor, which includes charitable contribution. promotion; or the customer’s or donor’s signature;5 (b) Assisting and facilitating. It is a (6) A charitable organization’s or (ii) Express oral authorization which deceptive telemarketing act or practice telemarketer’s affiliation with, or is audio-recorded and made available and a violation of this Rule for a person endorsement or sponsorship by, any to provide substantial assistance or person or government entity. 3 Truth in Lending Act, 15 U.S.C. 1601 et seq., support to any seller or telemarketer and Regulation Z, 12 CFR part 226. when that person knows or consciously § 310.4 Abusive telemarketing acts or 4 Electronic Fund Transfer Act, 15 U.S.C. 1693 et avoids knowing that the seller or practices. seq., and Regulation E, 12 CFR part 205. telemarketer is engaged in any act or (a) Abusive conduct generally. It is an 5 For purposes of this Rule, the term ‘‘signature’’ practice that violates §§ 310.3(a), (c) or abusive telemarketing act or practice shall include an electronic or digital form of signature, to the extent that such form of signature (d), or § 310.4 of this Rule. and a violation of this Rule for any is recognized as a valid signature under applicable (c) Credit card laundering. Except as seller or telemarketer to engage in the federal law or state contract law. expressly permitted by the applicable following conduct:

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(1) Threats, intimidation, or the use of in paragraphs (a)(6)(i) through (ii) of this outbound telephone calls established to profane or obscene language; section must be met to evidence express comply with § 310.4(b)(1)(iii); (2) Requesting or receiving payment informed consent. (iii) Initiating any outbound telephone of any fee or consideration for goods or (i) In any telemarketing transaction call to a person when: services represented to remove involving preacquired account (A) that person previously has stated derogatory information from, or information and a free-to-pay that he or she does not wish to receive improve, a person’s credit history, credit conversion feature, the seller or an outbound telephone call made by or record, or credit rating until: telemarketer must: on behalf of the seller whose goods or (i) The time frame in which the seller (A) obtain from the customer, at a services are being offered or made on has represented all of the goods or minimum, the last four (4) digits of the behalf of the charitable organization for services will be provided to that person account number to be charged; which a charitable contribution is being has expired; and (B) obtain from the customer his or solicited; or (ii) The seller has provided the person her express agreement to be charged for (B) that person’s telephone number is with documentation in the form of a the goods or services and to be charged on the ‘‘do-not-call’’ registry, consumer report from a consumer using the account number pursuant to maintained by the Commission, of reporting agency demonstrating that the paragraph (a)(6)(i)(A) of this section; persons who do not wish to receive promised results have been achieved, and, outbound telephone calls to induce the such report having been issued more (C) make and maintain an audio purchase of goods or services unless the than six months after the results were recording of the entire telemarketing seller achieved. Nothing in this Rule should transaction. (i) has obtained the express be construed to affect the requirement in (ii) In any other telemarketing agreement, in writing, of such person to the Fair Credit Reporting Act, 15 U.S.C. transaction involving preacquired place calls to that person. Such written 1681, that a consumer report may only account information not described in agreement shall clearly evidence such be obtained for a specified permissible paragraph (a)(6)(i) of this section, the person’s authorization that calls made purpose; seller or telemarketer must: by or on behalf of a specific party may (3) Requesting or receiving payment (A) at a minimum, identify the be placed to that person, and shall of any fee or consideration from a account to be charged with sufficient include the telephone number to which person for goods or services represented specificity for the customer or donor to the calls may be placed and the to recover or otherwise assist in the understand what account will be signature6 of that person; or return of money or any other item of charged; and (ii) has an established business value paid for by, or promised to, that (B) obtain from the customer or donor relationship with such person, and that person in a previous telemarketing his or her express agreement to be person has not stated that he or she does transaction, until seven (7) business charged for the goods or services and to not wish to receive outbound telephone days after such money or other item is be charged using the account number calls under paragraph (b)(1)(iii)(A) of delivered to that person. This provision identified pursuant to paragraph this section; or shall not apply to goods or services (a)(6)(ii)(A) of this section; or (iv) Abandoning any outbound provided to a person by a licensed (7) Failing to transmit or cause to be telephone call. An outbound telephone attorney; transmitted the telephone number, and, call is ‘‘abandoned’’ under this section (4) Requesting or receiving payment when made available by the if a person answers it and the of any fee or consideration in advance telemarketer’s carrier, the name of the telemarketer does not connect the call to of obtaining a loan or other extension of telemarketer, to any caller identification a sales representative within two (2) credit when the seller or telemarketer service in use by a recipient of a seconds of the person’s completed has guaranteed or represented a high telemarketing call; provided that it shall greeting. likelihood of success in obtaining or not be a violation to substitute (for the (2) It is an abusive telemarketing act arranging a loan or other extension of name and phone number used in, or or practice and a violation of this Rule credit for a person; billed for, making the call) the name of for any person to sell, rent, lease, (5) Disclosing or receiving, for the seller or charitable organization on purchase, or use any list established to consideration, unencrypted consumer behalf of which a telemarketing call is comply with § 310.4(b)(1)(iii)(A), or account numbers for use in placed, and the seller’s or charitable maintained by the Commission telemarketing; provided, however, that organization’s customer or donor service pursuant to § 310.4(b)(1)(iii)(B), for any this paragraph shall not apply to the telephone number, which is answered purpose except compliance with the disclosure or receipt of a customer’s or during regular business hours. provisions of this Rule or otherwise to donor’s billing information to process a (b) Pattern of calls. prevent telephone calls to telephone payment for goods or services or a (1) It is an abusive telemarketing act numbers on such lists. charitable contribution pursuant to a or practice and a violation of this Rule (3) A seller or telemarketer will not be transaction; for a telemarketer to engage in, or for a liable for violating § 310.4(b)(1)(ii) and (6) Causing billing information to be seller to cause a telemarketer to engage (iii) if it can demonstrate that, as part of submitted for payment, directly or in, the following conduct: the seller’s or telemarketer’s routine indirectly, without the express informed (i) Causing any telephone to ring, or business practice: consent of the customer or donor. In any engaging any person in telephone (i) It has established and implemented telemarketing transaction, the seller or conversation, repeatedly or written procedures to comply with telemarketer must obtain the express continuously with intent to annoy, § 310.4(b)(1)(ii) and (iii); informed consent of the customer or abuse, or harass any person at the called (ii) It has trained its personnel, and donor to be charged for the goods or number; any entity assisting in its compliance, in services or charitable contribution and (ii) Denying or interfering in any way, to be charged using the identified directly or indirectly, with a person’s 6 For purposes of this Rule, the term ‘‘signature’’ shall include an electronic or digital form of account. In any telemarketing right to be placed on any registry of signature, to the extent that such form of signature transaction involving preacquired names and/or telephone numbers of is recognized as a valid signature under applicable account information, the requirements persons who do not wish to receive federal law or state contract law.

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the procedures established pursuant to telemarketing act or practice and a the amount paid by the customer for the § 310.4(b)(3)(i); violation of this Rule for a telemarketer goods or services;8 (iii) The seller, or a telemarketer or in an outbound telephone call or (4) The name, any fictitious name another person acting on behalf of the internal or external upsell to induce the used, the last known home address and seller or charitable organization, has purchase of goods or services to fail to telephone number, and the job title(s) maintained and recorded a list of disclose truthfully, promptly, and in a for all current and former employees telephone numbers the seller or clear and conspicuous manner to the directly involved in telephone sales or charitable organization may not contact, person receiving the call, the following solicitations; provided, however, that if in compliance with § 310.4(b)(1)(iii)(A); information: the seller or telemarketer permits (iv) The seller or a telemarketer uses (1) The identity of the seller; fictitious names to be used by a process to prevent telemarketing to (2) That the purpose of the call is to employees, each fictitious name must be any telephone number on any list sell goods or services; traceable to only one specific employee; established pursuant to (3) The nature of the goods or and §§ 310.4(b)(3)(iii) or 310.4(b)(1)(iii)(B), services; and (5) All verifiable authorizations or employing a version of the ‘‘do-not-call’’ (4) That no purchase or payment is records of express informed consent or registry obtained from the Commission necessary to be able to win a prize or express agreement required to be no more than three (3) months prior to participate in a prize promotion if a provided or received under this Rule. the date any call is made, and maintains prize promotion is offered and that any (b) A seller or telemarketer may keep records documenting this process; purchase or payment will not increase the records required by § 310.5(a) in any (v) The seller or a telemarketer or the person’s chances of winning. This form, and in the same manner, format, another person acting on behalf of the disclosure must be made before or in or place as they keep such records in the seller or charitable organization, conjunction with the description of the ordinary course of business. Failure to monitors and enforces compliance with prize to the person called. If requested keep all records required by § 310.5(a) the procedures established pursuant to by that person, the telemarketer must shall be a violation of this Rule. § 310.4(b)(3)(i); and disclose the no-purchase/no-payment (c) The seller and the telemarketer (vi) Any subsequent call otherwise entry method for the prize promotion; calling on behalf of the seller may, by violating § 310.4(b)(1)(ii) or (iii) is the provided, however, that, in any internal written agreement, allocate result of error. upsell for the sale of goods or services, responsibility between themselves for (4) A seller or telemarketer will not be the seller or telemarketer must provide the recordkeeping required by this liable for violating 310.4(b)(1)(iv) if: the disclosures listed in this section Section. When a seller and telemarketer (i) the seller or telemarketer employs only to the extent that the information have entered into such an agreement, technology that ensures abandonment of in the upsell differs from the disclosures the terms of that agreement shall govern, no more than three (3) percent of all provided in the initial telemarketing and the seller or telemarketer, as the calls answered by a person, measured transaction. case may be, need not keep records that per day per calling campaign; (e) Required oral disclosures in duplicate those of the other. If the (ii) the seller or telemarketer, for each charitable solicitations. It is an abusive agreement is unclear as to who must telemarketing call placed, allows the telemarketing act or practice and a maintain any required record(s), or if no telephone to ring for at least fifteen (15) violation of this Rule for a telemarketer, such agreement exists, the seller shall be seconds or four (4) rings before in an outbound telephone call to induce responsible for complying with disconnecting an unanswered call; a charitable contribution, to fail to §§ 310.5(a)(1)-(3) and (5); the (iii) whenever a sales representative is disclose truthfully, promptly, and in a telemarketer shall be responsible for not available to speak with the person clear and conspicuous manner to the complying with § 310.5(a)(4). answering the call within two (2) person receiving the call, the following (d) In the event of any dissolution or seconds after the person’s completed information: termination of the seller’s or telemarketer’s business, the principal of greeting, the seller or telemarketer (1) The identity of the charitable that seller or telemarketer shall maintain promptly plays a recorded message that organization on behalf of which the all records as required under this states the name and telephone number request is being made; and Section. In the event of any sale, of the seller on whose behalf the call (2) That the purpose of the call is to 7 assignment, or other change in was placed ; and solicit a charitable contribution. (iv) the seller or telemarketer, in ownership of the seller’s or accordance with § 310.5(b)-(d), retains § 310.5 Recordkeeping requirements. telemarketer’s business, the successor records establishing compliance with (a) Any seller or telemarketer shall business shall maintain all records § 310.4(b)(4)(i)-(iii). keep, for a period of 24 months from the required under this Section. (c) Calling time restrictions. Without date the record is produced, the § 310.6 Exemptions. the prior consent of a person, it is an following records relating to its (a) Solicitations to induce charitable abusive telemarketing act or practice telemarketing activities: contributions via outbound telephone and a violation of this Rule for a (1) All substantially different calls are not covered by telemarketer to engage in outbound advertising, brochures, telemarketing § 310.4(b)(1)(iii)(B) of this Rule. telephone calls to a person’s residence scripts, and promotional materials; (b) The following acts or practices are at any time other than between 8:00 a.m. (2) The name and last known address exempt from this Rule: and 9:00 p.m. local time at the called of each prize recipient and the prize (1) The sale of pay-per-call services person’s location. awarded for prizes that are represented, subject to the Commission’s Rule (d) Required oral disclosures in the directly or by implication, to have a sale of goods or services. It is an abusive value of $25.00 or more; 8 For offers of consumer credit products subject (3) The name and last known address to the Truth in Lending Act, 15 U.S.C. 1601 et seq., 7 This provision does not affect any seller’s or of each customer, the goods or services and Regulation Z, 12 CFR 226, compliance with the telemarketer’s obligation to comply with relevant recordkeeping requirements under the Truth in state and federal laws, including but not limited to purchased, the date such goods or Lending Act, and Regulation Z, shall constitute the TCPA, 47 U.S.C. 227, and 47 CFR part 64.1200. services were shipped or provided, and compliance with § 310.5(a)(3) of this Rule.

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entitled ‘‘Trade Regulation Rule customer or donor in response to an (7) Telephone calls between a Pursuant to the Telephone Disclosure advertisement relating to investment telemarketer and any business, except and Dispute Resolution Act of 1992,’’ 16 opportunities, business opportunities calls to induce the retail sale of CFR Part 308, provided, however, that other than business arrangements nondurable office or cleaning supplies; this exemption does not apply to the covered by the Franchise Rule, or provided, however, that requirements of § § 310.4(a)(1), (a)(7), advertisements involving goods or § 310.4(b)(1)(iii)(B) and § 310.5 of this (b), and (c); services described in § § 310.3(a)(1)(vi) Rule shall not apply to sellers or (2) The sale of franchises subject to or 310.4(a)(2)-(4); or to any instances of telemarketers of nondurable office or the Commission’s Rule entitled upselling included in such telephone cleaning supplies. ‘‘Disclosure Requirements and calls; Prohibitions Concerning Franchising § 310.7 Actions by states and private (6) Telephone calls initiated by a and Business Opportunity Ventures,’’ persons. customer or donor in response to a (‘‘Franchise Rule’’) 16 CFR Part 436, direct mail solicitation, including (a) Any attorney general or other provided, however, that this exemption officer of a state authorized by the state does not apply to the requirements of solicitations via the U.S. Postal Service, facsimile transmission, electronic mail, to bring an action under the § § 310.4(a)(1), (a)(7), (b), and (c); Telemarketing and Consumer Fraud and (3) Telephone calls in which the sale and other similar methods of delivery in which a solicitation is directed to Abuse Prevention Act, and any private of goods or services or charitable person who brings an action under that solicitation is not completed, and specific address(es) or person(s), that clearly, conspicuously, and truthfully Act, shall serve written notice of its payment or authorization of payment is action on the Commission, if feasible, not required, until after a face-to-face discloses all material information listed in § 310.3(a)(1) of this Rule, for any prior to its initiating an action under sales or donation presentation by the this Rule. The notice shall be sent to the seller or charitable organization, goods or services offered in the direct mail solicitation, and that contains no Office of the Director, Bureau of provided, however, that this exemption Consumer Protection, Federal Trade does not apply to the requirements of material misrepresentation regarding any item contained in § 310.3(d) of this Commission, Washington, D.C. 20580, § § 310.4(a)(1), (a)(7), (b), and (c); and shall include a copy of the state’s (4) Telephone calls initiated by a Rule for any requested charitable or private person’s complaint and any customer or donor that are not the result contribution; provided, however, that other pleadings to be filed with the of any solicitation by a seller, charitable this exemption does not apply to calls court. If prior notice is not feasible, the organization, or telemarketer, provided, initiated by a customer in response to a state or private person shall serve the however, that this exemption does not direct mail solicitation relating to prize apply to any instances of upselling promotions, investment opportunities, Commission with the required notice included in such telephone calls; business opportunities other than immediately upon instituting its action. (5) Telephone calls initiated by a business arrangements covered by the (b) Nothing contained in this Section customer or donor in response to an Franchise Rule, or goods or services shall prohibit any attorney general or advertisement through any medium, described in §§ 310.3(a)(1)(vi) or other authorized state official from other than direct mail solicitation, 310.4(a)(2)-(4); or to any instances of proceeding in state court on the basis of provided, however, that this exemption upselling included in such telephone an alleged violation of any civil or does not apply to calls initiated by a calls; and criminal statute of such state.

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§ 310.8 [Reserved: Fee for access to ‘‘do- Johnson—Johnson, Sharon Coleman AFSA—American Financial Services not-call’’ registry.] Jordan—Jordan, April Association Kelly—Kelly, Lawrence M. Red Cross—American Red Cross § 310.9 Severability. KTW—KTW Consulting Techniques, Inc. ARDA—American Resort Development The provisions of this Rule are Lamet—Lamet, Jerome S. Association separate and severable from one Lee—Lee, Rockie ARDA–2—American Resort Development another. If any provision is stayed or LSAP—Legal Services Advocacy Project Association-Do Not Call Registry determined to be invalid, it is the LeQuang—LeQuang, Albert American Rivers—American Rivers Lesher—Lesher, David ASTA—American Society of Travel Agents Commission’s intention that the Mack—Mack, Mr. and Mrs. Alfred ATA—American Teleservices Association remaining provisions shall continue in MPA—Magazine Publishers of America, Inc. Blood Centers—America’s Blood Centers effect. Manz—Manz, Matthias Community Bankers—America’s Community By direction of the Commission. McCurdy—McCurdy, Bridget E. Bankers Donald S. Clark, Menefee—Menefee, Marcie Ameriquest—Ameriquest Mortgage Company Merritt—Merritt, Everett W. Armey—Armey, The Honorable Dick (U.S. Secretary. Mey— Mey, Diana House of Representatives) Mitchelp—Mitchelp AFP—Association of Fundraising Note: Appendices A and B are published TeleSource—Morgan-Francis/Tele-Source Professionals for informational purposes only and will not Industries APTS—Association of Public Television be codified in Title 16 of the Code of Federal NACHA—NACHA-The Electronic Payments Stations Regulations. Association ANA—Association of National Advertisers NAAG—National Association of Attorneys Associations—joint comment of: American Appendix A General Teleservices Association, Direct Marketing NACAA—National Association of Consumer Association, Electronic Retailing List of Acronyms for Rule Review Agency Administrators Association, Magazine Publishers Commenters NCL—National Consumers League Association, and Promotion Marketing NFN—National Federation of Nonprofits Association February 28, 2000 Request for Comment NAA—Newspaper Association of America Assurant—Assurant Group Acronym — Commenter NASAA—North American Securities Avinta—Avinta Communications, Inc. Administrators Association Ayres—Ayres, Ian AARP—AARP Nova53—Nova53 Baldacci—Baldacci, The Honorable John Alan—Alan, Alicia Nurik— Nurik, Margy and Irv Elias (U.S. House of Representatives) ARDA—American Resort Development PLP—Personal Legal Plans, Inc. BofA—Bank of America Association Peters—Peters, John and Frederickson, Bank One—Bank One Corporation ATA—American Teleservices Association Constance Beautyrock—Beautyrock, Inc. Anderson—Anderson, Wayne Reese—Reese Brothers, Inc. BellSouth—BellSouth Corporation Baressi—Baressi, Sandy Reynolds—Reynolds, Charles Best Buy—Best Buy Company, Inc. Bell Atlantic—Bell Atlantic Rothman—Rothman, Iris BRI—Business Response Inc. Bennett—Bennett, Douglas H. Runnels—Runnels, Mike CCAA—California Consumer Affairs Biagiotti—Biagiotti, Mary Sanford—Sanford, Kanija Association Bishop—Bishop, Lew & Lois Schiber—Schiber, Bill CATS—Californians Against Telephone Blake—Blake, Ted Schmied—Schmied, R. L. Solicitation Bowman-Kruhm—Bowman-Kruhm, Mary Strang—Strang, Wayne G. Capital One—Capital One Financial Braddick—Braddick, Jane Ann TeleSource—Morgan-Francis/Tele-Source Corporation Brass—Brass, Eric Industries Car Wash Guys—WashGuy Systems Brosnahan—Brosnahan, Kevin Texas—Texas Attorney General Carper—Carper, The Honorable Thomas R. Budro—Budro, Edgar Thai—Thai, Linh Vien (U.S. Senate) Card—Card, Giles S. Vanderburg—Vanderburg, Mary Lou Celebrity Prime Foods—Celebrity Prime Collison—Collison, Doug Ver Steegt—Ver Steegt, Karen Conn—Conn, David Foods Verizon—Verizon Wireless Cendant—Cendant Corporation Conway—Conway, Candace Warren—Warren, Joshua Croushore—Croushore, Amanda Chamber of Commerce—Chamber of Weltha—Weltha, Nick Commerce of the United States of America Curtis—Curtis, Joel Worsham—Worsham, Michael C., Esq. Dawson—Dawson, Darcy CRF—Charitable Resource Foundation, Inc. DMA—Direct Marketing Association Appendix B Chicago ADM—Chicago Association of Direct DSA—Direct Selling Association Marketing Doe—Doe, Jane List of Acronyms for NPRM Commenters Childhood Leukemia—Childhood Leukemia ERA—Electronic Retailing Association Acronym — Commenter Foundation FAMSA—FAMSA-Funeral Consumers CDI—Circulation Development, Inc. Alliance, Inc. 1–800-DoNotCall—1–800-DoNotCall, Inc. CURE—Citizens United for Rehabilitation of Gannett—Gannett Co., Inc. AARP—AARP Errants Garbin—Garbin, David and Linda ACA—ACA International Citigroup—Citigroup Inc. A. Gardner—Gardner, Anne ACUTA—ACUTA Civil Service Leader—Civil Service Leader S. Gardner—Gardner, Stephen Advanta—Advanta Corp. Collier Shannon-Collier Shannon Scott Gibb—Gibb, Ronald E. Aegis—Aegis Communications Group Comcast—Comcast Gilchrist—Gilchrist, Dr. K. James Alabama Police—Alabama State Police CNHI—Community Newspaper Holdings, Gindin—Gindin, Jim Association, Inc. Inc. Haines—Haines, Charlotte AAST—American Association of State Community Safety—Community Safety, LLC Harper—Harper, Greg Troopers Connecticut—Connecticut Commissioner of Heagy—Heagy, Annette M. ABA—American Bankers Association Consumer Protection Hecht—Hecht, Jeff ABIA—American Bankers Insurance CBA—Consumer Bankers Association Hickman—Bill and Donna Association CCC—joint comment of: Consumer Choice Hollingsworth—Hollingsworth, Bob and Pat American Blind—American Blind Products, Coalition, ACI Telecentrics, Coverdell & Holloway—Holloway, Lynn S. Inc. Company, Discount Development Services, Holmay—Holmay, Kathleen ACE—American Council on Education HSN LP d/b/a HSN and Home Shopping ICFA—International Cemetery and Funeral ADA—American Diabetes Association Network, Household Credit Services, Association AmEx—American Express MBNA America Bank, MemberWorks

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Incorporated, Mortgage Investors Roanoke FFA—Roanoke (VA) Fire Fighters MPA—Magazine Publishers Association Corporation, Optima Direct, TCIM Inc., Association Make-A-Wish—Make-A-Wish Foundation of Trilegiant Corporation and West Springfield FFA—Springfield (MO) America Corporation Firefighters Association, Local 52 Manzullo—Manzullo, The Honorable Donald CMC—Consumer Mortgage Coalition Sycamore FFA—Sycamore, IAFF Local 3046 A. (U.S. House of Representatives) Consumer Privacy—Consumer Privacy Guide Utah FFA—Utah, Professional Firefighters of March of Dimes—March of Dimes Birth Convergys—Convergys Corporation Vermont FFA—Vermont, Professional Defects Foundation CCA—Corrections Corporation of America Firefighters of Marketlink—Marketlink, Inc. CASE—Council for Advancement and Wisconsin FFA—Wisconsin, Professional MBA—Massachusetts Bankers Association Support of Education Fire Fighters of MasterCard—MasterCard International Cox—Cox Enterprises FireCo—FireCo, L.L.C. MBNA—MBNA America Bank, N.A. Craftmatic—Craftmatic Organization, Inc. Fleet—FleetBoston Financial Corporation McClure—McClure, Scott Davis—Davis, The Honorable Tom (U.S. FOP—Fraternal Order of Police, Grand Lodge McConnell—McConnell, The Honorable House of Representatives) FPIR—Fund for Public Interest Research, Inc. Mitch (U.S. Senate) DBA—Debt Buyers Association FCA—Funeral Consumers Alliance, Inc. Metris—Metris Companies, Inc. DeHart—DeHart & Darr Associates Gannett—Gannett Co., Inc. Michigan Nonprofit—Michigan Nonprofit Deutsch—Deutsch, The Honorable Peter (U.S. Gottschalks—Gottschalks, Inc. Association House of Representatives) Greater Niagara—Greater Niagara MidFirst—MidFirst Bank DialAmerica—DialAmerica Marketing, Inc. Newspapers MBAA—Mortgage Bankers Association of DMA—Direct Marketing Association/U.S. Green Mountain—Green Mountain Energy America Chamber of Commerce Company Myrick—Myrick, The Honorable Sue (U.S. DMA-NonProfit—Direct Marketing Gryphon—Gryphon Networks House of Representatives) Association NonProfit Federation Hagel, Johnson & Carper—Joint letter from: NACHA—NACHA-The Electronic Payments DSA—Direct Selling Association The Honorable Chuck Hagel, Tim Johnson, Association Discover—Discover Bank and Thomas R. Carper (U.S. Senate) Nadel—Nadel, Mark S. (law review article: DC—District of Columbia, Office of the Hastings—Hastings, The Honorable Doc (U.S. ‘‘Rings of Privacy: Unsolicited Telephone People’s Counsel House of Representatives) Calls and the Right to Privacy,’’ 4 Yale Eagle—Eagle Bank Herald Bulletin—Herald Bulletin Journal on Regulation 99 (Fall 1986) EFSC—Electronic Financial Services Council Horick—Horick, Bob NAAG—National Association of Attorneys EPIC—Joint comment: Electronic Privacy Household International: General Information Center, Center for Digital Household Auto—Joint comment: Household NACAA—National Association of Consumer Democracy, Junkbusters Corp, Finance Corp, OFL-A Receivables Corp., Agency Administrators International Union UAW, Privacy Rights and Household Automotive NAIFA—National Association of Insurance & Clearinghouse, Consumers Union, Evan Household Credit—Household Bank, Credit Financial Advisors Hendricks of Privacy Times, Card Services NAR—National Association of Realtors Privacyactivisim, Consumer Action, Household Finance—Household Finance NARUC—National Association of Regulatory Consumer Project on Technology, Robert Corporation Utility Commissioners Ellis Smith of Privacy Journal, Consumer Household-Montalvo—Montalvo, David ARVC—National Association of RV Parks & Federation of America, Computer HSBC—HSBC Bank USA Campgrounds Scientists for Social Responsibility, and Hudson Bay-Anderson—Hudson Bay NASCO—National Association of State Private Citizen, Inc. Company of Illinois-owner Charity Officials ERA—Electronic Retailing Association Hudson Bay-Goodman—Hudson Bay NASUCA—National Association of State EPI—Enterprise Prison Institute Company-Goodman Utility Consumer Advocates Experian—Experian Marketing Information HRC—Human Rights Campaign E-Commerce Coalition—National Business Solutions, Inc. IBM—IBM Coalition on E-Commerce & Privacy Fiber Clean—Fiber Clean ICT—ICT Group, Inc. NCTA—National Cable & Roundtable—Financial Services Roundtable Illinois Police—Illinois Council of Police & Telecommunications Association Fire Fighters Associations: Sheriffs National Children’s Cancer—National Asheville FFA—Asheville (NC) Fire Fighters Infocision—Infocision Management Children’s Cancer Society, Inc. Association Corporation NCLC—Joint comment: National Consumer Bethelehem FFA—Bethlehem (PA), IAFF Inhofe—Inhofe, The Honorable James (U.S. Law Center, National Association of Local 735 Senate) Consumer Advocates, Consumer Boone FFA—Boone (IA) Insight—Insight Realty, Inc. Federation of America, Consumers Union, California FFA—California Professional ITC—Interactive Teleservices Corp. and US Public Interest Research Group Firefighters ICFA—International Cemetery & Funeral NCLF—National Children’s Leukemia Cedar Rapids FFA—Cedar Rapids (IA), IAFF Association Foundation Local 11 IFA—International Franchise Association NCL—National Consumers League Cedar Rapids Airport FFA—Cedar Rapids IUPA—International Union of Police NEMA—National Energy Marketers Airport (IA) Associations Association Chattanooga FFA—Chattanooga (TN) Fire ICC—Internet Commerce Coalition NFPPA—National Family Privacy Protection Fighters Association, Local 820 Intuit—Intuit Inc. Association Edwardsville FFA—Edwardsville (IL) Fire Italian American Police—Italian American NFIB—National Federation of Independent Fighters Local 1700 Police Society of New Jersey Business Greensboro FFA—Greensboro (NC) Johnson—Johnson, The Honorable Tim (U.S. NFC—National Franchise Council Hickory FFA—Hickory (NC) Firefighters Senate) NFDA—National Funeral Directors Association, IAFF Local 2653 Kansas—Kansas, House of Representatives Association Indiana FFA—Indiana, Professional Fire KeyCorp—KeyCorp. NNA—National Newspaper Association of Fighters Union of Lautman—Lautman & Associates America Iowa FFA—Iowa Professional Firefighters LSAP—Legal Services Advocacy Project NPMA—National Pest Management Missouri FFA—Missouri State Council of Leggett & Platt—Leggett & Platt Association Fire Fighters Lenox—Lenox Inc. NPR—National Public Radio North Carolina FFA—North Carolina, Leukemia Society—Leukemia & Lymphoma NRF—National Retail Federation Professional Fire Fighters & Paramedics of Society NTC—National Troopers Coalition North Maine FFA—North Maine (Des Life Share—Life Share Nelson— Nelson, The Honorable E. Benjamin Plaines, IL) Firefighters, IAFF Local 224 Lucas—Lucas, The Honorable Ken (U.S. (U.S. Senate) Ottumwa FFA—Ottumwa (IA) House of Representatives) NetCoalition—NetCoalition

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Nethercutt—Nethercutt, The Honorable SO-MO—Special Olympics Missouri Celebrity Prime Foods-Supp.— Celebrity George R., Jr. (U.S. House of SO-MT—Special Olympics Montana Prime Foods Representatives) SO-NH—Special Olympics New Hampshire Chesapeake-Supp.—The Chesapeake Bay NeuStar—NeuStar, Inc. SO-NJ—Special Olympics New Jersey Foundation (Amelia Koch and Melissa New Orleans—New Orleans, City Council of SO-NM—Special Olympics New Mexico Livingston) (CNO)-Utility, Cable & SO-NY—Special Olympics New York Christian Appalachian-Supp.— The Christian Telecommunications Committee SO-VT—Special Olympics Vermont Appalachian Project NJ Police—New Jersey Police Officers SO-VA—Special Olympics Virginia Comic Relief-Supp.—Comic Relief, Inc. Foundation, Inc. SO-WA—Special Olympics Washington (Dennis Albaigh) NYSCPB— New York State Consumer SO-WI—Special Olympics Wisconsin Covington & Burling-Supp.— Covington and Protection Board SO-WY—Special Olympics Wyoming Burling NAA—Newspaper Association of America Spiegel—Spiegel, Marilyn DialAmerica-Supp.—DialAmerica Marketing, Nextel—Nextel Communications, Inc. Stage Door—Stage Door Music Productions, Inc. Ney, Sandlin, Jones, Shows and Cantor— Inc. DMA Letter-Supp.—Direct Marketing Joint letter from: The Honorable Bob Ney, Statewide Appeal—Statewide Appeal Inc. Association-Transmittal Letter Max Sandlin, Walter Jones, Ronnie Shows, Success Marketing—Success Marketing, Inc. DMA Study-Supp.—Direct Marketing and Eric Cantor (U.S. House of Synergy Global—Synergy Global Networks, Association-Study Representatives) The ERA and PMA-Supp.—Electronic Retailing Noble—Noble Systems Synergy Solutions—Synergy Solutions, Inc. Association and Promotion Marketing NATN—North American Telephone Network Sytel—Sytel Limited Association LLC Tate—Tate & Associates EPI-Supp.— Enterprise Prison Institute NC Zoo—North Carolina Zoological Society Technion—Technion Communications Corp Domenici-Supp.—Domenici, The Honorable Not-For-Profit Coalition—Not-For-Profit and TDI—Telecommunications for the Deaf, Inc. Pete V. (U.S. Senate) Charitable Coalition TeleDirect—TeleDirect International, Inc. FDS-Supp.— Federation Department Stores NSDI—NSDI Teleperformance Telefund—Telefund, Inc. Hoar-Supp.— Hoar, Wesley C. OSU—Ohio State University Teleperformance—Teleperformance USA Illinois-Supp.— Illinois Attorney General’s OTC—Ohio Troopers Coalition TRC—Tele-Response Center Office Pacesetter—Pacesetter Corporation TeleStar—TeleStar Marketing, L.P. ICTA-Supp.— Industry Council for Tangible PVA—Paralyzed Veterans of America TRA—Tennessee Regulatory Authority Assets Paramount—Paramount Lists, Inc. Terry—Terry, The Honorable Lee (U.S. House Luntz-Supp.— Luntz Research Companies Pascrell—Pascrell, The Honorable Bill, Jr. of Representatives) (Chrys Lemon) (U.S. House of Representatives) Texas Environment—Texas Campaign for the MPA-Supp.— Magazine Publishers of Patrick—Patrick, George W. Environment America Paul—Paul, The Honorable Ron (U.S. House Texas PUC—Texas Office of Public Utility Maryland-Supp.—Maryland Attorney of Representatives) Counsel General’s Office (Carol Beyers) Pelland—Pelland, Paul Thayer—Thayer, Richard E., Esq. McIntyre-Supp.—McIntyre Law Firm, PLLC PLP—Personal Legal Plans, Inc. Time—Time, Inc. (Chrys Lemon) Michigan Police—Police Officers Association Tribune—Tribune Publishing Company McKenna-Supp.—McKenna, Douglas M. of Michigan UNICOR—UNICOR: (Federal Prison Memberworks-Supp.—Memberworks possibleNOW—possibleNOW.com, Inc. Industries, Inc, DOJ, Federal Bureau of National Survey Topline (Chrys Lemon) PRC—Privacy Rights Clearinghouse Prisons) Minnesota-Supp.—Minnesota Attorney Private Citizen—Private Citizen, Inc. DOJ—U.S. Department of Justice General’s Office Proctor—Proctor, Alan Uniway—Uniway of Coastal Georgia Missouri-Supp.—Missouri Attorney PBP—Progressive Business Publications Verizon—Verizon Companies General’s Office PCIC—Progressive Casualty Insurance Virginia—Virginia Attorney General NACDS-Supp.—National Association of Company VISA—VISA U.S.A., Inc. Chain Drug Stores Angel Food—Project Angel Food Watts—Watts, The Honorable J.C., Jr. (U.S. Ney, Sandlin, Jones, Shows and Cantor- PMA—Promotion Marketing Association House of Representatives) Supp.—Joint letter from: The Honorable Purple Heart—Purple Heart Service Weber—Weber, Ron & Associates, Inc. Bob Ney, Max Sandlin, Walter Jones, Foundation, Military Order of Wells Fargo—Wells Fargo & Company Ronnie Shows, and Eric Cantor (U.S. Ramstad—Ramstad, The Honorable Jim (U.S. White—White, David T. House of Representatives) House of Representatives) WTA—Wisconsin Troopers’Association Inc. NAR-Supp.— National Association of Redish—Redish, Martin H., Esq. Worsham—Worsham, Michael C., Esq. Realtors Reed Elsevier—Reed Elsevier Inc. YPIMA—Yellow Pages Integrated Media NWF-Supp.— National Wildlife Federation Reese—Reese Brothers, Inc. Association (YPIMA) NAA June 28-Supp.—Newspaper Association of America (John F. Sturm) SBC—SBC Communications Inc. Supplemental Comments Schrock—Schrock, The Honorable Edward L. NAA July 31-Supp.—Newspaper Association (U.S. House of Representatives) AARP-Supp.—AARP of America Sensenbrenner—Sensenbrenner, The AOP-Supp.—Aircraft Owners and Pilots Not-For-Profit Coalition-Supp.—Not-For- Honorable F. James, Jr. (U.S. House of Association (Marsha Mason-Thies) Profit and Charitable Coalition Representatives) Allstate-Supp.— Allstate Life Insurance PMA-Supp.—Promotion Marketing SHARE—SHARE Company Association SIIA—Software & Information Industry Community Bankers-Supp.— America’s Putnam-Supp.— Putnam, The Honorable Association Community Bankers Adam H. (U.S. House of Representatives) Southerland—Southerland, Inc. AICR-Supp.— The American Institute for Riley-Supp.—Riley, The Honorable Bob (U.S. Southern Poverty—Southern Poverty Law Cancer Research (Kathryn L. Ward) House of Representatives) Center Red Cross-Supp.—American Red Cross SBC-Supp.— SBC Communications Inc. Special Olympics—Special Olympics, Inc. ARDA-Supp.— The American Resort Time-Supp.— Time, Inc. SO-AZ—Special Olympics Arizona Development Association (Yartin DePoy Vermont-Supp.—Vermont Attorney General’s SO-CA—Special Olympics Southern and Stratis Pridgeon) Office California ATA-Supp.— American Teleservices WWF-Supp.— World Wildlife Fund SO-CO—Special Olympics Colorado Association (Deborah Hechinger) SO-CN—Special Olympics Connecticut Associations-Supp.—Associations Letter Worsham-Supp.—Worsham, Michael C. SO-IA—Special Olympics Iowa Avinta-Supp.— Avinta (Abe Chen) User Fee Comments SO-KY—Special Olympics Kentucky Bond-Supp.— Bond, The Honorable SO-MD—Special Olympics Maryland Christopher S. (U.S. Senate) AARP-User Fee—AARP

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ABA-User Fee—American Bankers ‘‘abusive’’ for purposes of the TSR, and telemarketing practices for purposes of Association the national do-not-call registry. the Telemarketing Act and the TSR. Red Cross-User Fee—American Red Cross Nevertheless, I agree with the ARDA-User Fee—American Resort Abusive Telemarketing Acts or Practices Commission’s conclusion that a Development Association telemarketing practice that meets the ATA-User Fee—American Teleservices The Telemarketing and Consumer strict unfairness standard will constitute Association Fraud and Abuse Prevention Act an abusive practice for purposes of the Community Bankers-User Fee— America’s (‘‘Telemarketing Act’’) directs the Act and the TSR. In light of the Community Bankers Commission to promulgate rules that Ameriquest-User Fee—Ameriquest Mortgage rulemaking record, I therefore support Company prohibit ‘‘deceptive telemarketing acts the TSR amendments that are analyzed Celebrity Prime Foods-User Fee— Celebrity or practices and other abusive under this standard. This includes the Prime Foods telemarketing acts or practices.’’ 15 requirement that telemarketers obtain CBA-User Fee—Consumer Bankers U.S.C. 6102 (a)(1). To determine what Association consumers’ or donors’ express informed constitutes an abusive telemarketing consent before causing their information DialAmerica-User Fee— DialAmerica practice, the Commission for the most Marketing, Inc. to be submitted for payment. The DMA Letter-User Fee— Direct Marketing part has used the examples of abusive rulemaking record evidences the harm Association practices that Congress provided in the that results from unauthorized billing, DMA Comments-User Fee— Direct Marketing Telemarketing Act and principles drawn the need for the consent requirement, Association from these examples. I agree that this is and the need to mandate specific steps Discover-User Fee—Discover Bank an appropriate analysis, and in light of that telemarketers must take to obtain ERA/PMA-User Fee—Electronic Retailing the rulemaking record as a whole, I fully consumers’ consent in transactions Association and Promotion Marketing support the TSR amendments that fall Association (joint comment) involving preacquired account Household-User Fee—Household Bank (SB), within these parameters. These information. N.A. and Household Bank (Nevada), N.A. amendments include, among other In addition, the record supports the (joint comment) things, the provisions involving the prohibition on the disclosure or receipt, Hudson Bay-User Fee— Hudson Bay national do-not-call registry, for consideration, of unencrypted Company of Illinois, Inc. transmission of caller identification account numbers for use in ICTA-User Fee—Industry Council for information, and abandoned calls and telemarketing (except to process a Tangible Assets predictive dialers. payment for goods or services or a InfoCision-User Fee—InfoCision Management Corporation When the Commission seeks to charitable contribution pursuant to a ITC-User Fee— Interactive Teleservices identify practices as abusive that are transaction). I do not believe that the Corporation less distinctly within the parameters of mere disclosure of personal financial MPA-User Fee—Magazine Publishers of the Act’s examples and their emphasis information, without more, causes or is America on privacy protection, the Commission likely to cause substantial consumer MasterCard-User Fee—MasterCard injury. In this situation, however, the International, Inc. employs its traditional unfairness analysis.1 I understand the rulemaking record provides a basis for NACDS-User Fee—National Association of concluding that trafficking in Chain Drug Stores Commission’s intention to narrow the NAR-User Fee—National Association of potentially expansive scope of the term unencrypted account numbers is likely Realtors ‘‘abusive’’ by using its unfairness to cause substantial consumer injury in NASUCA-User Fee—National Association of analysis. However, given the broad the form of unauthorized billing. State Utility Consumer Advocates ordinary meaning of the term ‘‘abusive,’’ Industry comments state that there is no NEMA-User Fee—National Energy Marketers I believe that the standard for legitimate reason to purchase Association unencrypted lists of credit card Not-For-Profit Coalition-User Fee—Not-For- determining what constitutes an abusive telemarketing practice likely is broader numbers. Therefore, there is a strong Profit and Charitable Coalition likelihood that telemarketers who do SBC-User Fee—SBC Communications, Inc. than the stringent definition of the term Tennessee-User Fee—Tennessee Regulatory ‘‘unfair.’’ Therefore, I would have engage in this practice will misuse the Authority preferred it had the Commission looked information in a manner that results in SBA-User Fee—United States Small Business to the plain meaning of the term unauthorized charges to consumers’ Administration, Office of Advocacy ‘‘abusive’’ and then formulated a accounts. The Commission’s law Visa-User Fee— Visa U.S.A., Inc. enforcement experience corroborates separate standard to identify abusive Wells Fargo-User Fee— Wells Fargo & this conclusion.2 As a result, I conclude Company that this practice is abusive for purposes 1 Given that nothing in the language of the Concurring Statement of Commissioner Telemarketing Act or its legislative history indicates of the Telemarketing Act. Orson Swindle in Telemarketing Sales that Congress intended the Commission to use its The National Do-Not-Call Registry Rule, File No. R411001 unfairness standard to determine which practices are abusive, I previously raised concerns about this The Telemarketing Act and the TSR I wholeheartedly support the analysis and requested comment on this issue. recognize consumers’ ‘‘right to be let amendments to the Telemarketing Sales Concurring Statement of Commissioner Orson Swindle in Telemarketing Sales Rule Review, File alone.’’ See, e.g., Olmstead v. U.S., 277 Rule (‘‘TSR’’), because I believe that No. R411001, available at (www.ftc.gov/os/2002/01/ U.S. 438, 478 (1928) (Brandeis, J., they will help protect consumers from swindletsrstatment.htm). Although some comments dissenting) (stating that the ‘‘right to be deceptive and abusive telemarketing agreed with this concern, they did not offer an let alone’’ is the ‘‘most comprehensive practices. In particular, these alternative analysis of abusive practices beyond suggesting that the Commission’s authority is of rights and the right most valued by amendments will give consumers the limited to the examples of abusive practices ability to avoid the sheer volume of included in the Telemarketing Act and its 2 See Statement of Basis and Purpose at 97-98. In unwanted telemarketing calls that many legislative history. See Statement of Basis and addition, given the evidence that the use of consider to be a nuisance. I write Purpose at 100, n. 428. However, because the Act encrypted account information in telemarketing can does not limit the Commission’s authority to result in unauthorized charges, there is an even separately to explain my views on two identify abusive practices to the examples in the greater likelihood that injury will occur when a issues — how the Commission Act, the Commission may prohibit other practices telemarketer has obtained, for consideration, determines whether an act or practice is that it identifies as abusive. consumers’ actual credit card numbers.

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civilized men’’). In the context of consumers who have said they do not calls of entities such as banks, telephone telemarketing, there is an inherent want to be called by or on behalf of a companies, airlines, insurance tension between this right and the First particular entity. This more narrowly companies, credit unions, charities, Amendment’s right to free speech. With tailored approach seeks to protect political campaigns, and political fund- this in mind, and in light of the consumers from unwanted raisers. From the perspective of rulemaking record as a whole, the telemarketing calls seeking charitable consumers, the right to be let alone is Commission has determined to establish donations, while minimizing the impact invaded just as much by unwanted calls a national do-not-call registry. This will of the TSR on charities’ First from exempt entities (e.g., banks, enable consumers to stop certain Amendment rights. I do not object to telephone companies, or political fund- telemarketing calls — calls to induce the taking this approach at the outset; but if raisers) as it is by such calls from purchase of goods and services from there is evidence that suggests that this covered entities.3 Therefore, I believe companies within the FTC’s jurisdiction approach is not effective in protecting (except where the consumer has an consumers from unsolicited that the entire spectrum of entities that ‘‘established business relationship’’ telemarketing calls, the Commission make telemarketing calls to consumers with the seller). should revisit this decision and require should be subject to do-not-call Although the USA PATRIOT Act of for-profit telemarketers seeking requirements. 2001 gave the Commission authority to charitable donations to comply with the [FR Doc. 03–1811 Filed 1–28–03; 8:45 am] regulate for-profit companies that make national do-not-call registry. BILLING CODE 6750–01–S telephone calls seeking charitable While I believe that the amended TSR donations on behalf of charities, the and the national do-not-call registry will Commission has determined to exempt go a long way to help consumers 3 The Federal Communications Commission, these entities from the national do-not- prevent unwanted intrusions into their however, has requested comment on whether to call registry requirements. Instead, the homes, a number of entities are not establish a national do-not-call registry that would Commission requires these subject to the TSR’s requirements. address telemarketing calls by at least some of the telemarketers to comply with the Under the Telemarketing Act and the entities that are exempt from the FTC’s jurisdiction. ‘‘entity-specific’’ do-not-call provision, TSR, the Commission does not have Notice of Proposed Rulemaking, Rules and which prohibits them from calling jurisdiction in whole or in part over the Regulations Implementing the Telephone Consumer Protection Act of 1991, 67 FR 62667 (Oct. 8, 2002).

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